2010 Court Opinion Case Summaries

Murray Energy Corp. v. FERC, No. 09-1207 (D.C. Cir. Jan. 7, 2011)

D.C. Circuit Denies Challenge to FERC Orders Authorizing Rockies Express-East Pipeline
On January 7, 2011, the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) denied a petition for review by Murray Energy Corporation (Murray) of Federal Energy Regulatory Commission (FERC) orders authorizing construction of Rockies Express Pipeline LLC's (REX) REX-East pipeline. 

The D.C. Circuit first explained that REX filed an application in April 2007 for a certificate of public convenience and necessity under Natural Gas Act (NGA) section 7 to construct and operate the REX-East pipeline.  In the FERC proceeding, Murray stated that the proposed pipeline would cross approximately eight miles of coal deposits that Murray was either already mining or might mine in the future, and expressed concern that land subsidence might occur along those eight miles, placing strain on the pipeline.  FERC granted the REX application, subject to numerous conditions, including Condition No. 147 concerning the maintenance of pipeline integrity and operation while not impeding the mining operation.  In March 2009 the Chief of Gas Branch 2 in the Office of Energy Projects authorized construction of the pipeline.  On rehearing, FERC affirmed the delegation of authority to the Chief of Gas Branch 2 and adopted the Chief’s action as its own.  FERC also found that REX had satisfied Condition No. 147 and that REX's construction and operations plan adequately protected the safety of the pipeline and Murray's mining operations.

Reviewing the FERC orders under the arbitrary and capricious/substantial evidence standard, the D.C. Circuit rejected Murray's three arguments regarding: (1) delegation to the Chief of Gas Branch 2; (2) whether REX had fulfilled Condition No. 147; and (3) the safety of the pipeline.  The court quickly dismissed the first argument, finding that the FERC's ratification of the action of the Chief of Gas Branch 2 resolved any delegation problems.  With respect to the second issue, the court found that there was substantial evidence that REX had satisfied Condition No. 147, which required REX to collaborate with Murray.

Finally, the D.C. Circuit rejected Murray's claims that REX's construction plan failed to ensure the safety of the pipeline for four reasons: (1) REX's experts lacked adequate qualifications; (2) REX's experts suggested the plan was unsafe; (3) the special trench design was untested; and (4) the plan did not bind REX to any actual protective measures.  The court found that FERC's judgment that REX's proposed safety measures were sound was adequately supported by substantial record evidence and that FERC offered satisfactory explanations for its conclusions.


City of Idaho Falls, Idaho v. FERC, No. 09-1120 (D.C. Cir. Jan. 4, 2011)

Section 10(e)(1) of the Federal Power Act, 15 U.S.C. § 803(e)(1), requires FERC-regulated hydropower project licensees to “pay the United States reasonable annual charges in an amount to be fixed by the Commission” to compensate the government for “the use, occupancy, and enjoyment of [federal] lands or other property.”  In 1987, the FERC issued Order No. 469, which ended the FERC’s use of a previous methodology for calculating the charges, and instead adopted the U.S. Forest Service’s (USFS) schedule of rental fees for linear rights-of-way across National Forest System lands.  Order No. 469 conceded that the methodology fashioned by the USFS and Bureau of Land Management (BLM) was “not precisely fitted to hydroelectric projects,” but concluded that the schedule would be “the best approximation available” among the various methodologies considered.

For twenty years, the USFS made no changes, other than inflation adjustments, to the schedule.  But in response to Congress’s enactment of legislation ordering it to reconsider their methodology, the USFS and BLM promulgated a new methodology and corresponding fee schedule in 2008.

In 2009, the FERC adopted the USFS’s new fee schedule without notice and comment rulemaking, despite the new underlying methodology.  Licensees petitioned the D.C. Circuit for review, and the Court granted the petition, vacating the FERC’s decision.   Rejecting the FERC’s argument that Order No. 469 simply adopted the USFS fee schedule generally without adopting the underlying methodology specifically, the Court held that the FERC had in fact adopted the old USFS-BLM methodology, and that USFS-BLM’s change in methodology could not be adopted by the FERC without a new round of notice and comment.  The Court was unable to accept the FERC’s interpretation of its own regulations even under the “highly deferential standard” governing judicial review of an agency’s interpretation of its own regulations.


Honeywell International, Inc. v. NRC, No. 10-1022 (D.C. Cir. Dec. 21, 2010)

In this case the D.C. Circuit rejected the denial an exemption from a regulatory requirement by the Nuclear Regulatory Commission (NRC), because the NRC failed to differentiate the exemption denial from two prior instances where exemptions were granted.

Honeywell International (Honeywell) operates a uranium processing facility and “must provide financial assurances for the decommissioning” of the facility as part of the operating license it must obtain from the NRC. A licensee may demonstrate financial assurance by showing that it has “[t]angible net worth at least 10 times” the cost of decommissioning and has a suitable bond rating. Quoting 10 C.F.R. pt. 30, app. C., § II.A. This relieves the licensee from obtaining a surety or other third-party guarantee. In 2007 and 2008 the Commission granted Honeywell’s application for an exemption from the 10:1 tangible net worth to decommissioning ratio because the NRC found that the company’s tangible assets and the intangible value of its goodwill would meet the requirements. Goodwill is “the expectancy of continued patronage.” In 2009 the Commission denied Honeywell’s request for an exemption citing a continued decline in its net worth. Honeywell appealed the decision and obtained a surety bond while its appeal was pending but did not seek another exemption during the appeal.

