Bp West Coast Products, LLC v. F.E.R.C.
| Decision Date | 20 July 2004 |
| Docket Number | No. 02-1321.,No. 02-1008.,No. 01-1413.,No. 00-1221.,No. 99-1020.,No. 02-1011.,No. 01-1453.,No. 00-1240.,No. 01-1475.,No. 00-1256.,No. 99-1051.,No. 01-1469.,99-1020.,99-1051.,00-1221.,00-1240.,00-1256.,01-1413.,01-1453.,01-1469.,01-1475.,02-1008.,02-1011.,02-1321. |
| Citation | 374 F.3d 1263 |
| Parties | BP WEST COAST PRODUCTS, LLC, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION and United States of America, Respondents. SFPP, L.P., et al., Intervenors. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Steven H. Brose argued the cause for petitioner SFPP, L.P. With him on the briefs were Timothy M. Walsh, Daniel J. Poynor, Alice E. Loughran, Albert S. Tabor, Jr., and Charles F. Caldwell.
Thomas J. Eastment, Joshua B. Frank, Michael J. Manning, and Glenn S. Benson were on the briefs for East Line Shippers on Cost Allocation Issues.
Thomas J. Eastment argued the cause for petitioners and intervenors supporting petitioners on Rate and Reparations Issues. With him on the briefs were Joshua B. Frank, Michael J. Manning, Glenn S. Benson, George L. Weber, R. Gordon Gooch, Elisabeth R. Myers, Richard E Power, Jr., Steven A. Adducci, and Marcus W. Sisk, Jr.
Dennis Lane, Solicitor, Federal Energy Regulatory Commission, and Lona T. Perry, Attorney, argued the causes for respondents. With them on the brief were Robert H. Pate III, Assistant Attorney General, U.S. Department of Justice, John J. Powers, III and Robert J. Wiggers, Attorneys, Cynthia A. Marlette, General Counsel, Federal Energy Regulatory Commission. Jay L. Witkin, Solicitor, and Susan J. Court, Special Counsel, entered appearances.
Thomas J. Eastment argued the cause for Shipper intervenors in support of respondents. With him on the briefs were Joshua B. Frank, Michael J. Manning, Glenn S. Benson, George L. Weber, R. Gordon Gooch, Elisabeth R. Myers, Richard E. Powers, Jr., Steven A. Adducci, and Marcus W. Sisk, Jr.
Steven H. Brose, Timothy M. Walsh, Daniel J. Poynor, Alice E. Loughran, Albert S. Tabor, Jr. and Charles F. Caldwell were on the brief of SFPP, L.P. as intervenor in support of respondents.
Before: SENTELLE, ROGERS, and ROBERTS, Circuit Judges.
Opinion for the Court filed PER CURIAM.
The consolidated petitions before us seek review of four opinions of the Federal Energy Regulatory Commission ("FERC" or "the Commission"):
1. SFPP, L.P., Opinion No. 435, 86 FERC ¶ 61,022, 1999 WL 12216 (1999) ("Opinion No. 435");
2. SFPP, L.P., Opinion No. 435-A, 91 FERC ¶ 61,135, 2000 WL 640584 (2000) ("Opinion No. 435-A");
3. SFPP, L.P., Opinion No. 435-B, 96 FERC ¶ 61,281, 2001 WL 34076552 (2000) ("Opinion No. 435-B"); and
4. SFPP, L.P., 97 FERC ¶ 61,138, 2001 WL 1379466 (2001) ("Clarification and Rehearing Order").
In these opinions FERC considered the tariffs of SFPP, L.P., and complaints and other filings by shipper customers of SFPP. SFPP, L.P., both a petitioner and an intervenor-respondent in the consolidated dockets, operates pipelines that transport petroleum products in Texas, New Mexico, Arizona, California, Nevada, and Oregon. SFPP's operation includes a West Line and an East Line. The West Line consists of pipelines extending from Watson Station in Los Angeles, California, into Arizona to Phoenix and Tucson, and connects at Colton, California, with another pipeline system extending to Las Vegas. SFPP's East Line consists of pipelines from El Paso, Texas to Tucson and Phoenix. The orders under review consider, set, and otherwise govern rates on both lines. We consider three separate sets of petitions: the petition of SFPP, L.P.; the petition of the West Line Shippers ("WLS"); and the petition of the East Line Shippers ("ELS"). Petitioners and Intervenors include the following: BP West Coast Products LLC ("BP WCP"; formerly ARCO Products Company); Chevron Products Company ("Chevron"; including the former Texaco Refining and Marketing, Inc.); ConocoPhillips Company ("ConocoPhillips"); ExxonMobil Oil Corporation ("ExxonMobil"; formerly Mobil Oil Corporation); Navajo Refining Company, L.P. ("Navajo"); Western Refining Company, L.P. ("Western"); Ultramar Inc. ("Ultramar"); Valero Energy Corporation ("VEC"); Valero Marketing and Supply Company ("Valero"); and SFPP, L.P. ("SFPP").
