United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 18, 2008 Decided January 23, 2009
No. 07-1461
TESORO REFINING AND MARKETING COMPANY,
PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION AND UNITED
STATES OF AMERICA,
RESPONDENTS
CALNEV PIPE LINE LLC AND BP WEST COAST PRODUCTS
LLC,
INTERVENORS
On Petition for Review of an Order
of the Federal Energy Regulatory Commission
Melvin Goldstein argued the cause for petitioner. With him
on the briefs were R. Gordon Gooch and Elisabeth R. Myers.
Carol J. Banta, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With her on the
brief were Thomas O. Barnett, Assistant Attorney General, U.S.
Department of Justice, John J. Powers III and Robert J.
Wiggers, Attorneys, Cynthia A. Marlette, General Counsel,
Federal Energy Regulatory Commission, and Robert H.
Solomon, Solicitor.
2
Charles F. Caldwell and Catherine O’Harra were on the
brief for intervenor Calnev Pipe Line LLC in support of
respondent.
Before: SENTELLE, Chief Judge, and GRIFFITH, Circuit
Judge, and RANDOLPH, Senior Circuit Judge.
Opinion for the Court filed by Chief Judge SENTELLE.
SENTELLE, Chief Judge: Tesoro Refining and Marketing
Company, a petroleum products company, petitions for review
of an order of the Federal Energy Regulatory Commission
(“FERC” or “Commission”) that approved an oil pipeline’s new
rates, adjusted for inflation. The major question presented on
the merits is whether FERC acted arbitrarily or capriciously
when it approved that rate increase, knowing that the oil
pipeline’s revenues exceeded its cost of service. Because
Tesoro raises new arguments for the first time before this court,
it has failed to exhaust its administrative remedies. We dismiss
the petition for review.
I. Background
Petitioner Tesoro Refining and Marketing Company and
intervenor BP West Coast Products LLC (collectively,
“Tesoro”) seek review of an order by FERC that upheld an
increase in the rates charged by FERC’s intervenor Calnev Pipe
Line LLC (“Calnev”). Tesoro’s complaint showed that
according to Calnev’s Form 6—a cost disclosure form oil
pipelines are required to file before the Commission—Calnev
received more in operating revenues than its cost of service.
Filed on August 1, 2007, Tesoro’s complaint covered rates from
July 1, 2005 through July 1, 2007.
3
Tesoro filed the complaint under 18 C.F.R. § 343.2, a
regulation that permits challenges to pipeline rates adjusted for
inflation under 18 C.F.R. § 342.3. Such complaints “must allege
. . . that the rate increase is so substantially in excess of the
actual cost increases incurred by the carrier that the rate is unjust
and unreasonable.” 18 C.F.R. § 343.2(c)(1). Rather than
focusing on the rate increase relative to the actual cost increase,
Tesoro’s complaint focused on the absolute difference in
revenues over cost of service. Tesoro based this focus on an
earlier FERC order, which considered the question whether “the
Commission should [deny a] carrier a further” inflationary
increase, “even though the rate increase for the year is not
substantially in excess of the cost increase for the year,” if that
carrier “is substantially over recovering its cost of service.” BP
West Coast Prods. LLC v. SFPP, L.P., 119 F.E.R.C. ¶ 61,241,
¶ 10 (June 6, 2007) (“BP West Order”). In that case, FERC held
that a complaint against an inflationary rate increase could
succeed if it “establishe[d]” that a pipeline was “substantially
over-recover[ing] its costs” even as it filed for the increase. Id.
at ¶ 11. Because it based its complaint on the BP West Order,
Tesoro did little more than show that Calnev’s revenues
exceeded its cost of service and that it had submitted for
inflationary rate increases. Under the simplest reading of the BP
West Order, that would have been enough.
