United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 14, 1997 Decided February 3, 1998
No. 93-1662
Pennsylvania Office of Consumer Advocate, et al.,
Petitioners
v.
Federal Energy Regulatory Commission,
Respondent
Carnegie Natural Gas Company, et al.,
Intervenors
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Consolidated with
No. 93-1666
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In Response to the Court's Order to Show Cause
as to Whether the Court Should Rehear this Case
or Revise Its Original Decision
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Denise C. Goulet argued the cause for petitioners, with
whom Irwin A. Popowsky, Lawrence F. Barth and John F.
Povilaitis were on the briefs. Veronica A. Smith entered an
appearance.
Timm L. Abendroth, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent, with whom
Jay L. Witkin, Solicitor, John H. Conway, Deputy Solicitor,
and Susan J. Court, Attorney, were on the brief. Joel M.
Cockrell, Attorney, entered an appearance.
Before: Edwards, Chief Judge, Wald and Randolph,
Circuit Judges.
Opinion for the Court filed by Chief Judge Edwards.
Edwards, Chief Judge: On December 19, 1997, the court
issued its decision in Pennsylvania Office of Consumer Advo-
cate v. FERC, 131 F.3d 182 (D.C. Cir. 1997), denying petition-
ers' claim that the Federal Energy Regulatory Commission
("FERC" or "Commission") erred in adhering to an estab-
lished policy in approving a tariff provision of Carnegie
Natural Gas Company ("Carnegie") permitting Carnegie to
retain revenues resulting from the pipeline's assessment of
penalties against its customers. Contemporaneously with the
issuance of the court's decision, counsel for FERC submitted
a letter to the court to correct misstatements made at oral
argument. See Letter from FERC Correcting Misstatement
At Oral Argument (Dec. 18, 1997) ("December 18 Letter").
The letter from FERC's counsel called into question certain
purported facts relied upon by the court in reaching its
original decision in this case. The parties were ordered to
show cause as to whether the case should be reheard or the
court's decision should be revised.
* * * *
The court's decision upholding FERC's orders was in-
formed by three factors: (1) petitioners' failure to offer any
evidence that Carnegie has obtained "windfall" revenues as a
result of the penalty provisions; (2) the Commission's pledge
to monitor the levels of penalty revenues obtained by pipe-
lines and to revisit the issue if necessary; and (3) the fact
that the Commission has established accounting mechanisms
that will facilitate its tracking of Carnegie's penalty revenues.
The court also emphasized that it was appropriate for FERC
to exercise its predictive judgment in the context of a pro-
ceeding pursuant to section 5 of the Natural Gas Act, 15
U.S.C. s 717d (1994).
With respect to the first factor noted above, the court
elaborated:
[C]ounsel for the Commission asserted at oral argument,
without contradiction, that in 1996--apparently the first
year for which information on the levels of penalty
revenues recovered by pipelines is generally available--
Carnegie collected no penalty revenues whatsoever.
131 F.3d at 186.
With respect to the third factor noted above, the court
elaborated, in pertinent part:
The Commission asserts, and petitioners do not dispute,
that pipelines are obligated under 18 C.F.R. ss 260.1 and
260.2 to file an annual report that includes a statement of
their revenues under Account No. 495 of the Commis-
sion's Uniform System of Accounts. See id. (setting
forth requirements to file "FERC Form No. 2" or
"FERC Form No. 2-A"); Respondent's Br. at 8 n.3.
That account includes a list of miscellaneous revenue
sources, and requires pipelines to keep "in a separate
subaccount revenues from penalties earned pursuant to
tariff provisions, including penalties associated with cash-
out settlements." 18 C.F.R. pt. 201, at 603 (1997)....
It thus appears undisputed that the Commission will
have accounting mechanisms in place to track the levels
of penalty revenues garnered by Carnegie.
131 F.3d at 187. This passage was written in reliance on
FERC's assertion at oral argument that Carnegie is required
to report its penalty revenues on an annual basis. The oral
assertion by FERC was corroborated by a footnote in
FERC's brief, which quotes from relevant regulations to the
effect that Account No. 495 requires pipelines "to keep in a
separate subaccount revenues from penalties earned pursuant
to tariff provisions." Respondent's Br. at 8 n.3 (internal
quotation omitted).
Counsel for FERC now acknowledges that he misspoke at
oral argument with respect to Carnegie's reporting obli-
gations under applicable regulations. Carnegie is considered
a "nonmajor" pipeline--as defined in 18 C.F.R. ss 260.1(b)
and 260.2(b) (1997)--and therefore is only required to file an
abbreviated "Form 2-A" rather than the standard "Form 2."
