2004 Court Opinion Case Summaries
TO: Members of the Energy Bar Association
FROM: Gary E. Guy, Assistant Secretary
Attached is a list of energy-related opinions issued by federal courts during 2004, 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 opinions 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 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 2004 that are not included and that likely would be of interest to the Association’s membership, please contact Gary E. Guy at 410-234-5208, or by e-mail at email@example.com.
UNITED STATES SUPREME COURT
Domtar Me. Corp. v. FERC, 124 S.Ct. 2094 (
The Supreme Court denied a petition for a writ of certiorari seeking review of a District of Columbia Circuit Court of Appeals’ denial of petitions for review of the Federal Energy Regulatory Commission’s (“FERC” or “Commission”) determination that two dams are not exempt from the Federal Power Act licensing requirements. The owner argued that the two dams should be exempt because they are upstream of dams belonging to the owner that were given pre-Act permits that made them exempt from the Act. FERC had ruled that the upstream projects do not qualify for exemption both when viewed in terms of the aggregate impact they have on generation within navigable waters collectively with the downstream facilities, and also when their impact is looked at exclusive of their effect on the downstream facilities. The level of the impact that triggers jurisdiction under FERC’s application of the Act is different depending on whether they are combined with the other dams or assessed individually. But in both cases, the upstream dams exceeded FERC’s jurisdictional test. The petitioner-owner argued that the upstream plants should be declared non-jurisdictional because they do not enhance the power-generation capabilities of the exempt downstream facilities. The Court of Appeals upheld FERC’s determination of jurisdiction as well-supported based on its dual scenario test.
The Court of Appeals declined another petition that sought a remand in order to argue yet another ground for asserting FERC jurisdiction. This alternative jurisdictional argument is based on the petitioner’s claim that the facilities occupy reservations of the
Only the owner-petitioner challenging FERC jurisdiction filed for a writ of certiorari, which the Supreme Court denied. A link to the Court of Appeals decision to which the Supreme Court denied the petition for certiorari is provided.
UNITED STATES COURT OF APPEALS
B&J Oil & Gas v. FERC, 353 F.3d 71 (D.C. Cir.
The Court of Appeals ruled that an operator of an oil field has standing to appeal FERC’s granting of a pipeline certificate amendment application to expand its gas storage field to include the oil operator’s property in order to preclude likely gas migration onto the operator’s property. The Court rejected the argument that the petitioner was not aggrieved because its harm can be remedied in eminent domain proceedings yet to be held to determine the compensation it will receive for the loss of its property to the pipeline.
However, on the merits, the Court denied the petition for review on the ground that deference is owed to FERC in reaching its decision based on scientific and technical data that, in the Court’s view, established substantial evidence of the need to expand the certificated storage field in order to protect the integrity of the storage operations, particularly given that oil production of the petitioner was considered to possess only limited oil deposits at the affected location of fifty barrels per day. In denying the petition for review, the Court also observed that the FERC Staff’s request for additional information from the pipeline that was not made public did not prejudice the petitioner, because the Commission relied only on publicly submitted data and not on confidential data obtained by its Staff. Although a Freedom of Information Act request to review the confidential submissions was denied by FERC, the Court observed that the presence of substantial evidence in the public record in support of FERC’s decision justified upholding FERC’s determination regardless of whatever use the petitioner might have made of the requested information, since the Court does not consider if the petitioner has substantial evidence for its position.
Williston Basin Interstate Pipeline Co. v. FERC, 358 F.3d 45 (D.C. Cir.
The Court of appeals vacated FERC’s order that a pipeline change its discount policy for situations when secondary receipt points are selected by shippers over primary points. The pipeline maintained that it did not provide that a discount that applies to a primary receipt point would also apply to a secondary point due to the complexities of its reticulated pipeline system with multiple lateral lines, resulting in a grid or web-like system of numerous sized pipeline segments. The pipeline argued that its system configuration differentiates it from a linear pipeline, wherein secondary points may lie within the same path through which gas was transported to reach the primary receipt point. The Commission stated that the pipeline was not complying with FERC’s policy in favor of allowing “selective discounting” at a secondary point if a discount at that point is granted by the pipeline under other firm or interruptible service agreements.
The Court of Appeals determined that the pipeline raised a valid objection that its system is reticulated and therefore deserves a different approach to selective discounting than that applicable to long-line pipelines of the type to which the Commission first applied its selective discounting policy. The Court held that FERC failed to articulate a reasonable basis for rejecting the argument that a different discount policy should apply when a new path is used by changing delivery points on a reticulated system than the policy that applies when gas continues along the same path using different delivery points on a straight-line pipeline.
As this case was instituted by the Commission pursuant to Section 5 of the Natural Gas Act, the Court held the Commission to a two-step burden of (1) determining that the pipeline’s existing practice is unjust, unreasonable, unduly discriminatory or preferential, and (2) the new policy imposed by the Commission is just and unreasonable. The Court found a lack of any fact-specific analysis in the record, and cautioned that “a generic paean to discounting simply will not do.” Slip opinion, p. 6. Absent such a fact-specific analysis of the impact of FERC’s required selective discounting policy on competition on the particular pipeline system involved in this proceeding, the Court found that no showing had been made by the Commission that its stated goal of enhancing competition was being served. Accordingly, the matter was remanded for further proceedings consistent with the Court’s opinion.
PSEG Energy Res. & Trade LLC v. FERC, 360 F.3d 200 (D.C. Cir.
