Court Opinion

ID: 9470674
Source: CourtListenerOpinion
Date Created: 2023-08-05 03:12:55.654064+00
Date Added: 2024-06-11T17:42:02.864764
License: Public Domain

WILKEY, Circuit Judge,
dissenting:
Although our authority to review agency decisions like the present one is very limited,1 I must nevertheless disagree with the majority’s conclusion that the orders under review are sustainable. The reasons given by the Commission for refusing to grant the requested waiver fail to establish that any meaningful consideration was given to that request, and the Commission’s attempt to rectify that error by allowing a reconsideration of that issue in a section 4 proceeding only aggravates the problem. Accordingly, I dissent.
In order to justify its refusal to grant United’s waiver request, the Commission must provide the “why and wherefore” of its decision.2 However, the mere articulation of reasons is not sufficient if the proffered rationale indicates that the Commission failed to give “meaningful consideration” to the request.3 The majority acknowledges that the Commission’s initial denial was inadequate in this respect, but concludes that the defect was remedied by the Commission’s explanation in its denial of United’s rehearing application.4 I agree that the initial denial was insufficient, but I fail to see how the explanation provided in the rehearing denial was any more meaningful.
The Commission’s initial denial simply stated that United “ha[d] not demonstrated good cause” for waiving the general rule.5 This is not an adequate explanation of the Commission’s actions. The “bare statement that the application does not present a sufficient basis for waiver is a conclusion, not a reason.”6 The explanation advanced in the rehearing denial is equally inadequate. In the rehearing denial, the Commission articulated the policy behind the general rule prohibiting trackers, conceded that the policy was less firm today than it had been in the past, acknowledged that it had approved transportation trackers in settlement agreements (which, unlike United’s proposal, were temporary), and then simply stated “[United’s] contentions provide no basis to deviate from the Commission’s reg*1514ulations."7 At most, the Commission’s explanation established that the general rule was still valid (although less so than it was previously), but it completely failed to address United’s main arguments. This cavalier dismissal of United’s arguments, without explanation, is not indicative of any meaningful consideration.
The arbitrary nature of the Commission’s denial is highlighted by an examination of the arguments advanced by United. United first argued that the policy behind the general rule — the desirability of considering all of a company’s costs in determining whether rates are just and reasonable— would not be served to any appreciable degree by prohibiting the proposed tracker. It then contended that overall fairness to the company and the consumer would be better served by permitting an automatic adjustment in response to changes in its transportation costs. When examined, these two arguments appear to be persuasive. Yet the Commission did not discuss them at all.
In support of its first argument — that the policy behind the general rule would not be advanced by its application in this case— United presented evidence that transportation costs (the costs it wished to track) accounted for seventy-one percent of all its operating and maintenance expenses exclusive of gas costs.8 Thus, United argued, any offset created by a decrease in other costs would likely be minimal (even assuming, as seems unlikely, that other costs would decrease when transportation costs were increasing). Accordingly, United asserted that there was little need to examine all of its costs before every adjustment. In addition, and equally important, United argued, all of the transportation costs it sought to track were rates paid to other pipelines which were already subject to Commission review and approval.
Most of the transportation costs incurred by United are rates paid to interstate pipelines which are required to gain Commission approval of their rates under the “just and reasonable” standard of section 4,9 the same section the Commission would apply in determining whether to approve United’s rates. The Commission itself has noted that “as a practical matter, to the extent the transportation ... charges are levied by other interstate pipelines, they must be just and reasonable.”10 The remainder of United’s transportation costs are rates paid to intra state pipelines which, while not regulated under the Natural Gas Act, are governed by section 311(aX2) of the Natural Gas Policy Act.11 Under section 311(a)(2) the Commission is required to review all rates to determine that they are “fair and equitable.”12 The difference between rates which are “fair and equitable” and those which are “just and reasonable” is rendered academic by section 601(b)(2) of the Natural Gas Policy Act which provides:
For purposes of sections 4 and 5 of the Natural Gas Act, any amount paid by an interstate pipeline for any transportation authorized by the Commission under section [311(a) ] shall be deemed to be just and reasonable if such amount does not exceed that approved by the Commission under such section.13
Thus, transportation rates approved as “fair and equitable” under section 311(a)(2) of the Natural Gas Policy Act are automatically considered “just and reasonable” costs under section 4 of the Natural Gas Act and, as the Commission itself has observed, “once [it] determines that a Section 311(a)(2) rate is ‘fair and equitable’, the transportation charges are guaranteed to be passed through to interstate pipeline rate*1515payers by operation of Section 601(b)(2) of the NGPA.”14
Therefore, all of the costs United sought to track in its rejected rate filing were costs which the Commission would have to approve as just and reasonable within the meaning of section 4. When this fact is added to United’s evidence that these costs made up seventy-one percent of its operating and maintenance expenses, the result is a forceful argument that permitting a tracker of the sort proposed by United would not implicate the policy behind the general rule. It would be highly unlikely that an increase in rates which was triggered by an increase in costs already determined to be just and reasonable would be unjust or unreasonable, or that it would be offset to any significant degree by a decrease in the remaining twenty-nine percent of United’s costs.
United’s second argument is also compelling. United argued that any minimal benefit which might come from adhering to the general rule would be counterbalanced by the benefits to both United and its customers. Because transportation costs had fluctuated so dramatically over the past five years,15 United argued that unless a tracker was approved it might be unable to use its newer gas reserves, which were remote from its current mainline system, because of the uncertainty involved in the transportation costs.16 Tracking the costs would enable United to develop these newer reserves. At the same time, United stated, its customers would benefit because, while the general trend of transportation costs has been upward, there are short periods of time when transportation costs decrease.17 Without the tracker, customers would be deprived of any reduction which did not last for a substantial period of time, while under the tracker any intra-period reductions in cost would flow through to the customer.18 United therefore argued that “[t]he historical test period approach generally used to establish rates will inevitably result in overrecovery or underrecovery of transportation costs and revenues”19 because the delay in preparing, filing, and approving rates often results in rates based on transportation costs of a one year period which ended eight months before the rate becomes effective.20 United asserted that this inequity, which could hurt both United and its customers, would be avoided under its proposed tracker.
