2011 Court Opinion Case Summaries

PSEG Energy Resources & Trade LLC v. FERC, No. 10-1103 (D.C. Cir. Dec. 23, 2011)


In PSEG Energy Resources & Trade LLC v. FERC, No. 10-1103 (D.C. Cir. Dec. 23, 2011), the D.C. Circuit remanded the Commission’s orders accepting the results of the ISO-NE’s first forward capacity auction.  See id. at 2 (remanding ISO New England Inc., 123 FERC ¶ 61,290 (2008), order denying reh’g, 130 FERC ¶ 61,235 (2010)).  The forward capacity auction allows electricity providers to acquire capacity from generators three years before the capacity is to be provided.  Id. at 2-3.  Under the parameters of the auction, the ISO-NE announces a starting price and generators bid “for home much capacity they are wiling to provide at that price.”  Id. at 3.  The auction continues until enough capacity has been purchased to meet the Installed Capacity Requirement, i.e. the amount of capacity the ISO-NE has determined to be necessary to preserve the reliability of the system three years later.  Id.  Additionally, a price floor is established for the auction.

The set up of the forward capacity auction allows for the price floor to be hit before the Installed Capacity Requirement is met.  Id.  When such a scenario occurs, electricity providers could purchase an excess of capacity.  Id. at 4.  The tariff in place during the ISO-NE’s first forward capacity auction prevented this result by prorating the price generators received for capacity and allowing generators to accordingly prorate the quantity of capacity they bid into the auction.  Id.  Additionally, the tariff stated that “[a]ny proration shall be subject to reliability review.”  ISO New England Inc., FERC Elec. Tariff No. 3, Market Rule 1 § III., 2nd Rev. Sheet No. 7314Q (effective Jan. 9, 2008).

During the ISO-NE’s first forward capacity auction, the price floor was hit before the Installed Capacity Requirement was met, thereby triggering the tariff’s Proration Rule.  Slip. op. at 4.  PSEG, having bid capacity into the auction, attempted to prorate the quantity of capacity it offered, but was barred from doing so because the ISO-NE found that PSEG’s capacity was necessary for the reliability of the system.  Id. at 4-5.  Though PSEG was not allowed to prorate its capacity, the ISO-NE nevertheless prorated the price PSEG received for providing capacity.  Id. at 4.  This resulted in PSEG receiving less per megawatt of capacity than other generators who had been allowed to prorate their capacity.

PSEG protested the ISO-NE’s auction results before the FERC, arguing that the ISO-NE’s tariff resulted in “undue discrimination against the resource most necessary for reliability.”  Id. at 6 (quotations omitted).  PSEG further argued that the results contradicted the basic goal of a forward capacity market, that is to incentivize resources to remain in and be constructed in the areas with the greatest need.  Id.  The FERC rejected PSEG’s arguments and denied its rehearing request, finding instead that the tariff clearly established that when a reliability review precludes quantity proration, price proration must still occur.  Id.  Less than one month later, the FERC accepted a revised tariff filing from the ISO-NE in which the Proration Rule was prospectively changed such that when quantity proration was required, price proration did not also occur.  Id. (citing ISO New England, 131 FERC ¶ 61,065, 61,345 (2010)). 

In reviewing the FERC’s order, the D.C. Circuit found that the FERC failed to respond to PSEG’s undue discrimination and policy arguments.  Id. at 12.  Instead, the FERC merely “noted the objections and—without more—characterized them as more broadly supporting PSEG’s position.”  Id. at 11 (quotation omitted).  Because an agency is required to answer all “objections that on their face seem legitimate,” the D.C. Circuit remanded the case to the FERC in order for the Commission to answer PSEG’s objections.  Id. at 11-12 (citing PPL Wallingford Energy LLC v. FERC, 419 F.3d 1194,1198 (D.C. Cir. 2005)).

Further, the D.C. Circuit objected to the FERC’s decision that the tariff language was clear and the result reached by the FERC was required by the tariff’s text.  Id. at 9.  Applying a Chevron analysis, the D.C. Circuit stated that when “an agency erroneously contends that Congress’ intent has been clearly expressed and has rested on that ground, we remand to require the agency to consider the question afresh in light of the ambiguity we see.”  Id. (quoting Cajun Elec. Power Coop., Inc. v. FERC, 924 F.2d 1132, 1136 (D.C. Cir. 1991)).  The D.C. Circuit found the underlying order “a particularly appropriate case for remand” because “[a]lthough FERC denied PSEG the relief it sought, it subsequently ... revised the tariff language to make [PSEG’s requested relief] applicable in future situations.”  Id. at 10.  In remanding the case, the D.C. Circuit stated that “[a] remand will permit the Commission to determine whether, knowing that it has more discretion than it thought it had, PSEG’s position would be an appropriate way to interpret the unrevised language as well.”  Id.


 Alabama Municipal Electric Authority v. FERC, No. 10-1141 (D.C. Cir. Dec. 13, 2011)

In Alabama Municipal Electric Authority v. FERC, No. 10-1141 (D.C. Cir. Dec. 13, 2011), the D.C. Circuit denied a petition challenging the lawfulness of a difference in rates Southern Company (“Southern”) charges for transmission services it provides for Alabama Power Company, a retail distribution subsidiary of Southern, and Alabama Municipal Electric Authority (“AMEA”), a non-affiliate that uses Southern’s transmission system to re-sell power AMEA purchases at wholesale to a group of municipal utilities.  See id. at 2-4 (affirming Ala. Mun. Elec. Auth. v. Ala. Power Co., 119 FERC ¶ 61,286 (2007), reh’g denied, 131 FERC ¶ 61,101 (2010)). 

AMEA purchases “unbundled” transmission services “based on the average cost of transmission service across Southern’s operations.”  Id. at 2.  Alabama Power Company, by contrast, pays only the lower unit cost of the Alabama component of the Southern Company system for the transmission component of its “bundled” retail rates.  Id. at 2-3.  As a result, “AMEA pays Southern a transmission rate that is higher than the implied transmission rate encompassed in the rates for Southern’s own bundled retail sales in Alabama.”  Id. at 2.  AMEA argued that this discrepancy violates the “comparability principle” for transmission pricing that springs from the Federal Power Act’s prohibition against “unduly discriminatory or preferential” rates.  Id. at 3 (quoting 6 U.S.C. § 824e).  FERC has described the comparability standard as “a ‘golden rule of pricing’” providing that “a transmission owner should charge itself on the same or comparable basis that is charges others for the same service.”  Id. (quoting Inquiry Concerning the Commission’s Pricing Policy for Transmission Services Provided by Public Utilities Under the Federal Power Act; Policy Statement, 59 Fed. Reg. 55,031, 55,035 (Nov. 3, 1994) (“Transmission Policy Pricing Statement”)).

