Court Opinion

ID: 7858300
Source: CourtListenerOpinion
Date Created: 2022-09-08 17:48:46.52849+00
Date Added: 2024-06-11T16:30:02.295189
License: Public Domain

STARR, Circuit Judge,
dissenting:
This case presents another example of the Federal Regulatory Commission’s difficult responsibility to reconcile competing private interests with the broader public interest in reasonable rates. As the court recounts, the Commission in this case ultimately rejected a settlement agreement between United Gas Pipeline Company and its customers because, as the Commission saw it, accepting the settlement meant indefinitely postponing full hearings concerning the reasonableness of United’s rates and rate design.
Today, the court rejects the Commission’s course because, in the court’s view, FERC failed convincingly to demonstrate that the public interest in prompt adjudication of the reasonableness of United’s rates outweighed the interest of two (of many) United customers (Laclede Gas Company and United Municipal Distributors Group) in proceeding with the settlement, notwithstanding the considerable passage of time. The court also faults the Commission for *243not discussing all “facially reasonable” alternatives proposed by the two remaining champions of the aging agreement. In my view, the Commission has struck a reasonable balance between private interests in a particular settlement and the broader public interest in reasonable rates. I am therefore constrained, with respect, to dissent.
I
As the court recounts, in September 1985 United filed a Base Tariff Restatement, as required by FERC regulations. 18 C.F.R. § 154.38(d)(4)(vi) (1988). United declined to seek a general (that is, jurisdiction-wide) revenue increase but proposed certain changes in cost classification, cost allocation and rate design. Most notably, United proposed to adopt the (FERC-favored) Modified Fixed-Variable (“MFV”) method for calculating the rates of its interstate pipeline customers. See Elimination of Variable Costs from Certain Natural Gas Pipeline Minimum Commodity Bill Provisions, 49 Fed.Reg. 22778 (June 1, 1984) (discussing pro-competitive impacts of MFV method). Apparently pleased by United’s embrace of its favored methodology, the Commission accepted the filing on October 28, 1985. J.A. at 35. United’s customers, however, were not nearly so sanguine. Shortly thereafter, settlement negotiations began. Eight months later, a comprehensive settlement was reached and thereupon submitted to an Administrative Law Judge. J.A. at 187. Under the settlement, some of United’s customers (including the two petitioners here) received lower rates than those contained in the 1985 filing. The settlement further provided that United would charge the filed rates from October 1, 1985 until April 30, 1986, but would be entitled only to the settlement rates from May 1, 1986 until the expiration of the settlement. Finally, the settlement provided that United would make a general rate filing by January 1, 1987 and that, following Commission approval, this filing would supercede the settlement rates. J.A. at 137-44.
For reasons that are not entirely clear, United did not make the promised rate filing until March 31, 1987. Notwithstanding its untimeliness, the filing received FERC’s initial approval, J.A. at 236; however, upon rehearing UMDG (which is, of course, one of the petitioners here) and another customer (Mobile Gas Corporation) urged FERC to reject United’s long-awaited filing. Specifically, they contended that United’s newly formulated demand charge (under the FERC-ordained MFV methodology) would be determined, in part, based on unduly restrictive monthly consumption entitlements (MEQs). J.A. at 266-69. FERC agreed with this objection and conditioned its acceptance of the filing on United’s acceding to MEQ renominations from its customers that were equal to or less than the level that could be reached if the customer took its maximum contractual entitlement every day. J.A. at 268-69. In an apparent attempt to minimize their demand charges, three of United’s four interstate pipeline customers filed MEQ levels of zero. United was not pleased; it complained that acceptance of these MEQs would unduly harm its ability to compete for non-pipeline customers (by shifting $41 million in demand costs to such customers). Exasperated by this prospect, United threw up its hands and declined to accept the proffered MEQs. J.A. at 279. Thus, as time was wearing on, the Commission was confronted with continuing fractiousness within the singularly non-united United “family” and the lack, as contemplated, of a viable, fresh rate filing.
FERC thereupon rejected both the hotly disputed rate filing and the underlying settlement, explaining that the deal struck by the parties (in particular, the provision for an early-1987 rate filing that would super-cede the settlement and trigger hearings concerning United’s rates) had entirely collapsed:
[A]n integral part of this agreement was United’s obligation to file a new section 4(e) rate case on January 1, 1987. United’s failure to comply with the conditions imposed on the acceptance of its filing ... has precipitated the rejection of that filing. This is not what the parties bargained for and it is not acceptable to the Commission.
