Opinion ID: 2808691
Heading Depth: 2
Heading Rank: 1

Heading: Kern River’s Petition

Text: Kern River advances several arguments as to why it thinks FERC’s orders are arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law. None have merit.
Kern River contends that FERC’s decision to fix the prospective Period One rates as of December 17, 2009, the date it issued Opinion No. 486-C, is contrary to the plain language of the Natural Gas Act and controlling precedent. Kern River asks us to set the effective date of the Period One rates as November 18, 2010, the date FERC accepted Kern River’s supplemental compliance filing in Opinion No. 486- D. We reject Kern River’s arguments and deny its petition for review. Before it can fix a new rate, FERC must find the prospective rates “just and reasonable.” 15 U.S.C. § 717d(a). Because FERC found an aspect of the prospective Period One rates unjust and unreasonable and ordered Kern River to submit “a substantively new compliance filing,” Kern River argues that FERC could not have fixed the rates under 11 Section 5 of the Natural Gas Act as of the date of Order No. 486-C. Kern River Br. 20. In support of its argument, Kern River relies on Electrical District No. 1 v. FERC, where we explained “that the statute means what it says”—when fixing a rate, it is not enough for FERC “to prescribe the legal and accounting principles which, properly applied, will yield one particular rate” because the statute “requires the rate itself to be specified.” 774 F.2d 490, 492 (D.C. Cir. 1985) (interpreting the Federal Power Act). In accordance with Electrical District, Kern River argued that FERC could not fix Period One rates because the rates were indeterminable as of the date of Opinion No. 486-C. See Opinion No. 486-D, 133 FERC ¶ 61,162 PP 16–18. FERC reasonably rejected Kern River’s arguments. Id. PP 19–31. So do we. In Electrical District, we considered the effective “date of an order setting forth no more than the basic principles pursuant to which the new rates are to be calculated.” 774 F.2d at 493. We vacated the order because it fixed the effective date of the prospective rates as of the date FERC ordered the utility to make a new compliance filing. Id. at 491–93. We concluded that the order lacked “necessary predictability” and thus required FERC to fix the date once the “numerical rate is specified.” Id. at 492–93. Even though Electrical District “adopted a bright-line insistence that a numerical rate be ‘specified’” before it can be fixed, Transwestern Pipeline Co. v. FERC, 897 F.2d 570, 577 (D.C. Cir. 1990), another decision, Public Service Co. of New Hampshire v. FERC, 600 F.2d 944, 954 (D.C. Cir. 1979), permitted FERC to fix rates subject to adjustments. We “reconciled” those decisions in Transwestern and explained: The Commission need not confine rates to specific, absolute numbers but may approve a tariff containing a rate “formula” or a rate “rule” (as Public Service Co. 12 of New Hampshire assumed); it may not, however, simply announce some formula and later reveal that the formula was to govern from the date of announcement (as it had done in Electrical District). 897 F.2d at 578 (emphasis in original). The circumstances here, FERC correctly determined, are unlike those in Electrical District. See Opinion No. 486-D, 133 FERC ¶ 61,162 PP 24–25. When it fixed Kern River’s Period One rates as of the date of Opinion No. 486-C, “the Commission had done much more than set forth the basic principles of [those] rates.” Id. P 26. Indeed, by the time the Commission fixed Period One rates, they had already been the subject of a full hearing before an administrative law judge, a post-hearing decision, and three FERC orders (Opinion Nos. 486, 486-A, and 486-B). Id. P 24. Moreover, FERC had previously directed Kern River to submit compliance filings with revised Period One rate calculations. See Opinion No. 486-B, 126 FERC ¶ 61,304 P 192. “On March 2, March 27, and September 22, 2009, Kern River submitted the required compliance filings, and the Commission accepted those filings, subject to conditions in Opinion No. 486-C.” Opinion No. 486-D, 133 FERC ¶ 61,162 P 24. Those conditions, FERC