Southern Company’s transmission rate methodology is a “postage stamp” system in which “the price of unbundled transmission service is the same across Southern’s transmission network; yet the rates for the transmission element of bundled retail transactions vary by location.”  Id. at 4-5.  AMEA’s chief argument on review was that the comparability standard requires FERC to make Southern Company adopt zonal or “license-plate” pricing—that is, to charge the same price “for all power delivered in Alabama, whether retail or wholesale, whether unbundled or part of bundled sale and transmission.”  Id. at 4.  AMEA’s “fallback” argument was that the FERC should “order Southern to unbundle its retail sales and use its transmission tariff rate for the transmission component of its (hitherto) bundled retail sales.”  Id. at 6. 

The D.C. Circuit first addressed AMEA’s argument that FERC should force Southern to unbundle the transmission and energy components of its retail sales in Alabama, noting that AMEA’s proposal “would in effect render jurisdictional an economic activity that has until now been non-jurisdictional.”  Id.  When the FERC required functional unbundling of the wholesale transmission system in Order No. 888, the agency expressly stopped short of ordering the unbundling of retail sales.  Id. at 5-6 (citing Promoting Wholesale Competition Through Open–Access Non–Discriminatory Transmission Services by Public Utilities, Order No. 888, 61 Fed. Reg. 21,540, 21,558, 21,625 (May 10, 1996) (“Order No. 888”)).  Moreover, “when the Supreme Court reviewed Order No. 888, it emphatically rejected a contention (made by Enron) that the Commission should subject the transmission used for bundled retail sales to the same sort of ‘open access’ measures that the order imposed on wholesale transmission.”  Id. at 6 (citing New York v. FERC, 535 U.S. 1, 25-28 (2002)).  Observing that “all justices took it as given that FERC was not engaged in regulating the transmission involved in bundled retail sales,” the D.C. Circuit rejected AMEA’s proposal to require “a drastic revision of prevailing jurisdictional boundaries.”  Id. at 7. 

The Court then turned back to AMEA’s primary contention, rejecting the argument “that comparability compels Southern (and perhaps any utility spanning multiple states and selling unbundled and bundled transmission service) to use a zonal pricing system.”  Id. at 8.  Noting that the “express goal” of the Transmission Pricing Policy Statement was “to allow much greater transmission pricing flexibility,” id. at 7 (quoting 59 Fed. Reg. at 55,031), the Court declined to interpret “a document opening the door to flexibility” as “slamming the door on all but the ‘license plate” scheme.’”  Id. at 8.  The Court also rejected AMEA’s argument that the comparability requirement in section 28.2 of the FERC’s pro forma Open Access Transmission Tariff (“OATT”) required license plate transmission pricing.  See id. at 8 (discussing Order No. 888, 61 Fed. Reg. at 21,718).  The comparability described in that section, and similar language in other sections of the pro forma tariff, concerns non-price terms and conditions such as transmission availability.  See id.  And, as the Court has previously held, the FERC’s comparability requirement for non-price terms and conditions is consistent with the agency’s general non-exercise of jurisdiction over bundled retail service.  See id. (citing Entergy Servs. v. FERC, 375 F.3d 1204, 1210 (D.C. Cir. 2004)).  In short, the comparability principle, “does not require comparable pricing as between unbundled and bundled transmission service.”  Id. at 9. 

AMEA also put forward a “price squeeze” theory developed under Supreme Court’s decision in FPC v. Conway, 426 U.S. 271 (1976), but the D.C. Circuit rejected that argument because AMEA failed to make that argument to FERC on rehearing.  Id. at 9-10.

Texas Pipeline Ass’n v. FERC, No. 10-60066 (5th Cir. Oct. 24, 2011)

In Texas Pipeline Association v. FERC, No. 10-60066 (5th Cir. Oct. 24, 2011), the Fifth Circuit issued an opinion vacating FERC Order Nos. 720 and 720-A, in which FERC required major non-interstate pipelines to post daily scheduled volume information and design capacity at certain receipt and delivery points.  See Pipeline Posting Requirements Under Section 23 of the Natural Gas Act, Order No. 720, 73 Fed. Reg. 73,494, 73,494 (Nov. 20, 2008) (codified at 18 C.F.R. pt. 284), order on reh’g, Order No. 720-A, 75 Fed. Reg. 5178, 5178-82 (Jan. 21, 2010).

The Texas Pipeline Association (“TPA”) and the Railroad Commission of Texas sought judicial review of the orders arguing that the orders exceed FERC’s statutory authority under section 1(b) of the Natural Gas Act (NGA), which provides that the NGA “shall not apply to any other transportation or sale of natural gas or to the local distribution of natural gas or the facilities used for such distribution.”  15 U.S.C. § 717(b).  On judicial review, FERC relied on NGA § 23, recently enacted as part of the Energy Policy Act of 2005, which allows FERC to obtain relevant information from “any market participant.”  15 U.S.C. § 717t-2(a)(3)(A).

The court stated that NGA § 23 must be read in the context of FERC’s jurisdiction under NGA § 1(b) which “unambiguously denies FERC the power to regulate entities specifically excluded from [the NGA], including wholly-intrastate pipelines, given that they either are involved solely in the ‘local distribution of natural gas’ or are otherwise involved in ‘other transportation’ of natural gas not in interstate commerce.”  Slip op. at 6 (quoting 15 U.S.C. § 717(b)).  The court explained that because the entirety of the NGA is inapplicable to intrastate pipelines, the phrase “any market participant” in NGA § 23 cannot apply to intrastate pipelines.  See id.  The court rejected FERC’s claims that NGA § 23 was intended to expand FERC’s jurisdiction beyond NGA § 1(b), holding that “the NGA unambiguously precludes FERC from issuing the Posting Rule so as to require wholly intrastate pipelines to disclose and disseminate capacity and scheduling information.”  Slip op. at 8.  In support of that determination, the court added that the text and history of the NGA confirms that Congress did not intend to regulate the entire natural gas field but instead intended to leave regulation of certain entities to the states.  For example, NGA § 1(c) leaves to states the regulation of so-called Hinshaw pipelines.  See id. at 9 (citing 15 U.S.C. § 717(c)).  The court concluded by reaffirming its determination that FERC’s rulemaking orders failed under Chevron step one, stating that “agencies cannot manufacture statutory ambiguity with semantics to enlarge their congressionally mandated border.”  Id.

American Electric Power Company, Inc., et al. v. Connecticut et al., No. 10-174 (S. Ct. June 20, 2011)

In American Electric Power Co. v. Connecticut, 131 S. Ct. 2527 (2011), the United States Supreme Court held that the statutory delegation of authority to the Environmental Protection Agency (“EPA”) to regulate emissions of carbon dioxide and other greenhouse gases under the Clean Air Act displaces federal common law public nuisance claims brought by governmental and private entities against certain operators of fossil-fuel fired power plants. 

In several respects, American Electric Power is a sequel to Massachusetts v. EPA, 549 U.S. 497 (2007), in which the Court held that the Clean Air Act, 42 U.S.C. § 7401 et seq., authorizes federal regulation of greenhouse gas emissions.  In response to the Massachusetts decision, the EPA formally declared greenhouse gas emissions to be air pollutants that contribute to climate change, and initiated rulemakings to address such emissions from certain sources.  But the rulemaking process remained incomplete as of the Court’s decision on June 20, 2011.  In describing this background, the Court “caution[ed]” that it “endorses no particular view of the complicated issues related to carbon-dioxide emissions and climate change.”  131 S. Ct. at 2533 n.2. 