The Court of Appeals granted a petition for review of FERC’s orders rejecting the petitioner’s complaint against the New York Independent System Operator (“ISO”) for lowering prices retroactively to correct structural flaws that caused prices to be unusually high in the
The temporary price correction procedures under the tariff can be invoked when the market prices deviate significantly from what they would have been in a working competitive market. But the tariff mechanism cannot be applied if the price rise is due to efficient competition during a period of relative scarcity. The ISO acted to lower prices from a New York Power Authority bid on the Blenheim facility when that facility had relatively little energy available, thereby qualifying it as an “energy limited resource.” The Power Authority preferred not to sell from an energy limited resource unless the ISO needed it to guarantee system reliability in an emergency. The ISO found a Market Design Flaw in that the Power Authority could not submit two bids, one applicable during an emergency situation and another for a non-emergency situation, but instead was required to submit a single bid which would apply in both situations. The Power Authority’s bid was accepted, and set the market clearing price at a higher level than the ISO believed was acceptable, and resulted in the ISO announcing structural changes to prevent a repeat of the situation.
PSEG Energy Resources and Trading was one of two complainants before FERC, arguing the price recalculations required by the ISO were not the result of a market flaw but rather resulted from a simple scarcity from which the Power Authority was charging proper opportunity costs, and therefore did reflect a proper clearing price. Among the arguments raised by this complaint was that the Power Authority could have chosen to withhold any bid in the Real-Time Market, and in that way prevent the Blenheim facility from being used except to ensure system reliability. In denying the complaint, FERC agreed with the ISO that the inability to submit two different bids constituted a Market Design Flaw.
However, the Court of Appeals found that FERC did not consider the argument that the Power Authority could have submitted a restricted bid to only apply to a situation where there is a need for the power for system reliability. Accordingly, the case was remanded for consideration of this argument.
Wis. Power & Light Co. v. FERC, 363 F.3d 453 (D.C. Cir.
The Court of Appeals denied a petition for review of FERC’s orders incorporating Department of Interior prescription conditions in a hydroelectric licensing issuance. The Court found that FERC was correct in rejecting the petitioner’s request for rehearing on the ground that, by statute, it lacked discretion to deny the prescription of the Secretary of Interior. The allegation of a lack of record evidence supporting the Secretary’s prescription was raised for the first time before the Court. While the failure to raise an issue below would normally cause a petition to be rejected as unripe for review, the Court allowed the argument to be considered on the merits because it found that raising the argument below would have been a meaningless act since FERC had no basis for considering the attack on the Secretary’s record evidence even if the argument had been made before FERC.
Although rejecting the Secretary’s request that the petition not be considered on jurisdictional grounds due to the lack of any meaningful way for the petitioner’s challenge to be evaluated by FERC before taking an appeal, the Court denied the petition because it found that there is substantial evidence for the Secretary’s requirement that the power company install fish passages in its hydroelectric project. The Court determined that the Secretary was following its obligation to protect threatened species of fish based on public information that was identified in the record by the Secretary. The Court also noted that more specific record evidence with respect to the particular project was unavailable because the petitioner refused to conduct such a study in disregard of the recommendations of its own consultant. The Court found that additional references found in the record by the Secretary to matters within the expert knowledge of the Department of Interior without specific source citations merely bolstered the publicly available information that was relied on and documented in the record, and (slip opinion, p. 12) “does not detract from the independent sufficiency of the evidence that was properly cited or introduced into the record.”
A concurring statement by Judge Randolph indicated a concern that the Department of Interior did not afford the petitioner the opportunity of a hearing separate and apart from the FERC proceedings. He questioned whether this single FERC hearing was sufficient, since FERC had no discretion but to accept whatever prescription the Interior Department attached to the licensing of the project. However, since this argument was not raised by the petitioner, Judge Randolph joined the Court’s opinion.
Flying J Inc. v. FERC, 363 F.3d 495 (D.C. Cir.
The Court of Appeals denied a petition for review challenging FERC’s determination to abandon a previously approved ratemaking methodology for oil pipelines. The Court had earlier remanded the matter to FERC for lack of an adequate explanation for deviating from the agency’s previous methodology. The petitioners stressed that, in its former opinion, the Court expressly refrained from vacating the Commission’s orders but only remanded the matter because the new basis for establishing a ceiling for oil pipeline fluctuating rates under a formula might be sustainable after FERC’s reexamination. Instead of articulating a new rationale, FERC returned to its previous approach. The petitioners argued that this was arbitrary in that the Commission did not attempt to justify its new methodology as had been anticipated by the Court that it would do. The Court disagreed, stating (slip opinion, p. 4) that it “would make little sense to force the agency to struggle to uphold a methodology that it had failed to justify, just because it had once tried to do so.” The Court further held that FERCs’ decision to revert to a fixed-weight methodology over a floating weight methodology that it had never justified for deriving an annual baseline rate cap had not been shown by the petitioners to lead to erroneous and harmful results, as they contended.
The petitioners were also faulted by the Court for failing to include an argument in their briefs that had been made to FERC, as well as for raising an argument for the first time in the appellate reply brief. In both circumstances, the Court acknowledged the existence of the arguments but declined to rule on them, for not being properly put before it.
Gas Transmission Northwest Corp. v. FERC, 363 F.3d 500 (D.C. Cir.
The Court of Appeals remanded to the Commission its orders denying a waiver of the regulatory Right of First Refusal (“ROFR”) to holders of pipeline capacity rights for a period of one year or more. The waiver request was limited to cases where there is a prearranged deal to sell unsubscribed capacity or capacity expected to become available. FERC had denied the waiver request in order to uphold its policy of protecting customers from the market power of pipelines in negotiating with others to sell capacity to which the existing customer had a pre-existing need and right. The Court agreed with the petitioner pipeline that its request for a waiver appears to be indistinguishable from waivers that FERC grants when capacity reservation rights for future expansion projects are sold in the interim.
