Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-05-01193/USCOURTS-caDC-05-01193-0/pdf.json

Parties Involved:
Federal Energy Regulatory Commission
Respondent
Kansas Gas and Electric Company
Petitioner
Westar Energy, Inc.
Petitioner

Document Text:

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 16, 2006 Decided January 16, 2007

No. 05-1193

WESTAR ENERGY, INC. AND

KANSAS GAS AND ELECTRIC COMPANY,

PETITIONERS

v.

FEDERAL ENERGY REGULATORY COMMISSION,

RESPONDENT

On Petition for Review of an Order of the

Federal Energy Regulatory Commission

Martin J. Bregman argued the cause and filed the briefs for

petitioners.

Judith A. Albert, Attorney, Federal Energy Regulatory

Commission, argued the cause for respondent. With her on the

brief were John S. Moot, General Counsel, and Robert H.

Solomon, Solicitor.

Before: GINSBURG, Chief Judge, and TATEL and BROWN,

Circuit Judges.

Opinion for the Court filed by Chief Judge GINSBURG.

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GINSBURG, Chief Judge: Westar Energy, Inc. and its

subsidiary Kansas Gas and Electric Company (collectively

Westar) sought permission from the Federal Energy Regulatory

Commission to file corrected transmission data for 2001 after

the December 31, 2002 deadline for doing so. The Commission

denied the request, even though it had accepted another utility’s

similarly corrected filing after the deadline. Westar petitions for

review, contending the Commission could not permissibly deny

its request for a waiver of the deadline after it had allowed the

other company to file late. Because the Commission did not

meaningfully distinguish the prior case, we grant the petition for

review and remand this matter for the Commission’s further

consideration.

I. Background

The Commission is required by law to charge regulated

entities an annual fee calculated to recoup its cost of regulating

them. 42 U.S.C. § 7178. The fee charged a public utility is

based upon its share of the megawatt-hours transmitted in

interstate commerce by all public utilities. 18 C.F.R.

§ 382.201(a)-(b). The Commission requires each public utility

to file a Form 582 by April 30 reporting the number of

megawatt-hours it transmitted in interstate commerce in the

preceding year and permits the utility to correct its report until

the end of the calendar year in which the report was filed. Id.

§ 382.201(c).

On November 21, 2002 the Commission notified Kansas

City Power and Light Company (KCPL) it had been selected for

examination as part of an industry-wide audit of the annual fees

assessed by the Commission. On August 14, 2003 the

Commission issued its final report on the KCPL audit, which

concluded the utility had overstated its transmission volume for

2001. The auditors recommended, and the Commission

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accordingly ordered, that KCPL file a corrected Form 582 for

2001. The audit report also included a July 7, 2003 letter from

KCPL noting it had reviewed a draft of the report, agreed with

its findings and recommendations, and had submitted on March

3, 2003 — more than two months after the filing deadline and

five months before the audit was completed — a Form 582

corrected “in accordance with the findings and

recommendations outlined in the ... audit.”

After learning about KCPL’s erroneous filing and its

belated correction, Westar reviewed its own filings and

discovered that, because of errors similar to those made by

KCPL, it too had overstated its transmission volumes. On

December 18, 2003 Westar filed revised Forms 582 for both

2001 and 2002 and requested a waiver of the December 31,

2002 deadline for correcting the 2001 data. The Commission

accepted the revised 2002 report but refused to accept the

revised 2001 report because it was filed after the deadline.

Westar sought rehearing, which the Commission denied, and

then petitioned this court for review.

 II. Analysis

We will set aside a final decision of the Commission only

if it is “arbitrary, capricious, an abuse of discretion, or otherwise

not in accordance with law.” 5 U.S.C. § 706(2)(A). The

Commission’s insistence upon strict adherence to its rules is,

therefore, permissible unless its reason for refusing to waive a

rule is arbitrary, capricious, or “so insubstantial as to render that

denial an abuse of discretion.” Mountain Solutions, Ltd. v. FCC,

197 F.3d 512, 517 (D.C. Cir. 1999) (quoting Green Country

Mobilephone, Inc. v. FCC, 765 F.2d 235, 238 (D.C. Cir. 1985)).

A fundamental norm of administrative procedure requires

an agency to treat like cases alike. If the agency makes an

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exception in one case, then it must either make an exception in

a similar case or point to a relevant distinction between the two

cases. Green Country, 765 F.2d at 237-38; NLRB v. Washington

Star Co., 732 F.2d 974, 977 (D.C. Cir. 1984); cf. Colo. Interstate

Gas Co. v. FERC, 850 F.2d 769, 774 (D.C. Cir. 1988) (“[T]he

Commission’s dissimilar treatment of evidently identical cases

... seems the quintessence of arbitrariness and caprice”).

When the Commission denied Westar’s request for a

waiver, it made four points: First, “the Commission’s

regulations expressly provide that corrections of the information

filed on Form No. 582 must be made promptly, by the end of the

calendar year in which the information was originally filed.”

Second, waiving the deadline would “require the recalculation

and re-billing of annual charges” and “prompt other utilities to

take the same action,” thereby “undermin[ing] the certainty ...

that annual charges would not be indefinitely subject to change.”

Third, Westar overreads a statement the Commission made in

the course of denying a petition for rulemaking, Midwest Indep.

