2002 Court Opinion Case Summaries
TO: Members of the Energy Bar Association
FROM: John E. McCaffrey, Assistant Secretary
SUBJECT: 2002 Energy-Related Court Opinions
DATE: April 4, 2003
Attached is a list of energy-related opinions issued by federal courts during 2002, along with a brief summary of each opinion. In recognition of the prevalent use of electronic mail by its members, the Association is now distributing the opinion summaries via e-mail, with hard copies available upon request. For the convenience of the Association’s members, we have included, where available, an internet hyperlink in each opinion summary that will allow for instant retrieval of the opinion from the Internet. Due to the availability of most court decisions in electronic format, the Association is no longer providing hard copies of the court decisions. The Association encourages the members to use the Internet links provided to access the full text of the court decisions.
Finally, due care has been taken to ensure that all relevant energy-related court opinions have been included in this report. If members are aware of energy-related court opinions issued during 2002 that are not included and that likely would be of interest to the Association’s membership, please contact John McCaffrey at (202) 785-9100, or by e-mail at email@example.com.
United States Supreme Court
New York v. FERC, 535 U.S. 1 (March 4, 2002)
The Supreme Court considered two petitions challenging FERC Order No. 888. New York, et al. challenged FERC’s decision to apply the open access transmission requirements of Order No. 888 to utilities providing unbundled service to retail consumers. Conversely, Enron Power Marketing, Inc. (Enron) challenged FERC’s refusal to apply Order No. 888 open access policies to bundled retail sales. After reviewing the pertinent background of the Federal Power Act (FPA), Energy Policy Act and Order No. 888, the court noted that the petitioners were not questioning the validity of Order No. 888 insofar as it applied to wholesale transactions, but only the proper scope of FERC’s jurisdiction over retail transmission.
In response to New York’s position that FERC exceeded its authority by including unbundled retail transmissions within Order No. 888’s open access requirements, the court observed that “the plain language of the FPA readily supports FERC’s claim of jurisdiction” because the FPA gives FERC jurisdiction over “the transmission of electric energy in interstate commerce.” The court noted that no language in the FPA limited FERC’s jurisdiction to only the wholesale market.
The court rejected New York’s contention that the Court of Appeals had erred by failing to apply a presumption against pre-emption of state law. The Supreme Court explained that this “presumption against pre-emption” applies when considering whether a given state authority conflicts with and has been displaced by federal authority. The presumption is inapplicable, the court explained, when a controversy concerns the scope of the federal government’s authority to displace state action. The “presumption against pre-emption” did not apply to this case “because the question presented does not concern the validity of a conflicting state law or regulation.” The court went on to observe, however, that an agency may only pre-empt state law if it is acting within the scope of its congressionally delegated authority, and explained that “[t]his is the sort of case we confront here – defining the proper scope of the federal power. Such a case does not involve a ‘presumption against pre-emption’ . . . but rather requires us to be certain that Congress has conferred authority on the agency.” In this regard, the court once again cited the FPA’s grant of jurisdiction over “transmission of electric energy in interstate commerce” and concluded that “[b]ecause the FPA authorizes FERC’s jurisdiction over interstate transmission, without regard to whether the transmissions are sold to a reseller or directly to a consumer, FERC’s exercise of this power is valid.”
The court also declined to accept New York’s contention that Section 201 and the legislative history of the FPA warranted a finding that FERC overstepped its authority in Order No. 888. New York had maintained that Congress intended to do no more than close the “Attleboro gap” by providing the Commission with jurisdiction over wholesale interstate electricity transactions and intended to preserve existing state jurisdiction. The court found, however, that “the original FPA did a good deal more than close the gap in state power identified in Attleboro,” especially insofar as it authorized federal regulation of interstate transmission as well as interstate wholesale sales. The court also noted that Order No. 888 was consistent with the notion of preserving state jurisdiction because unbundled interstate transmissions had never been “subject to regulation by the states” under Section 201 of the FPA, and, in fact, such transactions had not previously existed. The court also explained that the prefatory language in Section 201 of the FPA did not nullify the specific grant of jurisdiction over interstate transmission. Nor was Order No. 888 inconsistent with Section 201(b)’s preservation of state jurisdiction over local distribution facilities, because the Order did not attempt to control local distribution facilities. The court also noted that the developments in the electric industry since the passage of the FPA rendered the legislative history “not particularly helpful.”
Finally, the court rejected New York’s contention that FERC’s jurisdiction over unbundled retail transmission would impede sound energy policy, particularly the states’ interest in line siting and maintenance. The court found that New York had not analyzed the impact of the loss of control over unbundled retail transmissions apart from the loss of control over retail transmissions generally, and, in any case, such “policy arguments . . . are properly addressed to the Commission or to Congress, not to this Court.”
The court then turned to Enron’s argument that FERC had a duty to regulate bundled retail transmissions given its finding of undue discrimination in the provision of electric transmission service. Concluding that FERC had not made a finding that it could not regulate bundled transmissions, the court considered FERC’s rationales for declining to regulate bundled transmissions i.e., that (i) such relief was not necessary; and (ii) such regulation would raise difficult jurisdictional issues that did not need to be resolved. As to the lack of necessity to regulate bundled retail transmissions, the court accepted FERC’s reasoning that it was seeking to remedy a problem with the wholesale market. The court observed, however, that “[w]ere FERC to investigate this alleged discrimination [in the retail electricity market] and make findings concerning undue discrimination in the retail electricity market, § 206 of the FPA would require FERC to provide a remedy for that discrimination.” The court also agreed, without deciding the merits of Enron’s arguments, that FERC could reasonably conclude that regulating bundled retail transmissions raised difficult jurisdictional issues and that FERC had discretion to decline to exercise any jurisdiction it might have because of the complicated nature of the jurisdictional issues.
Justice Thomas, joined by Justices Scalia and Kennedy, concurred in part and dissented in part. Justice Thomas concurred with the court’s holding with respect to transmission used for unbundled retail sales (i.e., New York’s petition), but dissented from the court’s resolution as to regulation of transmission as part of a bundled retail sale. Specifically, the dissent contended that FERC did not adequately explain why regulating bundled retail transmissions was not “necessary,” and that the Commission’s “inconclusive jurisdictional analysis does not provide a sound basis for our deference.”
Chao v. Mallard Bay Drilling, Inc., 534 U.S. 235 (January 9, 2002)
Respondent, an operator of barges used for oil and gas exploration, was cited by OSHA for certain violations of the Occupational Safety and Health Act (“OSH Act”) in connection with an explosion on a barge in Louisiana territorial waters that killed or injured several crew members. The barge operator challenged OSHA jurisdiction, arguing that the Coast Guard had exclusive jurisdiction over safety issues on vessels in navigable waters. OSHA disagreed and respondent appealed. The Fifth Circuit reversed OSHA’s determination, agreeing that the Coast Guard possessed exclusive jurisdiction. The Supreme Court reversed, explaining that, while Section 4(b)(1) of the OSH Act precludes OSHA regulation of working conditions over which other agencies exercise statutory authority, the court agreed that this requires a finding that another agency (here, the Coast Guard) actually exercises its authority, and not simply that another agency might have power to regulate. All parties agreed that the barge on which the explosion occurred was an “uninspected vessel,” pursuant to 46 U.S.C. § 2101(43), for which the Coast Guard provided only limited regulation of occupational safety and health issues, which did not include regulating the dangers from oil drilling operations on uninspected barges in inland waters. The court held: ‘[b]ecause the Guard has neither affirmatively regulated the working conditions at issue in this case, nor asserted comprehensive regulatory jurisdiction over working conditions on uninspected vessels, the Guard has not ‘exercised’ its authority under § 4(b)(1)” of the OSH Act. Finally, the court found that the barge was a “workplace” as the term is defined in § 4(a) of the OSH Act, as it was located in “a State” and nothing in § 4(c) attaches any significance to the fact that the barge was anchored in navigable waters.
United States Court of Appeals for the District of Columbia Circuit
Idaho Power Co. v. FERC, 312 F.3d 454 (D.C. Cir. Dec. 13, 2002)
Court of Appeals reversed FERC orders requiring the petitioner to award transmission rights to an incumbent customer for an 18-month term instead of to a competing bidder proposing a ten-year contract. FERC had concluded that, because the incumbent customer was limited to bidding for 18-month periods in seeking to invoke its right of first refusal, the competing bidder’s ten-year term was not “substantially the same in all respects” to the incumbent customer’s bid, and, therefore, the incumbent customer should be awarded the capacity. The court first rejected as “meritless” FERC’s argument that the petitioner was not aggrieved by having to enter into an 18-month contract instead of a 10-year contract. The court then granted the petition for review, finding FERC’s conclusion to be “nonsensical” and inconsistent with the applicable tariff, Order No. 888 and Commission precedent. The court reasoned that, under FERC’s interpretation, “the incumbent would never have to change its term of service to match the competitor’s superior offer, rather, the utility could not consider the competitor’s offer precisely because it is better.”
Canadian Ass’n of Petroleum Producers v. FERC, 308 F.3d 11 (D.C. Cir. October 25, 2002)
Trade association challenged the return on equity (ROE) authorized by FERC for an interstate gas pipeline. As a threshold matter, the court found that it was without jurisdiction to consider petitioner’s contention that the difference in riskiness between the proxy group used by FERC in the discounted cash flow (DCF) analysis and that of a pure pipeline company should be accounted for when FERC set the pipeline’s ROE within the DCF range of returns. The petitioner, the court found, did not raise this objection on rehearing. The court also upheld FERC’s conclusion that the pipeline was entitled to an ROE at the median of the DCF range of returns given its individual risks. In particular, the court upheld: (i) FERC’s consideration of potential prospective risks; (ii) FERC’s consideration of the ratio of contract length to depreciable life; and (iii) FERC’s refusal to attach conclusive weight to the pipeline’s favorable Standard & Poor’s rating.
California Dept. of Water Resources v. FERC, 306 F.3d 1121 (D.C. Cir. October 18, 2002)
Court of Appeals dismissed petitions for review for lack of jurisdiction where the petitioner had not sought rehearing of the FERC order by which it was aggrieved. FERC had originally issued an order that aggrieved petitioner’s interest, and petitioner sought rehearing. The Commission reversed itself and issued a second order adopting petitioner’s position. In a third order, the Commission again reversed itself, re-instituting the position aggrieving petitioner. The court held that petitioner was obligated to seek rehearing of the third order because it had significantly modified the previous order. The court rejected the petitioner’s argument that it had satisfied the rehearing requirement by challenging the initial order against its interest. The court also rejected intervenors’ efforts to raise an issue not raised by the petitioner, observing that “absent extraordinary circumstances, intervenors may join issue only on a matter that has been brought before the court by a petitioner.”
Pacific Gas & Elec. Co. v. FERC, 306 F.3d 1112 (D.C. Cir. October 15, 2002)
Petitioner challenged FERC’s approval of the transmission revenue requirement (TRR) of a non-jurisdictional municipal utility for participation in the California ISO (CAISO). The Court of Appeals observed that “the TRR of each participating transmission owner can be conceptualized not as its own rate but rather as a cost of the CAISO.” Thus, the court reasoned, the municipal utility’s TRR “need not be independently subject to the just and reasonable standard of § 205.” The court found, however, that FERC failed to provide an explanation as to how or why FERC’s review of the TRR produced just and reasonable rates for CAISO. Accordingly, the court remanded for further proceedings. In so doing, the court commented on several of the petitioner’s specific objections to FERC’s approval of the TRR. While observing that “FERC need not apply to non-jurisdictional utilities the requirements of its regulations applicable to jurisdictional utilities,” the court noted that FERC would have to provide a reasoned explanation for approving TRR costs that used the return and depreciation levels of a jurisdictional utility in the same service area as a proxy for the costs of the municipal utility.
El Paso Merchant Energy, L.P. v. FERC, No. 02-1140 (D.C. Cir. September 5, 2002)
Petitioner, a natural gas company, challenged a FERC order that directed supplemental hearings before an ALJ following the close of the record before the Judge. In an unpublished decision, the Court of Appeals dismissed the petition on the grounds that the challenged orders were non-final agency action. Further, the court imposed sanctions on the petitioner, finding that its claims of “ ‘procedural problems’ created by the submission to the agency of comments by the Commission’s Market Oversight and Enforcement Section of the Office of the General Counsel regarding the ALJ’s initial decision appears to be ‘wholly without merit.’”
