Opinion ID: 484619
Heading Depth: 1
Heading Rank: 2

Heading: advertising expenses

Text: 25 In its general pipeline service rate request, Tennessee included as administrative and general expenses a portion of Tenneco's costs for advertisements intended to enhance Tenneco's image. These advertisements, which both Tennessee and FERC categorize as institutional, promote Tenneco's image as a solid, growing company. The ALJ allowed Tennessee to recover these costs based on the Commission's Uniform System of Accounts, 18 C.F.R. Part 201, Account 930.1, Note A (1983), which identify institutional advertising as an allowable expense, and on its recent decision in Algonquin Gas Transmission Co., 22 FERC p 61,279 (1983), which she read as holding that institutional advertising costs should be disallowed only upon a strong showing that they are unjust, unreasonable, or inconsistent with overriding regulatory policy. Although the ALJ interpreted Algonquin as not requiring a showing of consumer benefit from the advertising, she nevertheless found that Tennessee had adequately shown such benefit. 26 The Commission reversed, declaring the ALJ had wrongly presuppose[d] that accounting procedure dictates ratemaking, Opinion 240 at 61,234, and had misread Algonquin, which according to the Commission held that FERC requires no showing of a direct consumer benefit when the [advertising] costs are oriented toward information and conservation; however, when the costs are promotional (such as here), a showing of direct consumer benefit is required. Id. (emphasis added). 9 The Commission then concluded Tennessee's evidence of consumer benefit is far from convincing and, consequently, Tennessee did not sustain its burden on this issue. Id. 27 Tennessee raises several objections to the Commission's decision. Interpreting Algonquin differently than does the Commission, Tennessee claims the commission here departed from longstanding precedent that routinely allowed recovery of institutional advertising costs and asserts it was error for the Commission to refuse to acknowledge, let alone explain, this departure. Additionally, it is argued that since FERC changed its policy in this instance, it was obliged to give Tennessee another opportunity to introduce evidence of consumer benefit to meet the Algonquin requirements. See Hatch v. FERC, 654 F.2d at 835-37 (D.C.Cir.1981). Finally, Tennessee contends it did introduce substantial evidence, persuasive to the ALJ, that its customers benefit from Tenneco's institutional advertising. Because, according to the petitioner, the only contrary statement was a bald conclusory assertion by FERC's staff, the record contained insufficient evidence for the Commission to find a lack of consumer benefit from Tenneco's advertising. 28 The force of Tennessee's first two objections, of course, depends on whether Algonquin can reasonably be read consistently with the Commission's interpretation. Just as we give deference to an agency's interpretation of ambiguous statutes, see, Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), we also give deference to the Commission's interpretation of decisions made in accordance with such statutes, see, e.g., Consolidated Gas Transmission Corp. v. FERC, 771 F.2d 1536, 1544 (D.C.Cir.1985) (deference to Commission's interpretation of FERC-approved tariff); Aliceville Hydro Associates v. FERC, 800 F.2d 1147, 1150 (D.C.Cir.1986) (deference to Commission's interpretation of its regulations); Southern California Edison Co. v. FERC, 805 F.2d 1068, 1072 (D.C.Cir.1986) (deference to Commission's interpretation of contract's rate clause); National Fuel Gas Supply Corp. v. FERC, 811 F.2d 1563, 1569 (D.C.Cir.1987) (deference to Commission's interpretation of settlement agreement negotiated by FERC staff). Algonguin, it must be conceded, is not a model of clarity, but we believe the Commission's view that the opinion required Tennessee to demonstrate its advertising created a consumer benefit is a reasonable one. 10 The Commission in Algonquin distinguished between advertisements oriented toward information and conservation and advertisements that are mostly promotional in nature, Algonquin at 61,501, seeming, as a policy matter, to favor compensation for the former and disfavor compensation for the latter. The Commission implicitly assumed that consumers generally benefit from information and conservation advertising, yet found that an actual showing of direct consumer benefit would be virtually impossible to make. Id. The Commission therefore adopted a generous recovery rule for these kinds of advertising costs, holding that expenses for such advertisements would be disallowed only upon a strong showing that they are unjust and unreasonable or inconsistent with an overriding regulatory policy. Id. By contrast, the Commission established a presumption against recovery of promotional and institutional advertising, endorsing as prevailing regulatory policy a prior ALJ finding that [g]enerally, ... expenditures for institutional advertising are disallowed ... because the consumer does not benefit from the ads.... 11 Id. 29 Thus, as of March, 1983, well before the ALJ issued her opinion in this case, Commission policy required a rate applicant to overcome the presumption against compensation for institutional or promotional advertising by showing that its advertising directly benefits consumers. The Commission's application of this rule to Tennessee's institutional advertising claim represents not an alteration of FERC policy, but instead simply a more cogent explanation of that policy. As such, the Commission was required neither to offer extended explanations nor to provide an opportunity for Tennessee to present additional evidence of consumer benefit. 12 30 Tennessee's objection that the Commission ignored its substantial showing of consumer benefit likewise does not persuade us. The only piece of record evidence supporting a finding of consumer benefit is the testimony of Michael TheBerge, a Manager of Rates employed by Tennessee, who said that Tenneco's institutional advertising enhances the public image of Tenneco, which aids Tenneco in its continuing efforts to obtain new capital from the financial markets. And, since ratepayers are ultimately responsible for the cost of capital which Tenneco devotes to pipeline activities, they obviously benefit from every effort which Tenneco makes ... to obtain capital at the lowest possible rate. J.A. at 292. Mr. TheBerge further testified that [a]dvertising of this nature is also beneficial because it aids Tennessee in attracting and retaining employees. Id. at 293. The Commission found this testimony insufficient to establish a causal connection between the advertisements and the customer benefits described by Mr. TheBerge. 13 Opinion 240-B at 60,011. To be sure, the Commission did not specify what kind of evidence would have fulfilled its direct consumer benefit test. Perhaps it will turn out that no institutional advertising can be shown to have a sufficient proximate causal connection to consumer benefit to meet FERC's standard. In other words, it may well be that FERC is moving toward disallowing recovery of institutional advertising under all circumstances. This, FERC is certainly free to do as a policy matter; the Commission enjoys broad discretion concerning what expenses pipelines may or may not recover. But FERC is not required, in an adjudicatory mode, to foreclose the possibility that any kind of institutional advertising will meet its causal standard.