In both cases, reasoned the Court, denying a right of first refusal to an interim shipper could prevent wasteful use of existing capacity, and obviate the need for additional, potentially wasteful construction. Having articulated a rationale for granting a waiver of the ROFR in the case of future project capacity reservations, FERC was faulted for not applying that same rationale in granting a waiver on prearranged sales of anticipated available capacity. Based on its finding of an “inadequate distinction” (slip opinion, p. 6) by FERC between the two situations, the matter was remanded.
Consumers Energy Co. v. FERC, 367 F.3d 915 (D.C. Cir.
The Court of Appeals denied a petition challenging FERC’s ruling that market- based rates may be charged by a marketing affiliate of a Canadian transmission utility that provides comparable service to the open access service required of domestic transmission companies with marketing affiliates having market-based rates authority, even though Canadian law differs from FERC’s open access regulations in some respects. The petitioner argued that it was denied the same ability to contract for point-to-point service that moves through Canada to get from New York to Michigan as is provided for under FERC-regulated open access transmission tariffs, and is instead forced to use network transmission service that packages the cost of the transmission capacity with that of the energy supply, such that the transaction could be uneconomic. Substantial evidence was found to support FERC’s approval of the Canadian power company’s application to sell power in the
The Court also found that FERC exercised reasoned decision-making in relying on the record evidence that such transactions through and out of Canada do occur on an economic basis, and that there would be no incentive for the Canada transmission utility to make the export charge uneconomic because then it would also lose the ability to export out of Canada. The Court concluded (slip opinion, p. 6) that, “We think it reasonable for the Commission to acknowledge the reality of an international border in deciding whether to insist on compliance with the minutiae of its regulatory requirements; it was certainly open to FERC to decide that a flexible approach requiring comparability on a case-by-case basis rather than letter-for-letter compliance across-the-board better accommodates jurisdictional limits and promotion of competitive markets for United States loads.”
The Court of Appeals denied a petition for review challenging FERC’s approval of incentives for a utility to upgrade high voltage transmission lines that are considered to constitute a uniquely critical path in order to remove congestion that had serious impacts on the ability to move power. Although the facility construction had not yet been undertaken and cost-based rates had not yet been filed for approval, the Commission granted a request for advance approval of a 200 basis point adder to the return on equity that will eventually be established and to a ten-year accelerated depreciation schedule. The Court found that FERC’s reliance on non-cost factors as a means of stimulating a needed construction project was proper, noting that no other alternative project had been offered for constructing the transmission upgrade. The Court also pointed out the Commission’s finding that the incentives are a small portion of the total energy costs and are greatly outweighed by the benefits to consumers. As for the petitioner’s argument that the utility could be compelled to perform the upgrades without the incentives, the Court held that this argument had not been preserved for appeal because it had not been raised on a rehearing petition before FERC.
In a statement concurring in part and dissenting in part, Judge Rogers stated that while there is nothing per se impermissible in FERC’s reliance on non-cost factors to encourage the building of a needed project, she would remand the case to FERC to explain how the particular rate incentives are tailored to the specific project and are no more than is needed for the success of the project. She pointed out that the utility had also requested a target capital structure that the Commission declined to pre-approve, and asked why the Commission believed the other two requests for pre-approval of overall project costs needed to be granted but not the third. She also took issue with the argument that this was the only project that surfaced, because the state public utility commission was conducting hearings examining alternative ways of alleviating the congestion when FERC issued the orders under review over the objection of the state agency that was the petitioner in this case.
The Court of appeals vacated FERC’s order that an ISO may not have its board appointed by the Governor as provided for under state law. FERC viewed the independence criteria for constituting an ISO to be violated under the state-appointment statute because a state agency is a market participant within the ISO. The Court ruled that FERC has no authority to order a replacement of a governing board of a public utility, which is what an ISO is defined to be under FERC’s regulations. While FERC argued that Federal Power Act Sections 205 and 206 authorizations are broad enough to include regulation of the ISO board’s composition, the Court held that only a “practice” affecting rates is included within those statutory provisions. The Court held that FERC can withhold approval of the ISO status of the entity for failure to meet its definition under Order No. 888 for qualifying as an ISO; but that interfering with the governance of an ISO is beyond FERC’s authority granted by Congress.
Nat’l Comm. for the New River, Inc. v. FERC, 373 F.3d 1323 (D.C. Cir.
The Court of Appeals denied as meritless a petition to review FERC’s process for ventilating and analyzing potential environmental impacts of a pipeline extension project that was certificated pursuant to Section 7(c) of the Natural Gas Act. The Court held that comments on a Draft Environmental Impact Statement were adequately considered by FERC in its issuance of a Final Environmental Impact Statement, including the granting of conditions requested by commenters, and that alternative routes were also adequately considered. Pointing out that it cannot substitute its judgment for that of the Commission, the Court found substantial evidence to support FERC’s factual findings, and concluded that the petitioner failed to show that FERC was arbitrary or that it abused its discretion.
Pac. Gas & Elec. Co. v. FERC, 373 F.3d 1315 (D.C. Cir.
The Court of Appeals vacated and remanded FERC’s orders on how to fund wind-up costs of a power exchange corporation that ceased operations. The Court found that the cost allocation was unreasonable and a violation of the filed rate doctrine. The power exchange had previously conducted energy market auctions in which it determined amounts to be paid by buyers of power and how those amounts would be distributed to sellers. Due to the
The Court held that this constituted retroactive ratemaking in violation of the filed rate doctrine because it assesses an additional charge to those on file when service was rendered but not in return for any new or current service. The Court characterized the wind-up charges as continued billing adjustments for past purchases for which the customer had no prior notice when making those past purchasing decisions. It further held that the billing mechanism was mathematically simple but not in keeping with cost-causation principles. This is because the Court concluded that the wind-up costs bear no relationship to any outstanding balances of individual customers, as those balances only reflect the timing differences by which the previously filed rates are paid from market participant to market participant. Accordingly, the Court held that FERC’s cost-allocation methodology is unreasonable.