In 2004, long before the Massachusetts decision and the EPA’s subsequent rulemaking efforts, eight States, New York City, and three nonprofit land trust groups brought suit against four utilities—American Electric Power Company, Inc., Southern Company, Xcel Energy Inc., and Cinergy Corporation—that operate fossil-fuel fired power plants.  Id. at 2534.  The plaintiffs sought injunctive relief in the form of emissions caps and reductions, alleging that the power plants’ emissions violated the federal common law of nuisance and, alternatively, state tort law. 

The district court dismissed the suits as presenting non-justiciable political questions.  Id. (summarizing Conn. v. American Elec. Power Co., 406 F. Supp. 2d 265 (2005)).  However, the U.S. Court of Appeals for the Second Circuit reversed, holding that the political question doctrine was not a bar and that the plaintiffs had adequately demonstrated standing.  Id. (summarizing Conn. v. American Elec. Power Co., 582 F.3d 309 (2d Cir. 2009)).  On the merits, the Second Circuit found that the plaintiffs had stated federal common law nuisance claims and that the Clean Air Act did not displace those claims.  Id. (same).  In the Second Circuit’s view, federal common law could not be displaced “[u]ntil EPA completes the rulemaking process.”  Id. at 2535 (quoting 582 F.3d at 380).

The Supreme Court summarily affirmed the Second Circuit’s decision on standing by an equally divided court.  Id.; see id. at 2527, 2540 (noting that Justice Sotomayor, who was on the Second Circuit panel, did not participate in the Supreme Court’s decision).  Four members of the Court would find adequate standing under the Massachusetts decision; while four members would follow the Massachusetts dissent of Chief Justice Roberts and find that none of the plaintiffs has standing.  Id. at 2535.

Turning to the federal common law claims, the Court first explained that the area of environmental protection, and interstate, ambient air quality in particular, is generally subject to governance by the federal common law.  Id. (citing Illinois v. Milwaukee, 406 U. S. 91, 93, (1972)).  Earlier cases had permitted States to pursue claimed violations of the federal common law of nuisance arising from out-of-state pollution.  Id. at 8 (listing cases).  But, the Court noted that it had not previously decided whether a State could challenge any out-of-state pollution source, or whether private persons or political subdivisions could invoke the federal common law of nuisance.  Id. at 2536.

In this case, the Court found that it need not reach these questions, because the Clean Air Act displaces any federal common law claim seeking to abate greenhouse gas emissions based on their contribution to climate change.  Id. at 2537.  The test for legislative displacement of federal common law is “whether the statute ‘speaks directly to [the] question’ at issue.”  Id. (quoting Mobil Oil Corp. v. Higginbotham, 436 U. S. 618, 625 (1978)).  Building upon the Massachusetts Court’s holding that carbon-dioxide emissions are air pollutants subject to regulation under the Clean Air Act, the Court here held it “equally plain that the Act ‘speaks directly’ to emissions of carbon dioxide” from the utilities’ plants.  Id.  In support, the Court explained that the Act requires EPA to issue emissions standards for sources including fossil-fuel fired power plants, and if EPA does not issue such standards, allows States and private parties to petition for a rulemaking.  Id. at 2538.  Thus, the Court held that the Clean Air Act “provides a means to seek limits on emissions of carbon dioxide from domestic power plants—the same relief the plaintiffs seek by invoking federal common law” and the Court saw “no room for a parallel track.”  Id.

Responding to the plaintiffs’ argument that there can be no displacement until EPA finalizes the emissions standards, the Court disagreed with the Second Circuit, and found that the delegation of authority to the EPA, standing alone, displaces federal common law.  Id. The delegation of authority in the Clean Air Act leaves “to EPA the decision whether and how to regulate carbon-dioxide emissions from power plants.”  Id.  Even if EPA declined to regulate these emissions, the courts would not be permitted to “employ the federal common law of nuisance to upset the agency’s expert determination.”  Id. at 2539.

Finally, the Court turned to the plaintiffs’ state tort law claims, directing that these claims be left open for consideration on remand because the Second Circuit had not reached them in the decision on review.  Id. at 2540.

Justice Alito, in a concurring opinion joined by Justice Thomas, agreed with the judgment of the Court based on the stated assumption that the Massachusetts decision’s interpretation of the Clean Air Act is correct.  Id.


GenOn Mid-Atlantic LLC v. Montgomery County, Maryland, No. 10-1882 (4th Cir. June 20, 2011)

In GenOn Mid-Atlantic LLC v. Montgomery County, Maryland, No. 10-1882 (4th Cir. June 20, 2011), the Fourth Circuit held that GenOn Mid-Atlantic LLC’s challenge to a Montgomery County carbon dioxide emissions charge is not barred by the Tax Injunction Act, 28 U.S.C. § 1341, which limits the federal district courts’ power to enjoin, suspend, or restrain any tax under state law where a complaining party could obtain an adequate remedy in state court.  Slip op. at 2, 3-4.  Reversing and remanding the United States District Court for the District of Maryland, the Fourth Circuit found that the county’s carbon emissions charge is not a tax, but instead a regulatory fee, because the charge affects only one entity, GenOn, and is an integral part of a wide-ranging County regulatory program to reduce carbon dioxide emissions.  Id. at 2.  The court expressed no opinion on the merits of GenOn’s underlying constitutional challenges to the County’s emissions charge, holding only that the Tax Injunction Act was “no bar to federal jurisdiction.”  Id. at 9.

The County contended that its emissions charge is a tax because (1) the bill that established the charge was enacted using the same process typically used to enact taxes and (2) the charge was expected to raise significant revenue for the County’s general fund.  Id. at 4-5.  The court acknowledged that the County’s emissions charge “does bear some of the indicia of a tax,” but held that the features cited by the County were “mere masks that cannot be used to disguise what is in substance a punitive and regulatory matter.”  Id. at 5.

The court emphasized “[t]he fact that th[e] charge affects the narrowest possible class is compelling evidence that it is a punitive fee rather than a tax,” id. at 5, because taxes “generally apply to at least more than one entity.”  Id. at 6.  Moreover, the court found the fact that GenOn “likely [will] be unable to pass the cost of the charge on to its customers,” because it sells its power at auction, strengthened its conclusion that the charge is a punitive fee, not a tax.  Id.  The court further noted that the County was “well aware that the . . . charge would fall entirely upon GenOn,” id., and concluded that, in addition to its punitive scope, the charge “falls outside the ambit of the Tax Injunction Act because of its plainly regulatory purpose” of reducing greenhouse gas emissions—a purpose the court found that the County made no effort to hide.  Id. at 7.

