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Biggest Energy-Related Court Rulings Of 2022

In this Law360 article on the biggest energy-related court rulings of 2022, partner Ben Barnes discussed two decisions in which the Fifth Circuit ruled that the Federal Energy Regulatory Commission doesn't get the final say on whether gas transportation contracts can be rejected in bankruptcy. 

A seismic U.S. Supreme Court ruling that curbs the federal government's climate change authority dominated a year of court decisions with major implications for the energy industry.

The high court significantly narrowed the path for the U.S. Environmental Protection Agency to craft greenhouse gas regulations, and potentially, the general rulemaking path for other federal agencies. But when it comes to climate change litigation, state and local governments got additional federal court backing in their quest to keep climate suits against fossil fuel companies in state courts.

Meanwhile, a Fifth Circuit decision questioning the constitutionality of in-house judges at federal agencies could throw a wrench into how the Federal Energy Regulatory Commission handles a slew of matters that come before the agency. That appeals court also waded into state fights over who gets to build new power lines and dealt FERC a setback in the agency's quest to have a greater say in gas company bankruptcy cases.

Here's a recap of some of the biggest energy-related court rulings of 2022:

Supreme Court Puts Limits on EPA Climate Change Authority

In one of the biggest energy and environmental cases in years, the Supreme Court on June 30 sharply limited the EPA's authority to reduce GHG emissions from existing power plants in ruling that the Obama-era Clean Power Plan giving states the option to promulgate regulations that would encourage so-called generation shifting to clean energy isn't allowed by Section 111(d) of the Clean Air Act.

The Supreme Court majority's invocation of the major questions doctrine, which says large-scale regulatory initiatives that have broad impacts can't be grounded in vague, minor and obscure provisions of law, looms over any potential climate rulemaking by the EPA or any other federal agency. The major questions doctrine has already surfaced in litigation challenging other Biden regulatory moves, including stricter vehicle emissions standards and revising the so-called social cost of carbon.

"I think you're going to see the major questions doctrine raised quite a bit in the next year and over the years to come," Skadden Arps Slate Meagher & Flom LLP energy regulatory counsel Will Barksdale said. "We'll have to see how the courts determine what a major question is and what isn't, and how it changes the overall deference courts have for agency decisions."

Attorneys say the Supreme Court's invocation of the major questions doctrine further chips away at Chevron deference, which refers to courts deferring to federal agencies' interpretation of ambiguous laws and was enshrined by the high court in 1984's Chevron v. Natural Resources Defense Council .

"I don't think this nullifies Chevron deference," Boies Schiller Flexner LLP partner Stuart Singer said. "But in places where [the major questions doctrine] operates, it appears to take precedence over Chevron deference."

The case is West Virginia et al. v. EPA et al., case number 20-1530, in the Supreme Court of the United States.

State, Local Governments Win Climate Tort Venue Fights

Circuit courts continue to rebuff efforts by fossil fuel companies to keep climate torts brought by state and local governments in federal court, with several courts this year reaffirming decisions remanding the suits to state court after the Supreme Court last year directed them to expand their reviews of remand orders.

The First, Third, Fourth, Ninth and Tenth circuits rejected all the energy companies' arguments that the suits should be removed to federal court.

Several of those rulings have been appealed to the Supreme Court, and one of the energy companies' main arguments is that the decision conflicts with the Second Circuit's April 2021 dismissal of New York City's climate change suit after determining the case was a matter of federal law.

But the Second Circuit also said that New York City, unlike other municipalities, first lodged its climate claims in federal court and avoided the issue of whether state common law claims should be removed to federal court. That reasoning was cited by the other circuit courts in their decisions affirming the remand orders.

"In most cases, you look at that and say, 'That's not a case the Supreme Court would take up again,'" Singer of Boies Schiller said.

Yet the Supreme Court in October asked the U.S. solicitor general to weigh in on the matter in the appeal of the Tenth Circuit's case.

The cases are Board of County Commissioners of Boulder County et al. v. Suncor Energy Inc. et al., case number 19-1330, in the U.S. Court of Appeals for the Tenth Circuit; Mayor and City Council of Baltimore v. BP PLC et al., case number 19-1644, in the U.S. Court of Appeals for the Fourth Circuit; County of San Mateo et al. v. Chevron Corp. et al., case number 18-15499, in the U.S. Court of Appeals for the Ninth Circuit; State of Rhode Island v. Shell Oil Products Co. LLC et al., case number 19-1818, in the U.S. Court of Appeals for the First Circuit; and City of Hoboken v. Chevron Corp. et al., case number 21-2728, in the U.S. Court of Appeals for the Third Circuit.