J.A. at 293. FERC then ordered that the hearings on United’s 1985 filing (which had been held in abeyance pending review of *244the settlement) be resumed, explaining that a prompt, in-depth examination of United's rates was particularly called for because two additional rate controversies had arisen since the settlement had been negotiated. J.A. at 294. At the time of its final order, the Commission consolidated four different proceedings with the hearings on United's 1985 filing and stated that “[i]t is the Commission’s intent to provide a single forum for the resolution of a number of outstanding rate issues pending in United’s proceedings.” J.A. at 358.
In my view, the Commission’s entire course of action, as I have outlined in somewhat tedious detail, is unexceptionable.
II
The Supreme Court has stressed that the standard of review which guides us is quite limited:
Congress has entrusted the regulation of the natural gas industry to the informed judgment of the Commission, and not to the preferences of reviewing courts. A presumption of validity therefore attaches to each exercise of the Commission’s expertise, and those who would overturn the Commission’s judgment undertake the heavy burden of making a convincing showing that it is invalid because it is unjust and unreasonable in its consequences.
Permian Basin Area Rate Cases, 390 U.S. 747, 767, 88 S.Ct. 1344, 1360, 20 L.Ed.2d 312 (1967) (citations omitted). As my colleagues recognize, the Commission is quite at liberty to reject a settlement on public interest grounds (even though one or more parties continue to press in favor of the agreement). Maj. Op. at 1497. In addition, no one has questioned FERC’s decision to reject United’s 1987 filing. To the contrary, UMDG was clamoring for the Commission to do exactly that — to scuttle United’s long-awaited rate filing — even though a new filing was part and parcel of the settlement agreement. The case thus reduces to whether it was reasonable, in light of the parties’ failure to find common ground over the long-promised 1987 filing, for FERC (in the midst of the continuing discord) to assign greater importance to a prompt and full examination of the numerous issues that continued to swirl around United’s rates than to petitioners’ interest in the lower settlement rates. In my view, FERC’s decision was eminently reasonable.
First. The Commission’s orders give teeth to the settlement’s express provision requiring United to file a rate case by January 1987. In contrast, the court affords little weight to the parties’ intentions as set forth in the settlement. The court initially points out that United never “violated” the settlement because the Commission never approved it. Maj.Op. at 1497. But, as we have seen, the parties agreed to an early 1987 rate filing by United, and it is undisputed that this was an “integral” part of the agreement embodied in the settlement. As time wore on, and certainly in September 1987, when United indicated that it would not comply with the conditions imposed on its earlier (March 1987) filing, it was abundantly evident that United was unable to meet its obligations under the settlement. Whether this is termed a “violation” or not, it is beyond cavil, as FERC emphasized, that the parties had bargained for something quite different than what existed in the autumn of '87.
In undoing the Commission’s handiwork, the court places much emphasis on the fact that only one party, Texas Eastern Transmission Company (“TETCO”), opposed the settlement based on United’s unsuccessful 1987 filing. According to the court, it was “irrational” for the Commission to reject the settlement in these circumstances since “the relevant intent of the parties was their present intent, when FERC made its decision, to adhere to the Settlement despite the delay, not their original intent that the Settlement be implemented without delay.” Maj.Op. at 1497. But the fact that the settlement, as negotiated, ultimately collapsed cannot be swept aside solely because some (or even most) parties were still willing to go along (albeit, without a viable United filing). As one of the four interstate pipelines that took gas directly from United, TETCO was obviously no bit player *245in this drama,1 and the Commission was certainly entitled to give weight to its interests.2
More fundamentally, FERC’s orders should be viewed in context, with reference to the events as they unfolded. At the outset, in order to accommodate the parties’ extended negotiations, FERC postponed hearings on the 1985 filing for more than eight months. Then, when the rate filing required by the settlement was filed three months late and contained questionable MEQ levels, FERC afforded the parties (again, at the behest of, among others, UMDG) an opportunity to renominate the MEQs. When all this failed, and TETCO objected to the settlement, FERC could reasonably conclude that the various parties had devolved into an assemblage of disagreeable cats and dogs seemingly unable (and manifestly unwilling) to work amicably within the full framework of the settlement. In short, before rejecting the settlement, FERC provided the parties ample opportunity to work out their differences.3
Second. Importantly for our purposes, the Commission never wavered in its view that the settlement served the public interest if and only if full rate hearings were imminent. FERC thereby indicated its view that the settlement suffered from substantive problems but was acceptable for a limited, pre-filing period. The court, however, finds fault with the importance which the Commission assigned to full hearings under United’s 1985 filing: “FERC never explained, however, why it was so critical to move quickly on the unresolved issues that FERC would not approve the Settlement and rely upon United’s promised March 1988 filing to provide the necessary forum.” Maj.Op. at 1497. But context is, once again, important to a full and fair understanding of what transpired. As we have seen, the Commission had witnessed the unhappy disintegration of consensus over United’s most-recent filing. As time marched on, FERC was no longer satisfied with “promises” that future filings would be acceptable. That sense of exhaustion is, in my view, hard to fault, especially in light of the Commission’s overriding duty to assure reasonable rates.