Williams Gas Processing-Gulf Coast Co. L.P. v. FERC, 373 F.3d 1335 (D.C. Cir.
The Court of Appeals vacated FERC’s orders asserting jurisdiction over offshore gathering facilities that had been spun down by a pipeline to an affiliate under both the Natural Gas Act and the Outer Continental Shelf Lands Act (“OCSLA”). A producer had complained to FERC that it was being charged an exorbitant gathering charge and subjected to anti-competitive conditions for obtaining gathering service after the spin-down was effectuated. FERC had upheld that claim by invoking its authority to regulate gathering that is undertaken “in connection with” the interstate transportation of gas.
The Court disagreed. It concluded that the gathering company was exercising non-jurisdictional monopoly power that was unrelated to its affiliation with the pipeline to which the gathering company delivered the gas. The Court found that FERC misapplied its own two-part test for exercising jurisdiction over gathering by first determining if the gathering affiliate and the pipeline are engaged in concerted action and, if so, determining if the concerted action frustrates FERC’s effective regulation of the pipeline. Instead, the Court found that FERC incorrectly treated the pipeline and the gathering company as the same legal entity, and thereby arbitrarily regarded the non-jurisdictional gathering charge as an unjust and unreasonable FERC tariff rate.
On the OCSLA jurisdictional finding by FERC, the Court ruled that FERC only has authority under that Act to impose general non-discrimination conditions in its grant of authority for the transportation of oil or gas on or across the outer Continental Shelf by a pipeline, but that no such statutory basis exists for creating or enforcing open access rules on a gathering company. The Court further found that FERC was setting forth an impermissible post hoc rationalization that it is enforcing the pipeline tariff open access requirements by its orders below whereas no such assertion was contained in those orders. The matter was remanded to FERC for proceedings not inconsistent with the Court’s opinion.
The Court of Appeals denied petitions for review of FERC’s orders that the transmission owner members of a Regional Transmission Organization (“RTO”) collect certain start-up costs from all electric loads on the basis of volume rather than just those unbundled and new load that are subject to the open access transmission tariff for a six-year transition period. The Court ruled that the RTO controls the operation of all transmission used to deliver power from the Midwest ISO including transmission to bundled retail service. In weighing the costs and benefits, the Court likened the benefit derived by all load from the existence of the RTO as similar to the benefit that the public derives from the existence of the court system for which they all pay through taxes.
The transmission owners’ had argued that certain costs would be trapped in that they cannot be passed through in retail rates for unbundled load during the term of state-approved rate freeze settlements. The Court held that this is a reverse-cost trapping claim that goes beyond what the courts have struck down in upholding federal preemption and the Supremacy Clause against a state regulatory scheme interfering with federal regulatory action. The Court refused to circumscribe FERC’s ratemaking authority based on state action. The Court concluded that the initial recourse against a FERC-approved cost being trapped by the states is to the state regulators and contractual partners, not to FERC.
BP West Coast Prods., LLC v. FERC, 374 F.3d 1263 (D.C. Cir.
The Court of Appeals considered appeals of oil pipeline decisions for FERC raising the “changed circumstances” standard under the Energy Policy Act of 1992 (“EPAct”) for grandfathering, or exempting, pre-existing rates, and related rate issues. The Court vacated FERC’s orders and remanded the proceeding, although the Commission’s determinations on certain issues were affirmed.
The appeal was the first to raise issues before the Court concerning interpretation of the EPAct grandfathering provision. Under this statutory provision, rates in effect for a full year before enactment of the EPAct without any challenge are to be deemed just and reasonable, and therefore exempt from complaints filed at FERC seeking rate changes. The Court upheld FERC’s determination that when a new source point is added to an existing rate cluster, the rate is not new and the grandfathering provision applies. However, the Court disagreed with FERC that contract prices that were in effect for the requisite period but not on file at FERC can be grandfathered because treating unfiled rates the same as filed rates would undermine the filed rate doctrine. When grandfathering does apply, the Court agreed with FERC that it only prohibits the parties to the contract from complaining as to the filed rate, but not other participants to a complaint proceeding.
On other issues, the Court ruled that FERC erred by including an income tax allowance in a cost of service computation where no tax was generated by the regulated entity, either standing alone or as part of a consolidated corporate group. The Court upheld FERC’s reparation order as reasonable, rejecting four arguments against it, including a challenge to FERC’s refusal to net reparations against multiple test year periods. FERC was also upheld in its methodology for determining capital structure for a starting rate base, but it was ordered to determine and explain an appropriate allocation of civil litigation costs, and to address a request for recovery of reconditioning costs as part of the overall remand.
Entergy Servs. v. FERC, 375 F.3d 1204 (D.C. Cir.
The Court of Appeals denied a petition for review challenging FERC’s interpretation of an open access transmission tariff provision. FERC had held that a utility that reserves capacity on its own transmission system to serve non-jurisdictional bundled retail load must also designate network resources that it has contracted with to serve its unbundled retail load. FERC’s justification was that this designation of network resources is necessary to assure that the utility is not reserving excess capacity in order to unreasonably discriminate against competitors by keeping transmission capacity off of the market. The petitioner argued that FERC has no authority to condition service to bundled retail load by requiring that it be undertaken under FERC’s open access transmission tariffs. The Court agreed with the petitioner that FERC’s generic rules indicate that bundled retail load service need not be in accordance with FERC approved rates or terms and conditions of FERC-approved tariffs.