Alabama Mun. Distributors Group v. FERC, 300 F.3d 877 (D.C. Cir. August 30, 2002)
Upon a motion by FERC to dismiss intervenors from appeal, the Court of Appeals held that an application for rehearing of a FERC order is not a condition precedent for intervention where the intervenors are not attempting to substitute for the petitioners or to expand the issues on review.
Exxon Mobil Gas Marketing Co. v. FERC, 297 F.3d 1071 (D.C. Cir. Aug. 6, 2002)
In a 2-1 decision, the court affirmed FERC’s finding that a portion of the offshore Sea Robin pipeline was non-jurisdictional gathering and a portion was jurisdictional transportation. On an earlier remand from the Fifth Circuit, FERC found that the Sea Robin system, which the court described as shaped like an inverted “Y,” was non-jurisdictional gathering upstream of the convergence of the two “legs” feeding into a single line for transportation to shore. Applying Chevron deference, the majority found that FERC’s application of the primary function test was not arbitrary and capricious. In so doing, the court reasoned that the Supreme Court’s narrow definition of gathering in Northern Natural Gas Co. v. State Corp. Comm’n of Kansas, 372 U.S. 84 (1963), while relevant, had to be considered in context, noting that the Supreme Court’s narrow conception of gathering was developed in a bundled regime and with respect to an on-shore system. The court also found that the previous classification of Sea Robin as entirely transportation was of “limited utility” insofar as FERC was required to rely primarily on physical factors in drawing the line between gathering and transportation. The court also was not swayed by the fact that a regulated transportation line, the Garden Banks pipeline, flowed into the Sea Robin System upstream of the point where FERC found jurisdictional transportation to begin. The court suggested that the classification problem might be with Garden Banks, not Sea Robin. The court rejected the petitioners’ argument that FERC withdrawal of jurisdiction left a regulatory gap, emphasizing that the ostensible need for regulation cannot alone create authority to regulate. The court also “quickly dispense[d]” with an argument that FERC’s reclassification of facilities from transportation to gathering was subject to abandonment proceedings under Section 7(b) of the NGA. Sea Robin, the court explained, simply sought to continue operating previously certificated facilities as gathering facilities, exempt from FERC jurisdiction. The court held that this was not abandonment under the NGA, and noted that a contradictory reading would allow FERC to bootstrap jurisdiction over non-jurisdictional facilities. Finally, the majority rejected as unsupported an argument that the use of the term “feeder lines” in a jurisdictional exemption in the Outer Continental Shelf Lands Act should define the extent of the gathering exemption of Section 1(b) of the NGA.
In a dissent, Judge Edwards found FERC’s selection of the conversion of the two “legs” of Sea Robin system as the demarcation between gathering and transportation to be arbitrary and capricious. Judge Edwards assailed FERC for identifying what it believed was the central point in the field without assessing the physical characteristics of the pipelines upstream of that point. Judge Edwards found the situation whereby the jurisdictional Garden Banks pipeline flowed on to non-jurisdictional gathering facilities to be “positively absurd.” Judge Edwards suggested that offshore production platforms were a more viable division point between gathering and transportation.
Enron Power Marketing v. FERC, 296 F.3d 1148 (D.C. Cir. July 26, 2002)
Petitioners, power marketers, petitioned for review of FERC orders approving an open access transmission tariff provision that required that a source control area contain generation and a sink control area contain electrical demand, and that precluded net scheduling. Petitioners alleged that the provisions violated the comparability requirements of Order No. 888 and that FERC’s approval constituted an improper departure from policy. The Court of Appeals affirmed FERC, finding that the fact that customers without load in a control area could not schedule that control area as a sink did not violate comparability because comparability is tested on the basis of terms and conditions offered to customers, not on the usefulness of those terms and conditions to a particular customer. Further, FERC did not depart from its anti-discrimination policy because the petitioners failed to show that the prohibition on net scheduling was discriminatory in the first place. Finally, the court rejected the petitioners’ argument that FERC arbitrarily departed from its policy of deferring to NERC on reliability issues, concluding that FERC had no such policy. Indeed, the court “seriously question[ed] whether there validly could be such a policy” except insofar as FERC, as the ultimate fact-finder, may consider and accept the views of a particular expert.
Atlantic City Elec. Co. v. FERC, 295 F.3d 1 (D.C. Cir. July 2, 2002)
Electric utilities challenged a FERC order on a PJM ISO proposal in which FERC: (i) required the utilities to eliminate a provision allowing them to unilaterally file to make changes in rate design, terms or conditions of jurisdictional service; and (ii) prohibited the withdrawal of utilities from the ISO without pre-approval by FERC. Further, an individual utility challenged FERC’s requirement that transmission owners modify any agreements to eliminate multiple transmission charges, arguing that FERC had not made the requisite public interest findings under the Mobile-Sierra doctrine. The Court of Appeals granted the petitions for review, concluding first that FERC did not have any statutory authority for its “unprecedented decision to require the utility petitioners to cede rights expressly given to them in Section 205 of the Federal Power Act.” In this regard, Section 206 of the FPA does not give FERC the power to deny a utility the right to file charges in the first instance. The court rejected the argument that the requirement was justified by Order No. 888 because Order No. 888 was “merely a regulation” which could not be the basis for denying statutory rights. The court also overturned FERC’s requirement that the utilities apply to FERC under Section 203 of the FPA prior to any withdrawal from the ISO. The court concluded that a utility withdrawing from an ISO did not “sell, lease, or otherwise dispose” of its facilities within the meaning of Section 203. The court found that FERC’s interpretation that such withdrawal amounted to a “disposition” of facilities was inconsistent with the plain language of the FPA, irreconcilable with the voluntary coordination and interconnection provisions of Section 202 of the FPA, and was inconsistent with previous FERC interpretation of Section 203. Finally, the court agreed that FERC’s generic modification of pre-existing wholesale power contracts to reflect new transmission pricing ran afoul of the Mobile-Sierra doctrine. FERC, the court found, had “failed to undertake, let alone satisfy, the requirements of the Mobile-Sierra doctrine.”
Clifton Power Corp. v. FERC, 294 F.3d 108 (D.C. Cir. June 28, 2002)
Petitioner appealed FERC’s imposition of a fine for failing to comply with a condition of petitioner’s hydro-power license. In an earlier ruling, the court had remanded the Commission’s assessment of the fine, citing FERC’s failure to engage in reasoned decisionmaking or to consider the totality of the evidence. On remand, FERC affirmed but reduced the fine. The petitioner sought rehearing of the remand order, which was denied. The petitioner then filed a second petition for rehearing. Prior to a ruling on this second rehearing request, the petitioner filed its petition for review. Subsequent to petitioner filing its petition for review, the Commission denied the second request for rehearing. The court dismissed the petition for lack of jurisdiction, finding that pendency of the second request for rehearing rendered the agency action non-final. The court rejected the argument that FERC’s denial of the second rehearing ripened the action for appeal, explaining that “prematurity is an incurable defect.” The court also rejected the argument that the petition was not premature because the Commission and the court have concurrent jurisdiction under § 313 of the Federal Power Act up until the time the Commission files the record in the court, pursuant to FERC’s authority to modify or set aside any order even after a petition for review is filed. The court explained that “[i]t is the petitioner’s request for rehearing, not the agency’s authority to reconsider a decision that renders the agency’s authority to reconsider a decision non-final as to the petitioner.” The court observed that a rule against the petitioner proceeding concurrently before FERC and the court was practical from the standpoint of judicial efficiency. Finally, the court rejected the petitioner’s argument that the court should use its mandamus powers to require FERC to adhere to the court’s mandate in the initial appeal. While agreeing conceptually that it had such authority, the court found that petitioner fell far short of demonstrating that mandamus was warranted.
Process Gas Consumers Group v. FERC, 292 F.3d 831 (D.C. Cir. June 14, 2002)
Petitioner, an association of industrial gas customers, challenged FERC’s decision to permit a natural gas pipeline to allocate new capacity to customers based on the net present value (NPV) of bids, with no term matching cap. The petitioner also objected to FERC’s acceptance of the pipeline’s proposal to allocate new primary receipt points using an NPV approach that assigned zero value to a current shipper’s existing contract. With respect to new capacity allocation, the court accepted FERC’s rationale that existing regulatory controls, e.g., maximum rates and must-sell requirements, protected shippers against the possibility that the pipeline might withhold new capacity in an effort to obtain longer contract terms in the absence of a term matching cap. The court also concurred with FERC’s conclusion that the pipeline could not manipulate the bidding under FERC rules. The court agreed with FERC that “the fact that shippers may at times bid up contract length likely reflects not an exercise of [pipeline] market power, but rather competition for scarce capacity.” The court rejected the petitioner’s effort to analogize the situation to a right of first refusal, noting that “the requirement to protect existing shippers from pipeline market power derives directly from Section 7(b) of the Natural Gas Act,” whereas there is no comparable statutory provision requiring FERC to protect new shippers from competition for limited capacity, so long as rates remain just and reasonable.
The court also affirmed FERC with respect to allocation of receipt point capacity, accepting FERC’s reasoning that nothing in an existing shipper’s relationship with the pipeline entitles it to win contested primary points from new shippers wishing to purchase the point and associated mainline capacity. In such case, the court reasoned that it was “eminently reasonable” for the pipeline to adopt a point allocation approach that promoted the sale of available mainline capacity.
Arkansas Elec. Energy Consumers v. FERC, 290 F.3d 362 (D.C. Cir. May 17, 2002)
Customers and state regulators of Entergy operating companies challenged a FERC decision approving the merger of the Entergy and Gulf States systems as violative of the Federal Power Act’s prohibition on undue discrimination under Section 205. The petitioners argued that FERC erred in approving an amendment to the Entergy System Agreement because the amended System Agreement treated Gulf States, with no history of cost-sharing with respect to Entergy system facilities, similar to the existing Entergy operating companies. After finding that the petitioners had sought rehearing of the appropriate FERC order, the court affirmed FERC’s rulings that the rates in the amended System Agreement were not unduly discriminatory merely because they did not exactly reflect the benefits contributed by various participants. The court also rejected the petitioners’ argument that FERC had departed from previous precedents in approving the amended System Agreement. Finally, the court declined to rule that FERC should have convened an evidentiary hearing to consider the merger.
Gulfstream Natural Gas System, L.L.C. v. FERC, No. 01-1207 (D.C. Cir. May 10, 2002)
In an unpublished decision, the court rejected the argument that a new gas pipeline project should be entitled to use its actual equity ratio for the purpose of calculating its allowance for funds used during construction, rather than the 70%/30% debt/equity capital structure used in calculating the project’s overall return. The court observed that FERC’s ruling was consistent with its existing policy and not arbitrary and capricious.
FPL Energy Maine Hydro LLC v. FERC, 287 F.3d 1151 (D.C. Cir. May 3, 2002)
Court of Appeals upheld FERC’s finding that a waterway on which a hydroelectric facility was located was “navigable” under 16 U.S.C. § 796(8) and, thus, the facility was subject to FERC licensing jurisdiction. The court explained that the test for navigability was whether the waterway: (i) presently is being used or is suitable for use for the transportation of persons or property in interstate or foreign commerce; (ii) has been used or was suitable for such use; or (iii) could be made suitable for such use in the future by reasonable improvements. Applying Chevron deference, the court concluded that FERC’s interpretation of navigability, which was based on test canoe trips and the stream’s physical characteristics in the absence of any commercial or recreational use, was reasonable and entitled to deference. The court declined to find that FERC was required to identify the precise commercial use to which a previously unused waterway might be put in order to uphold a finding of navigability. Finally, the court held that while “not overwhelming,” FERC’s finding was supported by substantial evidence.