Third. Any hardship inflicted by loss of the settlement appears to be modest. Although the settlement guarantees rates somewhat lower than those contained in United’s 1985 filing, without the settlement petitioners are left in the baseline position contemplated by the Natural Gas Act, namely the implementation of filed rates subject to refund. See Papago Tribal Util. Auth. v. FERC, 628 F.2d 235, 240-41 (D.C.Cir.1980). This result seems to me hardly so exacting as to override the public interest (as seen by FERC) in reasonably prompt rate hearings.
The court views petitioners’ asserted plight differently. My colleagues worry that petitioners will not be protected by the Commission’s refund authority and fault FERC for failing to declare that its refund *246power applies where, as here, a utility has not sought a jurisdiction-wide rate increase. Maj.Op. at 1498-99. The court’s concern is, I think, based on an unnecessarily narrow interpretation of the orders under review. As I read the orders, FERC never expressed doubt about its authority to order full refunds. In its initial order rejecting the settlement, the Commission stated that the 1985 rates “have been in effect on the United system subject to refund since October 1,1985.” J.A. at 291. In its order on rehearing, FERC reaffirmed this view: “The customers’ concerns result from what they see as a limitation on the Commission’s authority to order refunds in this proceeding. The Commission’s October 29, 1987 order states that United’s customers will be protected by the refund obligation.” J.A. at 355 (emphasis supplied). These statements are simply not, in my view, redolent of an agency agonizing over its statutory authority.4
Finally, the court faults FERC for failing to consider “facially reasonable” alternatives to rejecting the settlement. This is a significant step, which petitioners have invited the court to take as if this were a well-worn path in the law. The leading case overturning an agency’s decision for failure to consider alternatives is, of course, the airbags case, Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1982). That familiar decision, on which petitioners place their primary reliance, involved review of informal rule-making. Neither the Supreme Court nor (as far as I can tell) this court has heretofore specifically applied the State Farm approach to an agency adjudication. While we obviously need not (and should not) embrace a rigid rule that agencies are never required to consider alternatives in adjudicatory settings, we should, I believe, be very cautious indeed about injecting wholesale State Farm’s methodology into this distinct area of administrative law. Here, briefly, is why.
To return to basics: The distinction between rulemaking and adjudication is fundamental to the structure ordained by the Administrative Procedure Act, 5 U.S.C. § 553 (1982):
[T]he entire Act is based upon a dichotomy between rule making and adjudication— Rule making is agency action which regulates the future conduct of either groups of persons or a single person; it is essentially legislative in nature, not only because it operates in the future but also because it is primarily concerned with policy considerations____ Conversely, adjudication is concerned with the determination of past and present rights and liabilities.