The Court rejected the NRC claim that the case was moot because the facts suggested that the actions in this case were “capable of repetition, yet evading review.” The court found that the need to apply annually for the exemption was too short to permit the claim to be fully litigated and that there was a reasonable likelihood that Honeywell, as a regulated party, would seek an exemption in the future.

The Court found that the lack on an explanation for NRC’s denial of an exemption left it without “guideposts for determining the consistence of administrative action in similar cases, or for accurately predicting the future.” The Court did not find any clear distinctions between the Commission’s prior grants of an exemption and its current denial of an exemption and remanded the case back to the NRC for further proceedings.


Transmission Agency of Northern California v. FERC, No. 09-1213 (D.C. Cir. December 10, 2010)

The D.C. Circuit denied petitions for review challenging FERC’s approval of a proposal by the California Independent System Operator (CAISO) to apply proxy prices to imports and exports of power between the CAISO and certain external balancing authority areas absent more specific information regarding the resources used to support such interchange transactions.  The CAISO proposal, known as the Integrated Balancing Authority Area (IBAA) mechanism, applied to interchange transactions between the CAISO and the Sacramento Municipal Utility District (SMUD) and Turlock Irrigation District (Turlock) balancing authority areas, which the CAISO combined into a single balancing authority area for purposes of its IBAA pricing proposal.

The court rejected each of the four objections to FERC’s approval of the CAISO IBAA proposal raised by the petitioners – municipal utilities that would be subject to the IBAA pricing mechanism.  First, the court upheld FERC’s finding that the IBAA price-setting mechanism did not exceed FERC’s jurisdiction under the Federal Power Act by regulating the rates of non-jurisdictional municipal utilities.  Second, applying “[a] variation of the two-step analysis” under Chevron, U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984), the court found FERC’s determination that the IBAA proposal did not conflict with an existing contractual arrangement, as claimed by the petitioners, to be reasonable.  Third, the court upheld FERC’s conclusion that the IBAA pricing mechanism was not unduly discriminatory, even though it applied, for the time being, only to the SMUD-Turlock balancing authority area.  Finally, the court affirmed the Commission’s conclusion that the specific default proxy prices used in the IBAA pricing mechanism were just and reasonable, finding that the CAISO’s assumptions underlying the selection of proxy prices were supported by the record.  In this respect, the court rejected the petitioners’ argument that FERC’s acknowledgement that the pricing mechanism could at times lead to artificially low prices meant that FERC had erred in approving the proxy price for imports into the CASIO.  The court reasoned that this argument amounted to a suggestion that “the proxy price could never deviate from the market price without becoming unlawful,” a position inconsistent with D.C. Circuit precedent.

Flint Hills Resources Alaska, LLC v. FERC, No. 08-1270 (D.C. Cir. Dec. 3, 2010)

On a petition for review of the Commission’s modification of oil pipeline transportation rates for the Trans Alaska Pipeline System (“TAPS”), the D.C. Circuit rejected various arguments presented by the carriers and the State of Alaska.  The court further declined to decide other issues, as unripe.

The case arose under Section 15 of the Interstate Commerce Act (“ICA”), from rates filed by carriers for 2005 and 2006, which were protested by Alaska and two shippers.  Using the oil pipeline ratemaking methodology set forth in Opinion No. 154-B (1985), rather than the TAPS Settlement Methodology (“TSM”) previously established for computing interstate rates for the TAPS, the Commission rejected the riled rates as unjust and unreasonable (but not discriminatory and unduly preferential).  The Commission found that the just and reasonable rate was less than the prior unchallenged (2004) rate, but limited refunds to the difference between the 2005-2006 filed rates and the 2004 rate.

The D.C. Circuit denied the petitions for review, either affirming the Commission’s conclusions or dismissing the challenges as unripe.  The court’s substantive conclusions rejected the proffered challenges in a swift series.  The Court held, inter alia, that: (1) the Commission was justified in using as the rate base the pipeline’s remaining initial capital cost after subtracting the accelerated depreciate already recovered; (2) the carriers were not entitled to a one-time “write-up” of the rate base, even though pipelines were afforded such a write-up when Opinion No. 154-B changed the ratemaking methodology in 1985, because no reasonable investor as of the creation of the 1985 TAPS Settlement Agreement could have expected a write-up today; (3) the use of a “new” ratemaking methodology did not preclude the Commission from ordering refunds under the ICA; and (4) Alaska could no prove the Commission’s order discriminatory because it showed no competitive injury from the alleged discrimination.

The Commission declined to reach other challenges, on ripeness grounds.