Rejecting the County’s contention that the charge was not intended to regulate GenOn or any other carbon dioxide emitter because it does not compel any standard of conduct or limit emissions, the court found that the County’s “regulatory toolbox is not so limited.”  Id. at 8.  On the contrary, such charges “may serve regulatory purposes directly, by, for example, deliberately discouraging particular conduct by making it more expensive.”  Id. at 8 (alterations omitted) (quoting San Juan Cellular Tel. Co. v. Pub. Serv. Comm’n of Puerto Rico, 967 F.2d 683, 685 (1st Cir. 1992)).  The carbon charge at issue—unlike, e.g., a tax on cigarettes, which  affects a broad class of persons without mandating a particular standard of conduct —“targets a single emitter and is located squarely with the County’s own ‘programmatic efforts to reduce’ greenhouse gas emissions.”  Id. at 9 (quoting Montgomery County Code § 52-95(b)).  Accordingly, the court found, the emissions charge “is a punitive and regulatory fee over which the federal courts retain jurisdiction.”  Id.

An absence of federal court jurisdiction over such matters, the court noted, would “turn . . . truly interstate issues over to local authorities” and could “encourage punitive financial strikes against single entities with national connections . . . with no accountability in federal court,” the implications of which would be profound.  Id. at 9.


L.S. Starrett Co. v. FERC, No. 10-1470 (1st Cir. June 15, 2011).

In L.S. Starrett Co. v. FERC, No. 10-1470 (1st Cir. June 15, 2011), the First Circuit affirmed the Commission’s orders requiring L.S. Starrett Co. to seek licensing in connection with the company’s planned repairs to the Crescent Street Dam Project.  See id. at 3, 22 (affirming L.S. Starrett Co.,129 F.E.R.C. ¶ 62,053 (2009), order on reh’g, 130 FERC ¶ 61,112 (2010)).  Section 23(b) of the Federal Power Act (“FPA”), 16 U.S.C. § 817(1), requires a company to “seek licensing if “(1) its facility is located on a stream over which Congress has Commerce Clause Jurisdiction, (2) its proposed changes constitute ‘post-1935 construction’ within the meaning of the FPA, and (3) the proposed modifications will affect the interests of interstate or foreign commerce.”  Slip op. at 1-2.  Starrett did not challenge on appeal the Commission’s finding that the Crescent Street Dam Project is located on a commerce clause stream.  Id. at 10.  With regard to the second and third statutory requirements, the First Circuit found—“regretfully,” id. at 22 n. 15, and “without much enthusiasm,” id. at 3 n.2—that the Commission did not unreasonably determine that the proposed repairs would constitute “post-1935 construction” because the changes would increase the dam’s capacity, id. at 15, and also that the repairs would affect interstate commerce because the dam is part of a class of “small hydroelectric projects that displace power from the national grid” and “have a significant cumulative effect on interstate commerce.”  Id. at 21-22.

In 1992 the Commission concluded that the Crescent Street Dam Project did not at that time require licensing under section 23(b) because there had been no post-1935 construction.  Id. at 4 (discussing L.S. Starrett Co.,61 F.E.R.C. ¶ 62,200 (1992)).  At that time, the Crescent Street Dam Projects’s combined installed capacity was 362 kW, but actual capacity was only 192 kW “because of the physical limitations of the site.”  Id.  When one of two generators at the facility failed in 2007, Starrett, believing it did not need FERC licensing to proceed, began repairs to the dam which included replacing one of the generators.  The replacement generator would increase the dam’s installed capacity to 448 kW and its actual capacity to 278 kW.  Id.  As a result, the Commission concluded that the increase in capacity “would be considered post-1935 construction ... triggering the Commission’s licensing jurisdiction” and required Starrett to seek licensing for the proposed repairs.  Id. at 7.

On appeal, Starrett argued that the Commission erred “because the proposed work was merely a repair, and would not increase actual capacity beyond the 1992 installed capacity” and therefore the work was not post-1935 construction.  Id. at 12.  The Commission contended that Congress had not specifically addressed the meaning of “construction” in section 23(b) and so therefore it was reasonable to determine that the proposed changes to the Crescent Street Dam Project would constitute post-1935 construction because it would increase both the actual and installed capacity of the dam.  Id. at 11.  The Commission also argued that the proposed changes would “increase the project’s ‘head,’” which would also result in post-1935 construction.  Id. at 11-12 & n.11.  However, the First Circuit did not “analyze the head issue or resolve any of the factual disputes related to that issue.”  Id. at 16 & n.13.

The First Circuit, applying Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43 (1984), concluded that “construction” was ambiguous as used in section 23(b) of the FPA.  Slip op. at 13-15.  Rejecting Starrett’s argument, the Court determined under step two of Chevron that “the Commission’s determination was reasonable because there is no doubt that, under Starrett’s plan, there would be an increase in capacity no matter how the capacity was measured; both the actual and the installed capacities would be greater than their respective 1992 values.”  Id. at 15.

The First Circuit also concluded that the Commission reasonably relied upon the “cumulative effect” theory to find that facilities like the Crescent Street Dam Project meet the interstate commerce requirement of section 23(b) because they “‘effectively displace electricity that the [facility] otherwise would draw from the interstate grid,’” and together “‘account for a substantial portion of the nation’s hydroelectric generating capacity.’”  Slip op. at 21(quoting Habersham Mills v. FERC, 976 F.2d 1281, 1384-85 (11th Cir. 1992)).

While the application of Chevron deference is typical on judicial review of administrative orders, the Court’s opinion unusually begins and ends with strong declarations that its deference to the FERC was given only grudgingly.  At the outset, the Court explained that it had “no choice but to affirm”:

Given the state of the law as herein expounded, we are required to affirm the exercise of the FERC’s jurisdiction over the dam in question.  We do so without much enthusiasm, however.  It may not be coincidental that Starrett, which was established in 1880 and is the principal employer in Athol, Massachusetts, is the last of its kind remaining within our borders.  Its attempt to keep its manufacturing costs down to allow it to remain competitive with foreign industry has unfortunately come to naught in the face of bureaucratic outreach. 

Id. at 3 n.2.  And, after stating at the conclusion its opinion that the FERC’s orders were affirmed, the Court dropped a footnote, stating that its affirmance was issued “regretfully because [the panel was] not blind to the economic realities of the situation.  Under the facts of this case, the FERC could have certainly exercised its administrative discretion.”  Id. at 22 n.15; see also id. at 23 (Stahl, J. concurring) (“I join this opinion with great reluctance ... because Chevron deference requires the result reached here, not that the result makes economic or realistic sense.”).


MarkWest Mich. Pipeline Co., LLC v. FERC, 646 F.3d 30 (D.C. Cir. 2011)

In MarkWest Mich. Pipeline Co., LLC v. FERC, 646 F.3d 30 (D.C. Cir. 2011), the D.C. Circuit upheld a Commission order regarding the ceiling level of indexed rates following a settlement period.  MarkWest, the owner of a crude pipeline in Michigan, entered into a settlement with certain shippers following a proposed rate increase, which the shippers protested.  The settlement, which the Commission approved, contained a three year “Moratorium Period,” extending from January 31, 2006 through January 31, 2009, during which MarkWest could charge rates no higher than the maximum rates set forth in the settlement.  More specifically, the settlement agreement permitted MarkWest to annually increase its rates by applying an “Annual Inflation Cap.”  The settlement agreement further provided that MarkWest could also choose to annually increase its rates by applying the FERC oil pipeline indexing methodology, but only if the increase permitted under the indexing methodology resulted in a rate that would be less than the rate computed by applying the Annual Inflation Cap.  (Under FERC’s indexing methodology, an oil pipeline is permitted to annually increase its rates by applying the index published by the FERC to its existing rates.  The resulting rate is referred to as the pipeline’s “ceiling level,” and the pipeline is permitted to charge a rate at or below the ceiling level.  Id. at 33.)  In each year of the settlement, the rates generated by the Annual Inflation Cap were below the level of the rates generated by the indexing methodology.