Bowen v. Georgetown Univ. Hosp., — U.S.-, 109 S.Ct. 468, 477, 102 L.Ed.2d 493 (1988) (Scalia, J., concurring) quoting, The Attorney General’s Manual on the Administrative Procedure Act, at 13-14 (1947). The legislative nature of rulemaking suggests that consideration of a broad range of alternatives is much more likely to be an integral component of reasoned decision-making in that setting. This conclusion is underscored by the ready analogy between *247rulemaking’s notice-and-comment procedures and the democratic process. In contrast, reasoned decisionmaking in the adjudicatory context has not traditionally hinged on an examination of all plausible alternative approaches, and the adjudicatory setting seems inherently ill-adapted to that undertaking. Adjudicatory bodies are called upon to examine the facts and the law and come to what seems to the tribunal (or agency) a reasoned, principled decision. That may, or may not, involve consideration of “alternatives.”5
Even assuming some scope for a State Farm-like requirement in the review-of-settlement setting, I do not think that petitioners’ proposed alternatives are of such force as to warrant a response from FERC. This is best illustrated by the Supreme Court’s approach in State Farm itself. There, as most readers will readily recall, the Court reviewed the Department of Transportation’s decision to rescind a requirement that new motor vehicles be equipped with either airbags or passive restraint-genre seat belts. DOT eventually decided against the seatbelt option, but rescinded the standard entirely without discussing the efficacy of an airbags requirement. In explaining the inadequacy of DOT’s decision, the Supreme Court emphasized the obviousness of the airbags option, as evidenced by DOT’s endorsement of airbags in its then-extant rule. State Farm, 463 U.S. at 51, 103 S.Ct. at 2871.
My point is that DOT’s refusal, in the context of the exercise of its delegated legislative power, to consider the employment of airbags is a far cry from FERC’s refusal to consider various alternative fora proposed by petitioners. None of petitioners’ proposed alternatives even purports to provide a forum comparable to that afforded by United’s 1985 rate filing. Petitioners’ proposals that FERC (1) order United to make a new filing or (2) allow discovery under the 1985 filing until United’s next filing would have spawned still more delay. More importantly, these options presumed that United’s next filing would prove acceptable both to the Commission and to United’s lively set of customers. Yet, as we have seen, this was manifestly not the case with United’s much maligned March 1987 filing. Hope springs eternal, but the Commission should not, on pain of remand, be required to embrace such a cheerfully optimistic approach to these arcane, dispute-ridden questions.
Another proposed “alternative,” namely that the Commission sever any parties contesting the settlement, does not even purport to provide for general hearings on United’s rates. That defect is sufficiently striking that this particular entry on petitioners’ creative option plan seems, on reflection, to be tossed in for good measure, rather than genuinely, enthusiastically championed.
Finally, petitioners propose that FERC institute its own proceeding under section 5 of the Natural Gas Act, 15 U.S.C. § 717d (1982). This suggestion runs afoul of well-established traditions of letting the agencies order their own affairs, rather than having courts, through the judicially convenient device of resource-consuming remands, for all practicable purposes tell the agencies how to run their respective railroads. This alternative also ignores substantial (and well-known) differences between section 5 proceedings, on the one hand, and rate proceedings under section 4 of the Natural Gas Act, on the other:
Each section deals with a different character of agency action; each is responsive to different circumstances, and is subject to different restrictions. The Commission is not free to blend, or pick and choose at will between, its section 4 and 5 authority.
Sea Robin Pipeline Co. v. FERC, 795 F.2d 182, 183 (D.C.Cir.1986); see also Northern Natural Gas Co. v. FERC, 827 F.2d 779, 781, 788 (D.C.Cir.1987) (era banc). Peti*248tioners make no attempt to demonstrate that section 5 proceedings are, in fact, suitable in the present context. The problems are obvious. Among other things, the Commission's authority to order refunds is sharply circumscribed (if not non-existent) in section 5 proceedings. Id. at 184. In contrast to section 4 proceedings, in which the filing utility bears the burden of proving the reasonableness of its proposed rate changes, in section 5 proceedings the burden shifts to the Commission (or adversely affected private parties) to prove the reasonableness of departures from the existing rates. Id. In the present case, a section 5 proceeding would place substantially greater burdens on the Commission without affording full refunds to petitioners.
In sum, even assuming that State Farm’s approach applies in adjudicatory settings, that case requires petitioners’ to show that the offered alternatives have a reasonable claim to solving the problem at hand.6 Petitioners have not met that burden. Quite the contrary; the court has allowed petitioners to shoot down FERC’s orders by sending up a few trial balloons. That approach, with all respect, fails to comport with our limited scope of review. I therefore respectfully dissent.

. Petitioners contend that TETCO’s opposition to the settlement was mooted when, prior to FERC’s final order in this case, United agreed to transfer all matters relating to its take-or-pay buyout expenses to a parallel proceeding. See 41 FERC ¶ 61,381 (1987). TETCO’s objections to the settlement were not, however, limited to the absence of a forum for litigation of take-or-pay issues. J.A. at 222-26.