Maine Pub. Utils. Comm'n v. FERC, No. 06-1427 (D.C. Cir. Nov. 5, 2010)
[link: http://pacer.cadc.uscourts.gov/common/opinions/201011/06-1403-1275750.pdf]

This opinion was issued on remand from the Supreme Court’s decision in NRG Power Marketing, LLC v. Maine Public Utilities Commission, 130 S. Ct. 693 (2010), which reversed Part IV of the D.C. Circuit’s earlier decision in Maine Public Utilities Commission v. FERC, 520 F.3d 464, 476-79 (D.C. Cir. 2008).  NRG Power “reverse[d] the D.C. Circuit’s judgment to the extent that it reject[ed] the application of Mobile-Sierra to noncontracting parties.”  130 S. Ct. at 696.  As Justice Ginsburg explained, the Supreme Court’s decision in Morgan Stanley Capital Group Inc. v. Public Utility District No. 1, 554 U.S. ___, 128 S. Ct. 2733 (2008), “announced three months after the D.C. Circuit’s disposition, made clear that the Mobile-Sierra public interest standard is not an exception to the statutory just-and-reasonable standard; it is an application of that standard in the context of rates set by contract.”  NRG Power, 130 S. Ct. at 696.  Thus, “the Mobile-Sierra presumption does not depend on the identity of the complainant who seeks FERC investigation.”  Id. at 701.  However, NRG Power declined to address two issues “raised before, but not ruled upon by, the Court of Appeals,” stating that those questions “remain open for that court’s consideration on remand.”  Id.  These questions were “[w]hether the rates at issue qualify as ‘contract rates,’ and, if not, whether FERC had discretion to treat them analogously . . . .”  Id.  Describing the evolution of these issues as a “jurisprudential Kabuki dance,” slip op. at 7, the court of appeals also declined to address the merits of either question on remand, holding instead that it was necessary to remand these questions to FERC “because it is certainly obvious—whatever else is confusing about this case—that FERC never articulated in its orders a rationale for its discretion to approve a Mobile-Sierra clause outside the contract context, or an explanation for exercising that discretion here.”  Id. at 11.  In doing so, the court rejected arguments that the case should be dismissed on remand for lack of jurisdiction because the specific questions at issue were raised by intervenors supporting the petitioners, not the petitioners themselves.  Emphasizing what the court described as an “unanticipated change in the Supreme Court’s Mobile-Sierra jurisprudence” wrought by Morgan Stanley and NRG Power, id. at 8, the court held that the petitioners has sufficiently preserved these issues on rehearing at FERC and in their opening brief on appeal by broadly alleging that FERC’s approval of the Mobile-Sierra provision in the contested settlement “deprive[d] non-settling parties of their rights under Section 206 of the Federal Power Act.”  Id. at 8 (jurisdiction) & n.2 (waiver).


U.S.A. v. Cinergy Corp., Case No. 09-3344, et al.
U.S. Court of Appeals for the 7th Circuit
Opinion Issued: October 12, 2010

On October 12, 2010, a panel of the U.S. Court of Appeals for the 7th Circuit, comprising Chief Judge Easterbrook and Judges Posner and Rovner, issued a decision reversing a district court decision that had favored the government, and dismissing the government’s cross appeal, of issues arising from modifications made by Cinergy Corporation’s affiliated owners (collectively “Cinergy”) to several coal-fired power plants located in the Midwest.  Specifically, the U.S. Environmental Protection Agency (“EPA”) had alleged that Cinergy had failed to obtain permits for the modifications, potentially subjecting Cinergy to penalties of $25,000 per day per violation and an injunction that could require it to shut down the plants.

The October 12 decision, authored by Judge Posner, noted it was the second appeals court decision relating to this case.  In the first, on an interlocutory appeal, the court (in an opinion also authored by Judge Posner) had found that the impact of a modification was appropriately measured by actual annual increases in generation (the “actual-emissions standard”) rather than increases in hourly capacity.  United States v. Cinergy, 458 F.3d 705 (7th Cir. 2006) (“Cinergy I”).  The distinction was important because Cinergy’s modifications had increased the total number of hours that units could operate, but not necessarily the hourly limitation, thus potentially allowing more overall pollution over an annual period.

After Cinergy I, the district court held a jury trial relating to 14 modifications made to three plants; the jury found Cinergy liable for failing to obtain permits for four of the projects that would increase the plants’ annual emissions of sulphur dioxide and nitrogen oxide.  On appeal, Cinergy first argued that the rules in effect at the time it made the modifications did not require it to obtain permits for modifications that could increase sulphur dioxide.  In opposition, the government asserted that even if the rules had not yet been changed, Cinergy was on notice that they would be changed and thus should be held to the stricter actual-emissions standard.  In fact, it took 12 years for the state to propose and EPA to approve the revisions after the state first agreed to make the change to the actual-emissions standard.

While sympathizing with the EPA’s concern over the impact of the modifications, the appeals court ruled that “notice” could not trump the actual language of the regulations relating to sulphur dioxide that were in effect when the modifications were made:

The agency’s frustration is understandable.  It embraced the actual-emissions standard, which for the reasons explained in our previous opinion and repeated earlier in this one makes better economic sense, before [the revised regulations were] . . . presented for its approval.  It should have disapproved it; it didn’t; but it can’t impose the good standard on a plant that implemented the bad when the bad one was authorized by a state implementation plan that the EPA had approved.  The blunder was unfortunate but the agency must live with it.

Slip op. at 7-8.