But as it turned out, it wasn’t enough. For procedural and
technical reasons not relevant here, FERC had held its BP West
Order in abeyance. The pipeline at issue in that order, SFPP,
L.P. (“SFPP”) requested rehearing. On November 9, 2007,
FERC denied SFPP’s request for rehearing, but substantially
narrowed any opening created by the BP West Order. BP West
Coast Prods., LCC v. SFPP, L.P., 121 F.E.R.C. ¶ 61,141
(November 9, 2007) (“Clarification Order”). Recognizing the
BP West Order, “as written[,] could have some unintended
consequences,” the Commission expressed concern that “[t]he
4
phrasing . . . could lead to a denial of an index-based [i.e.,
inflationary] increase in a year in which the pipeline’s cost
increase exceeded or was in the same range as the index amount
and thus there was no material change in its return.” Id. at ¶ 9.
FERC therefore “clarifie[d]” the BP West Order and
required a complainant to “show (1) that the pipeline is
substantially over-recovering its cost of service and (2) that the
indexed based increase so exceeds the actual increase in the
pipeline’s cost that the resulting rate increase would
substantially exacerbate that over-recovery.” Id. at ¶ 10
(emphases added). It explained that it made this clarification so
as not to conflate complaints under 18 C.F.R. § 343.2 to “a
single year’s indexed-based increase” with “complaint[s] under
section 13 of the Interstate Commerce Act [(“ICA”)] against the
base rate” increased “over several years.” Id.1
1
The Interstate Commerce Act, 49 U.S.C. app. § 13(1) et seq.
(1988) (repealed), governs oil pipeline rates. As we concisely
explained in an earlier case,
[a]lthough the ICA was repealed in 1978, see Pub. L. No. 95-
473 § 4(b), (c), 92 Stat. 1466, 1470 (Oct. 17, 1978), FERC
has “the duties and powers related to the establishment of a
rate or charge for the transportation of oil by pipeline or the
valuation of that pipeline that were vested on October 1, 1977,
in the Interstate Commerce Commission.” 49 U.S.C. § 60502
(2003). The relevant version of the ICA was, but is no longer,
reprinted in the appendix to title 49 of the United States Code.
Therefore, when we refer to FERC’s authority under the ICA,
we cite to the 1988 edition of the U.S. Code, the last such
edition that reprinted the ICA as it appeared in 1977.
BP West Coast Prods., LLC v. FERC, 374 F.3d 1263, 1271 n.1 (D.C.
Cir. 2004).
5
On the basis of this clarification, FERC dismissed Tesoro’s
complaint. Tesoro Ref. & Mktg. Co. v. Calnev Pipe Line, L.L.C.,
121 F.E.R.C. ¶ 61,142 (November 9, 2007) (“Tesoro Order”).
Through a straightforward application of its newly announced
two-part test, FERC rejected Tesoro’s objections to the rate
years beginning July 1, 2006 and 2007. “Calnev established that
the increases taken July 1, 2006 and 2007 were based on cost
increases that were actually more than the increases permitted
by the index.” Id. at ¶ 7. Therefore, they “did not substantially
exacerbate [Calnev’s] current over-recovery.” Id. As for the
rate year beginning July 1, 2005, the Commission found it time
barred: “[T]he complaint against the July 1, 2005 increase was
filed on August 1, 2007 and is time barred given the strict two
year statute of limitations under the [ICA].” Id. (citing Section
16(3)(b) of the ICA).
Without seeking rehearing, Tesoro petitioned this court for
review. It now makes several new arguments. First, Tesoro
argues what it never precisely did in its complaint, that any oil
pipeline rate exceeding its carrier’s cost of service must be
unjust and unreasonable. Therefore FERC’s approval of
Calnev’s inflation adjustments—because they resulted in rates
that exceeded Calnev’s cost of service—was arbitrary and
capricious or contrary to law. Second, it argues that Calnev’s
rates are unjust and unreasonable under the statute because
Calnev’s costs per barrel increased less than its rate increase.
