Opinion ID: 2808691
Heading Depth: 3
Heading Rank: 1

Heading: Setting the Effective Date of Period One Rates

Text: Kern River contends that FERC’s decision to fix the prospective Period One rates as of December 17, 2009, the date it issued Opinion No. 486-C, is contrary to the plain language of the Natural Gas Act and controlling precedent. Kern River asks us to set the effective date of the Period One rates as November 18, 2010, the date FERC accepted Kern River’s supplemental compliance filing in Opinion No. 486- D. We reject Kern River’s arguments and deny its petition for review. Before it can fix a new rate, FERC must find the prospective rates “just and reasonable.” 15 U.S.C. § 717d(a). Because FERC found an aspect of the prospective Period One rates unjust and unreasonable and ordered Kern River to submit “a substantively new compliance filing,” Kern River argues that FERC could not have fixed the rates under 11 Section 5 of the Natural Gas Act as of the date of Order No. 486-C. Kern River Br. 20. In support of its argument, Kern River relies on Electrical District No. 1 v. FERC, where we explained “that the statute means what it says”—when fixing a rate, it is not enough for FERC “to prescribe the legal and accounting principles which, properly applied, will yield one particular rate” because the statute “requires the rate itself to be specified.” 774 F.2d 490, 492 (D.C. Cir. 1985) (interpreting the Federal Power Act). In accordance with Electrical District, Kern River argued that FERC could not fix Period One rates because the rates were indeterminable as of the date of Opinion No. 486-C. See Opinion No. 486-D, 133 FERC ¶ 61,162 PP 16–18. FERC reasonably rejected Kern River’s arguments. Id. PP 19–31. So do we. In Electrical District, we considered the effective “date of an order setting forth no more than the basic principles pursuant to which the new rates are to be calculated.” 774 F.2d at 493. We vacated the order because it fixed the effective date of the prospective rates as of the date FERC ordered the utility to make a new compliance filing. Id. at 491–93. We concluded that the order lacked “necessary predictability” and thus required FERC to fix the date once the “numerical rate is specified.” Id. at 492–93. Even though Electrical District “adopted a bright-line insistence that a numerical rate be ‘specified’” before it can be fixed, Transwestern Pipeline Co. v. FERC, 897 F.2d 570, 577 (D.C. Cir. 1990), another decision, Public Service Co. of New Hampshire v. FERC, 600 F.2d 944, 954 (D.C. Cir. 1979), permitted FERC to fix rates subject to adjustments. We “reconciled” those decisions in Transwestern and explained: The Commission need not confine rates to specific, absolute numbers but may approve a tariff containing a rate “formula” or a rate “rule” (as Public Service Co. 12 of New Hampshire assumed); it may not, however, simply announce some formula and later reveal that the formula was to govern from the date of announcement (as it had done in Electrical District). 897 F.2d at 578 (emphasis in original). The circumstances here, FERC correctly determined, are unlike those in Electrical District. See Opinion No. 486-D, 133 FERC ¶ 61,162 PP 24–25. When it fixed Kern River’s Period One rates as of the date of Opinion No. 486-C, “the Commission had done much more than set forth the basic principles of [those] rates.” Id. P 26. Indeed, by the time the Commission fixed Period One rates, they had already been the subject of a full hearing before an administrative law judge, a post-hearing decision, and three FERC orders (Opinion Nos. 486, 486-A, and 486-B). Id. P 24. Moreover, FERC had previously directed Kern River to submit compliance filings with revised Period One rate calculations. See Opinion No. 486-B, 126 FERC ¶ 61,304 P 192. “On March 2, March 27, and September 22, 2009, Kern River submitted the required compliance filings, and the Commission accepted those filings, subject to conditions in Opinion No. 486-C.” Opinion No. 486-D, 133 FERC ¶ 61,162 P 24. Those conditions, FERC concluded, are analogous to the circumstances in Transwestern because, like a formula or rule, FERC’s order gave Kern River no discretion to make further changes to its rates. Id. P 28. Kern River suggests, however, that Transwestern is inapplicable because its tariff contains neither a formula nor a rule; instead, it contains “rate models.” See, e.g., Kern River Br. 21, 26–27, 29. Since its rate models are so complex, Kern River points out that “no party (not Kern River, FERC, nor any shipper) knew the effective prospective Period One rates 13 until all levelized rate models had been rerun with the changed components.” Kern River Br. 27; see also Opinion No. 486-D, 133 FERC ¶ 61,162 P 18 (same). FERC reasonably rejected this argument because “the rate uncertainty that concerned the court in Electrical District was not present here to the same degree.” Id. P 26. We agree. FERC’s conditional acceptance of Period One rates in Opinion No. 486-C simply required Kern River to substitute one number for another when allocating costs to the rolled-in shippers. See 129 FERC ¶ 61,240 P 171 (directing Kern River to use 639,570 dekatherms as the billing determinant). Because this mechanical change gave Kern River no discretion to adjust its rate models, FERC provided sufficient notice to ratepayers. See W. Deptford Energy, LLC v. FERC, 766 F.3d 10, 22 (D.C. Cir. 2014) (recognizing that FERC need not confine rates to specific numbers when ratepayers have notice of the formula or rule that will be applied). The Shippers, moreover, could have calculated the rates on their own. See Kern River Gas Transmission Co., 119 FERC ¶ 61,106 P 9 (2007) (requiring Kern River to furnish all Shippers “with electronic copies of each model, with cells, links, formulae and data intact”). Because the Shippers could “supply their own inputs to the [models] and thereby know the numerical rates,” FERC reasonably fixed the rates “within the meaning of Natural Gas Act § 5” as of the date it accepted Kern River’s compliance filings in Opinion No. 486-C. City of Anaheim v. FERC, 558 F.3d 521, 524 (D.C. Cir. 2009) (citing Transwestern, 897 F.2d at 578). In light of the great deference we give FERC in rate decisions, FERC’s order setting the effective date of Period One rates as December 17, 2009 was not arbitrary, capricious, or otherwise not in accordance with law. 14