By Harvey Reiter, John McCaffrey and Tammie Ptacek
At the close of business on Friday, February 3, 2017, the Federal Energy Regulatory Commission (FERC) lost its legal quorum of three members when its former Chair, Norman Bay, resigned his post as a FERC Commissioner. Earlier that same day, while it still had a quorum, FERC issued an order aiming to preserve and expand the authority of its staff to act on important agency functions once the quorum disappeared.1
There's not much risk that many of the functions delegated to the staff in the Feb. 3, 2017 order – such as scheduling conferences, granting time extensions, issuing reports, initiating hearings and investigations – will be brought to a halt or invalidated. That's because they don't involve final substantive decisions. But regulated companies, their customers and lenders face the substantial risk that staff orders to approve dispositions of jurisdictional assets, issuance of debt, pipeline certificate applications, hydroelectric licenses, etc., may later be challenged in the courts.
FERC's delegation order did two things. It delegated certain additional authority to its staff to act when the quorum disappeared – primarily the power to set matters for hearing, conduct investigations and preserve its refund authority. These don't seem too controversial. But it also affirmed that "all pre-existing delegations" would remain in effect. These include the authority, among other things, to approve uncontested hydroelectric licenses and license transfers, applications of power generators for certification as "qualifying facilities," disposition of transmission assets and other jurisdictional assets, issuances of debt, and certain gas pipeline certificates and service abandonments.
More than six years ago, in New Process Steel, L.P. v. NLRB, 560 U.S. 674 (2010), the Supreme Court invalidated over 500 decisions of the National Labor Relations Board (NLRB) on grounds that the agency had acted without a lawful quorum of "three members present." What it did not decide, however, was whether authority delegated to the NLRB's staff when a quorum had been present would be invalid once the quorum ceased to exist. FERC's delegation order relies on several recent courts of appeal decisions involving the NLRB for the proposition that "pre-existing" delegations by an agency to its staff – that is, delegations made when the agency had a quorum – would remain valid. The rulings cited by FERC, however, do not eliminate the risk that FERC jurisdictional entities, as well as their customers and lenders, could face challenges even to uncontested delegation orders.
Here's why. What made the delegated actions of the NLRB staff statutorily kosher was that they were not the final word: that is, NLRB Regional Directors could act in the absence of a quorum because their actions were "subject to eventual review by the Board." SSC Mystic Operating Co., LLC v. NLRB, 801 F.3d 302, 308 (D.C. Cir. 2015). See also Hospital of Barstow, Inc. v. NLRB, 820 F.3d 440, 441 (D.C. Cir. 2016); Advanced Disposal Services East, Inc. v. NLRB, 820 F.3d 592, 602 (3d Cir. 2016). At least one court of appeals judge would have found that even the possibility of eventual ratification by the agency after it again had a quorum would not be enough: The Regional Director's authority to act, he reasoned, "ceased the moment the [NLRB]'s membership dropped below its quorum requirement of three members." SSC Mystic, supra, Sentelle dissenting. The differing statutory bases cited by the agencies to support their delegation orders also present a risk that a court could reach a different outcome in a case involving delegated action by FERC staff. Both FERC and NLRB regulations provide parties with the ability to appeal delegated staff action to the respective agencies. But FERC relies on its general authority to carry out the purposes of the Federal Power and Natural Gas Acts, while the NLRB relies on express statutory authority to delegate certain functions to its staff.
So what does all of this mean for the energy industry, consumers and lenders? Companies proposing to acquire or dispose of jurisdictional assets, to issue certain debt instruments, to obtain or transfer hydroelectric licenses or to obtain gas pipeline certificates will often ask counsel for assurances, and in financing transactions lenders often require formal opinions, that agency action gives them the authority they seek and is valid and in full force and effect. Customers consenting to these applications may want similar assurances, before giving their assent. But given the risk that a delegated order granting the requested authorizations could be challenged as invalid if issued while a quorum was missing, the ability of counsel to give such assurances or issue required opinions may be in question. As long as the underlying Feb. 3, 2017 delegation order is subject to challenge, this issue remains unresolved.
1 Agency Operations in the Absence of a Quorum, 158 FERC ¶ 61,135 (Feb. 3, 2017)