5th Circuit Creates Split Over Constitutionality of State Grid Project Laws

The Fifth Circuit created a potential circuit split over the legality of state laws that give incumbent transmission companies the first chance to build new power lines when it said Aug. 30 that Texas' law is unconstitutional.

An appeals court panel said in a 2-1 ruling that Texas Senate Bill 1938, which gives utilities and other existing transmission owners a right of first refusal to build new power lines, flouted the dormant commerce clause because it discriminates on its face against out-of-state developers.

That contradicts a 2020 ruling from the Eighth Circuit, which held that Minnesota's right of first refusal law didn't violate the dormant commerce clause. The Fifth Circuit majority noted that Texas' right of first refusal law is stricter than ones crafted by Minnesota and other states because it bans new transmission developers outright.

"I think the two cases can be harmonized in that the Texas law went further than the Minnesota law that the Eighth Circuit backed," said Singer of Boies Schiller, who represented NextEra in the case. "What I anticipate is that Texas is going to petition for writ of certiorari, but I don't think the conflict is direct as they will probably assert."

But the Fifth Circuit majority also said the Eighth Circuit's conclusion that Minnesota's law doesn't discriminate because it applies to all entities regardless of whether they're physically located in the state doesn't jibe with Supreme Court dormant commerce clause precedent addressing physical presence requirements.

The Supreme Court has given Texas until Dec. 28 to file a petition for writ of certiorari.

The case is NextEra Energy Capital Holdings Inc. et al. v. Lake et al., case number 20-50160, in the U.S. Court of Appeals for the Fifth Circuit.

5th Circuit Throws Use of Administrative Law Judges Into Question

FERC's heavy reliance on administrative law judges faces an uncertain future following the Fifth Circuit's May 18 ruling that the U.S. Securities and Exchange Commission's use of in-house judges is unconstitutional.

The Fifth Circuit said the SEC's use of administrative law judges in securities fraud cases violates the accused's right to a jury trial. The appeals court also ruled that SEC administrative law judges are unconstitutionally protected from removal.

There's an open question as to how successful such arguments would be at FERC. While the ruling could jeopardize how the agency uses ALJs in gas market manipulation cases, targets of electricity market manipulation cases already have the option to go directly to court.

FERC ALJs also handle more industry-specific enforcement matters like violations of tariffs or reliability standards, as well as nonenforcement matters like gas and electric rate cases.

"It obviously has clear implications for enforcement proceedings under the Natural Gas Act," Barksdale of Skadden said. "But I think it's certainly possible that anyone who gets a decision from an ALJ and doesn't like it, the possibility exists to challenge that, under the same rubric that ALJs are unconstitutional."

The case is Jarkesy et al. v. U.S. Securities and Exchange Commission, case number 20-61007, in the U.S. Court of Appeals for the Fifth Circuit.

5th Circuit Keeps FERC Out of Gas Bankruptcies

The Fifth Circuit landed firmly on the side of bankruptcy courts in a jurisdictional tug of war with FERC in a pair of rulings that said the agency doesn't get the final word on whether gas transportation contracts can be rejected in bankruptcy.

The appeals court on March 14 said that FERC approval wasn't needed for driller Ultra Resources Inc. to reject its contract with Rockies Express Pipeline LLC through its Chapter 11 bankruptcy plan.

The Fifth Circuit said that while FERC has exclusive jurisdiction over any attempts to modify the rate set for transporting gas on an interstate pipeline, rejecting the contract altogether constitutes a breach of contract, not a modification. The appeals court said its decision is anchored in precedent established through its ruling in 2004's In the Matter of Mirant Corp. , in which it held that wholesale power contracts can be breached without FERC approval.

Then on July 19, the Fifth Circuit rejected FERC orders directing Gulfport Energy Corp. to continue performing a transportation contract with Rover Pipeline LLC that it had rejected in bankruptcy proceedings, saying bankruptcy laws allow companies to reject contracts even if FERC believes doing so is contrary to the public interest.

"It's still yet to be seen how much debtors need to work with FERC to make sure that they reject these agreements the right way, and for the right reasons," said Kirkland & Ellis LLP litigation partner Ben Barnes, whose firm represented Gulfport in the Fifth Circuit case. "But the big takeaway is that yes, a debtor can reject these kinds of agreements even though they're regulated by FERC."

The cases are FERC v. Ultra Resources Inc., case number 20-20623, and Gulfport Energy Corp. v. FERC, case number 21-60017, both in the U.S. Court of Appeals for the Fifth Circuit.