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United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 13, 2009 Decided January 15, 2010
No. 08-1110
SFPP, L.P.,
PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION
AND UNITED STATES OF AMERICA,
RESPONDENTS
ULTRAMAR INC., ET AL.,
INTERVENORS
On Petition for Review of an Order
of the Federal Energy Regulatory Commission
Charles F. Caldwell argued the cause for petitioner. With
him on the briefs were Catherine O’Harra and D. Ryan Nayar.
Jennifer S. Amerkhail, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With her on the
brief were John J. Powers III and Robert J. Wiggers, Attorneys,
2
U.S. Department of Justice, and Cynthia A. Marlette, General
Counsel, and Robert H. Solomon, Solicitor.
Steven A. Adducci argued the cause for intervenors. With
him on the brief were R. Gordon Gooch, Elisabeth R. Myers,
George L. Weber, Thomas J. Eastment, Gregory S. Wagner,
Christina M. Vitale, Marcus W. Sisk Jr., and Frederick G. Jauss
IV. Joshua B. Frank entered an appearance.
Before: ROGERS and GRIFFITH, Circuit Judges, and
SILBERMAN, Senior Circuit Judge.
Opinion for the Court by Circuit Judge ROGERS.
ROGERS, Circuit Judge: Following the remand in BP West
Coast Products, L.L.C. v. FERC, 374 F.3d 1263, 1270–71 (D.C.
Cir. 2004), the Federal Energy Regulatory Commission
(“FERC”) ordered petitioner SFPP, L.P. (“SFPP”) to pay
reparations to the complaining shippers using its Watson Station
drain-dry facilities. SFPP, L.P., 122 FERC ¶ 61,126 (2008)
(“Order on Initial Decision”). SFPP contends that
notwithstanding its failure to file the Watson Contract rates,
FERC’s decision was arbitrary and capricious for failing to
explain why it rejected its previous findings that special
circumstances justified enforcement of the unfiled rate contracts.
The circumstances surrounding the shippers’ agreement to the
Watson Contract rates, SFPP maintains, “allay any
reasonableness or discrimination concerns” and “manifestly
present good cause.” Pet’r’s Br. 12. FERC responds that the
unfiled contract rates could not supplant its authority to ensure
rates are just and reasonable and that it reasonably determined
the payment of reparations was an appropriate remedy.
Concluding that FERC’s determination of the rates was not
arbitrary or capricious and that the remedy was within its
discretion, we deny the petition for review.
3
I.
The background to this appeal appears in BP West Coast
Products, 374 F.3d at 1273–74. Between 1989 and 1991, SFPP
and its shippers negotiated a set of contracts for the construction
of “drain-dry” facilities at Watson Station, which speeded
switching between different types of petroleum products stored
in SFPP’s tanks. As part of the contracts, the shippers agreed to
pay an additional charge per barrel of 3.2 cents to cover
construction costs and provide SFPP a return on its investment
in the drain-dry facilities. SFPP did not file the Watson Contract
rates with FERC, concluding its drain-dry services were not
jurisdictional.
Responding to complaints filed in the mid-1990s by various
shippers, FERC ruled in Opinion No. 435 that although SFPP
should have filed its Watson Contract rates, SFPP would not be
ordered to pay reparations and the Watson Contract rates would
be deemed reasonable. SFPP, L.P., 86 FERC ¶ 61,022 at
61,074–76 (1999) (“Opinion No. 435”). FERC relied on
section 1803 of the Energy Policy Act of 1992 (“EPAct”), Pub.
L. No. 102–486, 106 Stat. 2776, 3011, reprinted in 42 U.S.C.
§ 7172 note, which limited the ability of shippers to challenge
pipeline rates “in effect” for a full year as of October 24, 1992
and deemed such rates, with exceptions not applicable here, just
and reasonable. FERC concluded that although the Watson
Contract rates were not on file, the charges for the Watson
Station drain-dry facilities were the equivalent of lawful rates
because the rates were in effect prior to the EPAct’s enactment
on October 24, 1992 and the shippers had failed to establish
“substantially changed circumstances,” EPAct § 1803(b), 106
Stat. at 3011. See Opinion No. 435 at 61,075-76. FERC noted
that the complaining shippers were sophisticated parties that
negotiated sophisticated contracts, and that it would be
inequitable to change the negotiated rates years after the
4
contracts were signed. Id. at 61,075. FERC denied rehearing.
