Court Opinion

ID: 7859539
Source: CourtListenerOpinion
Date Created: 2022-09-08 17:51:23.405974+00
Date Added: 2024-06-11T16:30:11.124888
License: Public Domain

MIKVA, Circuit Judge,
concurring in part and dissenting in part:
I join in the first part of the majority’s opinion, but I cannot join that portion which reverses FERC’s decision to require repayment of the time value of El Paso’s tax reserves. The majority’s decision declares FERC’s compromise unreasonable although that compromise is precisely the type of solution that this very court proposed to FERC when it remanded this case. To condemn as unreasonable that which three judges of this court found to be within the agency’s discretion is itself most unreasonable. We make it hard for agencies to know what is the order of the march when the direction is reversed every time they appear before us. As to that portion of our order, I dissent.
When this case was before the Court previously, we observed that the Court’s only role in evaluating FERC’s action was to ensure that it reflected “reasoned decisionmaking.” Public Utilities Comm’n of State of Cal. v. FERC, 817 F.2d 858 (D.C.Cir.1987). As the Court observed, the language of the Act and its legislative history do not provide for the disposition of the deferred tax reserves. Id. at 861-62. In such a case, our review is extremely narrow. “[I]f the statute is silent or ambiguous with respect to the specific issue, the question for the, court is whether the agency’s answer is based on a permissible construction of the statute.” Chevron U.S.A. v. NRDC, 467 U.S. 837, 843, 104 S.Ct. 2778, 2782, 81 L.Ed.2d 694 (1984).
We observed on remand that because of the complex interrelationships created by changing over to NGPA pricing, “an entirely fair manner of treating the tax reserves will be highly difficult to craft.” 817 F.2d at 863. Accordingly, we instructed the Commission that it was free to frame a resolution that served the equitable interests of El Paso, its past customers, and its future customers as long as it supported that disposition with a “reasoned analysis.” Id. We further offered the Commission some guidance in evaluating its various alternatives. We devoted considerable discussion to the FERC staff's conclusion that *345“the most equitable solution” would be to carry out the reserves’ initial purpose. The Court described this “status quo” approach as comporting with common-sense, and expressed some optimism that this result could be “effectuated at least in part through an arrangement by which the intended beneficiaries (El Paso’s future customers) are the eventual recipients through rate adjustments.” Id. In fact, we placed the onus upon the Commission to explain “why the reserves should not redound to the benefit of El Paso’s future customers and ... why El Paso enjoys a greater equitable claim to the reserves than its past customers (whose rates generated the funds now reflected in the reserves).” Id. at 863.
On remand, FERC did precisely as we instructed. It considered the equitable claims of El Paso and El Paso’s ratepayers and, after reasoned analysis, concluded that neither had an unqualified claim. Accordingly, the Commission adopted a sensible compromise: it decided to maintain the status quo which existed before the NGPA, whereby both El Paso and its ratepayers retained an interest in the deferred tax funds. The Commission noted that before NGPA, El Paso retained the tax reserves to pay future taxes but paid back the time value of that money to its customers in the form of deductions from its rate base. The Commission determined that retaining the status quo would accomplish the dual purposes of allowing El Paso to pay off its tax liability while ensuring that it did not unjustly retain interest on money advanced by prior ratepayers. 44 FERC at 61,207.
Although the majority attempts to fashion a “better” solution, it fails to demonstrate why the one adopted by FERC was unreasonable, particularly in light of both the NGPA’s silence and this Court’s instructions. The majority suggests two bases for its conclusion that FERC acted unreasonably. First, it contends that the amounts to be refunded do not bear any relation to services provided by El Paso after its switch to NGPA pricing. Hence, the majority reasons, refunding any portion of the tax reserves would violate the proscription against retroactive ratemaking. Second, it argues that — regardless of whether its solution is equitable — FERC lacked legal authority to pursue the procedure (i.e. rate reductions) by which it hoped to return the fund’s interest to El Paso’s ratepayers. Neither of these conclusions withstands scrutiny, nor can they be squared with what this Cpurt told FERC about its legal authority in the last airing of this very dispute.
The majority’s analysis of retroactive ratemaking misses the point. The majority explains that current NGPA rates only reflect transmission costs while most of the deferred tax fund relates to El Paso’s gas production assets. The majority states that “[n]o reason appears why current users of El Paso’s transmission service, who may take no El Paso gas at all, should receive credits based on earlier El Paso gas service.” Ante at 1380. The majority reasons that current users of El Paso’s transmission service, who may or may not take El Paso gas, should not receive credits based on earlier El Paso gas service. If that defect is so fatal to the compromise, it could be corrected by distributing refunds only to those El Paso customers who receive both transmission and gas service.
