Sierra Club v. Fed. Energy Regulatory Comm'n

38 F.4th 220

SIERRA CLUB, et al., Petitioners

v.FEDERAL ENERGY REGULATORY COMMISSION, Respondent

Mountain Valley Pipeline, LLC and Public Service Company of North Carolina, d/b/a Dominion Energy North Carolina, Intervenors

No. 20-1427

United States Court of Appeals, District of Columbia Circuit.

Argued January 19, 2022

Decided June 28, 2022

Benjamin A. Luckett argued the cause for petitioners. With him on the briefs was Elizabeth F. Benson.

Matthew W.S. Estes, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. On the brief were Matthew R. Christiansen, General Counsel, Robert H. Solomon, Solicitor, and Anand R. Viswanathan, Attorney.

Jeremy C. Marwell argued the cause for respondent-intervenors Mountain Valley Pipeline, LLC and Public Service Company of North Carolina, Inc. With him on the brief were Matthew Eggerding, Matthew X. Etchemendy, James T. Dawson, Charlotte Taylor, Stephen Petrany, and James Olson.

Before:Srinivasan, Chief Judge, Wilkins and Walker, Circuit Judges.

Wilkins, Circuit Judge.

Petitioners, all environmental organizations, seek to vacate the Federal Energy and Regulatory Commission's ("FERC" or the "Commission") order giving the green light to Mountain Valley, LLC to construct a new pipeline. That pipeline, the "Southgate Project," would extend Mountain Valley's Mainline System Project, connecting its terminus in Virginia to facilities in North Carolina. Its "newness," as an extension of the non-operational Mainline System Project, is one of the prime subjects of dispute. Petitioners also request that we vacate the Commission's denial of rehearing.

Petitioners challenge the Commission's Certificate Order and its denial of rehearing as arbitrary and capricious on two bases: the approved return on equity rate and the adequacy of the Commission's Environmental Impact Statement. Because the Commission's decisions on both scores were reasonable and supported by substantial evidence, we deny the petition for review.

I.

The Natural Gas Act, 52 Stat. 821 (1938) (codified as amended at 15 U.S.C. §§ 717 – 717z ) empowers the Commission to regulate the interstate transportation and sale of natural gas. Under Section 7 of the Act, a natural gas company cannot construct gas transportation facilities or extend its currently operational facilities without first obtaining a certificate of public convenience and necessity from the Commission. 15 U.S.C. § 717f(c)(1)(A). The Commission will issue a certificate if it finds that the service "is or will be required by the present or future public convenience and necessity." Id. § 717f(e). The applicant must also be "able and willing properly to do the acts and to perform the service proposed and to conform to" the Act's provisions as well as the Commission's rules and regulations. Id.

The Commission will approve a pipeline's proposed rate of sale as long as it is "just and reasonable." Id. § 717c(a). If, however, the company is proposing a newly certificated service, the Commission will apply the less exacting "public interest" standard, under Section 7, to set the initial rate a pipeline can charge. Missouri Pub. Serv. Comm'n v. FERC , 337 F.3d 1066, 1068 (D.C. Cir. 2003). Such a rate "hold[s] the line" until the Commission can engage in more extensive ratemaking proceedings under Sections 4 and 5 of the Act down the road. Gulf South Pipeline Co. v. FERC , 955 F.3d 1001, 1005 (D.C. Cir. 2020) (quoting Atl. Ref. Co. v. Pub. Serv. Comm'n of State of NY , 360 U.S. 378, 391–92, 79 S.Ct. 1246, 3 L.Ed.2d 1312 (1959) ).

Prior to approving a certificate on a proposed pipeline, the National Environmental Policy Act ("NEPA") requires the Commission to evaluate the action's environmental impacts. If the agency finds that the action is likely to significantly impact the environment, it must draft an environmental impact statement ("EIS"), detailing the action's environmental impacts, potential mitigation methods, the action's cumulative impacts, and reasonable alternatives to the action, including a no-action alternative. 40 C.F.R. §§ 1502.14, 1502.16, 1501.3(a)(3). NEPA requires agencies to "take a ‘hard look’ at the environmental consequences before taking a major action." Baltimore Gas & Elec. Co., Inc. v. Natural Resources Defense Council, Inc. , 462 U.S. 87, 97, 103 S.Ct. 2246, 76 L.Ed.2d 437 (1983).

II.

The Mainline System Project has been plagued with issues since construction commenced in February 2018. Mountain Valley had planned for Mainline to consist of a new 303.5-mile-long pipeline from Wetzel County, West Virginia to an interconnection with a compressor station in Pittsylvania County, Virginia. Following a series of adverse rulings from the Fourth Circuit, construction on the Mainline System has proceeded in fits and starts, culminating in a stop-work order in October 2019. As of June 2020, construction along the project's right-of-way was 92% complete.

