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Power & Pipes

FERC, CFTC, and State Energy Law Developments

On June 14, the US Court of Appeals for the DC Circuit vacated and remanded two challenged orders and directed FERC to explain or reconsider whether data made available after a challenged rate increase becomes effective (i.e., post–rate increase information) should be considered. The court found that, prior to the challenged orders, FERC only reviewed the data from the two years preceding the rate increase (i.e., pre–rate increase information) to determine whether rate increases were substantially in excess of the actual cost increases that the pipeline incurred. The court did not opine on whether FERC’s consideration of post–rate increase data was appropriate, but held that FERC failed to explain why it departed from its practice of considering only pre–rate increase data, and why it considered post–rate increase data in evaluating the rate increases at issue.

FERC argued that the case presented different circumstances. Specifically, because the shippers waited to challenge the rate increases, additional information became available between the time the rate increases became effective and the date the complaint was filed. FERC explained that “when shippers delay challenging [index-based] rates for one or two years, a different process may be employed to take into account data that became available prior to the complaint.” FERC also argued that it would be inefficient and inequitable to ignore evidence that was available at the time the shippers filed the complaint.

Notwithstanding FERC’s arguments, the DC Circuit found that FERC’s past practice demonstrates that it has always employed a backward-looking approach in indexing proceedings. The court reviewed a series of cases in which FERC consistently relied on pre–rate increase information not because it lacked more recent evidence, but because the prior-year data reflected what indexing is supposed to measure—cost changes in the previous year. In fact, in prior cases, FERC has held that post–rate increase information was irrelevant because it confines its inquiry to comparing the year-to-year change in costs for the two preceding years when evaluating index increases. In addition, in at least three other complaint proceedings, FERC focused solely on pre–rate increase information from the preceding two years even though post–rate increase information was available.

The DC Circuit held that if FERC seeks to maintain its new policy of considering information that becomes available between a pipeline’s rate increase and a shipper’s complaint, it should explain its decision to take into account post–rate increase information. The court emphasized the importance of a “full and rational explanation” when an agency elects to depart from a policy. In these circumstances, the agency must acknowledge the departure and provide a reasoned explanation for its new position.