SFPP, L.P., 91 FERC ¶ 61,135 at 61,502 (2000) (“Opinion No.
435-A”). FERC reasoned that “if [the rates] had been filed . . . ,
it is clear that they would have been grandfathered” under the
EPAct, Opinion 435-A at 61,502.
This court vacated Opinion Nos. 435 and 435-A. BP West
Coast Prods., 374 F.3d at 1270–71. As relevant, the court
concluded that FERC’s reasoning on the significance of not
filing the Watson Contract rates was “fundamentally flawed”
and “vacated this portion of [FERC’s] order.” Id. at 1274.
Observing that if FERC correctly interpreted section 1803 of the
EPAct only to apply to filed rates, then FERC could not
grandfather unfiled rates on the assumption no challenge would
have been brought. Id. Moreover, the court found FERC’s
reasoning afforded no assurance that all the Watson Contract
rates had been in effect 365 days as of October 24, 1992. Id.
The court therefore granted the petition and remanded regarding
whether the rates were grandfathered. Id. at 1312.
On remand, FERC ruled that SFPP’s Watson Contract rates
could not be grandfathered. SFPP, L.P., 111 FERC ¶ 61,334 at
62,457 (“Order on Remand and Rehearing”). FERC found that
regardless of whether the rates were filed, the Watson Contract
rates became effective on November 1, 1991, less than 365 days
before October 24, 1992, and thus could not be grandfathered
under the EPAct. Id. at 62,458. Thereafter, SFPP and the
complaining shippers settled all outstanding issues, except two
legal issues, and stipulated that any reparations amount would
be based on a shipping rate of between 0.48 and 0.28 cents per
barrel (subtracted from the 3.2 or 3.5 cents per barrel actually
charged by SFPP), plus interest, with a specific shipping rate
stipulated for each year between 1991 and 2005. The two
reserved legal issues were: (1) whether the Watson Contract
rates established the rate level or limited reparations before
5
April 1999, and (2) the calculation of the period for which any
reparations payments would be due. FERC approved this
settlement, SFPP, L.P., 116 FERC ¶ 61,116 (2006), and referred
the two reserved legal issues to an Administrative Law Judge
(“ALJ”), who ruled that the Watson Contract rates did not
establish the rate for service because they had not been filed and
that the reparation payment period for each shipper would be
limited to two years before the shipper’s complaint was filed,
and awarded reparations to the complaining shippers in the
amounts stipulated, see SFPP, L.P., 118 FERC ¶ 63,033 at
66,171–72 (2007).
Upon exceptions filed by SFPP, FERC affirmed that SFPP
had violated sections 6(1) and 6(7) of the Interstate Commerce
Act (“ICA”) by failing to file the Watson Contract rates. See
Order on Initial Decision, 122 FERC at 61,649–50. FERC
noted that ICA section 6(1) requires that common carriers such
as SFPP “shall file” their rates, and that ICA section 6(7)
prohibits carriers from transporting property “unless the rates
. . . have been filed” with FERC, and concluded therefore that
the carrier’s state of mind when deciding whether it needs to file
a rate is not relevant under the ICA. See Order on Initial
Decision, 122 FERC at 61,649–50. FERC interpreted the
Supreme Court’s decision in Maislin Industries, U.S., Inc. v.