However, the Court found that FERC was not so regulating retail commerce in the orders under review. Instead, the Court found that FERC was properly (slip opinion, p. 10) “preventing transmission providers from blocking capacity that would otherwise be sought and used by its transmission customers” by requiring them (slip opinion, p. 9) “to designate resources in the same manner as any network customer under the tariff.” This explanation for FERC’s ruling was held to be “eminently sensible” (slip opinion, p. 9), and consistent with FERC policies and practices. The anti-competitive ramifications of the situation presented in the case at hand, whereby the petitioner reserved 2,000 MW of firm capacity with four different transmission providers to serve native load without designating any network resources in connection with these reservations, was pointed to by the Court as demonstrating that FERC’s order that the network resources be designated is consistent with, and (slip opinion, p. 10) “perhaps essential” to, FERC’s open access rule.
ChevronTexaco Exploration & Prod.
The Court of Appeals denied a petition for review by shippers contesting FERC’s approval under Section 4 of the Natural Gas Act of a revised annual surcharge. The filing was designed to cash-out imbalances between gas volumes that shippers put into a pipeline and take out over a specified period in conformance with an approved rate formula. In reviewing the annual filing, FERC found the formula to be no longer just and reasonable and instituted a proceeding under Section 5 of the Natural Gas Act to establish a just and reasonable formula. The petitioners argued that FERC should have also rejected the annual surcharge filing, or accepted it for filing subject to refund upon the conclusion of the Section 5 proceeding.
The Court agreed with FERC that the formula is itself an approved rate, and FERC, having already approved the rate formula, is confined to examining the prudence of the costs and the calculation of the input data with each annual filing of the surcharge. It agreed that FERC has no authority to reject the Section 4 filing of the pipeline once those two determinations are made with each annual update of the specific numerical value calculated by the approved method, and that the method can only be changed prospectively by FERC acting in accordance with Section 5. Since Section 5 only permits FERC to set rates “to be thereafter observed,” FERC’s rejection of the pipeline’s surcharge calculation as no longer just and reasonable was held to be of prospective effect only, and the petition seeking refund protection was denied.
The Court of Appeals rejected a petition that it order FERC to promulgate a new rulemaking proceeding concerning its recoupment of costs from industries it regulates through annual charges in compliance with the Omnibus Budget Reconciliation Act of 1986. The petitioners alleged that FERC’s existing rule for assessing those charges on the basis of electric transmission alone is unjust and unreasonable in the light of changed circumstances. The changed circumstances pointed to by the petitioners include FERC’s alleged shift in focus to sales of electricity since the California energy crises, the creation of its Office of Market Oversight and Investigation, reliance on market monitors within Regional Transmission Organizations and Independent System Operators to regulate markets, and its Notice of Proposed Rulemaking on Standard Market Design. FERC denied any change in its focus on regulating transmission operations. The petitioners alleged that FERC’s denial of a change in focus is similar to Ralph Kramden’s denial of wrongdoing witnessed by
While quoting this excerpt from the oral argument with reference to The Honeymooners, the Court remained unconvinced that it should require FERC to re-examine whether annual charges should be assessed on the basis of sales as well as transmission. The Court held that its review is particularly deferential to FERC on whether to conduct a rulemaking as this is essentially a legislative determination. The Court further stated that it is particularly reluctant to compel rulemaking for economic reasons rather than to safeguard against grave health and safety problems for the intended beneficiary, and that FERC is in the best position to know whether its has changed its priorities, as alleged by the petitioners and denied by FERC. The Court concluded that FERC still maintains a focus on transmission, and that its actions respecting sellers in the incidents pointed to by the petitioners were isolated events taken (p. 15) “on the heels of a highly unusual four-year period” that also included “continued efforts [by FERC] to reform transmission.” Accordingly, the Court (p. 15) “decline[d] to override FERC’s view of its own priorities.”
Electric Power Supply Ass’n v. FERC, 391 F.3d 1255 (D.C. Cir.
The Court of Appeals vacated FERC’s order purporting to carve out an exception to the ex parte provision of Section 557(d) the Government in the Sunshine Act. This provision prohibits non-public communications between an interested person outside the agency and an agency decision-maker concerning contested proceedings. FERC had claimed authority to grant an exemption from ex parte prohibitions by allowing communications between market monitors and decisional employees of the agency to be made public only if FERC relied on the communication in its determination of a contested matter. The petitioner claimed that FERC’s action in promulgating such a regulation violated the statute on its face. FERC argued that it was balancing its need for information from the market monitors against the potential harm that could result from non-public communications. The Court held that FERC has no discretion to engage in such a balancing of interests in order to determine whether to grant itself an exemption from a statutory prohibition. The Court reviewed the issue de novo, pointing out that no deference is owed to FERC’s interpretation of a statute of general applicability governing FERC and other federal agencies.
Entergy Services v. FERC, 391 F.3d 1240 (D.C. Cir.
The Court of Appeals vacated FERC’s application of an “at or beyond” test for determining whether to directly assign the cost of interconnecting a generator to a transmission network or spread the costs to all network customers. Previously, FERC used a “from the point” of interconnection test in making that cost allocation determination. According to the Court, (slip opinion, pp. 19 – 20), “[t]e departure may be slight, but it is a departure nonetheless,” and one that needs to be explained, “not casually ignored.” The case was remanded so that FERC can provide an explanation either (slip opinion, p. 20) “that we have misread the Commission’s apparent direct assignment of costs occurring precisely at the point of interconnection or an explanation of why it has departed from that policy.”