concluded, are analogous to the circumstances in Transwestern because, like a formula or rule, FERC’s order gave Kern River no discretion to make further changes to its rates. Id. P 28. Kern River suggests, however, that Transwestern is inapplicable because its tariff contains neither a formula nor a rule; instead, it contains “rate models.” See, e.g., Kern River Br. 21, 26–27, 29. Since its rate models are so complex, Kern River points out that “no party (not Kern River, FERC, nor any shipper) knew the effective prospective Period One rates 13 until all levelized rate models had been rerun with the changed components.” Kern River Br. 27; see also Opinion No. 486-D, 133 FERC ¶ 61,162 P 18 (same). FERC reasonably rejected this argument because “the rate uncertainty that concerned the court in Electrical District was not present here to the same degree.” Id. P 26. We agree. FERC’s conditional acceptance of Period One rates in Opinion No. 486-C simply required Kern River to substitute one number for another when allocating costs to the rolled-in shippers. See 129 FERC ¶ 61,240 P 171 (directing Kern River to use 639,570 dekatherms as the billing determinant). Because this mechanical change gave Kern River no discretion to adjust its rate models, FERC provided sufficient notice to ratepayers. See W. Deptford Energy, LLC v. FERC, 766 F.3d 10, 22 (D.C. Cir. 2014) (recognizing that FERC need not confine rates to specific numbers when ratepayers have notice of the formula or rule that will be applied). The Shippers, moreover, could have calculated the rates on their own. See Kern River Gas Transmission Co., 119 FERC ¶ 61,106 P 9 (2007) (requiring Kern River to furnish all Shippers “with electronic copies of each model, with cells, links, formulae and data intact”). Because the Shippers could “supply their own inputs to the [models] and thereby know the numerical rates,” FERC reasonably fixed the rates “within the meaning of Natural Gas Act § 5” as of the date it accepted Kern River’s compliance filings in Opinion No. 486-C. City of Anaheim v. FERC, 558 F.3d 521, 524 (D.C. Cir. 2009) (citing Transwestern, 897 F.2d at 578). In light of the great deference we give FERC in rate decisions, FERC’s order setting the effective date of Period One rates as December 17, 2009 was not arbitrary, capricious, or otherwise not in accordance with law. 14
Kern River argues that FERC failed to respond meaningfully to its objections, and the Commission’s nonresponse rendered its decisions arbitrary and capricious. See, e.g., PSEG Energy Res. & Trade LLC v. FERC, 665 F.3d 203, 210 (D.C. Cir. 2011). Under Kern River’s approved rolled-in methodology, it recovers Period One costs by adjusting the credit that it gives to different groups of rolledin shippers. As rolled-in shippers transition from Period One to Period Two rates, Kern River loses revenue because Period Two rates are lower than Period One rates. Kern River contends that FERC ignored its request to adjust the credit that it gives to rolled-in shippers paying Period One rates as rolled-in shippers transition to Period Two rates. Kern River also argues that FERC abused its discretion by not reopening the evidentiary record. These arguments lack merit. At the outset, FERC suggests that we need not consider Kern River’s argument because it “twice waived” any contention that Opinion No. 486-D was not final—Kern River never raised the argument on rehearing before the Commission or in its opening brief here. Xcel Energy Servs. Inc. v. FERC, 510 F.3d 314, 318 (D.C. Cir. 2007); see also 15 U.S.C. § 717r(b) (“No objection to the order of the Commission shall be considered by the court unless such objection shall have been urged before the Commission in the application for rehearing unless there is reasonable ground for failure to do so.”). In response, Kern River characterizes FERC’s waiver argument as a post-hoc rationalization and reminds us that the “agency’s order must be upheld . . . on the same basis articulated in the order by the agency itself.” PSEG Energy Res. & Trade, 665 F.3d at 210 (internal quotation marks omitted). 15 We uphold FERC’s decisions because “the agency’s path may reasonably be discerned” from the record. Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) (quoting Bowman Transp. Inc. v. Arkansas-Best Freight Sys., 419 U.S. 281, 286 (1974)). FERC did not address Kern River’s proposed cost-of-service adjustment because the Commission was satisfied with the administrative law judge’s reasoning that Period One rates had already been finalized. Moreover, FERC reasonably refused to adjust Period One rates in a Period Two hearing because the cribbed language from Opinion No. 486-D relied on by Kern River only addressed Period Two rates. FERC acknowledges that it did not reiterate the administrative law judge’s analysis related to Kern River’s proposed cost-of-service adjustment for Period One rates in Opinion Nos. 486-E and 486-F. However, “[t]he Commission is not required to recapitulate the reasoning of the [administrative law judge] if it is satisfied that the initial decision and the reasoning underlying it are sound.” Boroughs of Ellwood City v. FERC, 731 F.2d 959, 967 (D.C. Cir. 1984). Here, the administrative law judge rejected Kern River’s proposed cost-of-service adjustment because “Period One rates were finalized by Opinion 486-D.” Kern River Gas Transmission Co., 135 FERC 63,003 P 346. Satisfied with this reasoning, FERC twice reiterated that all issues related to Period One were finalized by Opinion No. 486-D; even Kern River acknowledges that. See Kern River Br. 37 (citing Opinion No. 486-E, 136 FERC ¶ 61,045 P 8, and Opinion No. 486-F, 142 FERC ¶ 61,132 P 8 (same)). Under these circumstances, FERC’s failure to address Kern River’s specific argument was neither arbitrary nor capricious. Kern River misreads Opinion No. 486-D as an invitation to reopen the Period One evidentiary record to adjudicate its 16 proposed cost-of-service adjustment for Period One rates. As we have previously explained: “Reopening an evidentiary hearing is a matter of agency discretion, and is reserved for extraordinary circumstances.” Cities of Campbell v. FERC, 770 F.2d 1180, 1191 (D.C. Cir. 1985) (citations omitted). Kern River nonetheless contends that FERC abused its discretion because the adjustment to the rolled-in rate credit is an extraordinary circumstance. We disagree. The Commission’s basis for refusing to consider Kern River’s rolled-in rate credit argument can be reasonably discerned from the record. See Motor Vehicle Mfrs. Ass’n, 463 U.S. at 43. Starting with Opinion No. 486, FERC determined that Period Two rates would be based on the same cost-of-service adjustment used for Period One rates. 117 FERC ¶ 61,077 P 54 (directing Kern River to file proposed Period Two rates “based upon the instant cost of service” used for Period One rates). As FERC explained in Opinion No. 486-D, “The only exception to this general approach to developing Kern River’s Period Two rates is where there are circumstances unique to the transition from Period One to Period Two rates that justify an adjustment to the cost of service underlying the Period One rates.” 133 FERC ¶ 61,162 P 194 (emphasis added); see also id. P 202 (“In general, this should lead to the use of the same cost of service for the Period Two rates as for the Period One rates, except where circumstances unique to the transition from Period One to Period Two rates justify projecting different costs or volumes than used in developing the Period One rates.” (emphasis added)). Kern River misreads Opinion No. 486-D because FERC only considered making adjustments that would affect Period Two rates; it did not reopen the Period One evidentiary record to adjudicate Kern River’s proposed costof-service adjustment for Period One rates. Indeed, even Kern River acknowledges that FERC acted consistent with the 17 Commission’s reading of Opinion No. 486-D. See Kern River Br. 44 (explaining how FERC only approved “adjustments to the Rolled-In Rate Credit for Period Two”). In sum, FERC correctly set the effective date of Period One rates as December 17, 2009, and FERC did not abuse its discretion by refusing to reopen the Period One evidentiary record after it issued Opinion No. 486-D. Kern River advances additional arguments, but none warrant relief or compel further discussion.