Opinion ID: 703151
Heading Depth: 3
Heading Rank: 3

Heading: Retroactive application of the new methodology

Text: 83 The Commission has consistently defended its decision not to apply the assay methodology retroactively on two related grounds. First, it points out that it launched its investigation into the methodology pursuant to section 13(2) of the ICA, which does not permit the Commission to issue orders for the payment of money. 49 U.S.C.App. Sec. 13(2). See 1990 Order, 51 F.E.R.C. p 61,062 at 61,137. Second, it contends, essentially, that because the Quality Bank valuation methodology and the resulting cash adjustments among shippers are integral parts of the TAPS tariff structure, changes must conform to the filed rate doctrine, which protects the ability of shippers and common carriers to rely on filed rates until they are formally changed. 1993 Order, 65 F.E.R.C. p 61,277 at 62,292, 84 OXY counters that FERC suspended the TAPS Carriers' 1989 rate filings pursuant to its authority under section 15(7) of the ICA, which gives it the authority to order refunds of increased rates or charges as by its decision shall be found not justified. 49 U.S.C.App. Sec. 15(7). Because the Commission has found that the gravity methodology is no longer just and reasonable, OXY believes FERC has the authority to retroactively implement the new methodology and the responsibility to provide a reasoned opinion for its failure to exercise that authority. 85 We conclude that FERC properly determined that it lacked the authority to apply the new methodology retroactively. Although the Quality Bank valuation methodology is a formula rather than an actual rate, we agree with FERC that the methodology has been an integral element of the TAPS Carriers' tariff structure since it approved the 1984 settlement. 1993 Order, 65 F.E.R.C. p 61,277 at 62,292. That structure establishes the conditions governing the shippers' access to the pipeline. As we observed in Moss v. C.A.B., 430 F.2d 891, 897 (D.C.Cir.1970), [a]s a practical matter, the [agency's] order [of a ratemaking formula] amount[s] to the prescription of rates.... Thus, the filed rate doctrine applies to changes in that methodology. 86 The filed rate doctrine forbids a regulated entity to charge rates for its services other than those properly filed with the appropriate federal regulatory authority. Arkansas Louisiana Gas Co. v. Hall, 453 U.S. 571, 577, 101 S.Ct. 2925, 2930, 69 L.Ed.2d 856 (1981). The doctrine is based on the long-established principles of regulatory law that the rate of the carrier duly filed is the only lawful charge, Louisville & Nashville R.R. v. Maxwell, 237 U.S. 94, 97, 35 S.Ct. 494, 495, 59 L.Ed. 853 (1915), and that shippers on common carriers are entitled to rely on filed rates until those rates are changed. Arizona Grocery Co. v. Atchison, Topeka and Santa Fe Ry., 284 U.S. 370, 387-88, 52 S.Ct. 183, 185, 76 L.Ed. 348 (1932) (A carrier cannot have reparation from the shippers for a rate collected under [an Interstate Commerce Commission] order upon the ground that it was unreasonably low.) 87 The doctrine's corollary, applicable here, is the rule that agencies may not alter rates retroactively. See, e.g., Arizona Grocery, 284 U.S. at 389, 52 S.Ct. at 186; Town of Concord v. FERC, 955 F.2d 67, 71 (D.C.Cir.1992). Together, these principles prevent unjust discrimination and, more relevant to this case, they ensure predictability. See Natural Gas Clearinghouse, 965 F.2d at 1075. The rule against retroactive ratemaking, however, does not extend to cases in which [customers] are on adequate notice that resolution of some specific issue may cause a later adjustment to the rate being collected at the time of service. Id. The goals of equity and predictability are not undermined when the Commission warns all parties involved that a change in rates is only tentative and might be disallowed. 88 The provisions of the ICA reflect these general doctrinal rules. Section 13(2), which the Commission invoked in this case, authorizes it to investigate and, in appropriate circumstances, to change an existing rate, with this qualification: FERC may not issue orders for the payment of money. Thus the Commission has no authority under that section to apply a change retroactively. On the other hand, section 15(7), on which OXY relies, creates a mechanism by which FERC may allow a challenged rate increase to take conditional effect pending an investigation into its reasonableness. Section 15(7) procedures do not undermine the rule against retroactive ratemaking because all parties are placed on notice that the agency has the authority to order a refund of any part of the increase that it finds to be unjustified. This statutory scheme is similar in structure to other statutes that govern FERC's ratemaking authority. See City of Batavia v. FERC, 672 F.2d 64, 75-76 (D.C.Cir.1982) (distinguishing between section 205 of the Federal Power Act, which provides FERC with authority to order refunds of new schedules found to be unjust, and section 206, which permits FERC to investigate existing rates and change them prospectively); Sea Robin Pipeline Co. v. FERC, 795 F.2d 182, 189 n. 7 (D.C.Cir.1986) (finding FERC may not order a retroactive refund after finding a filed rate unjust subsequent to an investigation launched on its own initiative pursuant to section 5 of the Natural Gas Act). 89 Section 13(2) governs the change to the assay methodology for two independent reasons. In their 1989 filing, the TAPS Carriers proposed increases in the Quality Bank adjustments; they did not propose a change in the gravity methodology. Thus while it was entirely proper for the Commission to consider the proposed adjustments under the provisions of section 15(7) and, if warranted, to order refunds, the gravity methodology could not be subject to those proceedings because it remained the established method of calculating Quality Bank credits and debits. Furthermore, because the filing had placed no one on notice that a change to the assay methodology was in prospect, the change could not have been imposed retroactively without violating the filed rate doctrine. On the other hand, the Commission's investigation into the gravity methodology pursuant to section 13(2) was clearly appropriate, as was its statement that any change would be prospective only. See 1989 Order, 49 F.E.R.C. p 61,349 at 62,264-65; 1990 Order, 51 F.E.R.C. p 61,062 at 61,137. Because any refund would have constituted impermissible retroactive ratemaking, the Commission quite properly applied the assay methodology prospectively.