Third, Tesoro argues that because the Commission has rejected
both its protests and its complaints, it is effectively without a
remedy to challenge Calnev’s rate increases. Fourth, Tesoro
objects to the Commission’s statute-of-limitations dismissal of
its complaint against rates beginning July 1, 2005. Because
Tesoro has not exhausted its administrative remedies with
respect to any of these arguments, we dismiss its petition for
review of FERC’s order.
6
II. Analysis
“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) (citing United States v. L.A.
Tucker Truck Lines, Inc., 344 U.S. 33, 36-37 (1952)). “This
requirement . . . ensures ‘simple fairness’ to the agency and . . .
provides this Court with a record to evaluate complex regulatory
issues.” Id. It is true that the ICA contains no rehearing
requirement. Compare 49 U.S.C. app. § 17(9)(h) (1988) (ICA)
with 15 U.S.C. § 717r(a)-(b) (Natural Gas Act) and 16 U.S.C.
§ 825l(a)-(b) (Federal Power Act). But ExxonMobil specifically
rejected this as an excuse for failing to exhaust administrative
remedies, stating that the petitioners’ “error was not failing to
seek rehearing, but rather failing to raise the issue at all.”
ExxonMobil, 487 F.3d at 962. We begin by noting that, as a
practical matter, requesting rehearing could have helped Tesoro
to get the outcome it desires. The BP West Order was
significantly clarified by a request for rehearing by SFPP. See
Clarification Order, 121 F.E.R.C. ¶ 61,141. Given that FERC
altered its interpretation at the request of a carrier, it may very
well have done the same for a shipper.
A
Because “[n]o one is entitled to judicial relief . . . until the
prescribed administrative remedy has been exhausted,” Ass’n of
Flight Attendants-CWA, AFL-CIO v. Chao, 493 F.3d 155, 158
(D.C. Cir. 2007) (quoting Myers v. Bethlehem Shipbuilding
Corp., 303 U.S. 41, 50-51 (1938)), parties seeking judicial
review before exhaustion typically try to show how their
situation fits one of “three broad sets of circumstances in which
the interests of the individual weigh heavily against requiring
administrative exhaustion,” McCarthy v. Madigan, 503 U.S.
140, 146 (1992). These circumstances include delay that either
7
is excessive or leads to irreparable injury; inability of the agency
to grant effective relief; and bias within or predetermination by
the agency. See McCarthy, 503 U.S. at 146-49.
Tesoro’s primary argument is not one of these ordinary
exceptions but instead an invocation of two cases interpreting
statutory exhaustion requirements. In Arkansas Power & Light
Co. v. FPC, 517 F.2d 1223 (D.C. Cir. 1975), we considered an
issue that no party had raised below. Id. at 1236. The issue was
whether the Federal Power Commission (“FPC”) must prepare
an environmental impact statement under the National
Environmental Policy Act of 1969 (“NEPA”) before issuing a
curtailment plan for the provision of natural gas. See 42 U.S.C.
§ 4321, et seq. We decided that we could, but were not required
to, hear a newly raised claim based on this theory, because the
Natural Gas Act specifically permits review if “there is
reasonable ground for failure” to raise the claim. 15 U.S.C.
§ 717r(b); see Ark. Power, 517 F.2d at 1236. We found that the
FPC had previously “expressed its opinion that NEPA did not
apply to curtailment proceedings,” Ark. Power, 517 F.2d at
1237, but that an intervening decision from the Fifth Circuit, see
Louisiana v. FPC, 503 F.2d 844 (5th Cir. 1974), had led the FPC
to reverse its position. Because the FPC admitted that its new
practice was to file impact statements for natural gas curtailment
plans, we avoided “the unseemly prospect of a violation of a
statutory duty now recognized by the Commission to exist
without the means to direct compliance,” and reached the merits
to hold that the FPC was required to file an impact statement.
Ark. Power, 517 F.2d at 1237. We later limited the reach of
Arkansas Power to situations where there was “acknowledgment
by the agency,” proved “through subsequent revision of its
practice, that its action under challenge had been unlawful.”