In sum, United presented two compelling arguments that its waiver request should be granted. Meaningful consideration by the Commission may have revealed that these arguments were flawed in some respect, but the Commission did not address them at ail, either in its initial denial or its denial of United’s rehearing request. When logical arguments like those advanced by United *1516are rejected without any discussion of their merits, it is difficult to see how they could have been meaningfully considered.
The Commission’s failure to consider United’s waiver request in any meaningful way is further evidenced by its willingness to accept United’s alternative filing which included a tracker for transportation costs related to the Northern Border Pipeline Co. This tracker is .identical to the one rejected by the Commission except that it relates to only one pipeline. The reasons advanced by the Commission for rejecting United’s waiver request, such as they are, apply equally to the tracker accepted by the Commission. Allowing United to track its Northern Border transportation costs would also increase the possibility that United would be allowed to charge higher rates despite a possible decrease in its overall costs. Indeed, the likelihood was greater that the Northern Border transportation costs would be offset by a decrease in other costs because the Northern Border costs comprise a smaller share of United’s total operating expenses. If, as the Commission asserted, the possibility that reductions in other costs would offset increases in the transportation costs is, by itself, reason to deny United’s application for a waiver, why does it not also preclude United from tracking those same costs charged by the Northern Border Pipeline Co.?21 Again, I can only conclude that the Commission failed to consider the arguments advanced by United, and chose instead to deny United’s waiver request without examining its merits.
Equally disturbing is the Commission’s attempt to justify its actions by asserting that “there has been no final determination by the Commission denying United a transportation tracker [since] United will be permitted to show in an evidentiary hearing why it should be granted waiver of the rule prohibiting such trackers.”22 The Commission’s attempt to justify its decision by granting United a second chance is disturbing for two reasons.
First, it is further evidence that the Commission has not yet considered whether a waiver is appropriate, despite its summary rejection of the waiver request. If United’s waiver request was so meritless as to deserve the summary rejection it received, why consider it again in the section 4 hearing? It seems that the Commission was acting under the pangs of a stricken conscience. Apparently realizing that it had no good reason for summarily rejecting United’s waiver request, the Commission decided to delay meaningful consideration of the issue until later. This only underscores the arbitrariness of its initial decision to reject the waiver request.
Second, the Commission’s actions are disturbing because they demonstrate the Commission’s disregard for the procedure Congress outlined for cases which merit a section 4 hearing. The hearing procedure contained in section 4 was designed for cases which are not easily decided. Since a delay in consideration can cost either consumers or producers millions of dollars, the procedure was structured to protect the interests of all the parties involved. Thus, section 4 enables the Commission to fulfill its responsibility of determining whether rates are just and reasonable by giving it the power to hold a hearing before making a final decision on the validity of the rates. At the same time, consumers can be protected from having to pay rates which are ultimately determined to be unjust because the Commission can temporarily suspend the effective date of the rates pending the out*1517come of the hearing and the gas company can be required to refund any excess charges. Equally important, section 4 provides protection for the interests of the gas company by limiting the suspension period to five months. However, in this case the Commission decided not to grant that protection to United. I see no justifiable reason for that action.
Unlike the consumer, a gas company cannot recover its share of the rates if its position is ultimately vindicated. Accordingly, Congress expressly provided that rates on which a section 4 hearing was being held could not be suspended for longer than five months. The Commission is thereby prohibited from indefinitely delaying the effective date of a rate merely because it cannot, or will not, make up its mind on the validity of the proposed rates. Thus, if the Commission determines that there is sufficient merit in a rate proposal to warrant a section 4 hearing, it should limit the length of its deliberations to five months or allow the proposed rates to go into effect, subject to a refund order. This is the only way the gas company’s interests can be adequately protected. As this court has observed:
The suspension and refund provisions of § 4 protect regulated companies against deprivation of the substantial rights of covering the costs of doing business and earning a fair return on investment. By enacting § 4, Congress recognized those rights as substantial, and sheltered them from dissipation through regulatory lag or indecision.23
Despite its summary rejection of United’s waiver request, it is obvious that the Commission has yet to determine whether United’s tracker proposal is acceptable. The Commission’s delay in deciding this admittedly difficult question might be justifiable if United were receiving the protection section 4 was designed to give it. As it is, the Commission has, without meaningful consideration, rejected United’s request and indefinitely postponed its real deliberations without providing United any assurance that it will be able to collect rates which may ultimately be found just and reasonable. I would remand the case to the Commission with instructions immediately to consider the tracker proposal and either reject it on the basis of legitimate reasons or accept it for filing. If a hearing is necessary, the Commission should accept the filing and, if appropriate, suspend its effective date, but not for more than five months.
The majority’s invocation of Vermont Yankee seems to imply that I would require the Commission to do something “not required by law.”24 However, my proposed disposition would merely require the Commission to conform its action to the statute. Under the statute the Commission is free to reject the proposed tracker without holding a hearing if it can supply a legitimate reason for doing so. It is also free to reject the proposal after a hearing if it feels that a hearing is necessary. But, if the Commission determines that the proposal has sufficient merit to warrant a section 4 hearing, the statute prevents it from delaying the effective date of the proposed filing “for a longer period than five months.”25 Thus, the statute requires the Commission to act; it prevents the Commission from dissipating United’s rights through regulatory lag or indecision.26 The Commission’s efforts to circumvent this statutory scheme should not be countenanced.