Following the Moratorium Period, MarkWest proposed to calculate its going-forward rates by taking the 2006 rate, which it deemed its initial rate, and applying the FERC index to that rate each year of the Moratorium Period.  In other words, MarkWest proposed to charge the rates that would have existed had it applied the FERC index each year, rather than the Annual Inflation Cap.  In the orders under review, the Commission rejected this proposal, and instructed the pipeline to begin applying the index to the last rate generated under the settlement agreement.  See MarkWest Mich. Pipeline Co., 126 FERC ¶ 61,300, order corrected by, 127 FERC ¶ 61,049 (2009), reh’g denied, 130 FERC ¶ 61,084 (2010), petition for rev. denied, 646 F.3d 30 (D.C. Cir. 2011).

The court began its analysis by determining that the settlement agreement was silent on the issue of how to establish new ceiling levels following the Moratorium Period.  MarkWest Mich. Pipeline, 646 F.3d at 34.  Accordingly, the court deferred to the Commission’s interpretation of the settlement agreement, rejecting MarkWest’s argument that the agreement’s references to the FERC indexing methodology meant that the parties to the agreement intended for indexing to be applied following the Moratorium Period, as though the settlement had not existed. Id. at 34-35.  Similarly, the court rejected MarkWest’s alternative argument that, under the Commission’s regulations, a settlement agreement cannot change the pipeline’s initial rates (i.e., the rates that existed at the time of the settlement).  Id. at 36.  The court found that, like the settlement agreement, the Commission’s regulations were ambiguous on this point and that the Commission’s interpretation of its own ambiguous regulations was controlling.  Id. (citing Auer v. Robbins, 519 U.S. 452, 461 (1997); Marseilles Land & Water Co. v. FERC, 345 F.3d 916, 920 (D.C. Cir. 2003)).


Alcoa Power Generating Inc. v. FERC, No. 10-1066 (D.C. Cir. May 3, 2011)

In Alcoa Power Generating Inc. v. FERC, No. 10-1066 (D.C. Cir. May 3, 2011), the D.C. Circuit affirmed two FERC orders interpreting Section 401(a)(1) the Clean Water Act (“CWA”), 33 U.S.C. § 1341(a)(1).  In those orders, the FERC found that a state issuing a CWA certification within the statutory one-year time limit has not waived its authority if the certification provides that it is not effective until the applicant satisfies a condition that can only be satisfied, if at all, outside of the one-year period.  Under the CWA, as a precondition to the issuance of any federal license, an applicant must obtain a certification from the affected state that any discharges into navigable waters attributable to the applicant’s project will comply with relevant provisions of the CWA.  Any conditions to a certification must be incorporated by the issuing federal agency into the final license.  Id. § 1341(d).  Section 401(a)(1) of the CWA provides that the state shall have waived its certification authority with respect to a federal license application if it “fails or refuses to act on a request for certification, within a reasonable period of time (which shall not exceed one year) after receipt” of a request for certification.

As part of its FERC relicensing application for the Yadkin hydroelectric project under the Federal Power Act, Alcoa Power Generating Company (“Alcoa”) applied to the North Carolina Department of Environment and Natural Resources for a CWA certification for the project.  The state agency issued the certification a day before the expiration of the one-year time limit, but provided that the certification would not be “effective” until Alcoa, among other things, posted a surety bond in the amount of $240 million.  The certification was subsequently stayed in a state administrative proceeding for review of its compliance with state law.  Pursuant to its current policy, the FERC delayed further action on the relicensing application pending the resolution of the state proceeding. 

Alcoa petitioned the FERC for an order declaring that the state of North Carolina had waived its certification authority under CWA Section 401(a)(1), arguing that in establishing the posting of a surety bond as a condition precedent to the effectiveness of the certification (an act Alcoa contended could not be accomplished, if ever, within one year), the agency had failed to act within the statutory time limit “because the effectiveness clause of the bond condition rendered the ‘purported certificate ... incomplete.’”  Slip op. at 5 (quoting Pet. for Declaratory Order 1).  The State of North Carolina countered that it did not intend to require Alcoa to satisfy its surety bond condition prior to the FERC’s issuance of a license.  Rather, North Carolina stated that the requirement to post the bond should be interpreted as a condition incorporated into the final license issued by the FERC. 

The D.C. Circuit upheld the FERC’s determination that the “effective” clause of the bond condition to the state’s certification did not cause the agency’s action to be incomplete or invalid under the CWA, and thus the state did not waive its authority under that statute.  The court agreed that the CWA requires the FERC to wait only for an applicant to “obtain” a certificate prior to issuing a license, and that such certificate need not necessarily become “effective.”  Under the FERC’s procedures it “would be free to issue a license, regardless of whether the certification provided that it was not yet effective.”  Slip op. at 18.  “As a result, there is no waiver issue because the ‘effective’ clause would not operate to delay or block the federal licensing proceeding beyond Section 401’s one-year period.”  Id at 19.  The court noted that Alcoa had not challenged FERC’s policy of delaying a licensing proceeding pending the resolution of a state challenge to an otherwise valid certification.

Prior to reaching the merits of Alcoa’s petition, the court dismissed FERC’s arguments that the issue presented was unripe, finding that the slight judicial interest in delay was outweighed by the hardship Alcoa would suffer from withholding a decision.  The FERC contended that Alcoa’s waiver claim might be mooted by the state’s ongoing administrative review of its certification and that Alcoa would suffer little hardship if a decision on the issue was delayed until the conclusion of the state proceeding.  The court disagreed, noting that the question presented was purely legal and that the possibility that the state proceeding would moot the issue was insubstantial.  “Any institutional interest in deferring adjudication is thus remote and theoretical.”  Slip op. at 11.  Although regulatory delay is not typically a “legally cognizable hardship,” the court found that Congress, in providing for long licensing periods (30-50 years) for hydroelectric projects under the Federal Power Act, recognized the necessity of some business certainty for such activities.  Therefore, the court found that Alcoa would suffer a legally cognizable hardship if resolution of the issue were delayed.  


Western Refining Southwest, Inc., v. FERC, No. 09-60947 (5th Cir. Mar. 24, 2011).