ASARCO, Inc. v. FERC, 777 F.2d 764, 774 (D.C. Cir. 1985)
(citing Ark. Power, 517 F.2d at 1237).
8
This case is distinguishable from Arkansas Power. Tesoro
based its complaint to the agency on the BP West Order alone,
which was not then final and has not subsequently been
repudiated. The Clarification Order was far from
“acknowledgment by the agency . . . that its action under
challenge had been unlawful.” ASARCO, 777 F.2d at 774.
Public Service Co. of New Mexico v. FERC, 832 F.2d 1201
(10th Cir. 1987), also mentioned by Tesoro, closely mirrors
Arkansas Power and is inapposite for similar reasons. Like
Arkansas Power, Public Service Co. of New Mexico considered
a statutory rehearing requirement with an exception when there
was a “reasonable ground for failure” to raise the claim. 16
U.S.C. § 825l(b); see Pub. Serv. Co. of N.M., 832 F.2d at 1223-
24. This section of the Federal Power Act is directly analogous
to the section of the Natural Gas Act discussed in Arkansas
Power.2 Also like Arkansas Power, the Commission in Public
Service Co. of New Mexico “admitted at oral argument that it
[was] now” doing what the petitioner sought. Pub. Serv. Co. of
N.M., 832 F.2d at 1223. The Commission made no such
admission here. In fact, by all accounts FERC is not following
the standard it put forth in its BP West Order, but has
substantially “clarifie[d]” it. Clarification Order at ¶ 9.
B
Tesoro’s meatier argument rests “upon one of the ordinary
exceptions to exhaustion[:] . . . the futility of seeking relief from
the agency.” ASARCO, 777 F.2d at 774. Tesoro says bringing
2
This court has observed that “the Supreme Court has
repeatedly noted that these two Acts ‘are in all material respects
substantially identical,’ Arkansas Louisiana Gas Co. v. Hall, 453 U.S.
571, 577 n.7 (1981), and cases interpreting them may be cited
interchangeably. Id.” Pub. Serv. Co. of N.M., 832 F.2d at 1206 n.4.
9
these objections before FERC would have been futile, because
it knew they would have been rejected. This, it says, should be
sufficient to depart from the “general rule that parties exhaust
prescribed administrative remedies before seeking relief from
the federal courts.” McCarthy, 503 U.S. at 144-45. To prove
that making these arguments before the agency would have been
futile, Tesoro points to a number of orders issued by the
Commission after the November 9, 2007 order in this case. But
this approach has it backwards. Ordinarily, a party invokes the
futility doctrine to prove the worthlessness of an argument
before an agency that has rejected it in the past. Tesoro tries to
argue that it would have been futile to raise an argument because
the agency would reject it in the future. We are aware of no
case, and at oral argument Tesoro’s counsel could point us to no
case, in which the futility doctrine has been invoked based on a
subsequent agency decision. Tesoro also points to no such cases
in its briefs.
All but one of the FERC orders cited by Tesoro came after
November 9, 2007.3 See BP West Coast Prods. LLC v. SFPP,
L.P., 121 F.E.R.C. ¶ 61,195 (November 20, 2007); BP West
Coast Prods. LLC v. SFPP, L.P., 121 FERC ¶ 61,243
(December 14, 2007); BP West Coast Prods. LLC v. Calnev
Pipe Line, L.L.C., 121 F.E.R.C. ¶ 61,242 (December 26, 2007).
The December 14, 2007 order even cites the Tesoro Order,
3
Although one of these orders came after November 9, 2007,
it was within the 30-day period during which Tesoro could have
timely filed for rehearing. See 16 U.S.C. § 825l(a). We do not mean
to imply that seeking rehearing could never be futile as a result of
agency action falling within this period. But this order, BP West
Coast Products LLC v. SFPP, L.P., 121 F.E.R.C. ¶ 61,195 (November
20, 2007), would not have rendered rehearing futile for Tesoro,
because the Commission determined that “even with the permitted
index increase, [the pipeline’s] rates would not have been adequate to
recover its actual costs.” Id. at ¶ 4.
