Happy 2012- Year of the Dragon
According to the Chinese Zodiac, the upcoming year 2012 is the Year of the Dragon. Supposedly, Dragon years are considered years of fundamental change - and 2012 is certainly shaping up that way for the energy industry.
On the FERC front, we can expect the addition of at least one new commissioner following Mark Spitzer's departure, as well as a ruling on the 63 rehearing requests on Order No. 1000, now pending at FERC. And by the end of 2012, which is an election year, we'll almost certainly see changes in the composition of Congress -- and perhaps even a new president.
Technology is also transforming the energy industry, making it more transparent than ever. With the rise of social media, there are more resources than ever - from blogs to Twitter - that enable 21st century lawyers like me to keep abreast of new developments and keep my clients and colleagues up to date. Utilities can no longer ignore social media either - as I blogged here, utility commissions are encouraging and even requiring utilities to use social media to communicate with customers. If your organization hasn't yet come up to speed on social media, the "social media" category of my blog is a great place to start.
For a next generation energy lawyer like myself, change is good. That's one of the reasons that I'm so eager to welcome 2012 -- because I believe that the changes it brings will spur innovation and bring opportunity and excitement for my clients and for our industry. And on a personal note, I'm a baby dragon myself - so I look forward to a year of growth for my micro-law firm and a chance to work with, or interact with many of you.
Of course, before we step forward into the year new year, it's always useful to take a step back. So I've dedicated this last issue of the Next Generation Law Newsletter to Appellate Review. Below, you'll find a comprehensive summary of this year’s appellate court cases involving FERC as well as my opinion piece on whether the diminished number of FERC appeals for 2011 is a cause of alarm. Feel free to pass the appellate summary along to anyone who follows FERC appeals.
Best wishes to all of you for a Happy and Prosperous 2012! May the spirit of the dragon be with you!
Is the Diminishing Number of FERC Appeals Cause for Alarm?
Each year, I routinely track the cases coming out of the federal circuit court dealing with FERC issues. This past year, the task was fairly easy as the appellate courts' dockets of FERC cases shrunk significantly - down to 19 as of December 23, 2011 compared with the usual 25-28 cases in past years. True, the year isn't over yet - but it seems unlikely that more than two or three FERC cases will issue before the end of the year.
In my opinion, two factors account for the reduction in the number of FERC appeals. First, FERC's pressure on parties to settle and its encouragement of resolution of matters by stakeholder process results in fewer contested proceedings where a party will want to challenge the outcome. Second, with the economy still weak, many companies are deciding that pursuing an appeal isn't' worthwhile when the costs are high and the chances of winning are not.
As an appellate practitioner, I believe that the diminishing number of appeals of FERC orders is harmful. First, lack of judicial review upsets the balance of powers. FERC is an executive body, and our system of checks and balances requires a regular check on executive use of power to guard against abuses. It is troubling that the costs of appealing a FERC decision have become so prohibitive as to potentially upset our system's constitutional balance. Second, judicial review eliminates regulatory uncertainty. When FERC orders remain on the books, unchallenged for years, they are still vulnerable to appeal years later. Seeking early review of controversial FERC decisions on issues of first resort can provide finality.
Because I feel strongly about making appellate review of FERC rulings accessible, my firm has always offered a variety of options for handling appeals cost effectively. These options include flat fees as low as $10,000 (not including costs) and partial contingency fees (for certain matters) and appellate consulting services on a per diem, as needed basis. If you have a potential matter where you're considering seeking review of a FERC order -- or you have a case that isn't economic for your firm to handle, please contact me at 202-297-6100 or email@example.com and I'll be happy to explore these options with you.
In the meantime, if you're interested in the statistics on cases to date and a brief summary, see the article below.
The 2011 Year in Appellate Review: Preliminary Report
Over the past years, FERC has enjoyed a roughly 70-30 won/loss record on judicial review and 2011 was no different. Of the 19 FERC cases that went up to the court this past year, FERC prevailed 75 percent of the time, winning 12 cases versus 4 for the petitioners. The three remaining cases were dismissed on procedural grounds, with two rendered moot by subsequent events and one deemed unripe in light of ongoing proceedings at FERC.
Four different circuit courts heard appeals this past year. The DC Circuit remains the dominant forum for FERC appeals, resolving a dozen FERC cases, followed by four at the Ninth Circuit, two at the Fifth Circuit and one at at First Circuit. Though traditionally, many regard the DC Circuit as slightly more favorable to FERC because of its strict views of standing and willingness to defer, the statistics show otherwise. This past year, the Petitioners' three victories came at the DC Circuit, with the remaining win (albeit a significant one) coming from the Fifth Circuit.