In Western Refining Southwest, Inc. v. FERC, No. 09-60947 (5th Cir. Mar. 24, 2011), the Fifth Circuit affirmed the Federal Energy Regulatory Commission’s (“Commission”) orders dismissing a complaint filed by Western Refining Southwest, Inc. and its affiliate Western Refining Pipeline Company (collectively “Western”) against Enterprise Crude Pipeline, LLC (“Enterprise”).  The complaint arose out of an oil pipeline capacity lease agreement between Western, as lessee, and Enterprise, as lessor, that the Commission determined to be outside of its jurisdiction.  See id. at 720, 728 (affirming Western Refining Southwest, Inc. v. TEPPCO Crude Pipeline, LLC, 127 FERC ¶ 61,288 (2009), order denying reh’g, 129 FERC ¶ 61,053 (2009)).  The outcome of the case turned on the differences between the Commission's jurisdiction over oil pipelines under the Interstate Commerce Act (“ICA”), and its jurisdiction over gas pipelines and public utilities under the Natural Gas Act and Federal Power Act, respectively.

Before addressing the merits of the appeal, the Fifth Circuit first addressed a ripeness challenge by the Commission based on the existence of state proceedings involving many of the same issues.  The court had little difficulty in dismissing the ripeness challenge, noting that the ongoing state proceedings between the parties did not obviate the need to address the scope of the Commission’s jurisdiction because the state proceeding would examine the substance of the contractual dispute rather than the Commission’s authority under the ICA.  See id. at 722–23 (analogizing holdings in the Ninth, Eighth, and First Circuits which rejected similar ripeness challenges to federal appellate review).  Furthermore, the court found that Western would suffer adversely from not having access to a judicial forum to review the Commission’s actions.  Id. at 722.

Unlike the Natural Gas and Federal Power Acts, which provide specifically for Commission jurisdiction over facilities used to provide jurisdictional services, the ICA vests the Commission with jurisdiction over common carriers engaged in the transportation of oil by a pipeline.  See 49 U.S.C. app. § 1(1)(b) (1988).  Western’s main contention on appeal was that the Act permits it to lodge a complaint against Enterprise as its common carrier because the Act defines “transportation” broadly “irrespective of ownership or of any contract.”  Id. at 724–26 (citing 49 U.S.C. app §§ 1(3) and 13(1)).  However, applying Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984), the Fifth Circuit explained that the ICA unambiguously applies only to common carriers engaged in the transportation of oil.  Since the contract between the parties provided that, regardless of its ownership of the pipeline, Enterprise would not be providing any transportation services, would have no tariff, and that the only tariff for transportation services using the leased capacity would be Western's, the court concluded that Enterprise was not acting as a “common carrier.”  Id. at 727 (emphasis added).

Moreover, the court was not persuaded by Western's argument that the Commission had jurisdiction because the ICA’s definition of “transportation” includes the clause “irrespective of ownership or of any contract.”  The court reasoned that this clause alone cannot “create common carrier duties where they would not normally exist” because its purpose is to ensure that “parties cannot contract out of common carrier liability under the Act” and Western, likewise, “cannot evade common carrier liability by claiming that it is not the owner of the pipeline but only a lessee.”  Id. at 726.  Therefore, the Fifth Circuit held that the Commission had correctly dismissed the complaint for lack of jurisdiction over the contract between the parties. 

Western’s final arguments on appeal were that the Act required the Commission to conduct a hearing regarding its claims and that the Commission erred in adjudicating disputed factual issues in response to a motion to dismiss.  The court disagreed.  Reasoning that an evidentiary hearing was only needed when “a genuine issue of material fact exist[ed]” and when the disputed issue could not be adequately addressed or resolved by reference to the parties’ written submissions, the court held that neither circumstance was present in this case.  Id. at 727–28.  The court also held that “factual issues relating to an adjudicative body’s subject-matter jurisdiction may be resolved ‘before the adjudication of a case on its merits.’”  Id. at 728 (citing Dillon v. Rogers, 596 F.3d 260, 271 (5th Cir. 2010)) (emphasis added).


Oregon v. FERC, 636 F. 3d 1023 (9th Cir. 2011).

In Oregon v. FERC, 636 F. 3d 1023 (9th Cir. 2011).Oregon and California challenged the FERC’s orders authorizing the construction and operation of a liquid natural gas (LNG) facility and adjoining natural gas pipeline.  The Ninth Circuit held that the states’ consolidated petitions for review were rendered moot when the companies who were developing the projects declared bankruptcy.  As a result, the court vacated FERC’s orders.

In the underlying FERC proceeding, Bradwood Landing LLC (Bradwood) requested a permit under section 3 of the Natural Gas Act (NGA), 15 U.S.C. § 717b(a), to construct and operate an LNG import terminal in Clatsop County, Oregon.  Bradwood’s co-developer, NorthernStar Energy LLC (NorthernStar) requested a certificate of public convenience and necessity under NGA section 7, 15 U.S.C. § 717f(c)(1)(A), to construct and operate a natural gas pipeline that would connect the new Bradwood LNG terminal to the Pacific Northwest’s existing gas pipeline network.  FERC granted the requested authorizations and twice denied rehearing.  The states of Oregon and Washington, along with several environmental groups, petitioned for review of FERC’s orders on a variety of grounds. 

While the petitions for review were pending, Bradwood and NorthernStar filed petitions in bankruptcy for Chapter 7 liquidation.  636 F. 3d at 1205 (citing the companies bankruptcy petitions in the Southern District of Texas).  All permits and intellectual property owned by Bradwood were purchased by a holding company at a foreclosure auction, but it was unclear to the court what had happened with NorthernStar’s assets.  Id. at 1206 & n.4.  In light of these developments, the court held that the consolidated petitions for review were moot because the case had lost its character as a present, live controversy of the kind that must exist if we are to avoid advisory opinions on abstract propositions of law.”  Id. at 1206 (quoting Hall v. Beals, 396 U. S. 45, 48 (1969)).

The court observed that the FERC’s regulations permitted transfer of Bradwood’s Section 3 permit to a new project proponent.  See id. (citing 18 C.F.R. § 153.9(a)).  However, the same is not true of NorthernStar’s certificate of public convenience and necessity, which “is not transferable in any manner.”  Id. (quoting 18 C.F.R. § 157.20(e)).  Given this difference, the Court emphasized that no party disputed “the terminal and the pipeline essentially constitute a single project that will go forward together or not at all,” and concluded that “the future of the project as currently permitted is in grave doubt.”  Id.  Applying these facts to the law, the court held that “the possibility that the LNG project could be revived so as to threaten the interests of petitioners ‘is too remote and too speculative a consideration to save this case from mootness.’”  Id. (quoting Center for Biological Diversity v. Lohn, 511 F. 3d 960, 964 (9th Cir. 2007)).  And, because the petitions had been rendered moot, the court further held that “the proper course is to vacate the underlying order.”  Id. (citing A. L. Mechling Barge Lines, Inc. v. United States, 368 U. S. 324, 330-31 (1961)).