Cinergy next argued that the ruling relating to nitrogen oxide increases should be reversed due to a faulty evidentiary ruling that allowed testimony that the modifications would increase nitrogen oxide beyond levels allowed by the state implementation plan.  Finding that the testimony was based on an analysis of base-load generation, rather than peaking or cycling plants that were at issue in the hearing, the court ruled the testimony should have been excluded and, therefore, reversed the district court judgment on this issue as well.  (The government did not contest Cinergy’s claim that if the testimony was excluded Cinergy would be entitled to judgment.)

The opinion noted, but did not address, various other arguments, including the government’s cross-appeal, finding them to be either “too feeble to merit discussion” or too “academic.”


American Energy Corp. v, Rockies Express Pipeline, LLC, No. 09-3864 (6th Cir. Sept. 29, 2010)

In this case, the Sixth Circuit held that party affected by a FERC-certified interstate natural gas pipeline could not use the state courts to effectively veto the FERC’s issuance of a certification of public convenience and necessity, or avoid the federal district court’s jurisdiction over a pipeline-related condemnation action.

In 2007, Rockies Express Pipeline, LLC filed an application with FERC for a certificate of public convenience and necessity under 15 U.S.C. §717f(c) authorizing the applicant to construct and operate a natural gas pipeline running from Missouri to Ohio.  Several coal companies opposed the application, arguing that the pipeline would interfere with their mining operations.  FERC granted the certificate, adding a condition that required Rockies Express to “collaborate with [the coal companies] to develop a construction and operations plan.”  Rockies Express Pipeline LLC, 123 FERC ¶ 61,234 (2008), order on reh’g, 128 FERC ¶ 61045 (2009).The pipeline subsequently submitted its “construction and operations plan,” which also was protested by the coal companies.  The FERC approved the plan and authorized construction; the coal companies filed a petition for review in the D.C. Circuit, which remains pending.  In addition, the pipeline filed a condemnation suit in federal district court in Ohio to enforce its eminent domain rights under 15 U.S.C. § 717f(h), and later brought the coal companies in as defendants; that case remains pending. 

Then the coal companies filed another lawsuit: a state court conversion action in Ohio, alleging that they would be injured by the construction and operation of the pipeline.  The pipeline removed this case to federal district court, which dismissed the suit due to the pending D.C. Circuit appeal of the FERC’s certificate order and the district-court condemnation suit. 

On appeal, the Sixth Circuit affirmed the dismissal.  The court ruled that the mining companies’ claims seeking injunctive relief based on the alleged inadequacy of the pipeline’s mitigation plans were exclusively within the FERC’s NGA Section 7(c) jurisdiction.  And because the FERC has issued the certificate, any challenge to the FERC’s decision lies within the D.C. Circuit’s exclusive jurisdiction over petitions for review.  15 U.S.C. § 717r.  The Sixth Circuit further ruled that the coal companies’ claim for monetary damages for the alleged wrongful conversion of their rights to mine coal is the subject of the 15 U.S.C. § 717f(h) condemnation proceeding.  The court ruled that issues relating to the scope of damages to the mining operations were the very issues that will be litigated in determining the appropriate compensation in the condemnation proceeding, and thus fell squarely within the jurisdiction of the federal district court hearing that action; the coal company can appeal the district court’s decision to the Sixth Circuit, if it so desires.



Rio Grande Royalty Company, Inc. v. Energy Transfer Partners, L.P, et al.  (5th Cir. September 15, 2010)

The U.S. Court of Appeals for the Fifth Circuit affirmed a district court dismissal of suit brought by Rio Grande Royalty Company, Inc., for failure to state a claim.  Specifically, the Court dismissed Rio Grande’s allegation that defendant Energy Transfer Partners, L.P. (“ETP”) engaged in fraud by omission or representation, in Houston Ship Channel (“HSC”) prices that it reported to the trade press.  Rio Grande alleged that the prices reported by ETP represented artificially low prices resulting from ETP’s alleged monopoly power over HSC prices.  (Or, as the Fifth Circuit characterized matters, Rio Grande accused ETP of “dumping” supply into the market.)  And on that bases, Rio Grande attempted to bring a class action suit on behalf of all other natural gas sellers who recouped lower prices resulting from ETP’s alleged anticompetitive behavior.  Rio Grande’s fraud claims were submitted after the district court dismissed its direct antitrust-law claims.

The district court denied Rio Grande’s motion to amend the complaint to include the fraud claims; that court held that even those claims still failed to state a proper claim.  And the Fifth Circuit affirmed.  It held that ETP could not have engaged in fraud by accurately reporting prices, even if (arguendo) the prices are affected by fraud.  If the trade-press index is merely “representative of transactions,” then there can be no fraud in reporting actual transactions.  Fraud could occur only if, e.g., the reporting entity plainly misstates the terms of a transaction, or “fabricate[s] a transaction out of whole cloth or [as a] result of ‘wash trades’ . . . .”


Interstate Nat. Gas Ass’n of America v. FERC, No. 09-1016 (D.C. Cir. August 13, 2010)


The D.C. Circuit upheld FERC’s decision in Order No. 712 to maintain price ceilings on short-term capacity sales by interstate natural gas pipelines while lifting the price cap on short-term capacity releases by pipeline shippers.  Rejecting Petitioners’ argument that the Court’s earlier decision upholding such disparate treatment of pipelines and shippers in Interstate Natural Gas Association of America v. FERC, 285 F.3d 18 (D.C. Cir. 2002) (INGAA I), was not relevant because it involved “experimental” FERC action, the Court indicated that it would apply the INGAA I framework to the Petitioners’ arguments.