Primary Steel, Inc., 497 U.S. 116 (1990), as viewing these ICA
rate filing requirements as necessary to prevent unreasonable or
discriminatory rates. See Order on Initial Decision, 122 FERC
at 61,649. FERC also noted that this court’s decision in City of
Piqua, Ohio v. FERC, 610 F.2d 950 (D.C. Cir. 1979), “is quite
clear that the mutual agreement of the parties does not relieve
the pipeline involved of the fundamental obligation to file the
contract with [FERC].” Order on Initial Decision, 122 FERC at
61,650. FERC further ruled that it was a proper exercise of its
remedial discretion to order reparations for charges above the
stipulated just and reasonable rates, reasoning that the shippers
6
were not required to establish damages because the settlement
agreement established the amount of any reparations and
reserved the question of whether reparations were due, that the
Watson Contract rates did not supersede the ICA rate filing
requirement even if the contract negotiations were voluntary
arms-length transactions, that SFPP received the quantum meruit
value of its drain-dry services, and that the record did not
establish that the Watson Contract rates were just and reasonable
rather than an exercise of SFPP’s market power. See id. at
61,650–52.
II.
SFPP petitions for review of whether the Watson Contract
rates established the rate level or limited reparations for the
period before April 1999, when its filed rates became effective.
This court reviews FERC’s orders to determine whether they are
arbitrary or capricious, an abuse of FERC’s discretion, or
otherwise not in accordance with law. 5 U.S.C. § 706(2)(A);
see, e.g., Sithe/Independence Power Partners, L.P. v. FERC, 165
F.3d 944, 948 (D.C. Cir. 1999). The court will “‘defer to
[FERC’s] decisions in remedial matters’ and reject [its] choice
of an equitable remedy only if it lacks a ‘rational basis.’”
Constellation Energy Commodities Group, Inc. v. FERC, 457
F.3d 14, 22–23 (D.C. Cir. 2006) (quoting Koch Gateway
Pipeline Co. v. FERC, 136 F.3d 810, 816 (D.C. Cir. 1998)).
SFPP concedes that because the court vacated Opinion Nos.
435 and 435-A in BP West Coast Products, 374 F.3d at
1270–71, FERC “had the discretion to reconsider the whole of
its original decision,” Southeastern Michigan Gas Co. v. FERC,
133 F.3d 34, 38 (D.C. Cir. 1998), and “not merely those aspects
of the decision related to grandfathering,” Reply Br. 6.
However, observing that when changing course an agency must
supply a reasoned analysis, see Motor Vehicle Mfrs. Ass’n v.
7
State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 57 (1983), SFPP
contends that FERC has failed to explain why on remand it no
longer credits the findings in Opinion Nos. 435 and 435-A that
special circumstances justified enforcement of the Watson
Contract rates. These findings, SFPP maintains, are separate
and apart from the vacated sections of Opinion Nos. 435 and
435-A on grandfathering.
This court vacated Opinion Nos. 435 and 435-A in their
entirety, BP West Coast Prods., 374 F.3d at 1271, and FERC, in
responding on remand, has engaged in no change of course for
FERC to explain as SFPP contends. See Radio Televisión S.A.
de C.V. v. FCC, 130 F.3d 1078, 1083 (D.C. Cir. 1997). The
“changing its course” analysis of State Farm, 463 U.S. at 41, is
not the standard. Although FERC did state in Opinion 435 that
it would be unfair to award reparations when the contracts were
the result of bargaining between sophisticated parties, FERC
premised its reasoning on its initial conclusion that SFPP had
not violated its rate filing obligation. See Opinion No. 435, 86
FERC at 61,074–76. Once this court determined that FERC’s
application of the EPAct’s grandfathering provisions was
erroneous, an entirely different question was presented to FERC,
and its answer to that question was completely new and in no
sense a deviation from past policy.
On remand FERC was obligated to “examine the relevant
data and articulate a satisfactory explanation for its action
including a rational connection between the facts found and the
choice made.” Alpharma, Inc. v. Leavitt, 460 F.3d 1, 6 (D.C.
Cir. 2006) (quoting State Farm, 463 U.S. at 43). To satisfy this
standard, and to the extent SFPP suggests the court vacated only
the analysis in Opinion Nos. 435 and 435-A regarding
grandfathering, see BP West Coast Prods., 374 F.3d at 1312,
FERC explained that it had erroneously interpreted City of
Piqua, 610 F.2d 950, and ignored Maislin, 497 U.S. 116, in not
8
requiring SFPP to file its rates despite the agreements of SFPP
with the shippers. See Order on Initial Decision, 122 FERC at
61,650. SFPP’s attempt to challenge FERC’s interpretation of
this precedent is unpersuasive, as are the other precedents on
which it relies.