Citizen Power, Inc. v. FERC, No. 01-1240 (D.C. Cir. April 25, 2002)
Petitioners appealed a FERC order disclaiming jurisdiction over the potential disposition of power generation facilities. The petitioners contended that FERC was required to review disposition of generation assets pursuant to Section 203 of the Federal Power Act (FPA). In an unpublished decision, the court denied the petition, finding that Section 203 only applied to “facilities subject to the jurisdiction of the Commission.” The court agreed that Section 201 of the FPA does not, unless specifically provided, grant FERC jurisdiction over generation facilities, and that Section 203 did not “specifically provide” for FERC jurisdiction over dispositions of generation facilities. The court rejected petitioners’ argument that generation facilities are in fact facilities “for the transmission or sale of electric energy” under FPA Section 201 as unsupported by the text of the FPA.
Gulf South Pipeline Co., LP v. FERC, No. 99-1424 (D.C. Cir. April 23, 2002)
Petitioner, an interstate pipeline, appealed FERC’s denial of its application to charge market-based rates for natural gas firm transportation service. The court affirmed the Commission in an unpublished opinion, finding that FERC’s evaluation of the petitioner’s market power was entitled to deference and was supported by substantial evidence. The court concluded that FERC acted reasonably in finding that the petitioner failed to meet its burden of proof to show that its interruptible IT service was an adequate alternative to firm service and, thus, able to mitigate the pipeline’s market power.
Dominion Resources, Inc. v. FERC, 286 F.3d 586 (D.C. Cir. April 19, 2002)
Dominion Resources, Inc. challenged standards of conduct imposed by FERC on Dominion’s various subsidiaries in connection with the merger of Dominion and Consolidated Natural Gas (CNG). FERC had mandated that its natural gas standards of conduct apply to “all energy companies that would be affiliated” under the merger, and not just to affiliates with whom CNG conducted transportation transactions and affiliates with an electric power merchant function, as CNG had proposed. The court granted the petition, vacated FERC’s decision and remanded for further proceedings. As a threshold issue, the court rejected FERC’s argument that the court lacked jurisdiction because Dominion had failed to appeal the order by which it was actually aggrieved. The court found that Dominion had not been obligated to appeal FERC’s initial order on the standards of conduct because Dominion had reasonably interpreted the initial order not to require the standards of conduct to apply as broadly as FERC mandated in its later order on Dominion’s compliance filing. The court found that FERC’s broad application of the standards of conduct represented an unexplained and unjustified departure from precedent and was, therefore, arbitrary and capricious. While acknowledging that a possible “loophole” existed in the application of the standards to the extent that Dominion gas LDCs might act as conduits for gas pipeline information, the court found that FERC had “used a tank to block a mousehole,” and had not offered a reasonable explanation for a broad application of its gas standards of conduct to all affiliated energy companies. The court also observed that the broad application of the standards would proscribe activity that had been permitted prior to the merger and that was unrelated to the merger.
Sithe/Independence Power Partners, L.P. v. FERC, 285 F.3d 1 (D.C. Cir. April 9, 2002)
Petitioner, a non-utility generator operating within the New York ISO, challenged FERC’s approval of tariff provisions proposed by the NYISO member companies to address transmission losses. The proposal utilized a locational marginal pricing methodology with the simplifying assumption that every megawatt-hour of energy injected into the system is treated as the “last” MWh. As a result of this assumption, the methodology overcollected revenue necessary to offset actual losses. The member companies proposed, and FERC approved, to credit such overcollections against the NYISO Scheduling Charge. The petitioner maintained that this approach was unjust and unreasonable because it discriminated against entities, such as the petitioner, that did not pay the Scheduling Charge. The court found that FERC had not adequately responded to the petitioner’s objections insofar as the Commission simply asserted that the proposed system produced “efficient price signals” and that more precise refunds of the loss overcharges would be “infeasible.” While acknowledging that FERC could accept rate proposals that tracked cost-causation less than perfectly, the court observed that in light of cost causation principles and the FPA’s bar on discriminatory rates, FERC was obligated to provide a more reasoned explanation for its rejection of the petitioner’s arguments.
Interstate Nat. Gas Ass’n v. FERC, 285 F.3d 18 (D.C. Cir. April 5, 2002)
The Court of Appeals considered various consolidated petitions for review of FERC’s Order No. 637. The court: (i) affirmed FERC’s experimental waiver of rate ceilings for short-term capacity releases by shippers, finding that FERC adduced a substantial record to support its conclusion that rates would remain within a zone of reasonableness, identified the presence of non-cost factors restraining prices, and provided for appropriate oversight; (ii) affirmed FERC’s retention of the rate ceiling for short-term pipeline releases, agreeing that pipeline capacity releases raised different problems than those by shippers and noting that FERC was entitled to undertake reform one step at a time; (iii) affirmed the general validity of the segmentation policy of Order No. 637, while specifically noting FERC’s acknowledgment that it will shoulder the burden under § 5 of the NGA to show the requisite operational feasibility of segmentation on individual pipeline systems; (iv) affirmed FERC’s adoption of flexible point rights, rejecting objections that the policy abrogated existing contracts because the new rule was a continuation of past policy; (v) remanded to FERC on the issue of allowing releasing and replacement shippers, in a combination of forwardhaul and backhaul, to make deliveries to a single point in an amount greater than the shipper’s contracted-for capacity at the delivery point; (vi) affirmed FERC’s allowance of segmentation at “paper” pooling points, while cautioning that it understood FERC to be “serious in its commitment that it will not apply segmentation in a way that subjects pipelines to overlapping uses of mainline capacity;” (vii) denied as unripe challenges to use of segmenting on reticulated pipelines, finding that segmentation would be subject to the operational feasibility criterion in individual cases; (viii) denied as unripe challenges to FERC’s discussion of how discounted transactions would be treated under segmentation; (ix) dismissed, for lack of aggrievement, a petition by a pipeline challenging FERC’s rules regarding allocation of mainline capacity leading to secondary delivery points; (x) affirmed FERC’s rule allowing pipelines to impose penalties only to the extent necessary to prevent the impairment of reliable service; (xi) affirmed the rule mandating that pipelines flow penalty revenues to non-offending shippers and affirmed the rule allowing pipelines to retain revenues from imbalance services; (xii) vacated and remanded to FERC to provide a reasoned explanation of why a five-year “matching cap” on exercise of the right of first refusal (ROFR) was appropriate, explaining that FERC had not adequately addressed the potential concerns that FERC itself had previously expressed concerning a five-year cap; (xiii) remanded for a reasoned explanation of whether FERC considered the ROFR to be self-executing, regardless of a pipeline’s tariff provisions, and to assess whether such a position was legally sustainable; (xiv) affirmed FERC’s ruling that the ROFR was only applicable to shippers with maximum rate contracts, accepting as a “fair inference” FERC’s rationale that shippers paying less than the maximum rate have supply choices and are thus not subject to the pipeline market power against which the ROFR is intended to protect, and accepting FERC’s rationale that limiting the ROFR to maximum rate contracts fairly apportioned risk; (xv) denied a petition objecting to FERC’s failure to articulate its pipeline discounting policy, but the court expressed frustration with FERC’s long-time failure “to rule on the issue in any kind of comprehensive manner” and noted that “[a]s time drags on . . . Commission failure to address the issue on the merits will virtually set up for a successful claim for undue delay;” (xvi) dismissed as unripe challenges to FERC’s announced policy with respect to seasonal rates, accepting FERC’s characterization of its action on this issue to be only a policy statement, not a rule; (xvii) reversed and remanded FERC’s treatment of waivers of the requirement to post short-term capacity subject to pre-arranged deals under state retail choice programs, finding that FERC failed to support its rule conditioning any waiver on an applicant’s being prepared to have all of its capacity release transactions limited to the applicable maximum rate.
Burlington Res. Oil & Gas Co., L.P. v. FERC, No. 01-1233 (D.C. Cir. April 3, 2002)
Shippers challenged FERC’s treatment of fuel rates on a natural gas pipeline. In an unpublished decision, the Court of Appeals denied the petition, finding that: (i) FERC had reasonably interpreted the applicable settlement provisions as not precluding a change to the fuel rates; (ii) FERC, in any case, would have been justified in requiring changes under § 4 of the NGA because FERC approval of the applicable settlement had been remanded in another proceeding; and (iii) FERC had adopted a reasonable method of calculating fuel charges.
American Trucking Associates, Inc. v. EPA, 283 F.3d 355 (D.C. Cir. March 26, 2002)
Court of Appeals considered challenges to EPA’s National Ambient Air Quality Standards (NAAQS) for particulate matter and ozone that remained pending on remand from the Supreme Court’s decision in Whitman v. American Trucking Ass’ns, 531 U.S. 457 (2001). The Court of Appeals rejected claims that the NAAQS set by EPA were arbitrary and capricious, concluding, inter alia, that: (i) in setting primary NAAQS that are “requisite” to protect public health, EPA is not obligated to identify perfectly safe levels of pollutants, to rely on specific risk estimates, or to specify threshold amounts of scientific information; (ii) in the absence of clear evidence of such an effect, EPA was not obligated to consider whether producing atmospheric concentrations of fine particles would increase levels of other pollutants; (iii) EPA had reasonably decided to adopt a more stringent particulate matter standard than had existed previously; (iv) the court had already rejected the contention that EPA failed to adequately address arguments that other factors might account for the health risks ostensibly caused by particulate matter; (v) EPA was not obligated to obtain and make public the data underlying studies supporting its conclusions, agreeing with EPA that it was entitled to rely on published studies; (vi) environmentalist claims that particulate matter standards should have been stricter were not persuasive; (vii) EPA’s decision regarding the appropriate level of NAAQS for ozone was reasonable; (viii) in establishing the secondary ozone NAAQS, EPA was not obligated to account for factors other than ozone that might affect crop-yield, and that the secondary ozone NAAQS were adequately supported.
Association of Oil Pipelines v. FERC, 281 F.3d 239 (D.C. Cir. March 1, 2002)
Petitioner challenged FERC’s establishment of a formula for changes in annual price caps on interstate oil pipeline rates. The Court of Appeals remanded, without vacating, on the grounds that FERC had not adequately justified departures from its previous policy for establishing the annual changes in pipeline price caps. Specifically, the court found that FERC had not adequately justified its use of a new “floating weight” average for oil pipeline cost increases given that such an approach could, by FERC’s own admission, produce peculiar results and was not otherwise justified by FERC’s rationales. The court also found that FERC did not justify its departure from its previous approach of eliminating statistical outliers from its calculation of industry cost increases given that FERC’s rationale for not doing so was its conclusion that narrowing the dataset resulted in progressively higher cost increase averages. The court observed that refusing “to adjust only because of the direction of the resulting change” was not an adequate rationale. The court also faulted FERC for declining to utilize net plant to approximate return on investment and income taxes when it had used this approach previously and, in fact, had rejected the same arguments against such a methodology that it now cited in support of its decision not to use a net plant approach. Finally, the court denied the petitioner’s argument that FERC should have adjusted its annual cost increase index to reflect (i) purportedly lower-than-usual costs during the historical base period; and (ii) expected increased environmental and safety costs. The court refused to find that FERC erred in adhering to its historical cost-change approach or in declining to speculate about future cost increases. In this respect, the court noted that FERC’s position was consistent with the Energy Policy Act’s mandate to adopt a simplified oil pipeline pricing scheme.
Independent Petroleum Ass’n of America v. Dewitt, 279 F.3d 1036 (D.C. Cir. February 8, 2002)
Trade associations representing natural gas producers/lessees challenged Department of Interior (DOI) regulations addressing costs that that producer/lessees were permitted to deduct from gross proceeds on gas sales for purposes of calculating royalties due to the federal government and Native-American tribes under leases with the DOI and the tribes. Producers brought suit in District Court, contending that DOI improperly denied deductions for: (i) marketing gas for downstream sales; (ii) pipeline “intra-hub” transfer fees; and (iii) “unused” pipeline demand charges, i.e., charges for capacity in excess of what the producer actually used. The District Court found that DOI was obligated to allow deduction of downstream marketing fees, including intra-hub transfer fees, and the “unused” pipeline demand charges. As a threshold issue, the Court of Appeals rejected the producers’ argument that Chevron deference did not apply because DOI was promulgating rules that directly affected its own economic self-interest. While acknowledging that “no circuit appears ever to have ruled specifically on the issue of deference to financially self-interested agencies,” the court observed that “courts have regularly applied Chevron in royalty cases.” The court noted that it often gives deference “in the face of a recognized risk of agency self-aggrandizement,” citing the example of deference to agencies’ interpretation of their own jurisdiction. The court observed that “given the ubiquity of some form of agency self-interest, a general withdrawal of deference on the basis of agency self-interest might come close to overruling Chevron.”