Following INGAA I, the Court concluded that FERC adequately supported its decision to retain price ceilings on pipelines’ short-term capacity sales.  First, the Court concluded that the Natural Gas Act did not require FERC to treat all market participants the same so long as the Commission identified “relevant, significant facts” that justified differing treatment.  The Court agreed that FERC identified relevant factual differences between shippers and pipelines in retaining price caps for pipelines.  Second, FERC’s finding that the short-term market was “generally competitive” did not require FERC to lift price caps for pipeline sales because the Commission reasonably concluded – based on record data – that the short-term market might not remain competitive if price ceilings were removed from pipeline sales.  Third, the Court rejected Petitioners’ argument that FERC’s rule would give shippers an unfair competitive advantage, upholding FERC’s rationale that pipelines are adequately compensated on a cost of service basis.  Although declining to resolve the issue, the Court also noted that the Petitioners’ argument that revenues from short-term market-based sales would not have to be credited to shippers “reinforces the concern that motivated FERC to retain the price ceilings on pipelines” because pipelines might exercise market power without an adequate remedy for the resulting harm to customers.  Fourth, the undisputed risk that treating shippers and pipelines differently could potentially distort short-term markets was not an adequate reason to remove price ceilings on pipeline sales; FERC adequately balanced this risk against the possibility of the exercise of pipeline market power, took steps to address the risk, and reasonably erred on the side of protecting against market power.  Fifth, the Court found that, although FERC did not specifically refer to Petitioners’ expert by name in Order 712, the Commission reasonably responded to the issues raised in the expert’s affidavit.  Finally, FERC adequately considered proposed alternatives, contrary to Petitioners’ objections.

Rock Energy Cooperative v. Village of Rockton, No. 10-1106 (7th Cir. Aug. 10, 2010)

Siegel v Shell Oil Co., No 09-3451 (7th Cir. July 30, 2010) (PDF)

In this case the U.S. Court of Appeals for the 7th Circuit affirmed the lower court’s dismissal of a Rock Energy Cooperative’s suit seeking a declaratory injunction against the Village of Rockton to prevent Rockton’s future use of eminent domain to seize certain utility assets.

In 2004, Alliant Energy sought to sell assets that were of interest to both Rock Energy Cooperative and the Village of Rockton. Rock Energy entered into negotiations with Alliant and ultimately purchased the assets. The Village was authorized by a referendum to obtain procession of the Alliant assets through purchase or condemnation. In June 2005, the Village and Rock Energy entered into a Memorandum of Understanding (MOU) in which they agreed to explore the Village obtaining possession of the Alliant assets from Rock Energy. Through 2009, the Village continued to communicate with Rock Energy about acquiring the Aliant assets as contemplated by the MOU and brought up the possibility of using its power of eminent domain.

The Court found that the Village was not about to seize the Aliant assets through eminent domain and that Rock Energy failed to “show[] how a decision on its declaratory judgment complaint would resolve some present hardship.” The Court found that after five years “the chance of future eminent-domain proceedings in this case is too remote to support the claim that Rock Energy is trying to litigate.” On a separate issue related to the MOU, the Court pointed out that “to the extent that the MOU has a role to play in this case, it includes a clear choice-or-forum clause directing all litigation to the state court,” that would not be overturned under Illinois law.

TNA Merchant Projects, Inc. v. FERC, No. 08-1201 (D.C. Cir. August 10, 2010)


The D.C. Circuit vacated FERC’s orders and remanded the case to the Commission because FERC “failed to respond to Chehalis’ argument that its rate could not be classified as ‘changed’ since it was not previously filed.”

In February 2005, Chehalis Power Generating, LLC (at the time a wholly owned subsidiary of TNA Merchant Projects) entered into an agreement with the Bonneville Power Administration (BPA), which permitted Chehalis to seek compensation for providing reactive power to BPA. Chehalis then filed a proposed rate schedule with FERC. Rejecting Chehalis’ characterization of the rate as an initial rate, FERC said Chehalis had been providing BPA with reactive power, through an interconnection agreement, free of charge. FERC thus found that the proposed rate was a change in rate and under FPA § 205(e) suspended the rate for a nominal period and made it subject to refund pending a hearing.

Challenging FERC’s decision, Chehalis argued that “the only rates that are subject to § 205(e)’s suspension and refund provisions are those that change a rate already on file with FERC” and it was undisputed that Chehalis did not previously file such a rate schedule. FERC’s counsel argued at trial that the previous interconnect agreement should have been filed, while Chehalis maintains it was not required to file the agreement because it was “a BPA interconnection agreement and not a Chehalis rate schedule.” In the Rehearing Order, FERC failed to respond to Chehalis’ argument. This absence of a response prevented the court from deferring to FERC’s interpretation of what the FPA meant by initial or changed rates under the second step of Chevron USA Inc. v. Natural Res. Def. Counsel, Inc., 467 U.S. 837 (1984).

