Opinion ID: 184742
Heading Depth: 2
Heading Rank: 4

Heading: Throughput

Text: 55 Finally, we turn to the Commission's decision to reject Williston Basin's proposed throughput volume. In its filing, Williston Basin sought to adjust its base period data to account for decreases in throughput resulting primarily from bypasses of its transmission system by two major suppliers. At the time of filing, Williston Basin expected these bypasses to occur before the adjustment period ended on October 31, 1992. Thus, it argued that they represented known and measurable changes to its actual experience during the test period, which could properly be reflected in its rate filing. See 18 C.F.R. § 154.303(a)(4). 56 The source of contention here arises from the fact that the bypasses did not actually occur until after the test period had ended. In other words, due to the timing of these rate proceedings, actual adjustment and post-test period data was available by the time the Commission considered the matter. This data showed that the bypasses were not completed during the test period, but were completed very shortly thereafter. Thus, if Williston Basin was permitted to include this adjustment, it would over-recover for three or four months of the rate period commencing November 1, 1992. However, if Williston Basin was not permitted to include this adjustment, it would under-recover for eight or nine months of that rate period (assuming, that is, that it did not file a new rate case to cover that period). 57 The crux of Williston Basin's position is that the Commission should accept its throughput projection, because the estimate was reasonable when made. The ALJ agreed, concluding that under established Commission precedent, a test year projection may be set aside only if its is shown to have been unreasonable when made. Williston Basin, 68 F.E.R.C. at 65,069. Both Williston Basin and the ALJ relied chiefly upon Public Service Co. of Indiana, 7 F.E.R.C. p 61,319 (1979), aff'd sub nom. Indiana Municipal Electric Ass'n v. FERC, 629 F.2d 480 (7th Cir.1980), a proceeding in which the Commission accepted an electric utility's test period cost-of-service estimate--even though a particular component of its projection ultimately proved exaggerated--because the estimate was reasonable when made and did not yield unreasonable results. See Public Service, 7 F.E.R.C. at 61,701-02. 58 The Commission, however, rejected this view in the orders below, holding that whether or not Williston Basin's projection was reasonable when made, where the pipeline ... projects an event to occur before the end of the test period, but in fact that event does not become effective within the required time period, the Commission generally requires that event not be reflected in the pipeline's rates. Williston Basin, 72 F.E.R.C. at 61,382. In the Commission's view, the alleged reasonableness of Williston Basin's estimate went only to its compliance with filing requirements under 18 C.F.R. § 154.303. See id. It did not preclude the Commission from considering updated data in deciding the ultimate question of what rates should be found just and reasonable for the relevant periods, id.; nor did it endow [the bypasses] with the required characteristics to be allowed as an adjustment. Williston Basin, 76 F.E.R.C. at 61,388. Thus, the Commission refused the proposed adjustment, adopting instead the FERC staff's proposal, which based throughput levels on actual data for the twelve months immediately preceding the effective date of the rates. See Williston Basin, 72 F.E.R.C. at 61,382. 59 We begin our analysis of this issue by recognizing a point that, while seemingly semantic, may bear on the relative merit of the parties' arguments--that is, who sought the adjustment in this case? On the one hand, from the Commission's standpoint, Williston Basin asked for an adjustment to its base period data to reflect a decline in throughput that was projected to, but did not, occur during the applicable adjustment period. Under this view, the Commission's decision was apparently consistent with the test period regulations governing pipelines, which on their face allow only adjustments for changes that will occur before the end of the test period. See 18 C.F.R. § 154.303(a)(4). Not only is it undisputed that the changes in this case did not occur during the test period, but the Commission actually noted that, [h]ad the bypasses taken place in the test period, ... the adjustment would have been permitted. Williston Basin, 76 F.E.R.C. at 61,388. However, the Commission found that, because the bypasses did not occur during the test period, and because it could not be known during the test period exactly when they would occur, the use of post-test period data showing that they did occur shortly after that time expired was too much in the nature of hindsight. Williston Basin, 72 F.E.R.C. at 61,383. Moreover, it determined that the position advocated by Williston Basin would give pipelines an incentive to selectively project only adjustments that would prove favorable to them if they actually occurred--i.e., increases in costs and decreases in throughput, see Williston Basin, 76 F.E.R.C. at 61,388--which is, in fact, what Williston Basin appears to have done in this case. 60 On the other hand, however, Williston Basin labels the Commission as the party