Opinion ID: 184925
Heading Depth: 2
Heading Rank: 1

Heading: Exxon and Tesoro's Position

Text: 57 Exxon and Tesoro argue that FERC committed legal error when it decided that it would implement the settlement order prospectively only. The method that we found unreasonable and remanded has been in effect since 1993, and the Commission stated when it was adopting the distillation methodology that in the event it was reversed and Exxon suffered economic losses, it could correct any legal errors after the appeal. See Order on Rehearing, Trans Alaska Pipeline Sys., 66 FERC p 61,188, at 61,423 (1994). Now, when it has corrected the legal errors identified in OXY, the Commission has opted to apply the new rates prospectively only, leaving the parties without remedy for the years of unlawful valuations, and granting the settling parties a windfall. 58 Exxon argues that this circuit's precedents require FERC to return the parties to the position they would have occupied had this legal error not been made. See Public Utils. Comm'n of the State of California v. FERC, 988 F.2d 154, 168 (D.C. Cir. 1993) (CPUC) (citing cases); see also, e.g., Panhandle Eastern Pipe Line Co. v. FERC, 907 F.2d 185, 189 (D.C. Cir. 1990); Office of Consumers' Counsel, State of Ohio v. FERC, 826 F.2d 1136, 1139 (D.C. Cir. 1987) (per curiam).This rule is drawn from the logic of the statute itself.Natural Gas Clearinghouse v. FERC, 965 F.2d 1066, 1074 (D.C. Cir. 1992). 59 FERC's reasons for refusing to do so, Exxon argues, are wrong as a matter of law. First, the agency agreed with the ALJ that the cases cited by Tesoro and Exxon are not dispositive because, while CPUC and Panhandle recognized that the Commission has the authority in some circumstances to issue orders which have retroactive effect, neither of those cases required it. 1997 Opinion, 80 FERC p 63,015, at 65,242. Exxon argues that the language from those cases explicitly states that when the Commission commits legal error, the proper remedy is one that puts the parties in the position they would have been in had the error not been made. CPUC, 988 F.2d at 168. This use of the word the, as opposed to a, proper remedy suggests FERC must order retroactive payment when it commits legal error. 60 Exxon also argues that FERC improperly attempts to rely on the filed rate doctrine as mandating prospective application of its order. See 1997 Order, 81 FERC p 61,319, at 62,467. Exxon argues that despite its protestations, FERC has the authority to correct its error, and that the shippers had notice that there might be a later correction to the rate, which  'changes what would be purely retroactive rate making into a functionally prospective process by placing the relevant audience on notice at the outset that the rates being promulgated are provisional only and subject to later revision.'  Natural Gas Clearinghouse, 965 F.2d at 1075 (quoting Columbia Gas Transmission Corp. v. FERC, 895 F.2d 791, 797 (D.C. Cir. 1990)). 61 Exxon next argues that even if FERC did have discretion to determine whether to apply the corrected valuation retroactively, its failure to do so in this case amounts to an abuse of that discretion. FERC stated as reasons for its decision the observations that the change here was one of valuation, not of methodology, and that the Quality Bank was sui generis. Neither of these reasons, it contends, supports the decision not to remedy the injury to Exxon and Tesoro. Exxon notes that FERC had retroactively applied adjustments in vacuum gas oil rates that were set under the distillation method, rendering both justifications meaningless. Exxon also points out that FERC does not explain how the sui generis nature of the Quality Bank has any bearing on whether the aggrieved parties should be made whole. 62 Exxon further argues that the refusal to make the aggrieved parties whole violates the central purpose of the Quality Bank, which was created as part of FERC's  'continuing obligation to ensure that pipeline rates are just and reasonable.'  OXY, 64 F.3d at 690 (citing 49 U.S.C. S 1(5) and quoting Texas Eastern Transmission Corp., 893 F.2d at 774). Moreover, it contends, this abuse of discretion is compounded because FERC refused the injured parties a stay pending appeal in 1994 on the basis that it could correct any legal errors later found on appeal. 63 Exxon cites a string of our precedents holding that it is proper to correct such legal errors retroactive to the time they occurred. In Tennessee Valley Municipal Gas Association v. FPC, 470 F.2d 446 (D.C. Cir. 1972), we held: If the policy of the Natural Gas Act is not arbitrarily to be defeated by uncorrected Commission error, the [injured party] must be put in the same position that it would have occupied had the error not been made. Id. at 452. In Public Service Co. of Colorado v. FERC, 91 F.3d 1478 (D.C. Cir. 1996), we stated: Absent detrimental and reasonable reliance, anything short of full retroactivity ... allows [some parties] to keep some unlawful overcharges without any justification at all. The court strongly resists the Commission's implication that the Congress intended to grant the agency the discretion to allow so capricious a thing. Id. at 1490. The Public Service Co. decision was made in the context of the Natural Gas Policy Act. We held that the parties were on notice of a potential change in the way a tax would be charged to customers, and thus did not detrimentally rely on the agency's prior position. As a result, we held that it was fair to make refunds of those tax charges retroactive to the date of notice. 64 Finally, Exxon argues that FERC's so-called equitable exercise of its discretion failed to give any weight to the injury to the parties and the resulting windfall to the Nine Parties, who benefit because of agency error, rendering the agency's ultimate decision irrational.