Siegel v Shell Oil Co., No 09-3451 (7th Cir. July 30, 2010)

Siegel v Shell Oil Co., No 09-3451 (7th Cir. July 30, 2010) (PDF)

This unanimous opinion (Bauer, J.) affirms the district court’s denial of class certification and summary judgment for Shell Oil Co. and four other defendant oil companies in a purported class action alleging violations of Illinois Consumer Fraud and Deceptive Business Practices Act (“ICFA”) and unjust enrichment from gasoline sales.  Although the plaintiff claimed that the defendants acted in concert to manipulate the price of gasoline to artificially high levels, the suit did not invoke federal antitrust law.  The denial of class certification was upheld on the ground that the plaintiff failed to prove that he and other members of the purported class either purchased gasoline from the defendants for the same reason or lacked a meaningful opportunity to purchase gas from non-defendant retail suppliers.  Thus, among other things, the plaintiff failed to establish the required element of commonality in the purported class under Federal Rule of Civil Procedure 23.  The Court upheld summary judgment under the ICFA because the plaintiff, who testified that he had purchased gasoline from non-defendant retailers and also continued to purchase gasoline from the defendants, failed to establish proximate cause for his concededly avoidable injuries.  Absent a cognizable injury under the ICFA, the unjust enrichment claim could not survive because unjust enrichment does not constitute a separate cause of action that, standing alone, will justify an action for recovery under Illinois law.

BP America Inc. v. Oklahoma, No. 09-705 (10th Cir. July 29, 2010) 

BP America Inc v Oklahoma, 10th Cir 09-705 (July 29, 2010)

This unanimous opinion (Gorsuch, J., joined by Briscoe, C.J. and Tacha, J.) invokes the court’s discretion under the Class Action Fairness Act of 2005 (“CAFA”) to permit the appeal of a district court order remanding a purported “mass action” to state court, after defendants’ attempt to remove the case to federal district court.

The Attorney General of Oklahoma, acting parens patriae, sued BP America Inc. and other gas suppliers in Oklahoma state court, alleging that they manipulated propane gas prices in violation of various provisions of the Oklahoma Consumer Protection Act.  Oklahoma requested restitution for overpayment at an artificially high price, civil penalties, and injunctive relief, including the revocation of defendants’ licenses to do business in Oklahoma.  Defendants removed to federal district court, which remanded the case back to state court. 

Although appeal of a district court remand is normally barred under 28 U.S.C. § 1447(d), the CAFA provides a specific exception allowing the courts of appeals discretion to permit appeal of a purported “mass action.” 28 U.S.C. § 1453(c)(1).  The 10th Circuit panel adopted the 1st Circuit’s nonexhaustive list of eight factors to consider for application of that discretion, see College of Dental Surgeons v. Connecticut Gen. Life Ins. Co., 585 F.3d 33 (1st Cir. 2009), after the parties to the case agreed to those factors’ propriety and proposed no further additional considerations.  Applying those considerations, the Tenth Circuit found that all factors counseled in favor of permitting an appeal.  Among other things, permitting the appeal will allow the court to address “the important and unsettled legal questions whether CAFA’s mass action provision applies to suits by a state attorney general; whether the ‘general public’ exception covers such suits, see 28 U.S.C. § 1332(d)(11)(B)(ii)(III); and how, if at all, the ‘real party in interest’ analysis pertains to such suits.”  Slip op. at 12.

Theodore Roosevelt Conservation Partnership v. Salazar (D.C. Cir. July 23, 2010)


D.C. Circuit Affirms DOI’s Decision On Atlantic Rim Project

In March 2007, the Bureau of Land Management (BLM) issued a “record of decision” that opened the door to the drilling of new natural gas wells in the Atlantic Rim Project, 270,000 acres of publicly and privately owned land in Wyoming.  The record of decision was issued pursuant to BLM’s authority under the Federal Land Policy and Management Act of 1976 (FLPMA), following BLM’s preparation of an environmental impact statement (EIS) under the National Environmental Policy Act (NEPA).  Environmental groups challenged the record of decision in federal district court, but the district court granted summary judgment in favor of the Department of the Interior and BLM.

On appeal, the D.C. Circuit affirmed the district court’s decision and the underlying record of decision; the Court rejected each of appellants’ six arguments.  First, the Court found that the scope of the Atlantic Rim Project did not exceed the scope of BLM’s 1990 Great Divide Resource Management Plan (and thus did not violate either FLPMA or NEPA on that ground).  Second, BLM’s use of a particular mathematic model—the “Scheffe method”—to predict ozone concentration effects produced by anticipated drilling activities and associated development in the Atlantic Rim Project was not arbitrary and capricious.  Third, BLM did not act arbitrarily and capriciously or contrary to NEPA by excluding two potential nearby development projects near the Atlantic Rim area from the EIS’s assessment of cumulative environmental impacts, because the impacts of those projects were not reasonably foreseeable; and on this point, the Court affirmed the district court’s exclusion of appellants’ evidence not contained within the administrative record.  Fourth, the EIS and record of decision’s evaluation of mitigation measures sufficed to satisfy NEPA’s requirements that the decision consider mitigation measures and take a “hard look” at environmental impacts before actions are taken.  Fifth, BLM did not abuse its discretion in determining how to achieve FLPMA’s “multiple use and sustained yield” objectives.  And sixth, BLM’s involvement of the general public in its environmental review under NEPA.