Despite Mainline's setbacks, on November 6, 2018, Mountain Valley filed an application with the Commission for the Southgate Project, which would connect the Mainline System's terminus in Pittsylvania County, Virginia to Dominion Energy's local facilities in Rockingham and Alamance Counties, North Carolina. Consisting of 75.1 miles of an underground natural gas transmission pipeline system, the pipeline would have the capacity to transport 375 million cubic feet of gas per day. Final EIS Executive Summary-1–2. Mountain Valley cites the project as necessary to meet the needs of Dominion Energy, its anchor shipper,¹ which has pressed for additional natural gas transportation services in the region. Id. at Executive Summary-1. Petitioners jointly filed a protest in opposition to the project.

On June 18, 2020, the Commission issued a certificate of public convenience and necessity, approving Mountain Valley's application to build and operate the Southgate Project. See Mountain Valley Pipeline, LLC , 171 FERC ¶ 61,232 (2020) (" Certificate Order "). Just over two months later, on August 20, 2020, it denied Petitioners' request for a rehearing. Mountain Valley Pipeline, LLC , 172 FERC ¶ 62,100 (2020) (" Rehearing Order "). Particularly relevant to Petitioners' claims, the Commission approved Mountain Valley's requested initial rate of return on equity at 14 percent, rather than the typical 10.55 percent, because "[w]ithout cash flows from existing operations and a proven track record," Southgate's capital funding outlook more closely resembled that of a new pipeline than an extension of an operational one. Certificate Order , ¶ 57. As for the project's environmental impacts, the Commission noted that the EIS had fleshed out specific practices to mitigate erosion as well as sedimentation, and evaluated the cumulative impacts arising from its temporal and geographic proximity to the Mainline System. Id. ¶¶ 75, 93, 141 ; Rehearing Order , ¶¶ 28–31. Commissioner (now Chairman) Glick partially dissented from the Commission's Certificate Order , opposing the 14 percent return on equity rate and the failure to address the project's greenhouse gas effects. Certificate Order , ¶¶ 1–23 (Glick, Comm'r, dissenting).

In October 2020, Petitioners filed a petition for our review.² They urge us to vacate and remand the Commission's Certificate Order of June 18, 2020, as well as its order of August 20, 2020, denying Petitioners' request for rehearing.

III.

Our jurisdiction over this appeal is secure under the Natural Gas Act. See 15 U.S.C. § 717r(b). The Act vests this Court with exclusive jurisdiction to review an objection to a Commission order so long as "such objection ... [has] been urged before the Commission in the application for rehearing." Id. Petitioners have satisfied this exhaustion requirement—they present the same arguments on appeal as set forth in their rehearing request. See J.A. 763 (objecting to return on equity rate); J.A. 764 (adequacy of mitigation measures); J.A. 764–65 (consideration of cumulative impacts). We are similarly assured that Petitioners have met their burden of establishing Article III standing.³ That being settled, we turn to the merits.

IV.

We will review both Petitioners' Natural Gas Act and NEPA claims under the arbitrary and capricious standard. Marsh v. Oregon Nat. Res. Council , 490 U.S. 360, 378, 109 S.Ct. 1851, 104 L.Ed.2d 377 (1989) (Natural Gas Act); Minisink Residents for Envtl. Pres. & Safety v. FERC , 762 F.3d 97, 106 (D.C. Cir. 2014) (NEPA). In doing so, we ask whether "the Commission's judgment is supported by substantial evidence and that the methodology used in arriving at that judgment is either consistent with past practice or adequately justified." Emera Maine v. FERC , 854 F.3d 9, 22 (D.C. Cir. 2017) (quoting Town of Norwood, Mass. v. FERC , 80 F.3d 526, 533 (D.C. Cir. 1996) ). And while the Court cannot review an agency's environmental analysis to "second-guess substantive decisions committed to the discretion of the agency," it is clear that "simple, conclusory statements of no impact are not enough to fulfill an agency's duty under NEPA." Delaware Riverkeeper Network v. FERC , 753 F.3d 1304, 1313 (D.C. Cir. 2014) (internal quotation marks and citation omitted). An arbitrary and capricious agency action in the NEPA context is one that "is not the product of reasoned decisionmaking." Id. at 1313 (internal quotation marks and citation omitted).

A.

In setting "just and reasonable rates" for interstate pipelines under the Natural Gas Act, the Commission must balance the interests of the pipeline and its ratepayers. COST-OF-SERVICE RATES MANUAL , FERC 1 (1999). To do so, the Commission typically conducts "cost-of-service ratemaking," meaning that it sets a rate "based on a pipeline's cost of providing service including an opportunity for the pipeline to earn a reasonable return on its investment." Id. This rate is also referred to as the "recourse rate."⁴ But the Commission also allows pipeline companies to charge "negotiated rates," which permit a...