Opinion ID: 539779
Heading Depth: 1
Heading Rank: 2

Heading: The Ashbacker Doctrine and Fundamental Fairness in

Text: Processing Competing Applications 39 Petitioners Kern River and Mojave argue that the Commission's accelerated processing of WyCal's OEC application in this case violated fundamental fairness and the spirit of Ashbacker Radio Corp. v. FCC, 326 U.S. 327, 66 S.Ct. 148, 90 L.Ed. 108 (1945), which, they assert, incorporates a basic demand that the consideration of mutually exclusive 6 applications be equal, even-handed and non-prejudicial. Joint Brief for Petitioners Kern River and Mojave at 23. More narrowly, they argue that if the Commission makes a drastic change in the fast-track rules in the course of processing an application, as they claim it did here, this principle of evenhandedness requires it to mitigate the effect on parties who chose the traditional route for their applications because of reliance on the Commission's earlier clues as to what the fast track required. The Justice Department's Antitrust Division supported this latter position before the Commission, arguing that the Commission's shift would thwart competition by giving an unfair advantage to WyCal. See Request of the United States Department of Justice for Rehearing. We find Ashbacker only marginally relevant to these facts and, while the pipelines' fairness principle may be sound, we believe that the evolution of the Commission's OEC criteria here created no unfairness. 7 40 In Ashbacker the Court held that before an agency grants a license, it must grant a full comparative hearing to each applicant that has filed for a mutually exclusive permit or license. Citizens Communications Center v. FCC, 447 F.2d 1201, 1211 (D.C.Cir.1971); Midwestern Gas Transmission Co. v. FPC, 258 F.2d 660, 666 (D.C.Cir.1958) (applying Ashbacker to applications under the NGA). Of course if Ashbacker applied literally to the Commission's dual track procedures, the pipelines' claim would succeed regardless of the special unfairness claimed to flow from the Commission's supposed change of heart. But Ashbacker cannot intelligibly be understood to require that an agency consolidate into a single comparative hearing applications that are proceeding on legitimately established separate tracks. If an application under traditional Sec. 7 procedures for a certificate that was economically inconsistent with an OEC application triggered a comparative hearing under traditional Sec. 7 principles, the OEC procedures would be undone--at least in any case where a competitor chose to undo them. Indeed, such a principle would destroy any agency's decision to streamline adjudicatory procedures for a specially defined class of applicants: if the tortoises are entitled to engulf the hares in their proceedings, they can destroy the fast track's speed and thus its existence as a fast track. The Ashbacker principle takes this into account, requiring only that an agency use the same set of procedures to process the applications of all similarly situated persons who come before it seeking the same license. Maxcell Telecom Plus, Inc. v. FCC, 815 F.2d 1551, 1555 (D.C.Cir.1987) (emphasis added). Obviously applicants under the OEC and traditional Sec. 7 procedures are not similarly situated; the first have met generic threshold requirements that the second have been unwilling or unable to satisfy. See Wyoming-California Pipeline Co. (Order Granting Rehearing in Part, etc.), 45 FERC p 61,234 at 61,675-76 (1988). 41 Perhaps recognizing all of this, the pipelines focus on the Commission's supposed shift in the OEC rules, specifically those governing the amount of risk the applying pipeline must bear. 8 WyCal's application made clear its insistence that the Commission allow it to negotiate with its proposed firm transportation customers for a substantial reservation fee--one that would allow it to recover fixed costs, regardless of the customers' actual use of the pipeline, to the same extent as it would under a demand charge set under a Modified Fixed Variable (MFV) rate design. (Under MFV, a pipeline's fixed charges recover all its fixed costs except for return on equity capital and related taxes. WyCal Declaratory Order, 44 FERC at 61,003; Interstate Natural Gas Pipeline Rate Design, 47 FERC p 61,295 at 62,054 (1989).) Though some of the Commission's statements on the permissible reservation fee are murky, we find no great shift. 42 The text of the OEC rules allows a reservation charge for firm transportation service consistent with the conditions in Sec. 284.8(d). 18 CFR Sec. 157.103(d)(3). Section 284.8(d) in turn allows a reservation charge to recover fixed costs not in excess of those costs that would be recovered by using the same ratemaking methodology used for determining the demand charge in the pipeline's sales rates. 18 CFR Sec. 284.8(d). This suggests that if a pipeline is using (or would have used) an MFV rate structure in its sales rates, it could bargain with its firm transportation customers for an equivalent reservation charge. 