On the issue of marketing costs and intra-hub transfer fees, the Court of Appeals reversed the District Court, finding that the producers provided no persuasive reason why DOI should be required to upset its traditional refusal to allow deductions for marketing costs, explaining that unbundling of gas sales and transportation by FERC did not warrant a change in policy because producers did not offer a valid basis to distinguish between marketing for leasehold sales and for “downstream” sales. The court also rejected the producers’ broad argument that all non-leasehold costs that added value to the gas should be deductible. However, the court affirmed the District Court’s ruling that DOI was obligated to allow deduction of “unused” demand charges as transportation costs, finding that the agency provided no cogent explanation other than its own ipse dixit as to why such charges were not transportation costs.
Judge Sentelle authored a concurring opinion, expressing some concern about the majority’s reliance on cases in which courts granted deference to an agency’s interpretation of its own jurisdiction to reject the petitioners’ financial self-interest argument. Judge Sentelle opined that cases involving the scope of agency jurisdiction presented very different questions than an agency financial self-interest scenario. He also questioned the breadth of the majority’s statement that refusing deference on the basis of agency self-interest could effectively overrule Chevron. Judge Sentelle stated that “[w]e might as well propose that judges can sit on cases in which they have a financial interest because we regularly sit on cases on which we might exercise self-aggrandizement by expansively interpreting our jurisdiction.” Finding the majority’s discussion of the issue to be dicta and not essential to the conclusion, however, Judge Sentelle concurred.
National Rural Elec. Coop. Ass’n v. SEC, 276 F.3d 609 (D.C. Cir. Jan. 18, 2002)
Court of Appeals vacated and remanded Securities & Exchange Commission (SEC) approval of a merger between two electric utilities subject to SEC jurisdiction under the Public Utility Holding Company Act (PUHCA). The SEC had found that a single unidirectional contract path satisfied PUCHA’s requirement that a holding company comprise an interconnected system. While rejecting arguments that the contract path was “too small and too tentative,” the court concluded that the SEC had not adequately explained how a unidirectional contract path satisfied the interconnection requirement. The court also required the SEC to explain how a single contract path could be accepted as satisfying PUHCA’s interconnection requirement in light of previous SEC rulings to the contrary. The court further found that the SEC failed to make sufficient evidentiary findings regarding PUHCA’s “single region” requirement because: (i) the SEC had not addressed factors that the SEC had previously explained were necessary to consider in evaluating whether the single region requirement was satisfied, and (ii) the SEC erroneously concluded that a proposed merger that satisfies PUHCA’s other requirements also meets the statute’s region requirement. The court rejected, however, the petitioners’ challenge to the SEC’s finding that the merger would produce net economies and efficiencies, citing its deference to the agency in such matters and the absence of contrary evidence.
United States Court of Appeals for the First Circuit
Sithe New England Holdings, LLC v. FERC, 308 F.3d 71 (1st Cir. Oct. 4, 2002)
Installed capability (ICAP) suppliers in New England appealed a FERC order declining to implement retroactively a higher ICAP deficiency charge for a locked-in period during which a court-imposed stay had been in effect. The Court of Appeals rejected the suppliers’ argument that a low ICAP deficiency charge during the period deprived them of a just and reasonable rate, finding that ICAP charges were payments over and above the amount they charge for power sold to or reserved for buyers. ICAP charges, the court concluded, “are simply not part of the compensation to sellers required by” the FPA. Separately, the court suggested that subsequent implementation of a higher charge during the locked-in period would not have been retroactive ratemaking, as opponents of the petition maintained, because the customers were aware that the ICAP charge could change. The court ultimately concluded that the choice between implementing or not implementing a higher ICAP charge retroactively was a policy choice for FERC that would be upheld so long as FERC adequately explained its rationale. Finding that FERC had provided a reasonable explanation for its decision not to implement a higher ICAP charge retroactively (i.e., because ICAP is an incentive mechanism intended to promote future actions), the court denied the petition for review.
Seahorse Marine Supplies, Inv. v. Puerto Rico Sun Oil Co., 295 F.3d 68 (1st Cir. July 9, 2002)
Court of Appeals heard an appeal and cross-appeal by an oil refinery and marine supplies distributor, respectively, from a jury verdict finding that the oil refinery had terminated its relationship with the distributor in violation of the Petroleum Marketing Practices Act (PMPA). The refinery’s principal legal argument was that the PMPA does not apply to motor fuels for marine vessels. The court found that the PMPA’s definition of “motor fuel” as “gasoline and diesel fuel of a type distributed for use in self-propelled vehicles designed primarily for use on public roads . . . ” was broad enough to encompass fuel used in marine vessels because such fuel was “of a type” as that sold for automobiles. The court also rejected the refinery’s challenges to jury instructions regarding the adequacy of the refinery’s notice of termination to the distributor, finding that the refinery’s argument that it had provided “de facto notice” was inconsistent with the PMPA’s strict notice of termination requirements. The court also upheld the lower court’s admission of certain expert testimony regarding damages under Daubert and Kumho Tire. The court also found that the District Court did not abuse its discretion in denying the refinery’s request for a new trial. Finally, the court denied the distributor’s cross-appeal which alleged that the District Court erred in denying a motion to alter or amend judgment regarding the distributor’s failure to mitigate damages. The Court of Appeals found that the verdict was supported by the evidence.
United States Court of Appeals for the Second Circuit
Niagara Mohawk Power Corp. v. FERC, 306 F.3d 1264 (2nd Cir. September 25, 2002)
Plaintiff, an electric utility, appealed District Court dismissal of its suit against FERC and the New York PSC challenging New York’s law that certain grandfathered QF contracts under the Public Utility Regulatory Policies Act (PURPA) must be priced no lower than six cents per kilowatt-hour, regardless of the utility’s avoided cost. Plaintiff sued FERC under PURPA and the Administrative Procedure Act (APA) and the New York PSC and its Commissioners under PURPA and the Supremacy Clause of the U.S. Constitution. The Court of Appeals affirmed the District Court’s dismissal as to FERC, holding that PURPA does not provide for a private right of action against FERC. The court also affirmed dismissal of the APA claim, finding that plaintiff’s argument that it was entitled to review because there was “no other adequate remedy in a court” under Section 704 of the APA was without merit because the plaintiff could maintain an action against state regulatory authorities, and FERC was not a necessary party to such litigation. The court also upheld dismissal of the plaintiff’s PURPA and Supremacy Clause claims against the New York PSC, finding that the two claims were, in substance, the same and were both precluded by the plaintiff’s failure to exhaust its administrative remedies by first petitioning FERC for relief pursuant to Section 210(h)(2)(B) of PURPA, 16 U.S.C. § 824a-3(h)(2)(B).
Consolidated Edison Co. v. Pataki, 292 F.3d 338 (2nd Cir. June 5, 2002)
Consolidated Edison Company of New York, Inc. (ConEd) brought suit against New York State officials seeking injunctive relief from a state statute specifically proscribing ConEd from passing through costs associated with the shut down and repair of the Indian Point 2 Nuclear Generating Facility in 2000-2001. The District Court issued a permanent injunction on the grounds that the statute was a bill of attainder and violative of the Equal Protection Clause. The Court of Appeals affirmed on the grounds that the statute was a bill of attainder. After noting that “the applicability of the Bill of Attainder Clause to corporations remains unsettled in any circuit,” the court held that the Bill of Attainder Clause of the Constitution does apply to corporations. Based on a detailed analysis, the court determined that the challenged statute met the retrospective and punitive criteria of a bill of attainder.
United States Court of Appeals for the Third Circuit
Pennsylvania Fed’n of Sportsmen’s Clubs, Inc. v. Hess, 297 F.3d 310 (3rd Cir. July 24, 2002)
In a suit by non-profit sporting and environmental organizations under the Surface Mining Control and Reclamation Act (SMCRA), the Court of Appeals considered the issue of whether the Eleventh Amendment bars suit in federal court against a state official where the issue is the official’s alleged failure to implement, administer and maintain a federally approved state coal mining program. Reviewing the background and operation of the SMCRA, whereunder primary jurisdiction to regulate surface mining operations is ceded to states with federally-approved plans, the court held that, given SMCRA’s intention to give states primary jurisdiction once a state plan was approved, challenges to Pennsylvania’s provisions regarding reclamation addressed matters of state law. Accordingly, the court found that the Ex parte Young exception to the Eleventh Amendment did not apply. In particular, the court rejected plaintiffs’ arguments that the Pennsylvania state program had been incorporated and “codified” into federal regulations. The court also rejected the argument that the Pennsylvania administrator had a federally-imposed duty under SMCRA to implement specific state provisions that would trigger an Ex parte Young exception. However, the court allowed counts to proceed that were based on the Pennsylvania administrator’s alleged failure to comply with certain specific and ongoing federal oversight requirements that had no counterpart in state law. In this respect, the court concluded that SMCRA does not contain a detailed remedial scheme that might foreclose on Ex parte Young action pursuant to Seminole Tribe v. Florida, 517 U.S. 44 (1996).
United States Court of Appeals for the Fourth Circuit
Cavalier Tel., L.L.C. v. Virginia Elec. and Power Co., 303 F.3d 316 (4th Cir. August 30, 2002)
Court of Appeals reversed and remanded the District Court’s issuance of a preliminary injunction to enforce an order of the Cable Services Bureau, issued pursuant to delegated authority of the FCC, requiring an electric utility to provide the plaintiff, a competitive local exchange carrier, access to the utility’s poles at specified rates and terms pursuant to the Pole Attachment Act. The Court of Appeals found that plaintiff had not exhausted its administrative remedies by filing a complaint with the FCC pursuant to the FCC’s Pole Attachment Complaint Procedures, 47 C.F.R. §§ 1.140-1.1418 (2001).
Hodges v. Abraham, 300 F.3d 432 (4th Cir. Aug. 6, 2002)
The Governor of South Carolina appealed District Court grant of summary judgment in favor of defendant U.S. Department of Energy (DOE) in Governor’s suit to enjoin DOE from moving nuclear materials to South Carolina on the grounds that DOE failed to comply with the National Environmental Policy Act (NEPA). As a threshold matter, the court found that the Governor had standing to sue DOE because the Governor, in his official capacity, is essentially a neighboring landowner whose property is at risk from DOE’s activities, and, thus, he had standing to enforce his procedural rights under NEPA pursuant to Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992). The court affirmed the District Court’s grant of summary judgment on the NEPA issues, finding that, contrary to the Governor’s contentions, the DOE had substantially examined the environmental effects of its proposed action and had complied with NEPA procedures.
Baltimore Gas & Electric Co. v. United States, 290 F.3d 734 (4th Cir. May 31, 2002)
The Maryland Public Service Commission (MPSC) appealed a District Court ruling that the U.S. Army did not violate federal procurement laws by failing to provide in its bid solicitation to privatize an army base gas and electric system that the successful bidder must submit to the MPSC’s jurisdiction. The original plaintiff in the action, the local incumbent utility, did not appeal the District Court ruling, and, thus, the Court of Appeals evaluated the MPSC’s independent standing to challenge the bid solicitation. The court dismissed the appeal, finding that the MPSC was not an “interested party” under the Administrative Dispute Resolution Act of 1996 and therefore had no standing to bring a bid protest action.
United States Court of Appeals for the Fifth Circuit
Hawthorne Land Co. v. Equilon Pipeline Co., LLC, 309 F.3d 888 (5th Cir. October 25, 2002)
Court of Appeals affirmed the District Court’s grant of summary judgment in favor of defendants where the plaintiff landowner challenged the federal government’s lease of a Strategic Petroleum Reserve (SPR) pipeline to a private company as inconsistent with the landowner’s donation of a pipeline right-of-way to the government. The court concluded that plaintiff’s donation to the government did not restrict the government’s ability to lease the pipeline to a third-party because the donation was not conditioned on the exclusive use of the pipeline for SPR purposes, and in any event, the purposes of the SPR were served by the private third-party’s upgrade and maintenance of the pipeline facilities.