that sought an adjustment, because Williston Basin wanted to use the estimate it made upon filing this rate case, while the Commission wanted to adjust that estimate to account for actual data during the adjustment portion of the test period. Under this view, the Commission's ruling appears less reasonable, for Williston Basin is quite correct in observing that the Commission in the past has declined to disturb test period estimates that were proven inaccurate in light of later data if those estimates were reasonable when made and did not produce unreasonable consequences. See, e.g., Indiana & Mich. Mun. Distribs. Ass'n v. FERC, 659 F.2d 1193, 1198-99 (D.C.Cir.1981); Public Service, 7 F.E.R.C. at 61,701. In this case, the Commission conceded that Williston Basin's throughput projection was reasonable when made, and did not even attempt to explain why the projection, although it in fact occurred within a short time after the test period, was so erroneous as to yield unreasonable results. Yet, it refused to let Williston Basin's projection stand. Thus, instead of analyzing Williston Basin's claim under the framework of the above cases, the Commission simply ignored them, citing them only insofar as it summarized the parties' arguments, and leaving us to guess as to why they should not apply here. 61 As with the ad valorem tax issue, we once again find ourselves able to surmise a solid basis for distinction. Here, it is the simple fact that the vast majority of cases espousing the principle of reasonable when made involved electric utilities, rather than natural gas pipelines. See, e.g., Public Service, 7 F.E.R.C. p 61,319. Although the Commission employs a test period methodology for setting rates in both contexts, the applicable regulations differ considerably in their treatment of estimates. As noted, the rates for pipelines are based on actual data for a one-year period, as adjusted to reflect known and measurable changes that will occur over the following nine months. See 18 C.F.R. § 154.303. These pipeline regulations do not appear to make use of estimates at all; indeed, they require test period projections to be updated with actual data for the adjustment period as it becomes available. See id. § 154.311(a), (b). By contrast, the rates for utilities are derived from two distinct periods: actual data for the year known as Period I and estimated data for the year known as Period II. See id. § 35.13(d)(1), (2). These utility regulations do not explicitly require that Period II estimates are known and measurable, or that they will in fact occur during the test year. See id. § 35.13(d)(2)(i). 62 As we interpret them, then, the regulations applying to utilities vest far greater weight in estimates than do the regulations governing pipelines. It is plainly rational to infer from these differences in regulatory context that the reasonable when made formulation applies only to a utility's Period II estimates and not to a pipeline's projected adjustments. In short, applying the rule of Public Service comports with the plain language of the utility regulations, but would require the Commission to recognize an exception to the pipeline regulations. The Commission may therefore reasonably have determined that Public Service was inapposite in this context. 63 This explanation for the Commission's decision would be satisfactory but for two shortcomings. First, although this distinction may seem fairly obvious once recognized, the fact remains that the Commission itself did not articulate, or even allude to, it in the orders below. See American Pub. Transit Ass'n v. Lewis, 655 F.2d 1272, 1278 (D.C.Cir.1981) (citing SEC v. Chenery Corp., 332 U.S. 194, 196, 67 S.Ct. 1575, 91 L.Ed. 1995 (1947)). Second, both the Commission and courts have, in the past, essentially ignored this issue, citing test period precedent interchangeably in utility and pipeline cases. See, e.g., Exxon, 114 F.3d at 1263 & n. 23; Distrigas of Mass. Corp. v. FERC, 737 F.2d 1208, 1220 (1st Cir.1984); National Fuel Gas Supply Corp., 51 F.E.R.C. p 61,122, at 61,334 & n. 53 (1990). Thus, we have no way of knowing whether the Commission's desired approach is to recognize this broad distinction between the regulations, or to intentionally skate over the differences in the terms of the regulations, intending instead that the test period concept operate identically in the utility and pipeline contexts. 64 By failing to distinguish the authority on which Williston Basin relied in support of its position, and which at least superficially contravened the Commission's ruling, the agency appeared to gloss[ ] over or swerve[ ] from prior precedents without discussion, Greater Boston, 444 F.2d at 852, thereby foregoing reasoned decision making. It may well be that the Commission had in mind this, or another, rational explanation for its ruling. But as we have noted in the past, [w]ithout any explicit recognition by the Commission that the standard has been changed, or any attempt to forthrightly distinguish or outrightly reject apparently inconsistent precedent, we are left with no guideposts for determining the consistency of administrative action in similar cases, or for accurately predicting future action by the Commission. Hatch, 654 F.2d at 834-35 (footnote omitted). As such, we must remand to the Commission on this issue as well.