Post-Chevron Judicial Review of FERC Decisions

6 min

As we covered in our first alert, the U.S. Supreme Court in Loper Bright Enterprises v. Raimondo overruled Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc. and abandoned the Chevron doctrine, which previously required courts to defer to reasonable agency interpretations of ambiguous provisions of federal statutes. Going forward, courts reviewing agency actions are to determine the "best reading" of a statute without deference to the views of the agency tasked with regulating the subject matter. This is a significant shift in power and discretion from executive agencies, such as the Federal Energy Regulatory Commission (FERC), to the judiciary.

This alert summarizes key considerations that FERC-regulated entities, as well as their customers and counterparties, should consider in a post-Chevron world.

Loper Bright gives oil and gas pipelines, electric utilities, and other FERC-regulated entities a new tool with which to attack FERC's policies and orders, but it does the same for their customers and counterparties, landowners, and public interest groups, each of which typically urges FERC to take stronger regulatory action. The net effect of Loper Bright will not be known for years, but it can be expected in the near term to increase and complicate litigation and weaken the market's ability to rely on FERC decisions, regulations, and policies. On the other hand, it may lead courts to take a harder look at and correct FERC orders that rely on questionable interpretations of the agency's enabling acts or that are unjustified by their supposed statutory basis. While some traditional FERC regulatory functions will continue undisturbed, Loper Bright deprives FERC of a significant degree of discretion and may extend beyond issues of statutory interpretation to encompass other areas of FERC practice that have traditionally relied upon Chevron deference.

Despite Loper Bright's extensive reach, FERC's core regulatory function of ensuring "just and reasonable" rates appears to have survived unscathed. The Court recognized that sometimes the judicially determined best reading of a statute is that Congress has delegated "flexibility" to an agency by using terms such as "appropriate" and "reasonable." In such cases, a court's role is to ensure the agency has engaged in "reasoned decisionmaking" within the bounds of Congress's constitutional delegation of authority. Applied to FERC's authority to determine whether rates and practices are "just and reasonable" under the Federal Power Act (FPA), Natural Gas Act (NGA), and Interstate Commerce Act (ICA), this principle should mitigate some of the uncertainty that market participants in other regulated sectors are likely to experience.

On the other hand, FERC administers and interprets several statutes that do not grant it the same degree of policymaking flexibility. And now that the courts no longer recognize FERC's subject-matter expertise in interpreting the statutes it administers, a generalist court rather than FERC will decide complex technical issues impacting statutory construction. For instance, after issuing Loper Bright, the Supreme Court remanded Edison Electric Institute v. FERC to the D.C. Circuit to revisit its recent ruling in Solar Energy Industries Association v. FERC, in which the lower court applied Chevron deference to FERC's interpretation of the term "power production capacity," as used in the Public Utility Regulatory Policies Act of 1978 (PURPA). Under Loper Bright, the judiciary, not FERC, has exclusive authority to interpret Congress's intent in using ambiguous energy industry terminology.

Any number of other technical, industry-specific questions will come before courts that have been instructed to give no weight to FERC's interpretation of statutory language. How might a reviewing court interpret the phrase "consistent with the public interest," which governs public utility mergers and acquisitions under Section 203 of the FPA and natural gas imports and exports under Section 3 of the NGA? While in the past, courts have typically deferred to agencies' interpretation of that phrase as an exercise of agency expertise, a post-Loper Bright court may well consider itself empowered to offer a new "best reading" of "consistent with the public interest" that conflicts with FERC's interpretation, perhaps one that redefines the "public" whose interest FERC is tasked to protect.

Will courts supplant FERC's determinations of its own jurisdiction by reevaluating the lines between regulated and unregulated activity on the theory that the scope of an agency's jurisdiction is a matter of law exclusively committed to judicial discretion? We can expect that different circuits will reach different determinations on these and other legal issues, and given the Supreme Court's limited docket, many of those conflicting decisions will remain on the books, effectively creating different versions of FERC's enabling statutes, depending on the location of the party seeking judicial review. For that reason, it is reasonable to expect parties to begin filing petitions for review of FERC orders and regulations with courts that traditionally have heard few such petitions, in the hopes of replacing an unfavorable FERC order interpreting technical issues with a de novo ruling from a generalist court that does not typically address energy regulatory issues.

In addition to its effects on agency interpretation of statutes, Loper Bright raises the possibility that federal courts will more stringently apply the Non-Delegation Doctrine in the future. Long-standing precedent allows agencies to promulgate rules provided that Congress has provided an "intelligible principle" to guide the agency's exercise of discretion. In practice, courts have held that almost any direction from Congress, no matter how broad, meets this standard. Furthermore, Chevron rested on a presumption that ambiguities in a statute should be treated as a delegation of authority to the agency to resolve the ambiguities and fill in the details Congress left unstated. Loper Bright rejects this presumed delegation and declares that courts will now "fix the boundaries of delegated authority," signaling that the Court has renewed interest in evaluating the scope of congressional delegations of authority to agencies, whether express or implied. This may lead to more challenges of FERC rulemakings in the future, as parties challenge whether there is an "intelligible principle" in FERC's enabling acts to guide its rulemakings. Indeed, several justices seem inclined to reject the "intelligible principle" test altogether and narrow the permissible scope of congressional delegations even further.

Loper Bright has the potential to support judicial override of FERC decisions well beyond those involving statutory interpretation. The D.C. Circuit has long employed the Chevron framework and deferred to FERC's interpretations of ambiguous tariffs or jurisdictional contracts where FERC's reading is reasonable. But with Chevron deference gone, do such quasi-Chevron interpretive regimes remain good law? Or will courts also substitute their judgment for FERC's when interpreting tariffs and jurisdictional contracts? Other issues that are typically left to agencies, such as party status and evidentiary rulings, could be seen as questions of law over which FERC has no special competence and deserves no deference. As a practical matter, the opportunities for judicial intervention in FERC decision making seem to be limited only by the creativity of the advocate and the predilections of the reviewing court.

If your company's business is regulated by FERC or you regularly deal with FERC-regulated companies, please contact any of the authors to discuss how Loper Bright will affect your regulatory risk.