May 1, 2020
 
It is an unusual time, with litigation involving the pipeline industry pending at all levels of the federal court system. These cases could have substantial impacts on the future of the industry and especially for the particular projects that are the subject of the litigation. You certainly need a scorecard to keep track of all of them. Therefore, today we provide a high level assessment of the major cases, including next steps and our expectations on the outcome.
 
While we tried to highlight in the title most of the projects that will be directly impacted, as we discuss below, many of the cases cut across the whole industry. So even if you’re less concerned about, for example, Keystone XL (KXL), you might otherwise need to know about the stay on nationwide permit 12 (NWP12) that the court issued in a recent decision in the KXL case. Similarly, you may be less concerned about PennEast, but if you depend upon the use of eminent domain to help move projects along, you need to follow the PennEast case pending before the U.S. Supreme Court. You can no longer just watch your own cases; you have to scan the horizon and that is what we will try to do for you today.

U.S. Supreme Court

It is rare that the U.S. Supreme Court takes cases that will directly impact the pipeline industry, but there are currently two cases before it, one that is poised for a decision this month and one that the court is trying to determine whether to accept for decision. The first case involves the Atlantic Coast Pipeline (ACP), a project we first assessed after it appealed and, more recently, in ACP Argues its Case to the Supreme Court and Constitution Calls it Quits, after it asked the Supreme Court to determine whether the U.S. Forest Service has the authority under the Mineral Leasing Act to grant a pipeline a right-of-way through lands traversed by the Appalachian Trail (AT) within national forests. We continue to expect a positive decision for ACP. However, even if ACP wins the appeal, its crossing of the entire national forest (and not just the AT) was voided by the Fourth Circuit, so it will need the Forest Service to reissue a right of way that remedies the other deficiencies in the Forest Service's approval. The case may also benefit the Mountain Valley Pipeline (MVP) project, depending on the reasoning of the opinion.
 
When will the court issue this decision? Set forth below, we analyze the data for how the Supreme Court has issued its decisions since Chief Justice Roberts was appointed, and then describe how that usual pace compares to this year.
 
20200501_percentage of cases decided
 
As can be seen above, the court is running slightly behind its usual pace, most likely due to adjusting its operations for COVID-19, including, in an unprecedented move, holding oral arguments remotely. However, we still expect the court to issue all of its remaining opinions by the end of June, which means May will likely be the month for the ACP decision. Here’s why: There are only 14 cases that have yet to be decided that were argued before the ACP case was argued and five of those are considered by pundits to be “major” cases, which are typically decided in June. We expect the court to try to catch up in May, and, with only eight other cases argued prior to the ACP case, we think it is likely that the ACP decision will be issued this month. If we had to further narrow our prediction, we would look for the decision the day after Memorial Day, because almost 25% of all May decisions by the court (under pre-COVID-19 conditions) have been issued on the day following Memorial Day.
 
The PennEast case is also pending before the Supreme Court. PennEast has asked the court to overturn a decision by the Third Circuit that held that the Natural Gas Act does not authorize a private company to exercise the federal government’s power of eminent domain to secure necessary rights-of-way across property in which a state has an interest. The court has not yet decided whether it will hear PennEast’s appeal, but on April 13, the court asked New Jersey to file by May 13 a written response to PennEast's petition asking the court to take the case. If the court grants the petition, it will likely schedule the case for the court's term that begins in October 2020.

Cases Pending in the Courts of Appeal

Constitution -- As we wrote about in Constitution Pipeline Has New Life – When Will it Go into Service?, a key approval that states have been using to block FERC-approved projects from going forward is the certification required for most projects under section 401 of the Clean Water Act. One of the most active states, New York, appealed to the Second Circuit a decision by FERC finding that it had waived its right by not acting within one year after Constitution’s submission of the application for the certificate. Sadly, for those hoping to see whether the Second Circuit would agree with FERC and the DC Circuit on a strict one-year time limit, it looks like this case will eventually be dismissed without a decision. On April 8, the court put the appeal on hold until the earlier of (1) December 2, 2020, when the certificate of public convenience and necessity issued by FERC to Constitution Pipeline expires, or (2) the court’s receipt of written notification from the Petitioners of another change of circumstances warranting reinstatement of the cases. Given that the proponents of the project have indicated they are not moving forward with the project, we expect the case will be dismissed on December 3.
 
Income Tax Allowance (SFPP and Enable, MRT) -- FERC’s decision to deny an income tax allowance to pipelines owned by master limited partnerships has been appealed to the DC Circuit by SFPP, Inc. and Enable Mississippi River Transmission. That case was argued on April 3, 2020. We would expect the decision to be issued by July of this year. For our view on the expected outcome, see our prior Insights, FERC’s MLP Tax Allowance Policy -- Will We Get Certainty?
 
