Association of Oil Pipe Lines v. Federal Energy Regulatory Commission
876 F.3d 336
| D.C. Cir. | 2017Background
- FERC administers an indexed ratemaking system for interstate oil pipelines (established in Order No. 561) that sets an annual index based on industry cost changes; the Commission revisits the formula every five years.
- The Kahn Methodology (used historically) calculates per-barrel-mile cost changes for pipelines and trims outliers by excluding extreme portions of the distribution (originally middle 50%; sometimes middle 80% used).
- In 2015, after notice-and-comment, FERC adopted an index of PPI-FG plus 1.23% (effective 2016–2021), (1) using only the middle 50% of pipeline cost-change data and (2) switching input data to Page 700 cost-of-service reports.
- The Association of Oil Pipelines (AOPL) petitioned for review, arguing FERC acted arbitrarily and capriciously by: (a) excluding the middle 80% of data (instead using only middle 50%), and (b) switching from previously used Form No. 6 accounting proxies to Page 700 cost-of-service data.
- FERC defended both choices as reasoned: trimming to middle 50% better excludes anomalous cost changes; Page 700 provides more direct, consistent measures of recoverable costs and eliminates proxy/operating-ratio estimations.
- The D.C. Circuit deferred to FERC’s technical expertise and denied AOPL’s petition, holding FERC provided adequate reasoned explanations for both methodological decisions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FERC acted arbitrarily by using only the middle 50% of pipeline cost-change data instead of middle 80% | AOPL: Excluding middle 80% improperly discards valid data; prior practice supported using middle 80% or both 50% and 80% sets; no reasoned departure | FERC: Middle 50% better excludes anomalous/outlying pipeline cost changes and avoids subjective manual trimming; 2010 decision adopting 50% provided reasoned basis | Court: Denied; FERC gave adequate, reasonable explanation and was permitted to change methodology with reasons provided |
| Whether FERC acted arbitrarily by switching input data to Page 700 cost-of-service reports | AOPL: Page 700 involves allocations/assumptions and may change over time; switch alters what the index measures without justification | FERC: Page 700 better captures recoverable costs, removes need for proxies and operating-ratio estimates, and isolates interstate costs; data now reliable | Court: Denied; FERC reasonably justified using Page 700 and did not covertly change the index’s measurement objective |
Key Cases Cited
- FERC v. Elec. Power Supply Ass'n, 136 S. Ct. 760 (2016) (courts’ limited role in reviewing FERC technical and policy choices)
- Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) (arbitrary-and-capricious standard requires reasoned explanation showing rational connection between facts and choice)
- FCC v. Fox Television Stations, Inc., 556 U.S. 502 (2009) (agency may change policy if it acknowledges change and provides good reasons)
- Ass'n of Oil Pipe Lines v. FERC (AOPL I), 83 F.3d 1424 (D.C. Cir. 1996) (upholding FERC’s indexed ratemaking scheme)
- Ass'n of Oil Pipe Lines v. FERC (AOPL II), 281 F.3d 239 (D.C. Cir. 2002) (remand where FERC failed to articulate/justify methodology change)