Opinion ID: 184742
Heading Depth: 3
Heading Rank: 2

Heading: Adoption of GDP as the Long-Term Growth Factor

Text: 36 Bearing in mind our earlier conclusion that the Commission properly required Williston Basin's rate of return on common equity to reflect long-term, as well as short-term, growth expectations, we turn now to the Commission's particular selection of the GDP for that purpose. According to Williston Basin, the Commission's July 1997 Order adopting GDP as its measure of long-term growth was a bolt from the blue--an unexpected outcome that was untested at the hearing and unsupported by the record. Thus, Williston Basin's contentions reduce essentially to a claim of inadequate notice concerning the possibility that the Commission would reach the result that it did, as well as several subsidiary claims challenging the result itself. 37 In its July 1996 Order, the Commission established a hearing for the purpose of determining the appropriate long-term growth factor to be used in the DCF model. See Williston Basin, 76 F.E.R.C. at 61,390. In particular, the Commission found that the parties need[ed] an opportunity to cross-examine the proponents of using the DRI data, or any other long term growth projection, to determine whether the projections are properly used. Id. (footnote omitted). Following this hearing, however, the Commission shifted tack. Notwithstanding the fact that it had summarily adopted the DRI data in its July 1995 Order, that the ALJ had accepted the DRI data after considering the parties' positions at the hearing, and that the DRI data had been used in Ozark, the Commission determined to use instead an economy-wide projection based on GDP data. Moreover, notwithstanding its earlier position that a hearing was needed concerning the suitability of DRI data for the two-stage DCF model, the Commission refused Williston Basin's request for such a hearing on the use of GDP data. 38 It is well-established that [a] party is entitled ... to know the issues on which decision will turn and to be apprised of the factual material on which the agency relies for decision so that he may rebut it. Indeed, the Due Process Clause forbids an agency to use evidence in a way that forecloses an opportunity to offer a contrary presentation. Bowman Transp., Inc. v. Arkansas-Best Freight System, Inc., 419 U.S. 281, 288 n. 4, 95 S.Ct. 438, 42 L.Ed.2d 447 (1974); see also Hatch v. FERC, 654 F.2d 825, 835 (D.C.Cir.1981) (same); United Gas Pipe Line Co. v. FERC, 597 F.2d 581, 586-87 (5th Cir.1979) (The law will not tolerate ... after-the-fact, in fact retroactive, imposition of standards, especially where there is no evidence either to support or justify the new standard.). Our present concern centers, then, on whether the Commission's order setting the long-term growth matter for hearing provided Williston Basin with adequate notice of the issues that would be considered, and ultimately resolved, at that hearing. In particular, we question whether Williston Basin had reason to know that an economy-wide projection based on GDP data was at issue and, also, whether the Commission's judgment on this score followed logically from the testimony and other evidence adduced at the hearing. In addition, we question whether substantial record evidence supports the actual GDP figure adopted by the Commission for use in calculating Williston Basin's rate of return on common equity. 39 As we perceive it, the Commission's decision progressed in two relatively distinct steps: first, the Commission expanded the scope of its long-term growth factor from the natural gas industry to the economy as a whole, as reflected in the GDP; and second, the Commission adopted the average of two GDP estimates contained in a record exhibit as the long-term growth factor to be used for the newly-defined DCF model in this case. The Commission's first step--its decision to adopt an economy-wide approach--reflected a well-reasoned and supported outgrowth of the matter under consideration, namely, the appropriate long-term growth factor to be used in the DCF analysis. The Commission established the hearing in broad terms, inviting the parties both to advocate the appropriate data to be used in general, and to challenge the use of DRI data in particular. See Williston Basin, 76 F.E.R.C. at 61,390. Moreover, the testimony adduced at the hearing demonstrated that major investment houses used an economy-wide approach to projecting long-term growth, that such an approach was supported by practical economic considerations, and that existing industry-specific approaches imperfectly reflected investor expectations and made unfounded economic assumptions. See Williston Basin, 79 F.E.R.C. at 62,388-90. Finally, whether or not it is true, as Commission counsel now suggests, that GDP [is] virtually synonymous with the economy as a whole, Brief for Respondent at 42, we have little doubt that GDP is among the most commonly used and widely available measures of economy-wide growth. In short, we are convinced that FERC's decision to expand the scope of its long-term analysis reflected a reasoned progression from the issues set for hearing, and that the data informing that decision was in the record and discussed at the hearing. 40 However, we find that the Commission's second step, by which it reached the precise long-term growth estimate of 5.85 percent, lacked adequate support in the record. As discussed above, we do not take issue with the Commission's decision, on a general level, to use GDP data in estimating long-term growth. The problem, in our view, is that there are conceivably a number of estimates of GDP created by different entities and based on different economic assumptions. Yet, FERC, after substantially modifying the scope of its long-term analysis, and without forewarning to the parties, simply teased two GDP figures from the background section to a single exhibit to reach the result here at issue. See J.A. 315; Williston Basin, 79 F.E.R.C. at 62,390. This was a bizarre conclusion to the hearing. It is undisputed that the record in the hearing had been created largely in response to a specific concern over the suitability of industry-specific DRI data for use in the DCF model. No party at the hearing had presented, advocated, or even mentioned the use of GDP data. In light of these circumstances, we find that the Commission neither explained nor supported its choice of the DRI and EIA estimates of GDP contained in the existing record. Accordingly, we remand to the Commission for further proceedings on this issue.