BP Energy Co. v. Federal Energy Regulatory Commission
2016 U.S. App. LEXIS 12980
| D.C. Cir. | 2016Background
- Cove Point LNG was converted from an import-only facility (NGA § 7 customers receiving open-access, cost-based service) to a mixed-use import/export facility authorized under NGA § 3, allowing market-rate, non-open-access contracts for expansion customers.
- BP Energy is an existing § 7 customer with a contract through 2023 for terminal and pipeline services; Statoil was the § 3 expansion customer whose contract included terminal services at market rates and pipeline service at § 7 rates.
- In 2012 Dominion solicited turn-back (release) of pipeline capacity; after no § 7 customers accepted, Dominion negotiated a deal allowing Statoil to turn back both its § 7 pipeline and § 3 terminal services.
- BP protested, claiming the turn-back agreement was unduly discriminatory under NGA § 3(e)(4) because BP was not offered a comparable turn-back opportunity and would remain liable for terminal capacity it could not use without pipeline capacity.
- FERC rejected BP’s claim, holding (1) § 3(e)(4)’s protection against undue discrimination is limited to operational tariff "terms and conditions" (e.g., nominations, scheduling), not contract termination/turn-backs; and (2) BP and Statoil are not similarly situated because BP is a § 7 open-access customer with regulatory protections not afforded to a § 3 expansion customer. The D.C. Circuit remanded for further explanation.
Issues
| Issue | BP's Argument | FERC's Argument | Held |
|---|---|---|---|
| Whether § 3(e)(4) "terms or conditions of service at the facility" includes turn-back/contract-termination rights | § 3(e)(4) protects against undue discrimination in turn-back opportunities; contract termination is a term/condition of service | The phrase is limited to operational tariff areas (nominations, scheduling, operating conditions), not contract termination | Court: FERC's interpretation may be permissible but agency failed to provide adequate explanation; remand for fuller reasoning |
| Whether BP and Statoil are "similarly situated" for undue-discrimination analysis | They are similarly situated with respect to market risks and the practical effect of turn-backs; § 3/§ 7 labels shouldn't eviscerate § 3(e)(4) protection | They are not similarly situated because BP (a § 7 customer) has regulatory rights (release/retention) that Statoil (a § 3 customer) lacks | Court: FERC relied on this ground but did not explain why contractual protections (or lack thereof) for Statoil are irrelevant; remand for explanation |
| Standing: Can BP sue over FERC's refusal to order a turn-back offer? | BP: FERC’s failure to enforce § 3(e)(4) causes economic injury (loss of ability to turn back valuable capacity) | FERC: Injury is contractual and not traceable to the orders; no competitive harm shown | Court: BP has Article III standing — injury-in-fact traceable to FERC decision and redressable on remand |
| Whether the Commission may rely on post-hoc explanations or outside precedent to justify its interpretation | BP: FERC must explain its statutory interpretation in the orders | FERC: Its interpretation is entitled to Chevron deference and prior orders support it | Court: FERC can receive deference, but must articulate reasoning in its orders; cannot rely on new, unexplained rationales — remand required |
Key Cases Cited
- Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984) (agency statutory interpretation reviewed under two-step deference framework)
- City of Arlington v. FCC, 133 S. Ct. 1863 (2013) (deference to agency’s interpretation of its statutory jurisdictional grant)
- Motor Vehicle Mfrs. Ass’n v. State Farm, 463 U.S. 29 (1983) (arbitrary-and-capricious standard requires reasoned explanation)
- SEC v. Chenery Corp., 332 U.S. 194 (1947) (courts may judge agency action only on the grounds the agency invoked)
- Corley v. United States, 556 U.S. 303 (2009) (statutory interpretation must give effect to all provisions)
- Complex Consol. Edison Co. v. FERC, 165 F.3d 992 (D.C. Cir. 1999) (disparate treatment permissible where rational basis and explained)
- TransCanada Pipelines Ltd. v. FERC, 878 F.2d 401 (D.C. Cir. 1989) (differential treatment allowed if based on relevant, significant, explained facts)