43 For their claim of a radical shift, then, the pipelines are driven to reliance on statements of the Commission in the preamble to Order No. 436 and to the language of some decisions on specific applications. They characterize the preamble and practice as in fact allowing reservation charges only to promote customer accountability in nominating levels of service, i.e., to en sure that shippers would not hoard capacity that was substantially underpriced. Joint Reply Brief for Petitioners Kern River and Mojave at 9. Before reviewing the materials we note that the entire dichotomy between that goal and an MFV-based rate design seems to us artificial. Nothing in the record establishes that the risk allocated to customers that is appropriate to achieve customer accountability in bidding for or use of pipeline capacity is necessarily different from what would emerge from application of MFV principles. Indeed, as the latter impose on the customer less than the full fixed accounting cost of the capacity reserved, which may well be less than full opportunity cost, an argument could be made that truly accountable customers should bear more risk than is imposed by MFV. 9 44 The pipelines are correct that in Order No. 436 the Commission had reasoned that [a] reservation fee for transportation is permitted because it promotes customer accountability, but does not significantly insulate the pipeline from risk or shift accountability away from the pipeline. Order No. 436, 1982-85 FERC Stats. & Regs. [Reg. Preambles] p 30,665 at 31,577 (1985). The Commission offered no figures as examples of what these principles might entail. Moreover, perhaps because no pipeline firm is likely to have any special monopoly advantage before a pipeline is built, the Commission said it did not intend the final rule to preclude the negotiation by a pipeline and any of its customers of an appropriate reservation charge for new transportation service comparable to that under [Sec. 284]. See id. at 31,576-77. Assuming a preamble could completely undermine the language of a rule, we find these ruminations not enough to do so here. 45 Before WyCal filed its application, the Commission in fact rejected an OEC application on the ground that it called for a reservation charge computed on MFV principles. Great Lakes Gas Transmission Company, 37 FERC p 61,270 (1986). This opinion contained broad language invoking the supposed dichotomy and appearing to find that an MFV-based reservation fee would shift undue risk to the customers. Id. at 61,798. But there in fact the nominal customer was under common control with the pipelines, and the Commission believed that, with the ultimate customers nowhere to be seen, the nominal user could pass the costs directly on to those customers without the arms-length negotiation that it viewed as critical. Id. at 61,799. While the gist of this decision may well be inconsistent with the Commission's ultimate reading of the Order No. 436 regulations (allowing a pipeline, as we shall see, to shift risk per MFV principles to the customers of the specific service, but not to others), the circumstances are plainly special and the reader would be likely to view the decision as no more than a hasty response to a new and unanticipated situation. 46 Six months after WyCal filed, FERC rejected another reservation fee because it recovered 100% of fixed costs--more than allowed under an MFV rate design. Moraine Pipeline Company, 42 FERC p 61,144 at 61,543-44 (1988). Though the Commission again quoted the customer accountability language from Order No. 436's preamble, it twice referred to section 284.8(d) as providing the substantive standard for judging the reservation charge. Id. Moreover, in a concurrence, Commissioner Stalon thoroughly spelled out the legal argument that an MFV-based reservation fee would be allowed under Secs. 157.103(d)(3) and 284.8(d). He took the regulations and preamble as aimed mainly at assuring that the pipeline did not escape risk by rolling the cost in with charges to customers of other services. Id. at 61,555-57. When it approved WyCal's application, the Commission as a whole adopted Commissioner Stalon's reasoning and also cited this court's similar understanding of the matter in Associated Gas Distributors, 824 F.2d at 1037. See WyCal Declaratory Order, 44 FERC at 61,005-07. 47 We can understand, of course, how a firm that viewed any more-than-MFV risk as unacceptable might have been daunted by some of the Commission's language. But we detect no real unfairness. See Wyoming-California Pipeline Co., 46 FERC at 61,925 (finding no excessive or unwarranted retroactive impact). Countering the perplexities of Commission dictum would have required no great risk for Kern River and Mojave; they could have filed OEC applications at the same time as WyCal without any prejudice to their traditional filings. See 18 CFR Sec. 157.103(a) (OEC in no way prejudices any other application) 10 ; Wyoming-California Pipeline Co., 45 FERC at 61,676 (noting applicants' continuing opportunity to file their own OEC). WyCal even suggested this course to them. Answer of Wyoming-California Pipeline Company to Identified Pleadings at 21. Further, when Mojave and later Kern River did file OEC applications, the Commission acted much faster on them than it had on WyCal's, thus reducing WyCal's advantage. 11 Ultimately, WyCal enjoyed a modest advantage for having relied on the Commission's OEC regulations, rather than being frightened off by its dictum. That it should do so seems not only fair, but a legitimate reward for its role in forcing the issue--inducing the Commission to clarify its views.