Petersburg Municipal Power & Light v. FERC, No. 10-1096 (D.C. Cir. Feb. 25, 2011) (unpublished)

In Petersburg Municipal Power & Light v. FERC, No. 10-1096, 2011 WL 678435, (D.C. Cir. Feb. 25, 2011), the D.C. Circuit issued an unpublished per curiam decision affirming FERC’s use of a lottery as a tie-breaker where multiple entities sought a preliminary permit for essentially the same hydroelectric project in Southeastern Alaska.  Because the filings were made electronically after 5:00 PM ET, FERC held that they were identically filed at 8:30 AM the next morning.  FERC’s tie-breaking procedures for deciding who should get a preliminary permit did not cover the situation where multiple similar entities proposed a similar project with about the same amount of detail in their applications and each was deemed filed at the same time.  Faced with a gap in its regulations, FERC decided to use a lottery to award the preliminary permit.  One of the losing applicants then appealed, arguing that the lottery was not part of FERC’s regulations, that FERC should have used the time actually filed as the tie-breaker, rather than deeming all the applications filed at the same time, and that a lottery was unfair in these circumstances because of alleged cooperation between the other two municipal applicants.
Observing that “[f]ortune’s choice may have been arbitrary, but the use of a lottery need not be,” the court found that where there was no pre-established tie-breaking mechanism, FERC’s approach was reasonable.  Slip op. at 3.  The court found that assigning each application the same filing time was consistent with FERC’s regulations, and that in these circumstances there was no unfairness in the alleged cooperation because (a) the lottery could not have been anticipated and (b) FERC stated it would be vigilant in monitoring the winning applicant’s progress.  Id.

Practitioners’ Note

D.C. Circuit Rule 32.1 governs the citation of unpublished decisions in the D.C. Circuit.  In general, unpublished opinions of the D.C. Circuit issued on or after January 1, 2002 can be cited as precedent.  Unpublished opinions of other courts issued on or after January 1, 2007, can likewise be cited in accordance with FRAP 32.1.  The relevant part of D.C. Circuit Rule 32.1 is copied below:

D.C. Circuit Rule 32.1  Citing Judicial Dispositions

* * *

(b) Citation to Unpublished Dispositions.

(1) Unpublished Dispositions of this Court.

(A) Unpublished dispositions entered before January 1, 2002.  Unpublished orders or judgments of this court, including explanatory memoranda and sealed dispositions, entered before January 1, 2002, are not to be cited as precedent. Counsel may refer to an unpublished disposition, however, when the binding (i.e., the res judicata or law of the case) or preclusive effect of the disposition, rather than its quality as precedent, is relevant.
(B) Unpublished dispositions entered on or after January 1, 2002.  All unpublished orders or judgments of this court, including explanatory memoranda (but not including sealed dispositions), entered on or after January 1, 2002, may be cited as precedent. Counsel should review the criteria governing published and unpublished opinions in Circuit Rule 36, in connection with reliance upon unpublished dispositions of this court.

(2) Unpublished Opinions of Other Courts.  Unpublished dispositions of other courts of appeals and district courts entered before January 1, 2007, may be cited when the binding (i.e., the res judicata or law of the case) or preclusive effect of the disposition is relevant. Otherwise, unpublished dispositions of other courts of appeals entered before January 1, 2007, may be cited only under the circumstances and for the purposes permitted by the court issuing the disposition, and unpublished dispositions of district courts entered before that date may not be cited. Unpublished dispositions of other federal courts entered on or after January 1, 2007, may be cited in accordance with FRAP 32.1.

(3) Procedures Governing Citation to Unpublished Dispositions.  A copy of each unpublished disposition cited in a brief that is not available in a publicly accessible electronic database must be included in an appropriately labeled addendum to the brief. The addendum may be bound together with the brief, but separated from the body of the brief (and from any other addendum) by a distinctly colored separation page. If the addendum is bound separately, it must be filed and served concurrently with, and in the same number of copies as, the brief itself.


New York Regional Interconnect, Inc. v. FERC, No. 09-1309 (D.C. Cir. Feb. 11, 2011)

In New York Regional Interconnect, Inc. v. FERC, No. 09-1309 (D.C. Cir. Feb. 11, 2011), the court of appeals held that the New York Regional Interconnect, Inc. (“NYRI”) lacked standing to challenge the Commission’s orders approving a new transmission planning process for the New York Independent Transmission System Operator (“NYISO”).  NYISO proposed to condition cost recovery for new transmission projects under its tariff on two requirements.  First, it required projects to have a “production cost benefit,” meaning that the “forecasted production cost savings over the first ten years of the project’s in-service life [must] outweigh the project’s costs.”  Slip op. at 6.  Second, NYISO also required that new transmission projects must be approved by a supermajority of the project’s beneficiaries.  Id.  NYRI, which was formed to construct and maintain a new transmission line within the NYISO, argued that these proposed requirements deprived NYRI of an asserted interest in “an impartial assessment of its proposed project.”  Id. at 10.

The court found that NYRI was not aggrieved under FPA section 313, 16 U.S.C. § 825l, because NYRI did “not have any active proposals for new transmission projects that would be affected by the challenged FERC orders.”  Id. at. 9.  “NYRI has presented at most an allegation of injury to its procedural rights,” which alone is insufficient to give a party standing.  Id. at 10-11.  Moreover, NYRI had withdrawn its application for state approval of the transmission project it proposed in 2009.  Thus, NYRI’s purported injury was too speculative to support standing under Article III.  Id. at 10-11 (applying the standard described in Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992), and subsequent cases).  “Without an active application for a transmission project in the New York ISO, nothing distinguishes NYRI from any other party who might someday wish to build a high-voltage transmission line in New York.”  Id. at 11.


California Wilderness Coalition v. U.S. Department of Energy, No. 08-71074 (9th Cir. Feb. 1, 2011)

In California Wilderness Coalition v. U.S. Department of Energy, No. 08-71074 (9th Cir. Feb. 1, 2011), a divided panel of the Ninth Circuit vacated the first two National Interest Electricity Transmission Corridor (“NIETC”) designations issued by the U.S. Department of Energy (“DOE”) under section 216 of the Federal Power Act, 16 U.S.C. § 824p.  The designation of an NIETC permits the Federal Energy Regulatory Commission to expedite transmission siting approvals by the states in certain circumstances.  Slip op. at 1920.  Before that occurs, FPA section 216 requires that the designation of an NIETC be conducted both “in consultation with affected States,” id. § 824p(a)(1), and “an opportunity for comment from affected States,” id. § 824p(a)(1).  The Ninth Circuit held that, in making its first two NIETC designations, DOE failed to consult with the affected states as mandated by FPA section 216 and also failed to perform an adequate review under the National Environmental Policy Act (“NEPA”).

DOE argued that FPA section “216 does not require anything more than notice-and-comment proceedings,” and claimed Chevron deference for its interpretation of the undefined statutory term “consultation.”  The court rejected the DOE’s argument at Chevron step one, holding that the plain meaning of the word “consult” involves seeking information or having discussions “typically before undertaking a course of action.”  Slip op. at 1932 (quoting, with emphasis, The New Oxford Dictionary 369 (2001)).  This plain meaning, the court held, is also consistent with the legislative intent that DOE “consult with States before taking action that may curtail traditional State powers . . . .”  Id. at 1933.  Moreover, the court rejected DOE’s argument that the states’ opportunity comment later in the process rendered the DOE failure to consult adequately at the outset a “harmless error.”  Id. at 1938-47 (surveying precedent).