Transmission Sys. Operator, Inc., 103 F.E.R.C. ¶ 61,048, at

61,180 (2003) (“Should an audit reveal errors ... or should public

utilities provide corrected data, the Commission adjusts the

annual charges in the next fiscal year up or down, as

appropriate”); the Commission never suggested it would “ignore

the deadline expressly spelled out in its regulations.” Finally,

and most important for the present proceeding, the Commission

said denying Westar a waiver was not inconsistent with its

allowing KCPL to make a late filing, reasoning as follows: 

[T]he Commission’s auditors delayed KCPL’s filing

because of their ongoing investigation. In those very

different circumstances, where the Commission itself

caused the late filing, it would have been inequitable to

penalize the company. Westar, however, was subject

to no such delay.

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Westar correctly notes the Commission’s first three points

apply with equal force to Westar and to KCPL — indeed to all

utilities regulated by the Commission. Any one of the three

might, and the three taken together certainly would, explain a

Commission policy never to accept a corrected Form 582 after

the deadline specified by regulation; neither singly nor in the

aggregate, however, do they explain why the Commission

allowed KCPL but not Westar to make a late filing. 

At oral argument, Commission counsel offered (for the first

time) that the Commission’s interest in finality was not

adversely affected by KCPL’s late filing because the

Commission does not actually issue a bill, reflecting appropriate

debits and credits associated with any corrected filings, until the

summer — that is, until after it had received KCPL’s revised

filing but before it received Westar’s. This explanation not only

comes too late to save the Order denying Westar’s late filing; it

undercuts that Order insofar as the Order is based upon the

Commission’s purportedly strong interest in adhering to the endof-year deadline enshrined in its regulation. If counsel is

correct, then the Commission may have no sound objection to

accepting corrections at least until the summer of the year after

the initial filing was due — a matter of perhaps no small interest

to the regulated industry.

Turning to the Commission’s fourth and final point, Westar

argues the record simply does not support the claim that the

agency “itself caused [KCPL’s] late filing.” We agree; the

Commission adduces not a shred of evidence to that effect.

Indeed, the record suggests the opposite. KCPL noted that its

revised Form 582 was “prepared in accordance with the findings

and recommendations outlined in the ... audit,” implying that

KCPL would not have known of the error but for the audit,

which — unless the audit was completed in relevant part and the

results disclosed to KCPL between November 21, 2002 (when

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KCPL was advised there would be an audit) and the December

31, 2002 deadline — suggests KCPL did not discover the error

until after the deadline. Indeed, if it had discovered the error

before the deadline, then presumably it also would have filed its

revised Form 582 before the deadline rather than some two

months later, on March 3, 2003 — unless, of course, the auditors

told KCPL not to file until then, as the Commission’s fourth

point seems to claim. 

In lieu of evidence to that effect in the record, however, we

have only counsel’s brief for the proposition that as the target of

an audit KCPL “was subject to Commission internal scheduling

and deadlines.” Perhaps so — we do not know what they

require because they are not in the record — but that hardly

explains how “the Commission itself caused the late filing,”

which would require a showing that KCPL discovered or was

made aware of its error before the deadline but was prevented by

the audit process from submitting a revised Form 582 until after

the deadline (though still months before the final report of

audit). 

At oral argument Commission counsel further suggested

that an “audit situation by its very nature tolls” the deadline and

that the Order implies as much; but we see no such indication in

the Order and the record provides no other support for the

assertion. Nor is it a logical necessity, for an audit need not

culminate in requiring the target to file a retroactive correction;

it could recommend only a prospective change in the company’s

controls or procedures in order to avoid a repetition of the error.

Cf. OMB Circular No. A-133, Audits of States, Local

Governments, and Non-Profit Organizations, 62 Fed. Reg.

35,278, 35,300 (June 30, 1997) (audit findings required to

include “[r]ecommendations to prevent future occurrences of the

deficiency identified in the audit finding”). This seems

particularly plausible when retroactive correction would

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compromise the Commission’s apparent interest in finality. Cf.

7 C.F.R. § 210.8(b)(4) (upward adjustment of reimbursement

claims for school lunch program resulting from audit authorized

at discretion of overseeing State agency while downward

adjustment “shall always be made ... regardless of when it is

determined”). The Commission may, of course, allow an audit

target to file a corrected report out of time and deny the same

privilege to another company that made the same error but was

not subject to an audit if it provides a meaningful distinction

between the two situations, but it cannot justify doing so by

claiming, as counsel does here, that extending a deadline is

somehow inherent in the audit process. Another rationale is

needed, and none is provided in the Order, even as glossed by

Commission counsel. 

Commission counsel also notes that KCPL was “ordered”

(albeit only retroactively as far as the record reveals) to file a

corrected Form 582 whereas Westar, not being subject to an

audit, was not so ordered. We do not understand how this

argument relates to the Commission’s assertion that the relevant

distinction between the companies is that “the Commission’s

auditors delayed KCPL’s filing because of their ongoing

investigation.” In any event, insofar as this is a new argument

crafted by counsel, we cannot consider it. Motor Vehicle Mfrs.

Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 50 (1983)

(“[C]ourts may not accept appellate counsel's post hoc

rationalizations for agency action”).

III. Conclusion

The Order under review is arbitrary and capricious in that

it provides no basis in fact or in logic for the Commission’s

refusal to treat Westar as it had treated KCPL. Accordingly, the

Order is vacated and this matter is remanded to the Commission

for further proceedings consistent herewith.

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So ordered.

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