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
Utilimax.com, Inc. v. PPL Energy Plus, LLC, 378 F.3d 303 (
The Court of Appeals affirmed the holding of the District Court for the Northern District of Illinois that the filed rate doctrine bars a customer of a wholesale electricity supplier from bringing antitrust claims even if the customer and the wholesale electricity suppliers are also competitors in the retail electric market. FERC had approved a capacity deficiency rate in the PJM Interconnection Regional Transmission Organization tariff applicable to a retail supplier with insufficient capacity to provide one day’s worth of electrical energy to those customers that the retail supplier had contracted to serve. The rate is a penalty collected by PJM and remitted to entities that had excess capacity available to satisfy the capacity deficiency of the supplier to meet its capacity obligation. The entity that was required to pay the capacity deficiency rate alleged that the entity that received the payment had a monopoly on such excess capacity, and was thereby able to ensure that it receive the payments by either offering to sell its capacity at the penalty rate or by not offering to sell it at all and simply collect the penalty rate from any retail supplier that failed to meet its capacity obligations. The Court ruled that since the rate was the FERC-approved filed rate, the complaint cannot be brought by a customer under the FERC tariff. The Court recognized that there are two exceptions to the bar against antitrust suits under the filed rate doctrine. One is applicable to competitors of the entity charging the filed rate. The other exception to the filed rate doctrine applies to those challenging non-rate practices. However, the Court held that neither of those exceptions apply in this case, because the appellant is seeking to avoid paying the filed rate, and is therefore bringing suit as a customer, not a competitor; and is attacking the rate directly, not a non-rate competitive activity.
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
East Tennessee Gas Co. v. Sage, 361 F.3d 808 (4th Cir.
The Court of Appeals affirmed the decision of the District Court for the Western District of Virginia that once FERC issues a certificate of public convenience of necessity for the construction of a natural gas pipeline, including a right of eminent domain, immediate possession may be obtained. The District Court held that it can exercise its equitable powers in issuing a preliminary injunction before just compensation is determined and paid. In this case, FERC found that the pipeline construction was in the public interest, and imposed a date for completion of the project. The pipeline had already deposited money that the landowners could draw on based on a preliminary evaluation of the value of the property by an independent source. The Court of Appeals upheld the District Court finding that the preliminary injunction is warranted because FERC’s deadline cannot be met otherwise, and this will cause irreparable harm to the public by causing contracts to supply power generators to be breached and depriving areas of needed gas service.
The Court also found that the landowners will be fully compensated as required by the Fifth Amendment takings clause of the United States Constitution. It concluded that the timing difference between the forfeiture of possession and the final payment of just compensation is not likely to be harmful since the deposit is available to the landowners in the interim. Despite the lack of any express provision for an immediate taking in the Natural Gas Act, the Court found that equitable relief is justified in that it effectuates the condemnation right afforded under the statute rather than creates any new substantive right. The Court further held that precedent provides for courts of equity going to greater lengths to give relief in furtherance of the public interest than when only private interests are involved. For these reasons, it held that the District Court did not abuse its discretion in granting preliminary injunctive relief in this case.
UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT
Official Comm. Of Unsecured Creditors of Mirant Corp. v. Potomac Elec. Power Co., 378 F.3d 511 (5th Cir.
The Court of Appeals held that the filed rate doctrine does not allow a debtor in bankruptcy to challenge the wholesale electric rate it pays under a contract rate filed at FERC. However, the Court construed this holding to only mean that the measure of damages for breach is established by the filed rate, and that the Bankruptcy Court and District Court have jurisdiction to grant the debtor’s motion to so breach an executory contract to purchase electricity. The Court held that the quantity of electricity set forth in the contract is not protected under the filed rate doctrine, and the debtor can seek relief under the Bankruptcy Code from performance under an electric purchase agreement when it no longer has need for the electric supply, as is alleged in this case. The utility then becomes an unsecured creditor for the breach of the contract in the amount of the filed rate approved by FERC, according to this decision. Whether the unsecured claims are later satisfied at less than the full amount of the claim as part of a Court-approved reorganization plan does not violate the filed rate doctrine, according to the Court, but is a function of the Bankruptcy Code, which carves limited exceptions to the right to renounce executory contracts that do not include electric supply agreements approved by FERC.
The District Court for the Northern District of Texas had reversed the Bankruptcy Court’s granting of injunctive relief motions by the debtor and upheld the jurisdictional objections of FERC and the public utility creditor. However, the Court of Appeals ruled that both the Bankruptcy Code and the Federal Power Act can be read to be consistent so as to allow the District Court and the Bankruptcy Court to have jurisdiction over the disposition of the executory agreement, albeit perhaps under a more severe standard than the business judgment test since the public interest for electricity that FERC regulates is impacted. Even so, the Court held that the Bankruptcy Court had been too broad in granting injunctive relief that would have stayed FERC orders for a ten-day period to allow the debtor to seek Bankruptcy Court review if such orders impacted the debtor’s electric purchase obligations. In remanding the matter, the Court indicated that a merits determination concerning the relief sought by the debtor must not purport to directly preempt FERC’s rate authority, but may indirectly have such effects.
UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT
Clajon Gas Co. v. Comm’r, 354 F.3d 786 (8th Cir.
The Court of Appeals, in a reversal of the United States Tax Court, held that gathering lines used in the production and transportation of natural gas to a transmission line do not lose their classification under the Tax Code if the taxpayer that owns the gathering lines contracts out their use to producers. The Tax Court would have classified the pipeline system as transmission because the owner is not in the business of producing natural gas but instead is paid by others to make that use of the facilities. The effect of the Tax Court ruling would be that the taxpayer would use a different depreciation schedule that extends over a fifteen-year period applicable to transmission lines rather than an accelerated seven-year depreciation schedule the applies to gathering lines in recognition of their shorter service life.
The Court, citing other circuit decisions, held that the classification of pipelines as gathering lines is unaffected by the fact that the pipelines are not owned by a gas producer but are instead leased to natural gas producers to deliver gas from wells to production plants. It is the use, not the ownership, that controls according to this decision. The Internal Revenue Service (“IRS”) argued just the opposite, but the Court found that the agency was relying on asset-class regulation language that is superseded by both the most recent provisions and those which the current provisions themselves superseded. The Court further held that the IRS interpretation that ownership is a distinguishing factor is contrary to the plain language of the current asset class descriptions, and that such an interpretation would cause inconsistent shifts in depreciation upon the sales of facilities without any change in their function.