See Response Of Respondent FERC To Show Cause Order,
No. 93-1662, at 3-4 (filed Jan. 9, 1998) ("FERC Response");
December 18 Letter. As it turns out, Form 2-A includes a
line for "Other Gas Revenues" pursuant to Account No. 495,
but it does not include a sheet for separately reporting the
subaccount penalty revenues. See FERC Response, at 3-4;
Carnegie's 1996 FERC Form No. 2-A, reprinted in Attach-
ment to FERC Response. The regular Form 2, which is filed
by major pipelines, does include a sheet for separately report-
ing the subaccount penalty revenues. See FERC Response,
at 3.
Counsel for FERC, in his December 18 Letter to the court,
also clarified his statement at oral argument that the most
recent annual report filing showed that Carnegie had not
collected any penalty revenues "during the recent period"--
i.e., 1996. Because Carnegie only has to file Form 2-A,
Carnegie's recent annual report provides no specific informa-
tion on Carnegie's penalty revenues. However, counsel for
FERC avowed in the December 18 Letter "that in fact
Carnegie has not collected any penalty revenues." Id.
In response to the court's show-cause order, FERC argues
that the court's decision is unaffected by counsel's misstate-
ments and no rehearing or revision is required. Petitioner,
however, contends that counsel's misstatement of certain
facts at oral argument directly affects primary factors upon
which the court's opinion rests and, therefore, the court
should reconsider and revise its judgment on the merits.
Having considered the parties' submissions and the entire
record in this case, we agree that the court's original decision
must be corrected and clarified insofar as it relies on mis-
statements from FERC counsel; however, we find no good
basis to overturn the original result in this case.
* * * *
The court's original opinion states that 1996 is "apparently
the first year for which information on the levels of penalty
revenues recovered by pipelines is generally available." 131
F.3d at 186. This statement is true only insofar as it
suggests that pipelines are obliged to keep records of their
penalty revenues. Carnegie, as a nonmajor pipeline, is re-
quired to maintain internal records under Account No. 495
that delineate its penalty revenues. However, only "major"
pipelines have an obligation to report penalty revenues in a
separate subaccount on Form 2. Carnegie, which files Form
2-A on an annual basis, need not specify which portion of its
"Other Gas Revenues" under Account No. 495 is attributable
to penalty revenues. Thus, the information on Carnegie's
penalty revenues is not "generally available"--i.e. available to
the public--and the statement in the original opinion is
misleading as applied to Carnegie.
The original opinion also states: "counsel for the Commis-
sion asserted at oral argument, without contradiction, that in
1996 ... Carnegie collected no penalty revenues whatsoever."
131 F.3d at 186 (emphasis added). FERC provides no docu-
mentation to support its assertion that Carnegie received no
penalty revenues in 1996, nor does it suggest that FERC is in
possession of such documentation. Rather, FERC appears to
base its assertion only on the assurances of representatives of
Carnegie. In light of the fact that Carnegie was not obligat-
ed to include the penalty revenues subaccount in its 1996
annual report, petitioners contend that the issue of the level
of penalty revenues from 1996 is not undisputed. See Peti-
tioners' Response To Show Cause Order, No. 93-1662, at 2
(filed Jan. 9, 1998) ("Petitioners' Response"). On the other
hand, one might say that the Commission's position is not
truly contradicted unless petitioners supply rebuttal evidence,
such as a complaint by one of Carnegie's customers to the
effect that they were assessed penalties.
Finally, the court's original opinion is misleading with
respect to the requirement of Account No. 495. The opinion
states: "That account includes a list of miscellaneous revenue
sources, and requires pipelines to keep 'in a separate subac-
count revenues from penalties earned pursuant to tariff provi-
sions, including penalties associated with cash-out settle-
ments.' 18 C.F.R. pt. 201, at 603 (1997)." 131 F.3d at 187.
Literally, this appears to be true; Carnegie is required to
maintain internal records that delineate its penalty revenues.
See FERC Response, at 3. However, the passage neglects to
mention that FERC's current Form 2-A does not require
nonmajor pipelines like Carnegie to separately report the
Account No. 495 subaccount balances on an annual basis. As
written, the passage might be read to suggest that all pipe-
lines, whether they file Form 2 or Form 2-A, are required to
report their penalty revenues in a separate subaccount on an
annual basis.
* * * *
Although it is clear that the original opinion of the court is
tainted by misinformation, based on the misstatements of
FERC counsel, we can find no infirmity in the judgment
upholding FERC's decision to adhere to an established policy
of allowing a pipeline to retain penalty revenues.