Equinox Oil Co. v. Official Unsecured Creditors Comm., 300 F.3d 614 (5th Cir. Aug. 12, 2002)
In a case involving bankruptcy of affiliated companies that owned/operated oil and gas leases, the Court of Appeals affirmed lower court rulings regarding the priority of certain liens and whether certain property was part of the bankruptcy estate. First, the court agreed that bank liens were superior to liens filed by service providers pursuant to the Louisiana Oil Well Lien Act (LOWLA) because the bank liens were in existence when the LOWLA liens were filed. Second, the court found that insurance proceeds to clean up an oil spill were the property of the bankruptcy estate, and should not be paid directly to entities that the bankrupts had retained to clean up the accident. While the court observed that the argument of the “remediation creditors” that insurance proceeds to clean up the spill should go directly to them had “an equitable tug,” the law was clear that the insurance proceeds vested in the bankrupt and not in the third-party creditors.
Chevron USA Inc. v. School Board Vermilion Parish, 294 F.3d 716 (5th Cir. June 18, 2002)
In response to demand letters from two royalty owners for underpayment of royalties on behalf of themselves and “similarly situated royalty owners,” oil companies filed suit for declaratory judgment that, among other things, the demand letters were not sufficient notice of demand by “similarly situated royalty owners.” The District Court granted a motion for partial summary judgment in favor of the oil companies, finding that the letters from the two individual royalty owners were not sufficient notice for a class of royalty owner complainants. The District Court did not rule that the demand letters had been insufficient as to the two individual royalty owners’ claims. On appeal, the Court of Appeals held that there was no appealable order before it because no class was ever certified and, therefore, no member of any putative class was bound by the District Court’s ruling on notice. Further, the court observed that all parties agreed that the District Court had not ruled on the sufficiency of notice of the individual royalty owners’ individual claims.
Terrebonne Parish School Bd. v. Columbia Gulf Transmission Co., 290 F.3d 303 (5th Cir. May 10, 2002)
Court of Appeals reversed and remanded the District Court’s grant of summary judgment in favor of interstate pipeline companies in contract and tort action arising out of the pipeline companies’ alleged failure to maintain canals in which pipelines were located. The court found that the contracts between the pipelines and the plaintiff landowner did not, as a matter of law, excuse pipelines from maintaining the canals. The court also faulted the District Court’s analysis of when the plaintiff knew or should have known of damage to the canals for purposes of determining whether the tort action was prescribed (time-barred) under Louisiana law.
Canova v. Shell Pipeline Co., 290 F.3d 753 (5th Cir. May 7, 2002)
Court of Appeals affirmed the District Court’s grant of summary judgment in favor of the United States and a private pipeline company in suit by a landowner challenging the government’s lease of a Strategic Petroleum Reserve Pipeline to the private pipeline company. The plaintiff maintained that lease of the pipeline to a private company fell outside the scope of the government’s easement over the landowner’s property. Affirming the District Court, the Court of Appeals concluded that language in the easement providing for “the location, construction, operation, maintenance, alteration, repair and patrol of the multipipelines in the establishment, management and maintenance of the Strategic Petroleum Reserve” was a recitation of purpose and not a limitation on the scope of the easement to SRP activities. The court also explained that lease of the pipeline to a private firm was not inconsistent with the Energy Policy and Conservation Act and, in fact, appeared to be “plainly authorized” by the Act.
Stirman v. Exxon Corp., 280 F.3d 554 (5th Cir. February 1, 2002)
Court of Appeals reversed and remanded the District Court’s certification of a class in a potential class action case alleging that defendant, a natural gas producer-lessee, had breached leases with class members by violating an implied covenant to market natural gas subject to the leases. The Court of Appeals found that the putative class representative’s claims were not “typical” under Fed. R. Civ. P. 23(a)(3) because of differences in state laws that would apply to the leases. The court also found that the District Court had not conducted a sufficiently rigorous analysis of whether the class representative adequately represented all potential class members. Finally, the court evaluated whether common questions of law or fact predominated over individual questions, pursuant to Fed. R. Civ. P. 23(b)(3). Noting that “in a multi-state class action, variations in state law may swamp any common issues and defeat predominance,” the court found that “in order for common issues to predominate, each of the states whose law is at issue must recognize an implied covenant to market, which is the heart of this class action.” The court found, however, that there were variations in the applicable state laws regarding whether and the extent to which an implied covenant to market was recognized. This lack of uniformity precluded a finding that there were common issues of law or fact, or that these issues predominated over individual issues.
United States Court of Appeals for the Sixth Circuit
Hazard Coal Corp. v. Kentucky West Virginia Gas Co., L.L.C., 311 F.3d 733 (6th Cir. November 13, 2002)
Plaintiffs asserted that defendant pipeline company was required to pay relocation costs under an easement granted to the pipeline company because the current use was beyond the scope of the easement insofar as gas was now being produced by the defendant’s affiliate. The court concluded that, under Kentucky law, the plaintiffs, owners of the mineral rights, had engaged in a course of dealing with the defendant pipeline company that demonstrated that the plaintiffs understood and had acquiesced in the fact that the defendant had transferred the gas producing function to an affiliate corporation. Accordingly, the court rejected the argument that the defendant’s use of the pipeline easement should be considered outside the scope or that the defendant was obligated to pay for relocation costs.
United States Court of Appeals for the Seventh Circuit
Draeger Oil Co., Inc. v. Uno-Ven Co., 314 F.3d 299 (7TH Cir. December 26, 2002)
Court of Appeals affirmed the District Court’s grant of summary judgment in favor of defendants in suit brought by franchisees contending that defendants violated the Petroleum Marketing Practices Act in terminating franchises. The court found that defendants, which were withdrawing from the refining and marketing business, had no obligation to compensate the franchisees.
Dersch Energies, Inc. v. Shell Oil Co., 314 F.3d 846 (7TH Cir. December 26, 2002)
Franchisee sued defendant franchisor for violation of the Petroleum Marketing Practices Act (PMPA). The franchisee had renewed its franchise agreement under protest, then sued, alleging that the defendant violated § 2805(f)(1) of the PMPA which prohibits a franchisor from forcing a franchisee to waive rights it has under state and federal law as a condition of entering into or renewing a franchise agreement. The Court of Appeals held that, while § 2805(f)(1) applied even where the parties were renewing an existing contract containing the objectionable terms, there was no private right of action under § 2805(f)(1) of the PMPA and, thus, a franchisee could only maintain a civil action if the violations constituted a non-renewal of the franchise relationship. The court found, however, that there had been no non-renewal, nor even constructive non-renewal as a result of the alleged violation of § 2805(f)(1) under Seventh Circuit precedent. The court suggested, however, that a franchisee could obtain redress for a § 2805(f)(1) violation by seeking injunctive relief upon receipt of a 90-day advance notice of termination under the PMPA. One judge disserted, arguing that a violation of § 2805(f)(1) should amount to constructive termination to which the PMPA’s remedy provisions would apply. The dissenting judge argued that the majority’s recognition that a franchisee could seek injunctive relief prior to termination was an implicit recognition that violation of § 2805(f)(1) was a constructive termination.
Alliant Energy Corp. v. Bie, 277 F.3d 916 (7th Cir. January 17, 2002)
A Wisconsin electric utility and its parent company sought injunctive relief in District Court from Wisconsin statutes that (i) required the parent company of a Wisconsin utility to be incorporated in Wisconsin; (ii) required the utility itself to be incorporated in Wisconsin; (iii) prevented a Wisconsin utility holding company from selling 10% or more of its stock to a single person without prior administrative approval; and (iv) proscribed a Wisconsin utility holding company from investing more than 25% of its assets in the utility sector. The District Court granted a motion to dismiss, finding that appellants had not shown any non-conjectural injury. While expressing frustration at “the maddening vagueness of the Complaint,” the court of Appeals found that the allegations of injury were sufficient to withstand a motion to dismiss under the Federal Rules of Civil Procedure. The court went on to discuss, at some length, how appellants might be able to demonstrate such injury.
Village of Bethany v. FERC, 276 F.3d 934 (7th Cir. January 11, 2002)
Municipal customers of an interstate natural gas pipeline appealed FERC’s approval of the pipeline’s auction proposal for allocating available transportation capacity. FERC approved an approach that, inter alia, (i) evaluated bids based on the net present value of reservation charges; and (ii) set reserve prices for different services and regions according to market-based considerations. The municipalities, who paid a one-part rate, argued that evaluating bids based on the net present value of reservation charges was discriminatory because they would be forced to bid using a two-part rate, and thereby pay more than their fair share of system costs. The court found that the Commission’s ruling was reasonable given that FERC’s approach sought to identify which customers were willing to pay the most for available capacity, not to determine a fair allocation of fixed costs. The court further found that FERC’s general policy of using the net present value of reservation charges to allocate capacity was sound from an economic perspective and did not strike an unfair balance between hardship to small customers and the efficiency interests of other customers. The court also denied the petitioners’ challenge to the pipeline’s use of market-based reserve prices. First, it rejected the broad argument that any system of market-based discounts was an undue preference, concluding that “the general concept of market-based discounts is firmly embedded in the Commission’s official policies and has been approved by the courts.” Second, the court found that the petitioners’ objection to the discounts on the pipeline’s system in particular was premature and was properly addressed in the pipeline’s next rate case.
United States Court of Appeals for the Eighth Circuit
R&M Oil & Supply, Inc. v. Saunders, 307 F.3d 731 (8th Cir. October 11, 2002)
Court of Appeals affirmed a District Court ruling striking down a Missouri statute requiring that retailers of propane in the state maintain and operate a minimum storage capacity of 18,000 gallons within Missouri. The court found that, although there was insufficient evidence to conclude that the statute overtly discriminated against out-of-state propane distributors, the local interest ostensibly served by the statute did not justify the burden on interstate commerce. Important in this regard was the fact that the statute required only the operation and maintenance of a storage facility, but did not actually require a minimum amount of propane actually to be stored. Because there was no evidence that any propane shortages in Missouri stemmed from inadequate storage, the court was unable to identify any actual benefit from the statute. Weighed against this lack of benefits, the court found that construction of storage facilities would impose a not insubstantial expense on retailers. Further, if the statute were to be adopted elsewhere, it could create a substantial burden on interstate commerce.
Mid-Continent Area Power Pool v. FERC, 305 F.3d 780 (8th Cir. October 1, 2002)
Mid-Continent Area Power Pool (MAPP) challenged a FERC order requiring it to make refunds of rates collected pursuant to certain transmission service agreements (TSAs) that MAPP failed to file with FERC. MAPP contended that the refund order was arbitrary and capricious because FERC had not previously required the relevant TSAs to be filed. Deferring to FERC’s interpretation of its own orders, the court agreed that both Order No. 888 and FERC’s order on MAPP’s open access transmission tariff provided support for FERC’s position that MAPP had been required to file the TSAs all along. The court remanded, however, on whether FERC should waive the refund liability. FERC’s denial of the refund waiver had been based on its position that it had clearly required the TSAs to be filed. The court found, contrary to FERC’s argument, that the pertinent FERC order was not clear and that MAPP could reasonably have been confused about its filing obligations.
The Coalition for the Fair and Equitable Regulation of Docks on the Lake of the Ozarks v. FERC, 297 F.3d 771 (8th Cir. July 24, 2002)
Petitioners, a group of lake-front property owners, appealed a FERC order denying their complaint challenging fees assessed by hydropower project licensee for docks on project property. The Court of Appeals affirmed FERC’s denial of the complaint, concluding: (i) FERC had the authority to regulate the use of project lands by parties other than the project licensee; (ii) the user fees imposed by the licensee were fees and not taxes; (iii) FERC’s authorization of licensee to implement the program did not violate the non-delegation doctrine because FERC’s authority was subject to an intelligible guiding principle and FERC retained authority to require modification of the project and its plans and specifications; (iv) variations in the fees based on the size of the docks did not violate the equal protection clause because the distinctions had a rational basis; (v) FERC did not abuse its discretion in declining to set the complaint for a hearing; and (vi) FERC’s ruling was supported by substantial evidence.