. Our case is, of course, to be distinguished from situations in which the Commission approves (and gives effect to) provisions of a settlement despite the non-unanimity of the parties. See 18 C.F.R. § 385.602(h) (1988) (approval of a contested settlement constitutes a ruling on the merits that must be supported by "substantial evidence”); see also United Mun. Distributors Group v. FERC, 732 F.2d 202 (D.C.Cir. 1984). Here, the court holds that FERC abused its discretion by taking account of the fact that the settlement’s provision for imminent rate hearings went unfulfilled.

.The evanescent character of any "agreement” to retain the settlement notwithstanding United’s flawed filing is underscored by recent events. Although at the time of FERC's final order, United continued to press for approval of the settlement, United now states that "[t]he climate and conditions of the natural gas industry and United have changed drastically since the Interim Settlement and Base Agreement were negotiated ... United is no longer in a position to accept those agreements.” Brief of United at 5. Similarly, on November 28, 1988, United filed a new settlement proposal with the Commission, but petitioners declare that they do not intend to consent to the proposal, if approved by FERC. Reply Brief at 7-8 n. 5.

. The court views another passage in the order as evidence that FERC simply ignored the refund issue as premature. Maj. Op. at 1499. In the passage cited for this proposition, however, FERC simply stated that, even if it was wrong about refunds, it would still have rejected the settlement: "The fact that the available potential remedies may have been better under the Agreement ... does not justify retaining the Agreement in the face of the Commission's reasons for rejecting it.” J.A. at 356. Far from indicating that FERC simply ignored the refund issue, this alternative rationale strikes me as further evidence that the Commission has adequately addressed this question.
It is also worth noting that there is little to support the court's conclusion that, in the absence of refund authority, rejection of the settlement inflicts “substantial hardship” on petitioners. Maj. Op. at 1498. UMDG avers that its members (when considered together) would be entitled under the settlement to an additional {2 million for the period May 1986-October 1987. J.A. at 303. Laclede states only that its pipeline supplier, the Mississippi River Transmission Company ("MRT”), stands to lose "about 124 million” if the settlement is rejected; Laclede then admits that, as only one of MRTs many customers, its share of this difference would be considerably less. Brief of Petitioners at 20-21 & n. 17. From all that appears, petitioners’ financial interest is relatively modest. In a general rate case of this size, it is, standing alone, not the stuff of which judicial invalidation of agency action, on grounds of hardship arbitrarily inflicted, is made.

. To be sure, a court making a traditional equitable determination (such as consideration of a request for injunctive relief) relies on a body of law which emphasizes the careful, respectful analysis of the entire factual setting and a balancing of sometimes competing factors. It is possible, therefore, that a State Farm-type approach may in practice be subsumed under the rubric of equitable analysis when an adjudicatory tribunal (including an agency) is, in practical effect, “sitting in equity." But we have not, even where that is so, translated the arbitrary-capricious standard of the APA so as to require rigid adherence to a State Farm mode of analysis.

. This approach does not require the court impermissibly to "supply a reasoned basis for the agency’s action that the agency itself has not given." State Farm, 463 U.S. at 43, 103 S.Ct. at 2867, citing, SEC v. Chenery Corp., 332 U.S. 194, 196, 67 S.Ct. 1575, 1577, 91 L.Ed. 1995 (1947). In the present case, the Commission has explained its decision; the only question is whether the decision, as explained, is arbitrary and capricious. See 5 U.S.C. § 706(2)(A) (1982). To repeat: that standard does not generally (or at least inexorably) require consideration of alternatives. Indeed, in a case decided under the APA and the National Environmental Policy Act, the latter of which expressly requires "a detailed statement by the responsible official on alternatives to the proposed action," 42 U.S.C. § 4332(C) (1982), the Supreme Court stated that ”[c]ommon sense also teaches us that the 'detailed statement of alternatives’ cannot be found wanting simply because the agency failed to include every alternative device and thought conceivable by the mind of man.” Vermont Yankee Nuc. Power Corp. v. NRDC, 435 U.S. 519, 551, 98 S.Ct. 1197, 1215, 55 L.Ed.2d 460 (1977). This brand of common sense is even more appropriate where, as here, there is no specific statutory directive to consider alternatives.