Union Elec. Co. v.
The Court of Appeals affirmed the United Stated District Court for the Western District of Missouri’s dismissal of an action by a hydroelectric power company to enjoin the Missouri Department of Conservation from seeking to recover damages against it for alleged negligence resulting in preventable fish kills at its hydroelectric power plant. The company had asserted that the Federal Power Act preempts the state agency from bringing any state court or administrative agency actions to impose liability on the company for the lost fish. The District Court granted the motion of the Missouri Attorney General that the case be dismissed on the basis of the state’s sovereign immunity against federal court suits under the Eleventh Amendment. The Court of Appeals affirmed, stating that the state had not waived its immunity by intervening in the case in order to file its motion for dismissal.
In addition, while disclaiming that it was venturing into the merits of the case, the Court addressed the issue as to whether the Federal Power Act claims of the company implicate any special sovereignty interests that might allow the federal case for prospective injunctive relief to proceed against state officials in their official capacity. Instead, the Court found that the Act evidences Congressional intent to prohibit any such injunctive relief because it provides that each licensee shall be liable for damages caused by its operations under the license. The Court noted (slip opinion, p. 4) that “[t]he Act does not draw any distinction between damage actions instituted by States and those instituted by private parties.” Accordingly, finding no basis for any exception to the Eleventh Amendment immunity of the state, the Court rejected the company’s appeal.
N. Natural Gas.
The Court of Appeals affirmed the holding of the District Court for the Southern District of Iowa granting summary judgment and entry of a permanent injunction in favor of interstate natural gas pipelines to preclude the Iowa Utilities Board from imposing Iowa regulatory provisions relating to environmental protection on pipeline expansion projects as these matters are preempted by the Natural Gas Act (“NGA”). A FERC-regulated company sought to upgrade one of its pipelines in
Both the District Court and the Court of Appeals found that there is an actual conflict between the
The Court of Appeals further observed that in more recent cases, FERC has included certificate language requiring pipelines to cooperate with state and local authorities, following a rule of reason as to whether additional costs or delays would be unreasonable to meet such additional requirements. But the Court pointed out that this certificate condition is not contained in the 1982 blanket certificate authority that was issued in this case, and called the more recent certificate conditioning language a matter of FERC policy that (slip opinion, p. 12) “does not change the preemptive effect of the NGA as enacted by Congress.”
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
The Court of Appeals upheld the state action immunity doctrine as immunizing an electric power company from allegations that it violated federal antitrust law. The Court held that state law fulfilled a policy that permitted anti-competitive conduct subject to state supervision. A claim had been brought by a non-profit retail electric corporation that the electric power company refused to transmit power that the non-profit corporation purchased from a third party generation company. This refusal to wheel power over an essential facility allegedly constituted antitrust violations. However, the Court of Appeals, in upholding the summary judgment motion of the District Court for the District of Idaho, ruled that the legislature had articulated a policy of restraining competition in order to prevent wasteful duplication by providing by statute that the Idaho Public Utilities Commission (“PUC”) actively supervise private decisions affecting competition in
California ex rel. Lockyer v. FERC, 383 F.3d 1006 (9th Cir. September 9, 2004); 375 F.3d 831 (9th Cir. July 6, 2004); 387 F.3d 966 (9th Cir. October 29, 2004, amending decision issued July 6, 2004, and denying rehearing and rehearing en banc)
The Court of Appeals remanded the proceeding to FERC to consider refund remedies for
The Court also ruled that the filed rate doctrine does not bar refunds for utilities that fail to comply with the terms of the market-based rate authorization orders. The Court found that market-based rates fail to comport with the FPA if they become unfiled, privately negotiated rates by not having the underlying confirmatory information submitted as required by FERC’s orders. This information is to be submitted quarterly and to summarize transactions occurring during the preceding three months. According to the Court, both FERC’s ex ante finding of the absence of market power and its post-approval reporting requirements are necessary to validate market based rates as just and reasonable. By failing to enforce the latter requirement on a timely basis, the Court faulted FERC for abdicating its regulatory responsibility. It found that FERC has discretionary authority to order retroactive refunds for a company’s non-compliance with the terms of its market-based rate authorization, and remanded the case to FERC to reconsider its remedial options.
In a separate decision, the Court held that FERC has exclusive jurisdiction under the Natural Gas Act and Federal Power Act over claims by
Public Util. Dist. No. 1 v. Dynegy Power Mktg., Inc., 384 F.3d 756 (9th Cir.
The Court of Appeals affirmed the United States District Court for the Southern District of California in dismissing for lack of jurisdiction a suit by a utility alleging violations of state antitrust and consumer protection laws by wholesale electric generators and marketers, and requesting that wholesale electricity prices be established at market rates below those allowed by FERC, with the difference refunded along with treble damages. The Court held that exclusive jurisdiction to establish wholesale rates, whether cost-based or market-based, lies with FERC under the Federal Power Act. The Court further found that FERC continues to engage in regulatory activity in this area, and therefore the request that the District Court determine rates that would have been achieved in a competitive market are barred by the filed rate doctrine, field preemption, and conflict preemption. The Court concluded that the only remedy for the alleged unjust and unreasonable prices set in the
UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT
Pennaco Energy, Inc. v. United States DOI, 377 F.3d 1147 (10th Cir.
The Court of Appeals reversed the United States District Court for the District of Wyoming and ordered it to reinstitute the decision of the Department of Interior Board of Land Appeals (“IBLA”) that it had overturned. The IBLA decision had itself reversed the decision of the Bureau of Land Management (“BLM”) to auction three oil and gas leases. The BLM had relied upon environmental impact statements (“EIS”) concerning the planned use of leases for the extraction of coal bed methane (“CBM”) whereas the three particular leases that were challenged on appeal are instead intended for non-CBM oil and gas development.