. See WAIT Radio v. FCC, 459 F.2d 1203, 1207 (D.C.Cir.), cert. denied, 409 U.S. 1027, 93 S.Ct. 461, 34 L.Ed.2d 321 (1972) (WAIT II).

. WAIT Radio v. FCC, 418 F.2d 1153, 1157 n. 9 (D.C.Cir.1969) (WAIT I).

. Id. at 1159.

. Majority Opinion at 1511.

. Joint Appendix (JA) at 16.

. WAIT I, 418 F.2d at 1158 n. 12.

. JA at 31.

. JA at 10.

. 15 U.S.C. § 717c (1976).

. United Gas Pipe Line Co., FERC Docket No. RP 77-107 (30 July 1979) (order approving settlement agreement) (emphasis added).

. 15 U.S.C. § 3371(a)(2) (Supp. V 1981).

. Id., § 3371(a)(2)(B).

. Id., § 3431(b)(2)(B).

. Louisiana Intrastate Gas Corp., Docket No. CP 81-333, 18 FERC j[ 61,034 (18 Jan. 1982).

. United presented evidence that over a five year period, its transportation costs were as follows:
1977— $ 34,000,000
1978— $ 21,000,000
1979— $ 56,000,000
1980— $ 90,000,000
1981— $137,000,000
JA at 10.

. Id.

. Between 1977 and 1978 United’s transportation costs dropped $13,000,000, but that was followed by an increase of $35,000,000 in the subsequent year. See supra note 15.

. JA at 10.

. Petitioner’s Brief at 6-7 (footnote omitted).

. United noted that:
Under the historical test year approach rate filings are based on the most recent twelve months of actual data adjusted to reflect known and measurable changes to occur during the subsequent nine months. 18 C.F.R. § 154.63(e)(2). Given the time required to prepare a filing and the Commission’s policy of suspending major filings for five months, as a general rule the adjusted test period ends at or about the time the proposed rates become effective. For example, United’s rate filing in this case was made March 31, 1982 and based on actual costs for the twelve months ended January 31, 1982 adjusted for changes expected to occur through October 31, 1982. The rates became effective, after suspension, on October 1, 1982.
Petitioner’s Brief at 6 n. 7.

. The Commission seeks to justify its decision to reject one of United’s proposed trackers while accepting the other by citing a notice of proposed rulemaking in which the Commission explains why the general rule may not apply to the Alaska Natural Gas Transportation System of which the Northern Border Transportation Co. is a part. Respondent’s Brief at 11-12. See Majority Opinion at 1510 n. 8; id. at 1511 n. 14. However, this notice issued three months after the rehearing denial. A subsequently articulated rationale cannot be used as a basis for sustaining the Commission’s earlier decision. See WAIT I, 418 F.2d at 1158 & n. 13. And in any event, the Commission’s actions merely strengthen United’s general argument that the rule prohibiting trackers should not apply in all circumstances.

. Respondent’s Brief at 13-14.

. Algonquin Gas Transmission Co. v. FPC, 534 F.2d 952, 956 (D.C.Cir.1976) (emphasis added).

. Majority Opinion at 1512 n. 18.

. 15 U.S.C. § 717c(e) (1976).

. See Algonquin Gas, 534 F.2d at 956.