As for the most significant FERC appeal this year, my award goes to Texas Pipeline Association v. FERC, where the Fifth Circuit vacated a FERC rule requiring all natural gas pipelines, whether interstate or intrastate, to post certain operational information. The court found that FERC exceeded its authority under the Natural Gas Act, which limits FERC's jurisdiction to interstate pipelines. The petitioners victory here may embolden opponents of Order No. 1000, many of whom have similarly argued that FERC stepped beyond its authority under the FPA in imposing transmission planning and cost allocation requirements on transmission owners.
A case summary, with links follows:
City of Idaho Falls v. FERC (DC CIr. Jan. 4, 2011)
Idaho Power sought judicial review of an increase in its annual charges assessed by FERC. The company argued that FERC's 2009 adoption of a substantially different valuation methodology for annual charges was essentially rulemaking and thus, FERC's failure to afford an opportunity for notice and comment proceeding violated the Administrative Procedure Act. The court agreed and vacated FERC's 2009 revisions to its annual charges schedule.
Fisherman Interested in Safe Hydrokinetics v. FERC (9th Cir. Jan. 2011)
Petitioners, a group of fisherman, challenged FERC's issuance of a preliminary permit for a hydrokinetic project off the coast of Oregon prior to the development of a comprehensive plan for the Pacific Coast. The court dismissed the appeal as moot because FERC had cancelled the permit for non-compliance with its conditions.
Murray Energy v. FERC (DC Cir. Jan. 7, 2011)
A mine owner sought judicial review of FERC's grant of a certificate under the Natural Gas Act (NGA) for a pipeline that would run directly above the mines. The mine owner contended that the pressure on the pipeline could cause a rupture, thus endangering hundreds of mine employees and that FERC's order failed to adequately address or mitigate these safety concerns. The court disagreed, finding that FERC had either adopted the mine owner's recommendations or adequately supported its conclusions about pipeline safety with substantial evidence. Thus, the court denied the petition.
Flint Hills v. Alaska (DC Cir. Jan. 18, 2011)
The petition for review arises under Section 4412 of the Motor Carrier Safety Reauthorization Act, which provides that the Commission cannot retroactively impose bank adjustments paid to oil shippers on the Alaskan Pipeline that reach back more than 15 months from the Commission's first order. The Commission determined that its initial order allowing a carrier-filed adjustment and setting a hearing was its "first order" for purposes of determining refunds. The court disagreed and vacated the Commission's order as inconsistent with the statute's language. [Note: this is a somewhat obscure matter that is not frequently the subject of judicial review]
Maryland PSC v. FERC (DC Cir. Feb. 8, 2011)
Petitoners challenge rate increase arising out of FERC's new capacity model. In a per curiam decision, the DC Circuit affirms FERC's model, according deference to FERC's decision which is supported by expert testimony and adequate explanation.
Petersburg Municipal Power & Light v FERC
(DC Cir. Feb. 2011)
The petitioner challenged as arbitrary and capricious a FERC decision to use a lottery to break the tie between four competing license applications all filed at 8:30 am on the same day. The court affirmed FERC's decision, finding it reasonable approach to fill a gap in its first-to-filed permit regulations and to avoid the potential of site-banking by one applicant.
NYISO Interconnect v. FERC (DC Cir. Feb. 11, 2011)
Petitioner, the New York Regional Interconnect (NYRI) is a corporation that seeks to develop a high voltage transmission line within the jurisdiction of the New York ISO. On review, NYRI challenged FERC's order approving the New York ISO's transmission planning process. However, because NYRI did not have an active application for a transmission line pending at the time it challenged FERC's decision, the court dismissed the case for lack of standing since without a live application, NYRI is not aggrieved by FERC's order.
Dynegy Midwest Generation v. FERC (DC Circuit February 11, 2011)
Petitioners, who own and operate generation facilities within the Midwest ISO challenged FERC's order accepting of Midwest ISO's tariff amendment which allowed transmission owners to elect an alternative to cost-based rates as compensation for reactive power. The petitioners argued that the alternative option for reactive power pricing was unduly discriminatory in violation of Section 205 of the FPA because it would cause generators in different zones to be compensated differently. The court agreed - and suggested that perhaps FERC did not understand petitioners' arguments because FERC's explanation was not responsive.
Oregon v. FERC (Ninth Circuit March 2, 2011)
Various petitioners challenged FERC's issuance of a conditioned certificate for an LNG facility under the Natural Gas Act. While the appeal was pending, the companies granted the certificate filed for bankruptcy and could no longer pursue the project. As a result, the Ninth Circuit dismissed the appeal as moot, finding that the likelihood that the companies would have the ability to move forward with the project was "too remote and too speculative" to save the case from mootness.