Petitioners still fail to offer any evidence that Carnegie has
obtained "windfall" revenues as a result of the penalty provi-
sions. Counsel for the Commission has asserted that in
1996--apparently the first year in which pipelines were re-
quired to keep records of penalty revenues pursuant to the
Commission's Uniform System of Accounts--Carnegie collect-
ed no penalty revenues whatsoever. Petitioners give us no
reason to doubt the veracity of this assertion. Petitioners do
not claim, for example, that any of Carnegie's customers have
been assessed penalties under the pipeline's new tariff provi-
sions.
At oral argument, counsel for the Commission erroneously
stated that the annual report most recently filed by Carnegie
showed that the pipeline had not collected any penalty reve-
nues during that recent period. The same counsel subse-
quently informed the court, through his December 18 Letter,
that in fact Carnegie, as a "nonmajor" pipeline as defined by
18 C.F.R. ss 260.1(b) and 260.2(b), was not required by
Commission rules to specifically disclose in its annual report
the amount of penalty revenues that the pipeline received,
although the pipeline was required to disclose a broader
category of revenues that included the penalty revenues.
However, Carnegie is "required to maintain [its] records by
including any penalty revenue in a separate subaccount"
pursuant to Account No. 495 of the Uniform System of
Accounts. December 18 Letter (emphasis added); 18 C.F.R.
Pt. 201.495, item 9 (1997). Counsel further avowed in the
letter, in response to inquiry from petitioners after oral
argument, that the Commission "has reconfirmed that in fact
Carnegie has not collected any penalty revenues." December
18 Letter; see also FERC Response, at 4 n.4.
Furthermore, it remains true, as the original opinion point-
ed out, that "the Commission has established accounting
mechanisms that will facilitate its tracking of Carnegie's
penalty revenues." 131 F.3d at 187. Carnegie is required
under Account No. 495 of the Commission's Uniform System
of Accounts, which mandates a statement by pipelines of their
"Other gas revenues," to "[i]nclude in a separate subaccount
revenues from penalties earned pursuant to tariff provisions,
including penalties associated with cash-out settlements." 18
C.F.R. Pt. 201.495, item 9. Moreover, the Commission as-
serts, and petitioners do not dispute, that pipelines are obli-
gated under 18 C.F.R. ss 260.1 and 260.2 to file an annual
report that includes an aggregate statement of miscellaneous
revenues under Account No. 495. See ss 260.1 and 260.2
(setting forth requirements to file "FERC Form No. 2" or
"FERC Form No. 2-A"); Carnegie's 1996 FERC Form 2-A,
reprinted in Attachment to FERC Response.
Counsel for the Commission clarified subsequent to oral
argument that Carnegie, as a "nonmajor" pipeline, need not
list the subaccount designated for penalty revenues under
Account No. 495 in the pipeline's annual report to the Com-
mission. Certainly, a more specific annual reporting require-
ment for nonmajor pipelines would improve the Commission's
ability to monitor penalty revenues. Nevertheless, on the
record at hand, it appears that the existing accounting regime
will assist the Commission in periodically reassessing its
penalty-retention policy. In short, the Commission will have
sufficient accounting mechanisms in place to track the levels
of penalty revenues garnered by Carnegie.
It is important to note that the original opinion of the court
rested, in significant measure, on the deference due to FERC
with respect to the agency's predictive judgments. Defer-
ence is certainly due in the instant case, where petitioners
present no serious allegation (let alone concrete proof) of any
"windfall" revenues garnered by Carnegie.
It is also noteworthy that the court's reliance upon certain
precedent in its original opinion is in no way undercut by the
misstatements of counsel. As pointed out in the original
opinion, this court held, in Association of Oil Pipe Lines v.
FERC, 83 F.3d 1424, 1437 (D.C. Cir. 1996), and Time Warner
Entertainment Co. v. FCC, 56 F.3d 151, 172-73 (D.C. Cir.
1995), that an agency conducting a ratemaking proceeding is
not required to include "offsets" for potential future revenue
gains by regulated entities, where there is no evidence of such
gains in the record before the agency. In neither case did
the court rest its judgment on the agency's capacity to
monitor revenues through individual periodic reports. We
see no good reason to reach a different result in this case.
For now, the agency's predictive judgment is entitled to
respect.
* * * *
Accordingly, the order to show cause is hereby discharged,
the original opinion of the court is corrected insofar as
indicated above, and the original judgment of the court
affirmed.