778 F.3d 1034
D.C. Cir.2015Background
- TAPS is an 800-mile jointly owned pipeline (BP, ConocoPhillips, ExxonMobil) carrying a common stream of oil for both interstate and intrastate shipments; Alyeska operates the system.
- A long-standing 1985 settlement governed rates through 2011; disputes after 2004 led FERC to replace that framework and later consider new settlements filed in 2012.
- The carriers submitted a prospective settlement containing a Pooling Agreement (effective Aug. 1, 2012) allocating most fixed TAPS costs based on total traffic (interstate + intrastate).
- Intrastate shippers Tesoro Alaska and Anadarko challenged FERC’s approval, arguing FERC lacked statutory authority, improperly regulated intrastate commerce, and violated the APA.
- FERC approved the Pooling Agreement under ICA § 5(1), finding it in the public interest and not unduly restraining competition; petitioners sought judicial review in this Court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FERC had statutory authority under the ICA to approve a pooling agreement that factors intrastate traffic | FERC may regulate only interstate oil pipeline commerce; approving pooling that includes intrastate traffic exceeds FERC’s statutory authority | ICA § 5(1) governs common carriers (including pipeline companies); incidental regulation of intrastate commerce is permissible when necessary to regulate interstate service | Held: ICA permits incidental regulation of intrastate commerce under § 5(1); FERC’s interpretation is reasonable under Chevron and must be upheld |
| Whether FERC’s inclusion of intrastate traffic in the Pooling Agreement unlawfully regulated intrastate commerce | Pooling intrastate costs crosses into direct state regulation and improperly burdens intrastate commerce and competition | Pooling intrastate traffic was incidental to and necessary for reasonable interstate rate regulation; excluding intrastate traffic would produce unfair subsidies and perverse incentives | Held: Inclusion of intrastate traffic was incidental to interstate regulation and reasonably justified to ensure uniform and sustainable rates |
| Whether FERC’s approval violated the APA (arbitrary, capricious, unsupported by substantial evidence, or procedurally flawed) | FERC misapplied standards, relied improperly on an ALJ and prior rulings, failed to respond to evidence, misallocated burdens, and used extra-record evidence | FERC thoroughly considered competitive effects, relied on its prior uniform-rate conclusion, and explained why the Pooling Agreement (with 25.1% exclusion) did not unduly restrain competition | Held: FERC acted within its discretion, provided adequate reasoning and evidence, and did not act arbitrarily or capriciously |
Key Cases Cited
- Chevron U.S.A. Inc. v. Natural Res. Def. Council, 467 U.S. 837 (1984) (framework for judicial review of agency statutory interpretation)
- Exxon Pipeline Co. v. United States, 725 F.2d 1467 (D.C. Cir. 1984) (discussed transfer of oil-pipeline jurisdiction to FERC)
- Flint Hills Res. Alaska v. FERC, 627 F.3d 881 (D.C. Cir. 2010) (precedent on FERC rate proceedings and jurisdictional context)
- Atlantic City Elec. Co. v. FERC, 295 F.3d 1 (D.C. Cir. 2002) (agencies have no authority beyond statute)
- Transm. Agency of N. Cal. v. FERC, 495 F.3d 663 (D.C. Cir. 2007) (FERC may consider nonregulated rates to the extent they affect regulated rates)
- Fed. Power Comm’n v. Texaco, Inc., 417 U.S. 380 (1974) (permitting indirect regulation of nonregulated entities to ensure just and reasonable rates)
- Texas v. E. Tex. R.R. Co., 258 U.S. 204 (1922) (intrastate commerce may be affected only incidentally to interstate regulation)