With regard to petitioners’ claims under the NEPA, the DOE argued that it did not need to prepare an Environmental Impact Statement (“EIS”) or a less comprehensive Environmental Assessment (“EA”) because its designation of an NIETC does not itself determine any siting decision or otherwise impact the environment.  The Court rejected that reasoning, holding that the DOE’s “conclusory statement d[id] not allow [it] to determine whether DOE took a ‘hard look’ at the potential environmental consequences.”  Id. at 1952.  The Court explained that, “[w]ithout such a study, it is impossible to fairly determine whether project-specific impacts are reasonably foreseeable . . . .”  Id. at 1961.  And, as in its holding regarding inadequate consultation under FPA section 216, the court held the DOE’s failure to take a sufficiently “hard look” at potential environmental consequences was not a “harmless error.”  Id. at 1965-67.

Judge Ikuta filed a lengthy and vigorous dissent challenging the majority opinion by Judge Callahan on almost all counts as a departure from both “precedent and common sense.”  Id. at 1987.


Enbridge Pipelines (Illinois) L.L.C. v. Moore, No. 10-2268 (7th Cir. Jan. 24, 2011)

Seventh Circuit Upholds Oil Pipeline’s Existing Easements

On January 24, 2011, the the Seventh Circuit rejected consolidated appeals of rulings by district courts that had granted declaratory judgments upholding Enbridge Pipeline (Illinois) L.L.C.’s right to operate an oil pipeline on the defendant-appellants’ property.  The defendants contended that the original easements, which had been used to construct a pipeline in 1939, had been forfeited because Enbridge’s predecessors in ownership had failed to maintain the pipeline in good working order.  Slip op. at 2.

The opinion first addresses contentions by some of the defendants that the cases did not meet the threshold amount in controversy for each of the cases of $75,000.  The court quickly dispatched this argument, noting that to build around the existing easements would cost at least $75,000 per easement, and the cumulative costs of delay and buying new easements from the existing landowners would likewise meet the threshold.

The opinion then turns to what is meant by the word “maintained.”  It concluded that in this circumstance, the most plausible interpretation was in the sense of “occupied or retained, as when one says that one maintains an office.”  Id. at 6.  Finding that the pipeline owners had not intended to abandon the easement, and had undertaken sufficient if limited maintenance on the pipeline, even while unused, the court concludes the easements had not been forfeited.

Practitioners’ Note

Embedded in the opinion by Judge Posner is an ethical warning to practitioners against holding back a jurisdictional challenge for potential tactical gain:

But a defendant who lies back, holding such a challenge in reserve because he hopes to obtain a judgment on the merits (which unlike a dismissal for want of subject-matter jurisdiction would preclude refiling a diversity suit in state court), in which event he would not raise a jurisdictional objection, engages in misconduct for which he can be disciplined.  See BEM I, L.L.C. v. Anthropologie, Inc., 301 F.3d 548, 551-52 (7th Cir. 2002); Aves ex rel. Aves v. Shah, 997 F.2d 762, 767 (10th Cir. 1993); see also Mansfield, Coldwater & Lake Michigan Ry. v. Swan, 111 U.S. 379, 388-89 (1884); Belleville Catering Co. v. Champaign Market Place, L.L.C., 350 F.3d 691, 694 (7th Cir. 2003); In re Brand Name Prescription Drugs Antitrust Litigation, 248 F.3d 668, 670 (7th Cir. 2001).



Flint Hills Resources Alaska, LLC v. FERC, 631 F.3d 543 (D.C. Cir. January 18, 2011)


In a 2-1 ruling, the D.C. Circuit granted a petition for review challenging FERC’s interpretation of section 4412 of the Motor Carrier Safety Reauthorization Act of 2005, Pub. L. No. 109-59, 119 Stat. 1144, 1778-79 (2005) (“Section 4412”), which limits the retroactivity of the relief FERC may grant under the Interstate Commerce Act (“ICA”) when FERC modifies  “quality bank adjustments” paid to oil shippers on the Trans Alaska Pipeline System (“TAPS”).  As explained by the Court, “[t]he TAPS quality bank is an accounting arrangement designed to put [TAPS] shippers in the same economic position that they would have enjoyed absent” the commingling of crude oil of varying quality for transport on TAPS.  The portion of Section 4412 at issue in the case states that FERC “may not order retroactive changes in TAPS quality bank adjustments for any period that exceeds the 15-month period immediately preceding the earliest date of the first order of [FERC] imposing quality bank adjustments in the proceeding.”  Section 4412(b)(2).  The primary issue addressed in the case was the meaning of the phrase “the first order . . . imposing quality bank adjustments in the proceeding.”

The underlying FERC proceedings involved a dispute over a change to the quality bank calculation proposed by the TAPS carriers.  FERC issued an initial order setting the matter for hearing (“Hearing Order”), and later issued an order on the ALJ’s Initial Decision and an order requiring the TAPS carriers to make a compliance filing.  FERC took the position that its Hearing Order constituted “the first order . . . imposing quality bank adjustments.”  Applying a Chevron analysis, the Court concluded that FERC’s position did not reflect a permissible interpretation of Section 4412.  The Court found that the Hearing Order merely allowed the carrier-proposed rate to go into effect (after suspension), and, thus, could not be regarded as “imposing” an adjustment within the meaning of Section 4412.  Under FERC’s interpretation, the Court further observed, Section 4412(b)(2) would accomplish nothing unless FERC delayed issuance of an initial hearing order until 15 months after a filing’s effective date, a level of delay that the Court found is apparently inconsistent with FERC’s regulations and, in any event, wholly at odds with ordinary FERC practice.  The Court rejected FERC’s argument that its interpretation was reasonable because the section 4412(b)(2) limitation is concerned solely with guarding against prolonged refund periods caused by “unlawful orders,” i.e., FERC orders that are reversed by the courts and must be reconsidered on remand.  The Court likewise found that FERC’s position was not salvaged by an argument that its interpretation might hypothetically limit refunds in complaint proceedings brought under section 13(1) of the ICA.  FERC’s assertion that unjust and unreasonable rates could go “partially unremedied” if its interpretation was not adopted, the Court found, did not lend support to FERC’s position since “any fixed time limit on correction of a rate later found unjust and unreasonable obviously entails such a partial lack of remedy.”  Although finding FERC’s interpretation of section 4412 to be impermissible, the Court did not decide which of the other FERC orders in the case should be deemed “the first order . . . imposing quality bank adjustments in the proceeding.”  The Court also declined to reach the issue of whether Section 4412(b)(2) “limits refunds to a maximum total period of 15 months.”

Judge Randolph dissented, arguing that FERC’s Hearing Order could be reasonably interpreted as “imposing” a quality bank adjustment.  Moreover, Judge Randolph found support in the legislative history for FERC’s view that Section 4412 was intended to guard against potentially lengthy refund periods caused by court reversals, a purpose that FERC’s statutory interpretation would accomplish, contrary to the majority’s view that adopting FERC’s position would render section 4412 meaningless.


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


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