967 F.3d 788
D.C. Cir.2020Background
- SFPP, L.P. is a master limited partnership (MLP) common-carrier oil pipeline that filed tariff increases in 2008; FERC issued multiple orders (Opinions 511, 511-A, 511-B) that were partially vacated in United Airlines, Inc. v. FERC and remanded.
- On remand FERC adopted Opinions 511-C and 511-D: it eliminated an income-tax allowance for MLP pipelines, declined to reopen the record, required SFPP to use its originally filed index rates for refund calculations, and addressed ADIT and litigation-cost recovery.
- SFPP challenged (a) the denial of an income-tax allowance, (b) FERC’s refusal to reopen the record, and (c) FERC’s denial of a retroactive adjustment to index rates.
- Several shippers challenged FERC’s treatment of SFPP’s accumulated deferred income taxes (ADIT ~ $28M) and FERC’s decision to allow SFPP to recover litigation expenses via a three-year surcharge (≈ $8.6M).
- The D.C. Circuit reviews FERC under the APA arbitrary-and-capricious standard but gives deference on ratemaking; it denied the petitions and upheld FERC on all disputed points.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Income-tax allowance / double recovery | SFPP: ExxonMobil protects income-tax allowance; DCF return is not a pre-tax return so allowance is needed | FERC: DCF produces a pre-tax return; granting both DCF ROE and an income-tax allowance double-counts investor-level tax costs | Denied SFPP relief; FERC reasonably concluded DCF yields a pre-tax return and eliminated the allowance for MLPs to avoid double recovery |
| Reopening the record | SFPP: market reaction and corporate-parent tax facts justify reopening | FERC: no extraordinary change; SFPP had multiple prior opportunities; finality concerns; untimely parent-tax argument | Denied reopening; FERC did not abuse discretion in preserving finality and rejecting untimely arguments |
| Index-rate adjustment / retroactive recalculation | SFPP: FERC should allow retroactive adjustments to use updated index rates for refund and going-forward calculations | FERC: pipelines must be held to originally filed, accepted index rates; retroactive indexing would undermine notice, predictability, and the indexing regime | Denied SFPP relief; FERC reasonably required use of originally filed index rates to protect notice and finality |
| ADIT and litigation-cost allocation | Shippers: ADIT that was accumulated should be amortized to shippers; litigation costs should be recovered over whole litigation/refund period | FERC: amortization/refunding would be retroactive ratemaking; eliminating ADIT (given no tax allowance) is appropriate; three-year surcharge reflects when most costs were incurred | Denied shippers’ challenges: FERC permissibly declined amortization as retroactive ratemaking and reasonably sanctioned a three-year litigation surcharge |
Key Cases Cited
- United Airlines, Inc. v. FERC, 827 F.3d 122 (D.C. Cir. 2016) (vacated prior FERC treatment of income-tax allowances for partnership pipelines and directed FERC to address double-recovery mechanisms)
- ExxonMobil Oil Corp. v. FERC, 487 F.3d 945 (D.C. Cir. 2007) (upheld FERC policy granting an income-tax allowance where commission adequately explained its basis)
- BP West Coast Prods., LLC v. FERC, 374 F.3d 1263 (D.C. Cir. 2004) (addressed filed-rate/indexing methodology and limits on rate adjustments)
- Public Utilities Commission v. FERC, 894 F.2d 1372 (D.C. Cir. 1990) (discussed ADIT, normalization, and retroactive-ratemaking constraints)
- Town of Norwood v. FERC, 53 F.3d 377 (D.C. Cir. 1995) (explained tax normalization and ADIT mechanics)
- Old Dominion Electric Cooperative v. FERC, 892 F.3d 1223 (D.C. Cir. 2018) (reaffirmed rule against retroactive ratemaking and limits on rate refunds)
- City of Piqua v. FERC, 610 F.2d 950 (D.C. Cir. 1979) (retroactive-ratemaking principles)