Sacramento Municipal Utility District v. FERC, No. 07-1208 (D.C. Cir. July 23, 2010) 


This lengthy per curiam opinion (Brown, Griffith, and Kavanaugh, JJ.) denies consolidated petitions for review challenging three aspects of a rate design proposal filed by the California ISO.

First, the Court rejected a wide variety of claims by Sacramento and others that the California ISO’s locational marginal pricing (LMP) proposal was unjust and unreasonable, at least to the extent it allowed customers to be charged the marginal cost of transmission losses.  The Court held that charging customers for marginal losses did not conflict with prior orders (including the “consistent with or superior to” requirement under Order Nos. 888 and 890), was supported by substantial evidence, and agreed with FERC “that charging for marginal losses sends more accurate price signals, promotes efficient dispatch, and is consistent with cost causation principles.”  The Court also rejected Imperial’s argument that FERC exceeded its statutory authority, citing Mich. Pub. Power Agency v. FERC, 405 F.3d 8 (D.C. Cir. 2005) for the proposition that there is no jurisdictional bar to passing through certain transmission usage charges to governmental entities who are not public utilities subject to FERC’s direct regulatory authority. 

Second, the Court rejected San Francisco’s claim that it should be allowed to satisfy its local resource adequacy requirement with contractual rights to imported power in the same way that the California ISO itself relies on imported power to meet system-wide resource adequacy requirements.  The Court held that it is not irrational for FERC to permit the California ISO to rely on imports to meet system needs, but to disallow imports to satisfy local reliability requirements, because the local requirements exist to prevent local shortages.

Finally, the court rejected contentions that the California ISO’s system of awarding congestion revenue rights was unjust and reasonable.  San Diego argued that FERC should have expanded such rights to include not only contracts transmission between April 2006 and March 2007 but also contracts for future delivery that were in place during that period.  The Court deferred to FERC’s predictive judgment that the provisions concerning conversion of short-term rights into long-term rights were sufficient to protect San Diego’s acknowledged interests and struck an appropriate balance.  The Court also upheld FERC’s approval of the California ISO’s decision to offer obligation congestion revenue rights (which allow the holder to receive payments, or require it to make payments, depending on the comparative congestion between source and withdrawal points), but not option rights (which allow holders to receive payments, but carry no obligation to make payments). 

Jicarilla Apache Nation v. Dep't of the Interior (D.C. Cir. July 16, 2010)


D.C. Circuit Rejects DOI's Royalties Decision As Arbitrary & Capricious
The D.C. Circuit vacated the Department of Interior's 2007 order determining the proper royalty rate for the production of gas on an Indian Tribe's land.  In its 2007 order, the DOI had determined that methodology developed by the Minerals Management Service and the Jicarilla Apache Nation tribe was inconsistent with MMS regulations promulgated in 1988, and accordingly the DOI ordered that that methodology not be used to determine the price of gas sold from January 1984 through June 1995.

After resolving questions of whether the parties property preserved their arguments on appeal, the D.C. Circuit rejected the DOI's analysis.  First, it held that DOI acted arbitrarily and capriciously in applying the 1988 regulations for the period from January 1984 through February 1988 (i.e., the period preceding the effective date of the 1988 regulations).  The Court found that the DOI's brief on appeal effectively included a "confession of error" on this point, because the DOI offered no substantive argument in response to the appellant Indian Tribe's brief challenging the decision.

Second, the Court held that DOI acted arbitrarily and capriciously in applying the 1988 regulations for the period from January 1984 through February 1988 because the DOI's analysis directly contradicted a prior DOI order.  Although the order under review in this case offered explanation in favor of its analysis, it failed to actually mention the existence of contrary agency precedent and explain the departure from precedent.  While an agency need not grapple with every single prior precedent, the agency's outright failure to mention even the existence of contrary precedent was arbitrary and capricious.

Accordingly, the Court vacated the DOI's order and remanded the case to the agency for further consideration.


Richard Blumenthal v. FERC, No. 09-1220 (D.C. Cir. July 16, 2010)


D.C. Circuit Denies Challenge to FERC Approval of ISO New England Executive Compensation 
On July 16, 2010, the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) denied a petition for review by the State of Connecticut of Federal Energy Regulatory Commission (FERC) orders approving ISO New England's executive compensation for 2009. ISO New England is a non-profit utility company that administers the electric markets in New England. In 2008, ISO New England sought approval of, among other things, its 2009 executive compensation plan, which was supported by a report by an independent consulting firm. In sum, the court found that although Connecticut's concerns were "not without some basis," the court was constrained by the deferential standard of review, and denied the petition for review.

The D.C. Circuit first rejected Connecticut's procedural challenges, finding that Connecticut failed to demonstrate that FERC erred by not holding an evidentiary hearing with respect to: (1) whether the independent consultant was biased; and (2) whether the independent consultant's methodology was unreasonable.

