Opinion ID: 2238939
Heading Depth: 1
Heading Rank: 3

Heading: FERC's Intent

Text: The Industrial Consumers and the Public Counsel argue that the appellate court in this case correctly held that the preemption issue here turns on FERC's intent as expressed in Order No. 500. In Order No. 500, FERC stated that it is the commission's view that there should be an equitable sharing of take-or-pay costs among all segments of the industry. The Order also stated that, in FERC's view, States were not legally precluded from reviewing distributors' prudence in incurring the take-or-pay costs. (FERC Order No. 500 (Aug. 14, 1987), 52 Fed.Reg. 30334, 40 FERC Statutes and Regulations par. 61,172.) The appellate court relied on this language in determining that the ICC was not preempted from reviewing and disallowing portions of the FERC-approved costs. After the appellate court announced its decision in this case, FERC issued Order No. 500-H (FERC Order No. 500-H (Dec. 21, 1989), 54 Fed.Reg. 52344, 49 FERC Statutes and Regulations par. 30,867). In that subsequent Order, FERC presented its interpretation of the constitutional implications of the filed rate doctrine. FERC concluded that prudence reviews by State agencies in the take-or-pay context would not contravene Congress' intent in enacting the Natural Gas Act. In the order, FERC specifically suggested that State utility commissions may properly conduct prudence reviews of direct-billed take-or-pay charges or design methods for inducing distributors to agree voluntarily to absorb a portion of the costs in order to effectuate a policy of sharing the costs. FERC summarily reaffirmed these views in Order No. 500-I (Feb. 26, 1990), 55 Fed. Reg. 6605, 50 FERC Statutes and Regulations par. 30,880. We reject, on several grounds, the argument that FERC's intent determines the preemptive effect of the filed rate doctrine on distributors' recovery of take-or-pay costs. Setting forth the basic inquiry governing the review of a regulatory agency's interpretation of its own powers, the Supreme Court has stated, If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress. ( Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc. (1984), 467 U.S. 837, 842-43, 104 S.Ct. 2778, 2781, 81 L.Ed.2d 694, 703.) For the reasons that follow, we conclude that FERC's intent is irrelevant to the application of the filed rate doctrine in the context of retail ratemaking. As our discussion of the Natural Gas Act and the filed rate doctrine demonstrates, the preemptive force of FERC-approved costs and allocations is derived from Federal statute and the supremacy clause of the Constitution. FERC cannot rewrite the statutory provisions of the Natural Gas Act and has no authority to deviate from the clear intent of Congress. When FERC promulgates regulations, it cannot dispense with the supremacy clause and the intent of Congress by saying that it believes inconsistent State regulation is permissible. A recent application of the filed rate doctrine demonstrates that, contrary to the arguments advanced by the Industrial Consumers and the Public Counsel, the intentions of FERC as expressed in Order No. 500 and Order No. 500-H have no power to alter the preemptive effect of the Natural Gas Act. ( Columbia Gas Transmission Corp. v. Federal Energy Regulatory Comm'n (D.C.Cir.1990), 895 F.2d 791.) The Columbia Gas court, in allowing distributors to recover in full costs similar to the take-or-pay costs at issue here, explicitly rejected the proposition that FERC's intent, as expressed in its orders, determines whether the filed rate doctrine applies in a given case. ( Columbia Gas, 895 F.2d at 797.) The court stated that it was unaware of any principle in equity or law that empowers an agency to ignore explicit legislative commands in order to mitigate the damage its errors of judgment or rulemaking delays may have caused. ( Columbia Gas, 895 F.2d at 797.) Similarly, though FERC may view preemption as an obstacle to the proper resolution of the take-or-pay problems created by the open-access policy, the agency is not empowered to alter the legislatively mandated preemptive effect of its earlier decisions. Additionally, even though FERC has authority and expertise generally to adopt new policies when faced with new developments in the industry, it has no power to adopt a policy that directly conflicts with its governing statute. (See Maislin Industries, U.S., Inc. v. Primary Steel, Inc. (1990), 497 U.S. ___, 110 S.Ct. 2759, 111 L.Ed.2d 94 (Interstate Commerce Commission has no authority to deviate from filed rates, despite its pleas that such deviation was required in light of deregulation of motor carrier industry).) In this case, FERC's suggestion that State regulatory commissions are free to conduct prudence reviews and make arrangements for sharing of take-or-pay costs is directly at odds with the policy of the filed rate doctrine. The Supreme Court has consistently acknowledged that the filed rate doctrine prohibits a State commission from trapping FERC-approved wholesale costs, which would occur if a State commission prevented a distributor from fully recovering those wholesale costs in retail rates. ( Mississippi Power, 487 U.S. 354, 108 S.Ct. 2428, 101 L.Ed.2d 322; Nantahala, 476 U.S. at 970, 106 S.Ct. at 2358-59, 90 L.Ed.2d at 956.) Thus, the filed rate doctrine not only ensures the integrity of FERC proceedings ( Mississippi Power, 487 U.S. at 375, 108 S.Ct. at 2440-41, 101 L.Ed.2d at 340) but also protects distributors from the trapping of wholesale costs ( Mississippi Power, 487 U.S. at 372, 108 S.Ct. at 2439, 101 L.Ed.2d at 339; Nantahala, 476 U.S. at 970, 106 S.Ct. at 2358-59, 90 L.Ed.2d at 956). We find no source of authority empowering FERC to withdraw that protection in order to implement the equitable solutions it has suggested in Order No. 500-H. While the Industrial Consumers and the Public Counsel may believe that FERC's suggestions provide a pragmatic solution to the take-or-pay liabilities, FERC's solution suffers a significant infirmity. As the above discussion demonstrates, FERC's suggestions ignore the constitutional limitations on the States' power to deny full recovery of FERC-mandated pipeline charges. Our decision in this case turns on the will of Congress, as unambiguously expressed in the provisions of the Natural Gas Act. (See Chevron, 467 U.S. at 842-43, 104 S.Ct. at 2781, 81 L.Ed.2d at 703.) Here the intent of Congress is clear and controlling: States may not bar regulated utilities from passing through to retail consumers FERC-mandated wholesale rates. Mississippi Power, 487 U.S. at 372, 108 S.Ct. at 2439, 101 L.Ed.2d at 338. See also Nantahala, 476 U.S. at 970, 106 S.Ct. at 2358-59, 90 L.Ed.2d at 956; City of Chicago, 13 Ill.2d at 616, 150 N.E.2d 776.