Markwest Michigan Pipeline Co. v. Federal Energy Regulatory Commission
396 U.S. App. D.C. 157
D.C. Cir.2011Background
- EPAct directed a simplified, nationwide oil-pipeline ratemaking method, implemented by FERC in Order No. 561.
- Order No. 561 uses an indexing system with an initial rate and annual ceiling levels adjusted by the Oil Pipeline Index.
- A Moratorium Period (Jan 31, 2006–Jan 31, 2009) was established by a settlement among MarkWest and two shippers, setting maximum rates and an Annual Inflation Cap.
- During the Moratorium Period, increases could reflect inflation but not exceed the Annual Inflation Cap and the FERC ceiling.
- After Moratorium, FERC indexing governs rate ceilings; the dispute is how to determine the initial rate to use for post-period indexing.
- The Commission held that the settlement created new initial rates on July 1, 2008, with inflation adjustments following regulatory limits; MarkWest contested this as altering the initial rate.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did the settlement alter the pipeline's initial rates? | MarkWest: settlement did not change initial rates; it used indexing during Moratorium and left initial rates intact. | FERC: settlement set new initial rates on July 1, 2008 under § 342.3(d)(5) as a settlement rate. | Ambiguous; Commission reasonable in treating as a settlement rate |
| Is the Commission's construction of the settlement reasonable under Chevron deference? | MarkWest: the agreement is clear and does not change initial rates; ambiguity must be resolved against FERC. | FERC: language is silent/ambiguous; Commission's reasonable interpretation should be upheld. | Yes; agency interpretation is reasonable and entitled to deference |
| Should § 342.3(d)(5) or § 342.3(a) govern post-Moratorium initial rates? | MarkWest: use § 342.3(a) to continue applying indexing without extending the Moratorium. | FERC: § 342.3(d)(5) governs new initial rates via non-indexing methods, including settlements; regulation supports Commission's view. | Commission's view reasonable; settlement treated as § 342.3(d)(5) settlement rate |
| Was the Commission entitled to apply its own regulatory interpretation of its rules under Auer/chevron-adopted deference? | MarkWest argues the regulations are clear; deference should be limited if clear. | FERC's interpretation is controlling if reasonable. | Yes; agency interpretation of its own rules is controlling if reasonable |
Key Cases Cited
- Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (Supreme Court 1984) (establishes deference to agency interpretations of statutes)
- National Fuel Gas Supply Corp. v. FERC, 811 F.2d 1563 (D.C. Cir. 1987) (deference in settlement-rate interpretations)
- Ameren Servs. Co. v. FERC, 330 F.3d 494 (D.C. Cir. 2003) (Chevron step-one vs. step-two in ambiguous settlements)
- Koch Gateway Pipeline Co. v. FERC, 136 F.3d 810 (D.C. Cir. 1998) (deferring to agency's reasonable construction when ambiguity exists)
- Martin v. Occupational Safety & Health Review Comm'n, 499 U.S. 144 (Supreme Court 1991) (deference to agency expertise in regulatory interpretation)
- Auer v. Robbins, 519 U.S. 452 (Supreme Court 1997) (controlling deference for agency interpretations of their own rules)
- Frontier Pipeline Co. v. FERC, 452 F.3d 774 (D.C. Cir. 2006) (settlement-rate regulations and applicability)