The majority’s point with respect to reductions in NGPA pricing is similarly flawed. The majority contends that even if the credits were related to “gas production,” they would violate NGPA § 601 which prohibits FERC from reducing the NGPA rate. The problem with the majority’s approach is that it confuses FERC’s decision to provide credits with the vehLie FERC chose to accomplish this end. It observes that under § 601 of the NGPA, the Commission may not reduce gas transmission rates below the prices fixed by § 104 of that Act. Accordingly, the majority concludes that the Commission erred by reducing current rates, regardless of the purpose for doing so. The majority’s quarrel then is not with returning interest from the tax reserves to the customers, but with using the rate base to accomplish this.
Rather than “split the baby,” the majority proposes to toss it out with the bathwater. In effect, the majority concludes that *346because refunding through rate reductions violates the letter of the NGPA, no refund is permissible. This simply cannot be true. If it wished to, the Commission could have required El Paso to pay out the interest from the reserves in periodic cash payments to its present and future gas customers. The Commission’s decision to use rate reductions as the means for distribution reflects its effort to administer repayment of interest in a manner which imposes the least amount of burden upon El Paso. Regardless of the advisability of this approach, the approach taken has no bearing upon FERC’s general authority to order repayment in the first place.
The majority also suggests that even current gas customers would not be entitled to credits because this would prevent El Paso from receiving NGPA prices on NGPA sales, and thus would violate the proscription against retroactive ratemaking. This simply is not true. El Paso would still receive its NGPA price for its NGPA sale. It would also still retain funds to pay off its tax liability on previously acquired production assets. All El Paso would lose under FERC’s interpretation is interest on customer contributed funds that it never expected to retain. The rate reductions do not in fact lower the ceiling rates, they merely use the rates as a vehicle for refunding other unjustly held funds. The reserves were collected from non-NGPA priced sales and, therefore, are in no way an add-on to sales at NGPA prices.
As this Court presciently observed in American Public Gas Ass’n v. FPC (“APGA”), 567 F.2d 1016, 1042 (D.C.Cir.1977), tax normalization is only fair if it is applied consistently for the depreciable life of the asset. The majority claims that the treatment of normalization is now “moot” because of the NGPA, and we could never have meant that tax normalization continue indefinitely. These statements are conclusory and unfounded. As noted, Congress did not contemplate the effect of normalization when it passed the NGPA and, as this case proves, normalization is not moot. Furthermore, Congress did not “end” normalization here: El Paso did. El Paso electively switched over to NGPA pricing in 1983, in order to take advantage of the higher, non-cost-justified rates available. FERC merely determined that that election does not relieve El Paso from its obligation to restore unjustly held earnings on customer-contributed funds to its customers. I cannot conclude, nor can I understand the majority’s conclusion, that FERC’s decision is “unreasonable.”
In its remand order, this Court found that the pre-NGPA status quo permitted El Paso to accumulate funds for tax purposes now in order to relieve future ratepayers of more burdensome tax liabilities later. 817 F.2d at 861. Because the pipeline producer functioned as a “custodian” of the deferred tax funds, it was not entitled to retain the earnings on those funds any more than a trustee may keep the interest on a trust. Under the majority’s opinion, El Paso may now collect a higher rate, use customer-contributed funds to pay its tax liability, and retain interest on those funds even though that was never contemplated under either the pre-NGPA or NGPA systems. The windfall is as obvious as it is unwarranted.
Even if the majority’s solution to the problem were better than FERC’s, and even if it were not inconsistent with our previous instructions, it substitutes the Court’s judgment for that of the agency. Even before Chevron, the Supreme Court precluded reviewing courts from trying to perform the regulatory function Congress set elsewhere. See, e.g., Ford Motor Co. v. NLRB, 441 U.S. 488, 99 S.Ct. 1842, 60 L.Ed.2d 420 (1979). Our inconsistent directives in this case provide a classic example of why. The majority has exceeded this Court’s authority by demanding more than reasoned decisionmaking from FERC. FERC’s plan to preserve the status quo in the face of Congressional silence was perfectly sensible. El Paso would have continued to act as a custodian for future ratepayers, just as we suggested they might. The majority presents no reason why El Paso should be relieved of its duty to act as a custodian save for its technical objections that the vehicle for accomplishing this runs afoul of a formalistic reading of the NGPA. *347The majority’s reading is not only questionable, it is also irrelevant. The real issue is whether FERC had the authority to maintain the status quo, not how it chose to do so.
I think FERC’s decision and the prior remand of this court deserve greater respect than the majority accords them. FERC demonstrated the requisite “reasoned decisionmaking” in determining that the interest on the deferred tax reserves should continue to be returned to El Paso’s customers. It did exactly what the previous panel of this Court suggested it could do. Now a new panel deems this determination unreasonable. I dissent.