Southern Union Co. v. Missouri Pub. Serv. Comm’n, 289 F.3d 503 (8th Cir. May 6, 2002)
Court of Appeals affirmed a District Court ruling that a Missouri statute requiring a regulated gas corporation to obtain the Missouri Public Service Commission’s approval before acquiring the securities of another utility, regardless of whether the other utility operates in Missouri, did not violate the Commerce Clause of the United States Constitution. The court referenced the nation’s long history of public utility regulation, observing that a major purpose of the Natural Gas Act, Federal Power Act and PUCHA was to preserve and protect state and local regulation of the distribution of natural gas and electricity to local retail customers. The court also observed that state rate regulation can be affected by a public utility’s investments in other companies. The court also found that the challenged law was neither purely “extraterritorial” nor “direct” regulation. Applying a balancing test under Pike v. Bruce Church, Inc., 397 U.S. 137 (1970), the court concluded that Missouri’s interest in regulating utilities was not outweighed by the non-specific harm alleged by the plaintiff, whose challenge to the statute had arisen from the denial of a blanket waiver and not disapproval of a specific transaction. The court left the door open, however, for the possibility that the burden imposed by the statute in a particular case might outweigh a general state interest, such as protecting against possible investment losses.
In re MidAmerican Energy Co., 286 F.3d 483 (8th Cir. April 3, 2002)
Petitioner sought a writ of mandamus to enforce the court’s ruling that the petitioner was not contractually obligated to make payments of estimated decommissioning costs under a power sales contract associated with a nuclear power plant. On remand to the District Court from the previous appeal, the defendant public power district had amended its complaint to restyle its contract claims. While acknowledging mandamus as an extraordinary remedy, the Court of Appeals found that is previous opinion had decided the claims the defendant now sought to restyle and that the Court of Appeals had a duty to enforce its prior mandate.
Craighead Elec. Coop. Corp. v. City Water and Light Plant of Jonesboro, Ark., 278 F.3d 859 (8th Cir. January 30, 2002)
Appellant, a cooperative electric utility, appealed a District Court decision upholding the validity of a municipal utility’s condemnation of a portion of the coop’s facilities and customers. Applying Arkansas state law, the court upheld the District Court decision, finding that, notwithstanding some potential ambiguity in Arkansas statutes, municipalities had the right to condemn coop property.
ANR Western Coal Dev. Co. v. Basin Elec. Power Coop., 276 F.3d 957 (8th Cir. January 10, 2002)
The court addressed appeals and cross-appeals from a magistrate judge decision in a suit by a royalty owner for breach of implied duty to develop royalty-bearing coal reserves and tortious interference with a contract. The court concluded that, under North Dakota law, an operator has an implied duty to develop reserves in favor of an overriding-royalty owner. The court found that the reasonableness of the operator’s actions was to be assessed under the “prudent operator” standard, and that the magistrate judge reasonably concluded that the defendant-operator’s actions had breached that standard. The court also ruled that the magistrate judge had erroneously limited damages to the interest the royalty owner would have earned on the royalties absent the breach. Notwithstanding the fact that the resources could still be developed, the appropriate measure of damages was the full value of the displaced royalties. Finally the court, reversing the magistrate judge, concluded that defendants had tortiously interfered with plaintiff’s royalty contract under the facts of the case.
United States Court of Appeals for the Ninth Circuit
California Trout, Inc. v. FERC, 313 F.3d 1131 (9th Cir. December 16, 2002)
Environmental organization challenged FERC orders finding that the recipient of an annual license to operate a hydropower project under FPA § 15(a) pending relicensing did not have to meet state water quality certification requirements under § 401(a)(1) of the Clean Water Act. At the outset, the court concluded that the petitioner had filed an appropriate rehearing request at FERC because, even though it had not challenged the initial notice that annual licenses would be issued to the project pending final relicensing, the petitioner sought rehearing of a FERC notice of a subsequent annual license, and, the court found, “annual issuance of a license is the functional equivalent of an order and is subject to review from year to year.” The court denied the petitioner’s claim on the merits, however, finding that the annual license issuances were non-discretionary and could not be used to add new conditions. Doing so would potentially threaten year-to-year operation of the project, which was contrary to the clear purpose of the § 15(a) automatic annual license issuance provision.
California v. Norton, 311 F.3d 1162 (9th Cir. December 2, 2002)
The United States appealed the District Court’s issuance of an injunction proscribing the federal government from granting lease suspensions for oil and gas development leases offshore of California pursuant to the Outer Continental Shelf Lands Act. California maintained that the federal government was required to submit the lease suspension decision to California under the Federal Coastal Zone Management Act for California to assess whether the federal action was consistent with California’s State Coastal Management Program. California also argued that the government was required to generate an environmental impact statement or environmental assessment for the lease suspensions under the National Environmental Policy Act (NEPA). Affirming the District Court, the Court of Appeals found that the lease suspensions constituted federal agency activity affecting the coastal zone, triggering the need to submit the action to California for consistency review under 16 U.S.C. § 1456(c)(a)(A). Further, the court concluded that the federal government had not adequately justified its decision that environmental review was unnecessary. Although lease suspensions fall into a NEPA categorical exclusion, the court found that the federal government had failed to provide an explanation why the categorical exclusion should necessarily apply to the lease suspensions in this case, particularly given that there was substantial evidence that these suspensions might fall within one or more of the exceptions to the categorical exclusions.
Puget Sound Energy v. United States, 310 F.3d 613 (9th Cir. October 17, 2002)
Court of Appeals held that it was without jurisdiction to consider a challenge to implementation of a rate by the Bonneville Power Administration (BPA) where the petitioner had not sought judicial review within 90 days of final BPA action. In so holding, the court performed an extensive, fact-specific analysis of the nature of petitioner’s challenge (i.e., challenge to the rate, to implementation of the rate, or contract claim) and also when the BPA’s action should be considered “final” under the facts of the case.
Southern Cal. Edison Co. v. Lynch, 307 F.3d 794 (9th Cir. Sept. 23, 2002)
Court of Appeals addressed challenges to a stipulated judgment in the District Court in which Southern California Edison (SoCalEd) agreed to a settlement with the California PUC regarding pass-through of wholesale purchased power costs. The court first rejected claims that the District Court improperly denied intervention to several parties, and rejected various claims by a defendant-intervenor that the stipulated judgment should be overturned based on: the Rooker-Feldman doctrine, Buford abstention principles, the purported existence of non-consenting intervenor claims, denial of due process, or Tenth Amendment grounds. However, noting that “[s]tate officials cannot enter into a federally-sanctioned consent decree beyond their authority under state law,” the court observed that there were “serious questions” about whether the California PUC possessed authority to enter into the settlement with SoCalEd, given that the settlement appeared to violate certain provisions of California law relating to rates for restructured electric service and appeared to have been adopted without complying with the PUC’s statutory open meeting and rate hearing requirements. The Court of Appeals certified the state law questions to the Supreme Court of California and stayed further proceedings.
Mountain Rhythm Res. v. FERC, 302 F.3d 958 (9th Cir. Aug. 23, 2002)
Petitioner challenged FERC denial of licenses to build hydroelectric plants in Washington State. FERC denied the applications on the grounds that the petitioner had not obtained necessary state certifications pursuant to the Coastal Zone Management Act, 16 U.S.C. §§ 1451-1465. The court denied the petition for review, finding that FERC did not err in refusing to consider the petitioner’s argument that Washington’s defined coastal zone boundaries were too expansive. Such an objection was required to be made to the National Oceanic and Atmospheric Administration, or in a particular case, to the Secretary of Commerce, once a completed state application had been submitted and denied. The petitioner, however, never completed the state certification process. The court also rejected petitioner’s argument that it was excused from applying for a particular county permit required for state certification because doing so would have been futile. The court also found that Washington did not waive its objection to the projects because petitioners had never completed the state certification process. Finally, the court rejected the argument that the requirement for a county-issued permit strips the federal government of its exclusive grant of authority to issue licenses for hydropower projects.
Alaska v. United States Environmental Protection Agency, 298 F.3d 814 (9th Cir. July 30, 2002)
The Alaska Department of Environmental Conservation (ADEC) and an Alaska mine operator petitioned for review of an EPA ruling that a prevention of significant deterioration permit issued by ADEC to the mine operator for diesel generators pursuant to the Clean Air Act (CAA) was not in compliance with the CAA and Alaska’s State Implementation Plan (SIP) because the permits did not require the appropriate best available control technology (BACT). Reviewing the plain language of the CAA, as well as the background of its passage and implementation, the court held that, while a state has discretion to make BACT determinations as the permitting authority, the EPA has the ultimate authority to decide whether the state has complied with the BACT requirements of the CAA and the SIP. The court also rejected the petitioners’ argument that EPA erred in finding that ADEC was not in compliance because ADEC’s BACT determination fulfilled CAA requirements. The court reasoned that, contrary to ADEC’s finding, the mine operator failed to show that the most desirable BACT was economically infeasible and that ADEC failed to provide a reasoned justification for failing to mandate that control option.
M-S-R Pub. Power Agency v. Bonneville Power Admin., 297 F.3d 833 (9th Cir. July 11, 2002)
Petitioners, a public power agency and aluminum companies, challenged Bonneville Power Administration’s (BPA) forecasts of “excess federal power” eligible to be sold outside the region under the Water Development Appropriations Act of 1996. The court dismissed several of the public power agency’s claims on the grounds that they were contractual in nature and outside the Court of Appeals’ jurisdiction. The public power agency, which had a contract with BPA contingent on the existence of excess power, argued that BPA had underestimated the amount of excess power by including in its forecast projected power contracts as opposed to “then-current” obligations for future sales. The court concluded that BPA’s approach was not arbitrary and capricious because “to ignore anticipated or known but unexecuted contracts in a forecast that purports to determine these obligations would have been patently unreasonable.” However, the Court of Appeals granted the aluminum companies’ petition, agreeing that BPA had incorrectly calculated excess federal power by including in the ostensible “excess” power calculation the energy that aluminum companies would have purchased but that BPA refused to sell to the companies. This interpretation, the court found, violated Congress’ clear directive that excess federal power resulted from reduced energy obligations “due to the election by customers . . . to purchase power elsewhere.”
Transmission Agency of Northern Cal. v. Sierra Pacific Power Co., 287 F.3d 771 (9th Cir. April 16, 2002)
Appellant, a joint exercise of powers agency composed of municipalities, appealed the District Court’s dismissal of its breach of contract and tort claims against Bonneville Power Administration (BPA) and regional utility companies arising out of the construction of an electric transmission intertie by BPA and the defendant utility companies. Affirming the District Court, the Court of Appeals found that the appellant’s contract and tort claims against BPA were properly dismissed because they were, in substance, challenges to final BPA action that were required to be appealed to the Court of Appeals within 90 days pursuant to the Northwest Power Planning Act. Accordingly, the District Court lacked jurisdiction, and transfer to the Court of Appeals was not appropriate because the action would have been untimely if originally filed in the Court of Appeals. The court similarly upheld dismissal of the contract and tort claims against the defendant utility companies, holding that the claims were pre-empted by the Federal Power Act. The court found that all of appellant’s tort and property claims alleged that operation of the new intertie would damage or trespass on an existing project built by the appellant, and explained that the appellant “cannot obtain state law money damages allegedly resulting from the operation of an interstate electricity intertie expressly approved by FERC.” The court affirmed dismissal of the contract claims against the utilities on the grounds that the claims were predicated on the notion that, but for defendants’ actions, FERC would have continued to allocate the appellant the same amount of transmission capacity it had historically received. The court found that the filed rate doctrine barred it from making such presumptions insofar as Order No. 888 functionally combined regulation of rates with FERC regulation of transmission capacity. The court held “that FERC’s exclusive jurisdiction over the interstate transmission of electricity extends to any claims of entitlement to a specific allocation of interstate transmission capacity, whether that claim asks a court to enforce such an alleged entitlement or merely to hypothetically assume it.” The court found that appellant’s fraud claim against one of the utility defendants suffered from the same flaw.