With respect to Connecticut's argument that FERC's decisionmaking violated the Due Process Clause of the Fifth Amendment, the D.C. Circuit began by noting that there is no due process right to an in-person evidentiary hearing. The D.C. Circuit further found that Connecticut's filing of a petition for rehearing, which in turn was thoroughly considered by FERC, allowed Connecticut ample opportunity to respond to ISO New England's filings.

Finally, the D.C. Circuit dispensed with Connecticut's arguments that FERC's approval of the executive compensation plan constituted arbitrary and capricious decisionmaking, finding that: (1) FERC's acceptance of the independent consultant's comparison group was not unreasonable, particularly where the issue - executive compensation - is "more art than science"; (2) approval of estimated (rather than actual) executive compensation by FERC was consistent with precedent; and (3) because FERC, rather than the Judiciary, has the principal role in determining the reasonableness of rates and proposed executive compensation, FERC's approval of the proposed compensation was not so unreasonable as to violate the Administrative Procedure Act's arbitrary and capricious standard.

Hershey v. Energy Transfer Partners, No. 09-20651 (5th Cir. June 23, 2010)


Fifth Circuit upholds dismissal of class action manipulation complaint against Energy Transfer Partners
On June 23, the U.S. Court of Appeals for the Fifth Circuit issued an opinion upholding the dismissal of a class action lawsuit against Energy Transfer Partners that had alleged market manipulation based on investigations by FERC and the CFTC. See Hershey, et al. v. Energy Transfer Partners, et al., No. 09-20651 (decided June 23, 2010). Plaintiffs, who had purchased and lost money on NYMEX natural gas futures contracts, brought a private right of action against ETP under the Commodity Exchange Act alleging market manipulation based on the FERC and CFTC investigations into ETP trading at the Houston Ship Channel. A federal district court dismissed the case in favor of ETP, and the Fifth Circuit upheld.
The court ruled that in order to prevail on a private right of action under the CEA, the plaintiff must prove specific intent to manipulate, i.e., that the defendant acted with the purpose or conscious object of influencing prices. The court also stated that the plaintiff must show that the defendant specifically intended to manipulate the commodity underlying the NYMEX natural gas futures contract, which is natural gas delivered at the Henry Hub. The court held that plaintiff’s attempt to tie ETP’s manipulation of Houston Ship Channel prices to the price of Henry Hub natural gas and NYMEX futures prices by arguing that manipulation of gas prices at HSC would result in the artificial suppression of the prices of NYMEX futures was without merit. The court explained that under a specific intent standard, ETP must have specifically intended to impact the NYMEX natural gas futures market; mere knowledge is not enough to state a claim under the CEA.

Hornbeck Offshore Servs., L.L.C. v. Salazar, No. 10-1663 (E.D. La. June 22, 2010)


In a closely-watched case, a federal district court granted a motion for a preliminary injunction against the U.S. Department of the Interior and Minerals Management Service, prohibiting the federal government from enforcing its recent moratorium on deepwater drilling for oil in the Gulf of Mexico. On May 28, 2010, in light of recent events in the Gulf of Mexico, the Secretary of the Interior issued a memorandum to the director of the Minerals Management Service, directing MMS to suspend "all pending, current, or approved offshore drilling operations of new deepwater wells in the Gulf of Mexico and the Pacific regions." In turn, MMS issued an equivalent directive to lessees covered by the moratorium. Interior's and MMS's actions were premised upon the Interior Secretary's findings that offshore deepwater drilling posed unacceptable threats of harm to people, wildlife, and the environment.

In issuing its decision granting the motion for preliminary injunction, the court held that plaintiffs showed a sufficient likelihood that the government's was arbitrary and capricious. According to the court, the administrative record underlying the government's decision appeared to be insufficient to support "the immense scope of the moratorium." The court further held that plaintiffs had demonstrated a sufficient risk of irreparable harm to their interests and to the public interest.

AEP Texas North Co. v. Surface Transp. Bd., No. 09-1202 (D.C. Cir. June 18, 2010)


This case involves the Surface Transportation Board's (STB's) annual determination of the cost of capital for railroads subject to STB-determined maximum rates -- specifically, whether the STB appropriately applied a change in its industry-wide cost of capital methodology retroactively to correct past errors. AEP Texas North, which petitioned for review of STB's decision, obtains coal for generating electricity via a railroad that is subject to the STB's rate calculations.

The STB had changed its methodology, following a complaint that was filed in 2005, to move from a discounted cash flow (DCF) analysis to a capital asset pricing methodology (CAPM), and then to an average of CAPM and DCF. Using a balancing test that involved past industry reliance and the reasonableness of the previously-established return-on-equity figures, the STB declined to apply the new methodology retroactively to ROE's previously set for 1998-2005.

On review, the D.C. Circuit upheld the STB as to 1998-2004, but held that the STB failed to adequately justify its reasoning for relying on the 2005 calculations. The court reached different conclusions for the different time periods because, inter alia, "the circumstances surrounding the 2005 cost of capital determination are different from other years," which STB's analysis failed to consider. The court did not "attempt to decide the merits of the methodologies," because "we do not sit as a panel of statisticians, but as a panel of generalist judges." Accordingly, the court held that portion of the STB's decision to be arbitrary and capricious; it vacated the STB's decision; and it remanded the matter to STB to reconsider the 2005 calculation in light of the court's opinion.