The IBLA decision was reviewed under an arbitrary and capricious standard of review by the Court of Appeals while no particular deference was given in reviewing the District Court’s own review of the IBLA decision, as the subject matter falls within the particular expertise of the IBLA. The Court upheld the IBLA finding that the BLM violated the National Environmental Policy Act (“NEPA”) in auctioning the leases. This determination was based on a finding of substantial record evidence that the EIS that constituted the pre-lease NEPA analysis for the sale of the affected properties contains significant omissions that precluded the BLM from relying solely on those documents to satisfy NEPA obligations. The Court upheld the IBLA’s finding that unique environmental concerns related to the particular leases under consideration differentiated them from the environmental effects of coal bed methane extraction that were the subject of the EIS relied upon by the BLM.
The Court of Appeals denied a petition to review FERC’s Natural Gas Act certification of the construction of a new natural gas pipeline in northwest
As to the petitioner’s additional claim that FERC did not comply with NEPA’s “hard look” requirement in considering alternatives to the pipeline construction, and environmental impacts involving transboundary effects, acoustic effects, reasonably foreseeable earthquakes, and cumulative non-acoustic environmental effects, the Court concluded that the record demonstrates that FERC complied with the procedural requirements imposed by NEPA to consider these matters. The Court stated that it will not question the wisdom of the agency’s ultimate decision beyond reaching its determination that FERC articulated a rational connection between the facts found and the results reached.
UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT
Union Elec. Co. v.
The Court of Appeals affirmed the decision of the United States Court of Federal Claims rejecting a claim that assessments on utilities that purchased government-enriched uranium for electric generation pursuant to the Energy Policy Act violates the Direct Tax Clauses of the United States Constitution. The tax is assessed against domestic utility companies that have purchased government- enriched uranium for the purpose of commercial electricity generation. One such taxed utility maintained that this tax must be directly apportioned among the individual states on the ground that it directly taxes the ownership of property. This allegation was based on Article I, Section 2, Clause 3 of the Constitution, which provides that “direct Taxes shall be apportioned among the several States which may be included within this
However, the Court ruled that the tax on the purchase and ownership of government-enriched uranium is an excise tax that does not have to be apportioned. The Court relied on Article I, Section 9, Clause 4, which states that, “Duties, Imposts and Excises shall be uniform throughout the
In addition to being an indirect tax, the Court held that the tax is outside the scope of the apportionment provision of the Constitution because it is a consumption tax imposed on the acquisition, ownership, or use of government-enriched uranium. According to the decision, a tax on a particular use or enjoyment of property, as well as on the shifting of ownership or enjoyment of property from one to another, can be levied by Congress without apportionment.
Finally, the allegation of the appellant that that the tax is applied retroactively on the basis of a past purchase, and is therefore unavoidable, was rejected as a basis for finding that the tax is not an excise tax. Going back to the writings of Alexander Hamilton in The Federalist No. 21, the Court concluded that avoidability is not a necessary characteristic of indirect taxes.
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA
Modesto Irrigation District v. Pacific Gas & Electric Co., 309 F.Supp. 2d 1156 (N.D.Cal.
The District Court granted a motion for summary judgment by the defendant public utility, and dismissed an antitrust complaint filed by a state-recognized irrigation district. The plaintiff had sought to compel the utility to commence to deliver electric power provided by it to a customer in the utility’s retail service territory. The Court found that the statute creating the irrigation district to conduct utility-related ventures restricted its activities to limited boundaries, and that the antitrust injury claim by an irrigation district could not be sustained if the case were to proceed to trial because the plaintiff has no authorization to offer electric services in the utility’s service area because it is beyond the authorized boundaries of the irrigation district. The Court held that the irrigation district is required by state law to seek approval from a local agency formation commission (“LAFCO”) to expand its provision of utility service, and it had not done so. The Court disagreed with the plaintiff’s contention that it was exempt from the requirement to seek LAFCO approval to provide service in expanded areas.
In ruling on the summary judgment motion, the Court noted that in a prior case, the same entity had received a special statutory exemption from this LAFCO-approval requirement in order to extend its services into another area. The Court pointed to this stipulated fact as an indication that this legislative enactment would have to be replicated for purposes of any extensions into additional areas not named in the prior legislation, absent compliance with the original authorization law’s requirement to receive advance approval from the appropriate LAFCO.
UNITED STATES DISTRICT COURT FOR THE
Public Utility Dist. No. 1 v. FERC, 315 F.Supp.2d 89 (D.D.C.
The District Court granted FERC’s motion to dismiss for lack of subject-matter jurisdiction a complaint alleging that two Commissioners violated the Sunshine Act by conducting a private telephone conference call on a pending matter that included a respondent to a complaint case that was a subject of the conference call. The Court noted that the complainant had not only sought a ruling from the District Court that FERC had violated the Sunshine Act, but that it had also made that allegation to FERC directly in a motion for recusal. The Court further noted that FERC has denied the motion and denied rehearing of the order denying the motion, and that a petition for review of FERC’s orders is now pending before the United States Court of Appeals for the Ninth Circuit.
The Court held that exclusive jurisdiction for reviewing FERC orders has been vested in the Courts of Appeal by Congress, and that the complainant is here seeking essentially the same relief that it is seeking in its Ninth Circuit appeal. Ruling that simultaneously seeking judicial review by the Ninth Circuit and the District Court is impermissible, and (slip opinion, p. 7) that “there is a presumption against a circuit court and a district court exercising concurrent jurisdiction over a pending matter,” the Court dismissed the complaint.