10
highlighting Tesoro’s inverse reasoning. The one case cited by
Tesoro that preceded this proceeding is not directly on point. In
SFPP v. Mobil Oil Corp., 113 F.E.R.C. ¶ 61,277, ¶ 129
(December 16, 2005), SFPP raised a similar, but not identical,
issue that the Commission dealt with briefly in a 135-paragraph,
160-footnote order. In fact the order could not be directly on
point, because SFPP could not have made the same arguments
that Tesoro makes here, dependent as they are on the 2007 BP
West Order and those that followed.
But even assuming that SFPP were on point, it would
hardly satisfy this court’s rule of permitting waiver “‘in only the
most exceptional circumstances.’” Commc’ns Workers of Am.
v. Am. Tel. & Tel. Co., 40 F.3d 426, 432 (D.C. Cir. 1994)
(quoting Peter Kiewit Sons’ Co. v. U.S. Army Corps of Eng’rs,
714 F.2d 163, 168-69 (D.C. Cir. 1983) (internal quotation
omitted)). The futility exception is “‘quite restricted,’” id.
(quoting Comm. of Blind Vendors of D.C. v. District of
Columbia, 28 F.3d 130, 133 n.5 (D.C. Cir. 1994), and limited to
situations “when resort to administrative remedies [would be]
‘clearly useless,’” id. (quoting Randolph-Sheppard Vendors of
Am. v. Weinberger, 795 F.2d 90, 105 (D.C. Cir. 1986)); see also
Smith v. Blue Cross & Blue Shield United of Wisc., 959 F.2d
655, 659 (7th Cir. 1992) (“In order to come under the futility
exception, [plaintiffs] must show that it is certain that their claim
will be denied on appeal, not merely that they doubt an appeal
will result in a different decision.”). In Communications
Workers of America, we refused a futility exception when
ERISA plan administrators had “consistently interpreted the”
relevant text “to deny . . . claims.” 40 F.3d at 432. As we said
there, “[e]ven if one were to concede that an unfavorable
decision . . . was highly likely, that does not satisfy our strict
futility standard requiring a certainty of an adverse decision.”
Id. at 433.
11
In this case, Tesoro points to one dubiously analogous case
from 2005. This is the only possible basis for a finding of
futility at the time it made its complaint to the Commission. Its
other examples are all of agency conduct subsequent to the
Commission’s order in Tesoro’s case. One of the purposes of
the exhaustion doctrine is “protecting administrative agency
authority.” McCarthy, 503 U.S. at 145. Even if subsequent
conduct vindicated its view—and we do not comment on
whether or not it has—retroactively permitting Tesoro to avoid
agency adjudication, when it had no good reason to do so, would
surely undermine that authority. Therefore we hold that because
of Tesoro’s failure to exhaust its administrative remedies, we
will not reach the merits of Tesoro’s late-raised arguments.
C
Tesoro’s failure to exhaust its administrative remedies with
respect to its statute of limitations argument is even clearer. It
did not discuss the statute of limitations at all in its complaint,
and the Commission’s order seems to be the first mention of the
issue during the entire proceeding. See Tesoro Order at ¶ 7. We
made clear in ExxonMobil that it is not error to “fail[] to seek
rehearing, but rather [to] fail[] to raise the issue at all.”
ExxonMobil Oil Corp., 487 F.3d at 962. Tesoro failed to raise
this issue before the agency at all, despite having the opportunity
to do so. We have no agency decision to review, and the agency
has had no opportunity to consider Tesoro’s arguments.
Accordingly, we hold that Tesoro failed to exhaust its
administrative remedies to resolve the question of the ICA’s
statute of limitations.
12
III. Conclusion
Tesoro and its intervenors must make their legal arguments
to FERC before invoking the jurisdiction of this court. Because
they did not, Tesoro’s petition for review of FERC’s order is
dismissed.
So ordered.