The ICA requires oil pipelines to file the rates they charge
shippers to use their pipelines, and provides a pipeline shall not
provide transportation unless the rates are on file with FERC.
See 49 U.S.C. app §§ 6(1), 6(7) (1988); 49 U.S.C. § 60502; see
also Frontier Pipeline Co. v. FERC, 452 F.3d 774, 776 (D.C.
Cir. 2006). A pipeline is liable for damages for violation of the
ICA. See 49 U.S.C. app § 8 (1988). Additionally, a pipeline
may be ordered to pay reparations, subject to a two-year
limitation. See id. § 16(3)(b); BP West Coast Prods., 374 F.3d
at 1306. In Maislin, the Supreme Court explained that
“adherence to unfiled rates[] undermines the basic structure of
the [ICA],” 497 U.S. at 132, and that “[t]he duty to file rates
with [FERC], and the obligation to charge only those rates, have
always been considered essential to preventing price
discrimination and stabilizing rates,” id. at 126 (citations
omitted). Contrary to SFPP’s view, the fact that the Court was
addressing rates negotiated below the filed rate, see id. at 130,
rather than unfiled negotiated rates, does not detract from its
interpretation of the statutory obligation to charge only filed
rates. Nor did City of Piqua hold, as SFPP suggests, that an
unfiled contractual rate agreement was enforceable, but instead
involved a filed contractual rate that FERC determined was
reasonable and, upon finding good cause, allowed to be enforced
from the initial date of the contract rather than from the date the
contract rate was filed. See City of Piqua, 610 F.2d at 954–55.
Although Ets-Hokin & Galvan, Inc. v. Maas Transport,
Inc., 380 F.2d 258, 260 (8th Cir. 1967), and four district court
9
opinions1 cited by SFPP recognized that voiding contracts is not
necessarily an appropriate remedy for violating the ICA, the
courts acknowledged other penalties under the ICA could still
apply. Moreover, FERC did not void the Watson Contracts but
awarded SFPP the quantum meruit value of its performance
under them. See Order on Initial Decision, 122 FERC at
61,652. The other cases on which SFPP relies involve different
statutory schemes,2 and do not respond to FERC’s concern that
the record before it failed to “establish[] that the [Watson
Contract] rate[s] . . . unequivocally reflected effective
competition at the time the contractual charge became effective”
and was not “sufficiently clear to warrant a conclusion that the
prophylactic purposes of the [ICA] would not be compromised
by denying reparations.” Order on Initial Decision, 122 FERC
at 61,651.
SFPP also contends that FERC unreasonably disregarded
that its failure to file the Watson Contract rates was a good faith
error regarding FERC’s jurisdiction over the drain-dry facilities.
However, FERC concluded that the parties’ joint stipulation of
facts did not support SFPP’s claim of good faith jurisdictional
error, and further that the ICA’s filing requirement should not
depend on FERC’s interpretation of a party’s good faith. FERC
noted, moreover, that the ICA imposes the filing requirement on
carriers rather than shippers, and that SFPP could have protected
1
See Land Ocean Logistics, Inc. v. Aqua Gulf Corp., 68 F.
Supp. 2d 263, 271 (W.D.N.Y. 1999); Reo Distribution Servs., Inc. v.
Fisher Controls Int’l, Inc., 985 F. Supp. 647, 648-49 & n.5 (W.D. Va.
1995); Dan Barclay, Inc. v. Stewart & Stevenson Servs. Inc., 761 F.
Supp. 194, 204 (D. Mass. 1991); Concord Indus., Inc. v. K.T.I.
Holdings, Inc., 711 F. Supp. 728, 730 (E.D.N.Y. 1989).
2
See Morgan Stanley Capital Group Inc. v. Pub. Util. Dist.
No. 1, — U.S. —, 128 S.Ct. 2733, 2738, 2746–47 (2008); Borough of
Ellwood City v. FERC, 583 F.2d 642, 646–48 (3d Cir. 1978).