Western Refining Southwest v. FERC (5th Cir. March 2011)
Petitioners challenged FERC's decision to decline jurisdiction under the Interstate Commerce Act over dispute of a capacity lease agreement regarding use of an oil pipeline. The court affirmed.
George Jepsen v. FERC (DC Cir. April 2011)
Summary dismissal of petition for review of New England ISO's payments to executives, finding that FERC previously approved the methodology as just and reasonable in an earlier proceeding.
Alcoa Power Generating v. FERC (DC Cir. May 2011)
Petitioner, a licensee of a hydro project, petitioned for review of a FERC order finding that the state agency responsible for issuance of a Section 401 water quality certificate (WQC) for the project failed to act on the certificate within a year as required by the Clean Water Act and therefore, the certificate was deemed waived. FERC defended its ruling, but also argued that the matter was not yet ripe for review because of a pending challenge to the WQC in state court. The court held that the petition is fit for judicial review, finding that it was likely that the court would have to review the waiver argument at some point. Subsequently, the court affirmed the Commission's ruling that the state did not waive its section 401 authority.
LS Starrett v. FERC (First Cir. June 15, 2011)
Petitioner, owner of a tiny hydroelectric facility sought review of a FERC order finding that the project required a license for operation under the Federal Power Act (FPA) because improvements made to the project affected interstate commerce and therefore was jurisdictional under the FPA. While a majority found FERC's decision reasonable, two judges commented that FERC's ruling requiring licensing, while legally correct did not make "economic or realistic sense" for such a small project.
Markwest Michigan Pipeline Co. v. FERC 646 F.3d 30 (DC Cir. July 1, 2011)
An oil pipeline owner challenged a FERC order rejecting the pipeline's proposal for determining how to set rates under the pipeline's settlement agreement with its shippers and replacing it with FERC's own proposal. The D.C. Circuit found that given the ambiguity of the agreement and applicable regulations, deference to FERC's reasonable approach was appropriate. Accordingly, the court denied the petition.
County of Butte v. FERC (Ninth Cir. August 2, 2011)(not for publication)
County seeks judicial review of FERC order denying its complaint for reimbursement from a project licensee for public safety services such as law enforcement, fire and rescue provided by the County. The Ninth Circuit rejected the County's claim that FERC's decision to deny reimbursement was "arbitrary and capricious" since nothing in the Federal Power Act or related regulations require a licensee to compensate the host municipality for services.
Montana Consumer Counsel v. FERC (Ninth Cir. Oct. 13, 2011)
Petitioners challenged FERC's market-based ratemaking practices in Order 697 as unjust and unreasonable under the Federal Power Act. The court denied the petition, holding that FERC's approach incorporated sufficient safeguards, such as monitoring reported data, to ensure competitive markets. Because FERC's approach was reasonable, the court held that it had no choice but to accord deference under Chevron.
At the conclusion of the opinion, the court added that while "consumers' well being and not regulatory inertia should be the touchstone for examining the impact of market based rates," the court cannot evaluate rates from the perspective of a policy analyst. The court explained that its role is not to opine on whether market based rates area a good idea, but rather, to determine whether FERC's market based rates policy exceeds its statutory authority. In this case, it did not.
ExxonMobile Gas & Power Market Company v. FERC (D.C. Cir. October 2011)
Pipeline shippers sought review of FERC decision approving certain aspects of a surcharge imposed by pipeline to recover added costs associated with Hurricane Ike. The D.C. Circuit dismissed the petition as unripe, finding that FERC's order was not yet final because proceedings before FERC related to other components of the surcharge were still ongoing.
Texas Pipeline Association v. FERC (Fifth Circuit Oct. 24, 2011)
Petitioners challenged a FERC rule that required both interstate and intrastate pipelines to post information about availability and prices of natural gas sold in interstate commerce. The petitioners contended that FERC's rule exceeded its authority under the NGA, which granted FERC jurisdiction only over interstate and not intrastate transactions. The court agreed, and vacated FERC's rule as beyond its authority under the NGA.
Alabama Municipal Electric Authority v. FERC (DC Cir. Dec. 13, 2011)
An Alabama municipal power authority, AMEA filed complaint at FERC alleging that Southern charges a transmission rate that is higher than the rates for Southern’s own bundled retail sales - and thus, violates rules of comparability. FERC denied complaint. On review, the D.C. circuit affirmed FERC's decision, finding that jurisdictional unbundled service delivered by Southern to its customers is "not the same service" as the transmission component of Alabama's non-jurisdictional bundled retail service.
DC Circuit rejects AMEA's argument that Southern's transmission pricing constitutes a price squeeze since it was not raised in the complaint.
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