United States Court of Appeals for the Eleventh Circuit
Alabama Power Co. v. FCC, 311 F.3d 1357 (11th Cir. November 14, 2002)
Court of Appeals considered an argument by an electric utility that the FCC-established rate for cable-TV pole attachments amounted to an unconstitutional taking without just compensation. Citing its own previous holdings and those of the Supreme Court, the Eleventh Circuit agreed that mandatory provision of space on electric utility poles under the 1996 Telecommunications Act was a taking, and, thus, the only question was whether the FCC rate amounted to just compensation. The court first observed that agency discretion in ratemaking is not necessarily applicable in the takings framework, which involves ascertaining the fair market value of the property taken. The court found that the FCC rate, as applied to petitioner, could not be considered unjust because there was no evidence that petitioner’s poles were crowded, i.e., that the petitioner had lost opportunity costs higher than its marginal cost, which was covered by the FCC rate. The court held that before a power company can seek compensation above marginal cost, it must show with regard to each pole that (i) the pole is at full capacity; and (ii) either another buyer of the space is waiting in the wings or the power company is able to put the space to a higher-valued use with its own operations.
Board of Water, Light and Sinking Fund Commissioners v. FERC, 294 F.3d 1317 (11th Cir. 2002)
Petitioner, a municipal natural gas local distribution company (LDC), appealed FERC authorization of an LDC bypass from an interstate natural gas pipeline directly to an industrial customer. The petitioner argued that approval of the direct delivery connection facilities improperly intruded on state jurisdiction to regulate facilities used for local distribution of natural gas. Agreeing with other circuits that had considered the issue, the court concluded that FERC had jurisdiction to allow the bypass because it involved the interstate transportation of natural gas – a matter clearly within FERC’s jurisdiction. The court also noted that, although title to the gas did pass to a third-party within the state before the final sale to the customer, this did not change the analysis because “the Commission clearly did not pass on that sale” but was only regulating interstate transportation. The court observed that its conclusion was supported by the Supreme Court’s decision in New York v. FERC, supra. Finally, the court rejected the petitioner’s arguments that FERC should have afforded it an evidentiary hearing and that FERC had not properly applied the relevant pipeline tariff provisions.
Alabama Power Co. v. United States Dept. of Energy, 307 F.3d 1300 (11th Cir. September 24, 2002)
Energy firms challenged DOE’s settlement with a utility under which the utility agreed to give up its claim that DOE breached its contract to provide for disposal of nuclear waste pursuant to the Nuclear Waste Policy Act of 1982 (NWPA) in exchange for a credit against the per-kilowatt hour fee that the utility would otherwise be obligated to pay into the Nuclear Waste Fund (NWF). After reviewing the background of DOE’s breach of its obligations under the NWPA, the court found that the petitioners, who also paid monies into the NWF, had standing to challenge DOE’s settlement with the utility and that the challenge was ripe. First, however, the court evaluated the DOE’s authority to adjust the fee that firms subject to the NWPA were required to pay, given that the provision establishing the fee was partly unconstitutional under INS v. Chada as containing a legislative veto. The court concluded that DOE did have discretion to establish the appropriate NWF fees. The court found, however, that the NWF credit extended to the settling utility was improper because it was indistinguishable from a direct payment of NWF monies to the settling utility, and such payments were impermissible. The court reasoned that such payments were not payments for “disposal” of nuclear waste as required by the NWPA, nor would allowing such payments be reasonable, because DOE could simply pay the damages for its breach of its NWPA obligations out of the NWF, thereby increasing costs to other utilities without ever being liable itself. The court also reasoned that monies to fund judgements against DOE could be paid out of the Judgement Fund established in 31 U.S.C. § 1304. The court also held that DOE’s action exceeded its authority to adjust the universal fee established by the NWPA for a particular utility without a report to Congress.
Georgia v. United States Army Corp. of Engineers, 302 F.3d 1242 (11th Cir. Aug. 21, 2002)
Court of Appeals considered an appeal by the State of Florida and customers of the Southeastern Power Marketing Administration (SEPMA) from a District Court decision denying their intervention in a suit by the State of Georgia against the Army Corps of Engineers (COE) seeking increased water from a man-made lake under COE’s management. The court reversed the District Court, finding that both Florida and SEPMA customers were entitled to intervene as of right. With respect to SEPMA customers, the court found that, although they might not have a legally-protectable interest in a particular amount of power (through SEPMA) from the dam, they had a legally-protectable interest in production of power from the project and, since a successful suit by Georgia would result in less water and a diminution of the overall production of hydropower, the customers had a legally protectable interest in the subject matter of the suit.
Southern Co. v. FCC, 293 F.3d 1338 (11th Cir. June 13, 2002)
Electric utilities challenged FCC guidelines implementing the 1996 amendments to the Pole Attachments Act (PAA). The court concluded that the FCC had exceeded its authority in concluding that the PAA applied to electric transmission facilities that did not otherwise fit within the definition of the PAA’s coverage, explaining that transmission towers and other interstate transmission facilities are not subject to the Act’s provisions. The Court explained that the PAA generally covers all “poles, ducts, conduits and rights of way,” and these local distribution facilities are covered by the PAA, regardless of whether they are used in part for transmission wires or other transmission facilities. The court found that the FCC erred in concluding that electric utilities were obligated to expand capacity on poles or other facilities to accommodate a proposed attachment. The non-discrimination rationale cited by the FCC was precluded by the plain language of the PAA, which relieved utilities of the obligation to accept attachments where there was insufficient capacity. The court affirmed the FCC’s ruling that utilities seeking to reserve space on poles for future utility use could only do so if the reservation was made pursuant to a bona fide development plan and if the facilities were made available for the attachment until the reserved space was needed. The court also affirmed the Commission’s rules allowing third parties to use their own employees/contractors on utility poles, subject to utility criteria. The FCC was affirmed in its ruling that where a utility used some of its poles and other facilities for wire communications, the utility had to make all such facilities available for use by third parties. Finally, the court affirmed the FCC’s rules regarding cost allocation for pole upgrades.
Tennessee Valley Authority v. EPA, 278 F.3d 1184 (11th Cir. January 8, 2002)
Tennessee Valley Authority (TVA) and certain other utilities appealed EPA’s findings that certain of TVA’s power plant maintenance and repair projects constituted “modifications” requiring compliance with new source emissions limitations. In this opinion, the Court of Appeals addressed EPA’s motions to dismiss on jurisdiction and standing grounds. The court concluded that it had jurisdiction over the TVA appeal and that the other petitioners had standing to appeal EPA’s findings with respect to TVA. The court concluded: (i) TVA had litigating authority independent of the Department of Justice to advance its suit against another executive branch agency; (ii) the case was justiciable, even though it was a suit between two executive branch agencies, because the dispute was of the type that is traditionally justiciable and because TVA’s independent litigating authority allowed for true adversity between the parties; (iii) the EPA’s action constituted final agency action; (iv) while Executive Order Nos. 12146 (relating to submission of disputes between executive agencies to the Attorney General) and 12088 (relating to ability of EPA to submit Clean Air Act disputes with other agencies to OMB) were applicable in the instant case, neither executive order deprived the court of jurisdiction under exhaustion, ripeness, or separation of powers theories; and (v) private petitioners had standing to appeal the EPA determination given that they could face greater costs as a result of TVA having to comply with EPA’s order.
United States District Court for the Northern District of California
In re Pacific Gas and Elec. Co., 283 B.R. 41 (N.D. Cal. August 30, 2002)
On appeal from the Bankruptcy Court, the District Court considered the extent to which Section 1123(a) of the Bankruptcy Code, 11 U.S.C. § 1123(a), preempts non-bankruptcy laws that could otherwise bar transactions necessary to implement a bankruptcy reorganization plan. Engaging in a detailed analysis of the text and legislative history, the District Court reversed the Bankruptcy Court and concluded that Congress intended expressly to preempt non-bankruptcy laws that would otherwise apply to bar, among other things, transactions necessary to implement the reorganization plan. Accordingly, the Bankruptcy Code preempted California laws that would have otherwise required California regulators to approve certain aspects of the proposed restructuring of Pacific Gas & Electric Company.
Pacific Gas & Elec. Co. v. Lynch, 216 F. Supp. 2d 1016 (N.D. Cal. July 25, 2002)
District Court denied cross-motions for summary judgment filed by plaintiff Pacific Gas & Electric (PG&E) and the defendants, commissioners of the California Public Utilities Commission (CPUC), in a suit by PG&E challenging the CPUC’s alleged failure to allow PG&E to recover in retail rates its cost of purchasing power under FERC-approved tariffs because of retail rate freezes. After offering a lengthy disquisition on the history of the filed rate doctrine, the court concluded that the filed rate doctrine was applicable in the California deregulation context. The court explained in this respect that “all parties assumed when the rate freeze began that frozen rates would be sufficiently high to avoid the trapping of wholesale costs. When that assumption proved erroneous, however, the CPUC could not avoid its responsibility to give effect to costs incurred within FERC’s regulatory jurisdiction by continued, unyielding reliance upon past enactment of a rate freeze.” While finding the filed rate doctrine to apply, the court concluded that summary judgment was inappropriate because factual issues remained with respect to application of the doctrine to the facts of the case. Specifically, the court determined that it had to resolve disputed issues of fact relating to (i) the appropriate period for considering whether PG&E had, in fact, experienced a net undercollection; and (ii) the revenue sources that could be applied within constitutional bounds against PG&E’s operating costs.
In re Pacific Gas & Elec. Co., 271 B.R. 626 (N.D. Cal. Jan. 4, 2002)
Puget Sound Energy appealed a Bankruptcy Court ruling denying Puget’s motion for relief from the automatic stay in the Pacific Gas & Electric (PG&E) bankruptcy proceeding in which Puget had sought leave to terminate a power exchange agreement with PG&E, or in the alternative, to receive adequate assurances. The District Court denied Puget’s appeal, finding that PG&E had not materially breached the agreement between the parties by failing to deliver power at certain times, given that the California ISO requested PG&E to curtail deliveries to Puget to maintain system integrity and the agreement allowed for curtailment in such a situation. The court further found that, under the facts of the case, PG&E had not breached the agreement by failing to make alternate supply arrangements for Puget, nor had PG&E failed to provide adequate notice of curtailment. The court also found that Puget had not properly invoked a demand for adequate assurance under the U.C.C., but, in any case, PG&E’s response constituted adequate assurances. In this respect, the court concluded that the U.C.C. was applicable, because electricity was a “good” for purposes of the U.C.C.
United States District Court for the District of Colorado
Amoco Prod. Co. v. Thunderhead Investments, Inc., 255 F. Supp. 2d 1163 (D. Colo. December 9, 2002)
Applying Colorado law, the court granted declaratory judgment in favor of the holder of oil-and-gas property rights in a land tract, finding that the plaintiff reasonably accommodated the surface use of the land under the facts of the case.
Crown Point I, LLC v. Intermountain Rural Elec. Ass’n, 215 F. Supp. 2d 1136 (D. Colo. July 9, 2002)
District Court granted motion to dismiss Fourteenth Amendment due process claim brought by a land developer challenging the construction of an electric transmission line on the plaintiff’s property. The plaintiff argued that construction of the transmission line required a town hearing and that such hearing had not occurred. The court found that the plaintiff failed to state a due process claim because plaintiff had no protectable property interest in the town hearing requirements.
United States District Court for the District of Columbia
Chevron U.S.A., Inc. v. FERC, 193 F. Supp. 2d 54 (D.D.C. January 11, 2002)
Owners of oil and gas pipelines on the Outer Continental Shelf challenged FERC’s proposal to release commercial information regarding service on the pipelines and challenged FERC’s authority to require the pipelines to file such information in the first place. The court considered cross-motions for summary judgment and granted judgment in favor of the pipeline owners. The court first concluded that it had jurisdiction to consider the case, finding that the plaintiffs had suffered injury-in-fact sufficient to confer standing; that plaintiffs had satisfied the notice requirements required for challenges under the Outer Continental Shelf Lands Act; and that, even if FERC’s failure to consult with the Attorney General regarding OCS regulation did not confer a private right of action, plaintiffs’ complaints were not based on FERC’s failure to satisfy the consultation requirement of the OCSLA. The court then considered whether FERC had authority to promulgate regulations requiring the plaintiffs to file the disputed information, and concluded that FERC had no such authority. Reviewing individual provisions of the OCSLA, the court concluded that none of the provisions conferred jurisdiction on FERC to promulgate regulations establishing such reporting requirements.