Affiliate Agreements (Spire STL) -- Also pending before the DC Circuit is an appeal of the FERC certificate granted to Spire STL. In that case, the Environmental Defense Fund (EDF) is arguing that FERC should have looked beyond the precedent agreement between the pipeline and its affiliate to determine if there was truly a market need for the capacity. FERC has maintained that it does not discount the value of the affiliated contracts when assessing the need for a project. This issue comes up in a number of cases, so the DC Circuit’s views on this issue will be critical to the industry going forward. EDF’s opening brief was just filed earlier this week and the case will not likely be argued until this fall.
 
Tolling Orders (Atlantic Sunrise) -- Another case that may have widespread impact for the industry was the subject of an oral argument before the DC Circuit earlier this week. That case, while specific to the Atlantic Sunrise project, is actually a challenge to the FERC process of issuing “tolling orders” in response to requests for rehearing filed with respect to a certificate order. As characterized by the opponents of Atlantic Sunrise, the use of tolling orders essentially bars the court from reviewing the FERC certificate, while allowing the pipeline to seek condemnation of property and start, and sometimes even finish, construction. This was a rare en banc hearing where all eleven judges, and not just a panel of three, heard the arguments. Such a hearing would allow the court to ignore prior decisions of three-judge panels in similar cases and write on a clean slate.
 
We expect a decision by fall, and believe that a majority of the court is in favor of requiring some modification to the current FERC process. The possible actions the court could take run from a tweaking of the FERC process to ones that would be a disaster for the industry. The possible outcomes include: (1) requiring FERC to issue a rehearing order within 30 days of receiving the rehearing request that, at a minimum, includes a list of the issues it is considering revisiting in its certificate order; (2) requiring FERC to issue an appealable decision on the rehearing request within 30 days; (3) requiring FERC to issue an appealable decision on the rehearing request before allowing construction to begin; and (4) requiring FERC to stay the pipeline’s use of eminent domain until it issues an appealable order on the rehearing requests. The industry and FERC could probably live with either solution 1 or 3, but solution 4 would create major delays in almost every project.

District Court Cases

NWP12 (KXL) -- The case that may have the most impact on not only the pipeline industry, but also the entire energy infrastructure industry, is a decision by the U.S. District Court in Montana. Earlier this month in a case challenging the U.S. Army Corps of Engineers’ (USACE) verification that the KXL pipeline project could proceed under Nationwide Permit 12 (NWP12), the court held that the USACE had not properly reissued NWP12 in 2017. The court vacated that permit for all uses. This led the USACE to suspend all verifications of NWP12 across the country as it seeks to have the court modify its order.
 
Earlier this week, the USACE asked the court to stay its order and require expedited briefing. The court denied the request for a stay but ordered expedited briefing to conclude by May 8, 2020. The USACE has indicated that if the court does not stay its decision by May 11, then, on May 12, the USACE will seek a stay from the Ninth Circuit. The court is likely to issue a stay of its decision with regard to all projects other than KXL. If it does not, we expect that the Ninth Circuit will. In the meantime, no projects seeking a verification from the USACE for coverage under NWP12 will be able to move forward. In its motion, the USACE indicated that since NWP12 went into effect on March 19, 2017 and up until the April 15, 2020 order, it had verified more than 38,000 NWP12 projects, and that as of April 26, 2020, it had 5,500 requests pending under NWP12. To understand the types of projects that rely on NWP12, we looked at the ones pending in North Carolina.
 
20200501-2_NumProjectsl
 
As seen above, most of the projects are not fossil fuel projects, but rather are local water and sewer utilities or even private real estate developments.
 
PHP, ACP and MVP -- Two key projects that need a renewed verification under NWP12 are ACP and the Mountain Valley Pipeline (MVP) project. Within two days of the decision by the Montana District Court, the opponents to the Permian Highway pipeline filed an amended complaint in the U.S. District Court for the Western District of Texas arguing that construction of that pipeline must cease because the NWP12 on which it was relying should be vacated for the same reason given in the KXL case. To date, however, the opponents have not filed a motion to stop construction and we would not expect this court to follow the reasoning of the Montana court if such a motion were made. Presuming that ACP and MVP receive their revised NWP12s, we expect similar arguments to be made against those projects before the Fourth Circuit.
 
DAPL -- The Dakota Access Pipeline (DAPL), which is already in-service, has a case pending before the U.S. District Court for the District of Columbia. On March 25, 2020, the court determined that the USACE must prepare an Environmental Impact Statement (EIS) for the project, but did not immediately order that the pipeline be shut down while that EIS is prepared. Instead, unlike the court in Montana, the DC court asked the parties to file briefs on that issue. The initial briefs were filed earlier this week, but final briefs are not due until May 27, 2020. Given this court’s past practices in this case and based on the briefs filed earlier this week, we do not see a substantial risk of the pipeline being ordered to shut down. The court will likely not take any action until June 2020, at the earliest.
 
If you need further help on understanding how any of these cases might impact a project in which you have an interest, please give us a call.