Opinion ID: 703151
Heading Depth: 4
Heading Rank: 2

Heading: Substantial evidence/arbitrary and capricious

Text: 36 In the alternative, petitioners contend that even if a foreseeable change in circumstances can serve as a basis for FERC's reevaluation of the Quality Bank's valuation methodology, the ALJ decision that served as the basis for the Commission's Order was not supported by substantial evidence; and, because it did not adequately explain the shift in policy, it was also arbitrary and capricious. We disagree. 37 Petitioners are correct that FERC's decision to approve a portion of a contested settlement must be supported by substantial evidence, 18 C.F.R. Sec. 385.602(h)(1)(i) (1995), and that we must set aside agency actions that are arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. 5 U.S.C. Sec. 706(2)(A). Our inquiry under the arbitrary and capricious test, of course, is narrow and a court is not to substitute its judgment for that of the agency. Motor Vehicle Mfrs. Ass'n of the United States, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 2860, 77 L.Ed.2d 443 (1983) (State Farm ). Where the necessary analysis requires a high level of technical expertise, we must defer to the informed discretion of the responsible federal agencies. Marsh v. Oregon Natural Resources Council, 490 U.S. 360, 377, 109 S.Ct. 1851, 1861, 104 L.Ed.2d 377 (1989) (internal quotation marks omitted). Nevertheless, we require the Commission to engage in rational decisionmaking, see, e.g., State Farm, 463 U.S. at 43, 103 S.Ct. at 2866-67; Laclede Gas Co. v. FERC, 997 F.2d 936, 945 (D.C.Cir.1993), and, when changing course, it must supply a reasoned analysis indicating that prior policies and standards are being deliberately changed. Michigan Consol. Gas v. FERC, 883 F.2d 117, 122 (D.C.Cir.1989) (quoting Hall v. McLaughlin, 864 F.2d 868, 872 (D.C.Cir.1989)). For the reasons described below, we find that the ALJ's recommendation to abandon the gravity methodology, which the Commission adopted, satisfies these requirements. 38 FERC approved the gravity methodology as just and reasonable in 1984 over Tesoro's objection not because it believed that methodology precisely valued the petroleum delivered to TAPS, but because the impact on the common stream of materials not accurately valued by the gravity method--i.e., NGLs--did not have a measurable impact.... 1984 Order, 29 F.E.R.C. p 61,123 at 61,239. In 1991, the ALJ found that [c]ircumstances on TAPS have changed significantly since 1984. ALJ Decision, 57 F.E.R.C. p 63,010 at 65,050. First, shippers were injecting substantially larger quantities of NGLs into the petroleum delivered at Pump Station No. 1. Id. Second, MAPCO expanded its refinery at GVEA and Petro Star constructed its own refinery there, thus increasing the amount of valuable mid-weight products that was stripped from the common stream. As a consequence, the petroleum returned to TAPS at GVEA contained a still higher percentage of NGLs. Id. at 65,053. These changes, which increased the relative volume of NGLs injected into the common stream at both Pump Station No. 1 and GVEA, were material because the current gravity-based methodology does not accurately value NGLs. Id. at 65,052. Together, they provide adequate factual support for the Commission's conclusion that due to changed circumstances, the existing methodology is no longer just and reasonable, and that a new methodology is required. 1993 Order, 65 F.E.R.C. p 61,277 at 62,286 (footnote omitted). 39 Petitioners argue that the ALJ's reasoning that the gravity methodology is unjust because it fails to properly value NGLs is nonsensical in the context of the TAPS Quality Bank. They point out that NGLs are not delivered separately to TAPS, but merely constitute a portion of various petroleum streams, and argue that how a stream acquires its quality is irrelevant to an assessment of that quality in the market place. Brief for Petitioners at 19. The ALJ recognized that the issue was not whether the gravity methodology accurately valued NGLs per se, but whether it placed a proper value on petroleum whose gravity had been increased as a result of the injection of substantial quantities of NGLs. He examined the evidence and concluded that the current straightline gravity basis for valuing crude oil does not assign an accurate value for NGLs. ALJ Decision, 57 F.E.R.C. p 63,010 at 65,050. It follows from this conclusion that shippers delivering oil with a high NGL content were either being overcompensated or undercompensated under the gravity methodology for their contribution to the value of the common stream. 40 Petitioners' arguments that the ALJ's reasoning was arbitrary or illogical must fail because what is really at issue is a disagreement between petitioners and the ALJ over whether the weight of the evidence indicates that the gravity methodology fairly values petroleum with a high NGL content. Petitioners strenuously argued to the ALJ that the high gravity of NGLs commensurately increases the value of the stream into which it is injected, but the ALJ considered their evidence on this point ... not convincing, id., and, in fact, was of the view that the more substantial evidence indicate[d] that NGLs devalue the common stream.... Id. 41 Determining the effect of NGLs on a stream's value is a question of fact. It calls for a high level of technical expertise, requiring us to defer to the informed discretion of the agency. Oregon Natural Resources Council, 490 U.S. at 377, 109 S.Ct. at 1861; see also Board of Trade of Kansas City v. United States, 314 U.S. 534, 546, 62 S.Ct. 366, 372, 86 L.Ed. 432 (1942) (observing that [t]he process of rate making is essentially empiric and Congress has therefore delegated the enforcement of transportation policy to a permanent expert body....). Here, petitioners point to nothing in the record undermining the evidence--and the Commission's conclusion--that the gravity method is an inaccurate method for valuing a common stream with NGLs in as high a proportion as prevail at Pump Station No. 1 and GVEA. 42 Finally, shifting gears, petitioners contend that it was irrational for the Commission to approve a change in methodology at Pump Station No. 1 and GVEA based on the finding that the gravity methodology is no longer just and reasonable at those locations while retaining that methodology at Valdez where NGLs unarguably are still present in the common stream. Again we disagree. It is no doubt true that if the assay methodology provides a more accurate valuation at Pump Station No. 1 and GVEA, it will provide a more accurate valuation at Valdez as well. But the Commission may approve the methodology proposed in the settlement agreement if it is just and reasonable; it need not be the only reasonable methodology, or even the most accurate. Cf. City of Bethany v. FERC, 727 F.2d 1131, 1136 (D.C.Cir.1984) (when determining whether proposed rate was just and reasonable, as required by Federal Power Act, FERC properly did not consider whether a proposed rate schedule is more or less reasonable than alternative rate designs). 43 At Valdez, the Quality Bank adjusts for the differences in the quality of the common stream from one day to the next, rather than the differences in quality between the petroleum streams delivered to TAPS by various shippers or refiners. This difference is important for two reasons. First, as the record indicates, because the daily variations in the gravity of the common stream at Valdez are slight, Quality Bank adjustments there are relatively inconsequential. Testimony of William H. Clifton, reprinted in Joint Appendix (J.A.) at 2061-62. Second, any overvaluation of NGLs will not systematically adversely affect certain shippers and advantage others, because whether a particular shipper obtains a tanker of petroleum with a marginally higher or lower NGL content is a matter of random chance. Because the precision of the valuation methodology is so much less important at Valdez than at the other Quality Bank locations, it is not surprising that no shipper presented evidence to the Commission suggesting that the gravity methodology produced unjust or unreasonable results at Valdez, see ALJ Decision, 57 F.E.R.C. p 63,010 at 65,053, or that the proposed settlement did not seek a change in the valuation method there. On the basis of this record, it was entirely reasonable for the ALJ to recommend, and FERC to approve, the maintenance of the status quo at the TAPS' terminus.