Notice & Comment

D.C. Circuit Review – Reviewed: Deference Squared and Miscellany

Only two true admin law opinions among the D.C. Circuit’s six decisions last week, both involving FERC.

In the first FERC case, N.Y. State Public Service Comm’n v. FERC, No. 23-1192, the agency survived a challenge to a flip-flop in agency positions by a 2-1 vote. The majority opinion, written by Judge Randolph, noted that “FERC’s change of heart a mere five months after its initial decision on remand is eyebrow-raising, and we usually view such ‘flip-flops’ in an agency’s position with some skepticism.” But the Court held that FERC had appropriately determined whether another entity—the system operator that oversees New York’s power grid—had made a predictive judgment falling within the zone of reasonableness.

As for the substance of the agency’s flip-flop, at a high level it was about whether the system operator had reasonably set a shortened amortization period for a new gas-fired power plant on the theory that the new plant would have to be retired sooner than usual, given a New York law requiring zero emissions for the statewide electric demand system by 2040. (Shorter amortization = higher costs for ratepayers). There are ways to get to the zero-emissions goal without retiring the plant early, as well as regulatory authority to extend the deadline, and no regulatory implementation of the law yet. FERC had twice rejected the shorter amortization—once before an earlier D.C. Circuit remanded the decision for better explanation and once again on remand—before finally, on post-remand rehearing, accepting it.

The panel majority held that even though FERC precedent bars it from speculating about future laws and regulations—i.e., how regulators would implement the law—it was required to make predictive judgments about how investors would react to the current law. Or, more precisely, it must defer to the reasonable judgments of the system operator, and expecting investors to need a shorter period for return on investment was reasonable. My takeaway is that this case presents a deference-squared situation, with a rule requiring agency deference to system operator judgments layered on top of the traditional heightened deference to predictive judgments, and that’s how the agency was able to justify an eyebrow-raising flip-flop with what seems like a pretty thin explanation.

Judge Childs dissented, reasoning that the majority decision created daylight that didn’t really exist between speculating about future laws/regulations (impermissible) and speculating about investor reactions to current laws (permissible). At bottom, in Judge Childs’ view, FERC’s acceptance of a shortened amortization period hinged on assuming New York law would require early retirement of gas-fired plants, which it doesn’t do now and FERC is barred from speculating whether it would do in the future.

The second FERC case, Food & Water Watch v. FERC, No. 22-1214, was largely a NEPA challenge to the adequacy of an Environmental Impact Statement (EIS) for expanded service on a natural gas pipeline between Pennsylvania and New York. The D.C. Circuit, Judge Katsas writing, rejected three challenges to the EIS. First, the Court applied long-standing precedent that upstream consequences of expanded pipeline service (more natural gas extraction) need not be considered if the number and location of any new wells is uncertain. Second, the Court held that FERC adequately addressed downstream consequences of more ozone pollution, and it need not estimate how much more ozone pollution. Finally, the Court held that FERC adequately addressed the downstream consequence of increased greenhouse gas emissions, and need not label the emissions “significant” or “not significant,” even though it has done so in the past based on a now-withdrawn policy.

That’s it for the admin law cases, but in brief:

  • In Attorney General v. Wynn, No. 22-5328, the Court held that the District Court properly dismissed the government’s suit seeking to force Steve Wynn, the casino developer, to register under the Foreign Agents Registration Act (FARA) based on allegations that he “acted as an unregistered foreign agent for the People’s Republic of China in mid-to-late 2017.” With Judge Millett writing, the Court reasoned that even taking the allegations as true, Wynn “long ago ceased acting as a foreign agent, [and] he has no present obligation to register.”
  • In EIG Energy Fund XIV, L.P. v. Petroleo Brasileiro, S.A., No. 22-7118, the Court addressed Petrobras’s immunity under the Foreign Sovereign Immunities Act (FSIA) from a fraud suit by an American investment fund related to a “project to exploit newly discovered oil reserves off the coast of Brazil” that failed after a corruption investigation. (Petrobras is Brazil’s state-owned oil company). In an earlier case, the D.C. Circuit rejected Petrobras’s FSIA motion to dismiss, finding the investment firm had sufficiently alleged the fraud caused a direct effect in the U.S. (an exception to immunity). With Judge Henderson writing, the Court held that “after discovery, we reach the same conclusion on the summary judgment record”—i.e., sufficient direct effect to defeat sovereign immunity (for now). Along the way, the Court rejected a challenge to its appellate jurisdiction to decide the appeal under the collateral order doctrine.

Last but not least, a belated update on personnel changes here at D.C. Circuit Review. Welcome to Brian Lipshutz, who had his first post with us last month. He’s replacing Garrett West, who is moving on to join the Yale Law School faculty. Congrats to Garrett and welcome, Brian!

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