Opinion ID: 2808691
Heading Depth: 3
Heading Rank: 2

Heading: Adjusting the Period One Rate Credit

Text: 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.