10
itself by following the traditional practice of filing a rate with a
motion to dismiss, thereby gaining the benefit of a type of safe
harbor against the risk of reparations. See id. at 61,650.
SFPP’s contention that FERC erred when awarding
reparations because the shippers failed to prove that they had
suffered damage from the rates negotiated in the Watson
Contracts fares no better. SFPP relies on Parsons v. Chicago &
Northwestern Railway Co., 167 U.S. 447, 460 (1897), in which
the Supreme Court stated that under the ICA a complainant
“must show, not merely the wrong of the carrier, but that that
wrong has in fact operated to his injury.” However SFPP fails
to consider the context of this statement, which discussed why
“[p]enalties are not recoverable on mere possibilities” and
indicated that appropriate damages would be the excess rate
actually, rather than theoretically, paid by a shipper. Id.
Intervenor shippers point out that such a calculation of damages
and reparations is well-established, citing the ruling in Memphis
Freight Bureau v. Kansas City Southern Railway Co., 17 I.C.C.
90, 91–92 (1909), that “there are no damages in any proper
sense of the word unless the shipper has been compelled to pay
more than a reasonable rate.” FERC determined that “[t]he
settlement agreement stipulates how the just and reasonable rate
would be defined (retrospectively) if liability attaches” to SFPP.
See Order on Initial Decision, 122 FERC at 61,651. SFPP’s
reliance on Mobil Oil Corporation v. Federal Power
Commission, 417 U.S. 283 (1974), is to no avail because there
the Supreme Court held that a non-unanimous settlement
proposal alone was not sufficient to establish that the rate
structure in the proposed settlement was just and reasonable, id.
at 312–313, while in the instant case FERC approved the
parties’ settlement agreement and its reparation rates, see SFPP,
L.P., 116 FERC ¶ 61,116. As FERC explained, having
approved the parties’ settlement agreement establishing the
amount of any reparations, the only question was whether
11
reparations were due, not the amount due. See Order on Initial
Decision, 122 FERC at 61,651.
Finally SFPP contends, first, that FERC erroneously denied
that it had equitable discretion to fashion a remedy, and second,
that FERC had discretion under section 6(3) of the ICA3 to view
the filing requirements of sections 6(1) and 6(7) as less than
absolute. The first contention is incorrect. FERC acknowledged
an award of reparations is an equitable remedy and that it was
not compelled to award reparations. Order on Initial Decision,
122 FERC at 61,651. With regard to the second contention,
SFPP did not make this statutory argument to FERC, and this
court has held that under the ICA “a party must first raise an
issue with an agency before seeking judicial review,”
ExxonMobil Oil Corp. v. FERC, 487 F.3d 945, 962 (D.C. Cir.
2007). In reply, SFPP maintains that it is arguing only that cases
interpreting provisions that are analogous to section 6(3), rather
than section 6(3) itself, are applicable. But even were this
argument timely, FERC observes that section 6(3) might not
apply where the rates were never filed, and that it evaluated as
a part of its reparations decision many of the section 6(3) “good
cause” arguments SFPP presents on brief. For example, SFPP
maintains that the Watson Contract rates did not involve rent
seeking by SFPP because its shippers initiated discussions about
developing drain-dry facilities in lieu of costly construction by
them and then negotiated the Watson Contract rates. FERC not
only acknowledged its discretion, but carefully exercised it,
explaining that reparations were appropriate because the record
suggested SFPP had abused its market power by “extract[ing] an
economic rent based on the difference between its own costs for
3
Section 6(3) of the ICA provides that FERC “may, in its
discretion and for good cause shown . . . modify the requirements of
this section with respect to . . . filing of tariffs . . . .” 49 U.S.C. app
§ 6(3).
12
resolving the operating issues at Watson Station and the costs
each of the shippers would have incurred on its own hook.”
Order on Initial Decision, 122 FERC at 61,651.
Accordingly, because FERC’s reasoned order of reparations
falls within its discretion, SFPP fails to demonstrate that FERC
was arbitrary or capricious, or abused its discretion, see Exxon
Mobil Corp. v. FERC, 571 F.3d 1208, 1215–16 (D.C. Cir. 2009),
and we deny the petition for review.