United States District Court for the Northern District of Illinois
Pavelich v. Natural Gas Pipeline Co. of America, 2002 U.S. Dist. LEXIS 23946 (N.D. Ill. December 11, 2002)
Plaintiffs, landowners, sued an interstate natural gas pipeline company for violation of their Fifth Amendment due process rights for installing a pipeline on their property pursuant to a FERC blanket certificate without notice. The District Court denied the pipeline’s motion to dismiss, finding that in exercising, or even threatening use of, eminent domain power, the pipeline was a state actor for purposes of Fifth Amendment due process. Further, the Court concluded that it was a question of fact whether FERC complaint procedures were an adequate alternative remedy for the plaintiffs’ claims that they were improperly denied a pre-deprivation hearing. Finally, the court declined to dismiss the suit based on the pipeline’s claim that the plaintiffs’ suit was an improper collateral attack on FERC’s issuance of the pipeline’s blanket certificate. The court concluded that the plaintiffs stated a claim not against the issuance of the blanket certificate, but against the failure to receive notice of the construction under the blanket certificate. The court cautioned, however, that while it was not willing to grant the motion to dismiss, it was not clear “whether plaintiffs are attacking the regulatory process which does not provide them due process or seeking to impose a due process obligation on [the pipeline]. If the former, it is questionable whether [the pipeline] is the proper defendant here. If the latter, the plaintiffs shed little light on the source and contours of such an obligation.”
International Paper Co. v. Androscoggin Energy LLC, 2002 U.S. Dist. LEXIS 21786 (N.D. Ill. November 8, 2002), reconsideration denied, 2002 U.S. Dist. LEXIS 24549 (December 19, 2002)
District Court granted in part and denied in part cross-motions for summary judgment in a suit by an industrial customer against its supplier of steam and electric power. The court granted the industrial customer’s motion for summary judgment on its breach of contract claim where the power supplier had breached contract warranty provisions by failing to notify the industrial customer of the termination of one of the supplier’s key gas supply contracts. The court denied the customer’s tort claim of negligent misrepresentation, however, finding that the customer’s claims sounded in contract, not tort. The court subsequently denied defendant’s motion for reconsideration.
Guardian Pipeline, L.L.C. v. 529.42 Acres of Land, 01-C4696 (N.D. Ill. Jan. 7, 2002)
The District Court granted a motion to confirm condemnation of permanent and temporary easements. The court noted that the plaintiff, a natural gas pipeline, held a certificate granted by FERC pursuant to § 7 of the Natural Gas Act, that Fed. R. Civ. P. 71A governed the proceedings, that any challenge to FERC’s grant of the certificate was within the jurisdiction of the U.S. Court of Appeals, and that the District Court’s role was “mere enforcement.” The court found that the federal certificate was dispositive of most of the challengers’ objections and that other arguments, e.g., that the pipeline had not negotiated in good faith, were conclusively answered by the pleadings. Rejecting an argument by state entities that public land held by them for public use could not be condemned, the court noted that “state and local laws cannot be used to prohibit or unreasonably delay the construction of the approved pipelines.”
United States District Court for the Southern District of Indiana
United States v. Southern Indiana Gas & Elec. Co., 2002 U.S. Dist. LEXIS 20936 (S.D. Ind. October 24, 2002)
In a suit by the federal government against an electric utility for alleged violation of Clean Air Act New Source Review requirements, the court denied the utility’s motion for summary judgement on its claim that EPA violated the Congressional Review of Agency Rule Making Act (CRA) by failing to advise Congress of a purported new EPA rule implementing New Source Review. As a threshold matter, the court concluded that it had jurisdiction to review a claim that EPA violated the CRA, expressly disagreeing with two other district courts and finding that a CRA provision that limits judicial review only precluded court review of congressional action or inaction in response to an agency’s report on a new rule. The court found that it possessed jurisdiction to review the agency’s alleged failure to report a new rule in the first place. While the court found that it had jurisdiction, it denied the motion for summary judgment, finding that the proffered evidence that EPA had, in fact, promulgated a new rule, i.e., expert reports and statements of EPA officials, was not admissible regarding the legal question of whether EPA had shifted policy to such an extent so as to amount to a new rule. Moreover, the court suggested that, as a legal matter, the EPA had not shifted its position.
United States District Court for the District of Kansas
Kansas Pipeline Co. v. 200’ by 250’ Piece of Land, 210 F. Supp. 2d 1253 (D. Kan. July 15, 2002)
The District Court considered cross-motions for summary judgment in condemnation action brought by an interstate natural gas pipeline pursuant to a certificate issued under Section 7 of the NGA. Defendant landowners resisted condemnation on grounds that (i) their land was not “necessary” to the operation of the pipeline; and (ii) the pipeline had not negotiated in good faith to lease or purchase their property. The court granted summary judgment in favor of the pipeline. The court found that it was without jurisdiction to second guess FERC’s determination that the plaintiffs’ land, which was included in the pipeline’s certificate, was not necessary. The court also rejected the plaintiffs’ argument that the eminent domain provisions of the NGA impose upon pipelines a good faith negotiation requirement. While noting that some other courts had found such a requirement to be implicit in the NGA, the court concluded that the plain language of the Act required only a showing that the parties are “unable to agree upon terms for the sale.” Finally, the court granted summary judgment for the pipeline as to plaintiffs’ counterclaims, finding that Fed. R. Civ. P. 71A governs the practice and procedure in federal eminent domain actions, and Rule 71A does not permit counterclaims.
Hill v. Kansas Gas Serv. Co., 191 F. Supp. 2d 1200 (D. Kan. Feb. 12, 2002)
Industrial retail natural gas consumers petitioned for a declaratory order that they had a property interest in refunds that defendant LDCs received as a result of refunds that FERC required natural gas producers to make to interstate pipelines for unlawful collection of Kansas ad valorem taxes over and above the maxim lawful price under the Natural Gas Policy Act. The Kansas Corporation Commission had previously ordered that the defendant LDCs must use the refunds to support low-income customer programs. The court granted the defendants’ motion to dismiss on the ground that the Johnson Act, 28 USC § 1342, deprived it of jurisdiction because plaintiffs were challenging an “order affecting rates” issued by the KCC and the Johnson Act’s four other conditions were met, namely: (i) the suit was based solely on diversity of citizenship or repugnance to the Constitution because neither the NGPA nor previous federal court opinions addressing the ad valorem refunds provided federal question jurisdiction for plaintiffs’ claims; (ii) the KCC orders did not interfere with interstate commerce; (iii) adequate notice of the KCC proceedings was provided; and (iv) the plaintiffs had an adequate state remedy.
United States District Court for the District of Maine
Spickler v. Lee, 208 F. Supp. 2d 68 (D. Maine July 1, 2002)
District Court granted a motion by the defendants, electric utility officers, to dismiss a suit by land developer alleging that the utility had violated his due process rights by failing to honor a purported 1967 contract to construct local power lines free of charge. The court found that, notwithstanding the Maine Public Utilities Commission’s approval of the utility’s cancellation of pre-1990 contracts, the utility officers could not be considered state actors, and, therefore, the constitutional due process claim would be dismissed.
United States District Court for the District of Massachusetts
Portland Nat. Gas Trans. Sys. v. 19.2 Acres of Land, 195 F.Supp. 2d 314 (D. Mass. Feb. 27, 2002)
District Court evaluated the just compensation due to a landowner for property condemned by a natural gas pipeline pursuant to a certificate issued under Section 7 of the Natural Gas Act. The court noted that state law governs compensation issues in eminent domain proceedings involving private interests, and applied Massachusetts law to determine just compensation. The court considered the compensation owing for permanent easements, temporary easements and diminution of the value of the remainder. The court explained that, for a partial taking, the landowner is entitled to compensation measured by the diminution in the fair market value of the land caused by the partial taking, including the effect of the taking on the remainder. In assessing the impact on land value, the court should account for real world considerations, including “stigma damages” and “hassle” arising from having an easement running through the property. For a temporary easement, the measure of damages is the loss due to the inability to use the property taken by a temporary easement. Noting the breadth of the pipeline’s rights under the NGA, the court observed that “a potential buyer who has read [the pipeline requirements] would be likely to fear a substantial degree of infringement on the land encumbered by a permanent easement.” Applying these factors, the court calculated the compensation owing and found that the landowner was entitled to interest on the award accruing from the date of the taking, with interest calculated at the prevailing money market rate on the date of the taking.
United States District Court for the Southern District of New York
BP Energy Co. v. Bethlehem Steel Corp., 2002 U.S. Dist. LEXIS 22052 (S.D.N.Y. November 16, 2002)
District Court affirmed a Bankruptcy Court ruling allowing a bankrupt industrial customer to terminate an executory gas purchase contract retroactive to a date prior to the Bankruptcy Court ruling authorizing rejection of the contract. The court held that the Bankruptcy Court was authorized to grant retroactive relief notwithstanding the requirement, cited by the plaintiff, that the Bankruptcy Court must approve rejection of an executory contract. After concluding that the Bankruptcy Court had the legal authority to allow retroactive termination, the court concluded that the Bankruptcy Court did not abuse its discretion in doing so, given the savings obtained by the debtor from the retroactive termination.
United States District Court for the Southern District of Ohio
United States v. American Elec. Power Serv. Corp., 218 F. Supp. 2d 931 (S.D. Ohio July 16, 2002)
District Court ruled on the government’s motion to strike affirmative defenses raised by defendant electric utility in a suit under the Clean Air Act for failure to comply with New Source Review requirements. The court granted the motion to strike in part and denied it in part. The court struck the following defenses: waiver; unclean hands; Fifth Amendment takings claim; Tenth Amendment violation; Commerce Clause violation; characterization of action as an improper rulemaking; violation of 5 U.S.C. § 801 et seq.; and defenses related to action or inaction of host states. The court denied, in whole or in part, the motion to strike the following defenses: statute of limitations; equitable estoppel; Fifth Amendment due process/equal protection (selective prosecution); Eight Amendment violation; EPA action beyond the scope of delegated authority; and inadequate notice of violations.
United States District Court for the District of Utah
The Skull Valley Band of Gashute Indians v. Levitt, 215 F. Supp. 2d 1232 (D. Utah July 30, 2002)
District Court granted a motion for summary judgment and motion to dismiss filed by the plaintiffs, a Native American tribe and a nuclear utility consortium, in a suit seeking a declaratory order that Utah state laws regulating spent nuclear fuel (SNF) storage facilities were preempted by federal law and violative of the Commerce Clause. After finding that the plaintiffs had standing to challenge the Utah state laws and that the claims were ripe, the court concluded that most of the Utah state laws were preempted by federal law regulating nuclear safety. The court found that the federal government has occupied the field of nuclear safety and that any state law on the same subject is preempted. Accordingly, federal law preempted Utah statutes requiring, inter alia, a separate state licensing process for SNF storage facilities, revocation of limited liability for SNF storage facility companies, road and rail restrictions, and limits on municipal services to SNF storage facilities. The court found, however, that state drug testing requirements and water planning provisions did not violate the Commerce Clause.
United States District Court for the Eastern District of Washington
Northwest Pipeline Corp. v. The 20’ x 1,430’ Pipeline Easement, 197 F. Supp. 2d 1241 (E.D. Wash. January 10, 2002)
District Court considered an interstate natural gas pipeline’s motion for summary judgment regarding its right to condemn property pursuant to its Natural Gas Act certificate and the pipeline’s request for immediate possession. Landowners did not contest the pipeline’s right to condemn, but objected to immediate possession. As an initial matter, the court concluded that Fed. R. Civ. P. 71A, and not state law, supplied the procedural rules for the condemnation action, finding that Rule 71A repealed by implication the NGA’s language regarding use of state law insofar as condemnation procedures were concerned. The pipeline argued, and the court agreed, that the court could grant immediate possession pursuant to its inherent powers of equitable relief. Finding the pipeline’s request for immediate possession to be in the nature of a request for preliminary injunction, the court concluded that the pipeline met the standards for a preliminary injunction and immediate possession was granted, subject to posting a bond pending determination of just compensation. In finding a right to immediate possession, the court explicitly declined to follow the Seventh Circuit’s holding in Northern Border Pipeline Co. v. 86.72 Acres of Land, 144 F.3d 469 (7th Cir. 1998), in which the Court of Appeals concluded that a condemnor has no right to immediate possession of the condemned land.