The administrative proceedings before FERC began with tariff filings by SFPP for both East and West Lines. The lengthy, complex, and convoluted proceedings that followed included complaints and/or protests filed by shippers on the two lines, as well as investigation into SFPP's tariff filings by FERC's Oil Pipeline Board. The issues are further complicated by novelty in that this is the first oil pipeline case in which the "changed circumstances" standard of the Energy Policy Act of 1992 ("EPAct") has arisen for litigation. Energy Policy Act of 1992, Pub. L. No. 102-486, 106 Stat. 2776 (codified as 42 U.S.C. §§ 1320-556 (2003)). While we will not detail the administrative proceedings before FERC's administrative law judge and the full Commission as we discuss them at length in the analyses that follow, we note that issues presented for review include, among other things, the important question of application of the grandfathering principle under the new EPAct, the allocation of litigation costs between the East and West Lines, tax pass-through problems involving non-taxed subsidiaries of taxable entities, the payment of reparations after a finding of unjust or unreasonable rates, and the correct determination of capital structure to determine a starting rate base. The reader is duly warned.
For reasons set forth more fully below, we are able to affirm many of FERC's answers to specific issues, but because we find error in several fundamental areas, we order the decisions under review vacated and remand the matter for further proceedings consistent with this opinion.
Section 1803 of the EPAct limits the ability of shippers to challenge pipeline rates in effect at the time of the enactment of the EPAct. Section 1803 provides that any oil pipeline rate that was "in effect" for a full year before the EPAct's enactment on October 24, 1992, and was not subject to "protest, investigation, or complaint" during that 365-day period, is "deemed to be just and reasonable." EPAct § 1803(a)(1). These "grandfathered" rates are categorically immune from challenge in a complaint proceeding under Section 13 of the Interstate Commerce Act ("ICA"), 49 U.S.C. app. § 13(1) (1988) (repealed),1 except when:
(1) evidence is presented to the Commission which establishes that a substantial change has occurred after the date of the enactment of this Act —
(A) in the economic circumstances of the oil pipeline which were a basis for the rate; or
(B) in the nature of the services provided which were a basis for the rate; or
(2) the person filing the complaint was under a contractual prohibition against the filing of a complaint which was in effect on the date of enactment of this Act....
Id. § 1803(b). In the post-EPAct world, the analysis of a pipeline rate challenge thus proceeds in two steps: first, FERC determines whether the rate in question is grandfathered; if it is, FERC then asks whether the rate falls within either of the exceptions outlined in Section 1803(b). The Commission may not alter a grandfathered rate that does not fall within an exception.
The WLS contend that none of the West Line rates are grandfathered, and further argue that even if the rates are grandfathered, their challenges fall within the exceptions set out in Section 1803(b). We examine each of these contentions in turn.
To be eligible for grandfathering, a pipeline rate must have been "in effect for the 365-day period ending on the date of the enactment of this Act [October 24, 1992]." EPAct § 1803(a)(1). Thus, to be grandfathered, a rate must have been "in effect" on October 25, 1991, and have remained in effect at least until the enactment of the EPAct.
The WLS do not contest this element with regard to the bulk of the West Line rates. Nor could they; the West Line rates became effective in 1989 pursuant to a settlement terminating a 1985 rate proceeding. See Opinion No. 435, 86 FERC at 61,057; Southern Pac. Pipe Lines, Inc., 45 FERC ¶ 61,242, 1988 WL 246514 (1988) (order approving settlement). The WLS do, however, challenge the eligibility for grandfathering of certain improvements to the West Line made after October 1991.
In July 1992, SFPP made revisions to its Tariffs Nos. 15, 16, and 17 to add a new origination point on its West Line — the East Hynes station in Los Angeles County, California — and to add a rate for shipping services from that new origination point to Arizona. The rate came into effect in October 1992. The rate, however, was not new; it was the same as the rates from SFPP's two other source points in the Los Angeles area. Examining this situation, the Commission concluded that the rates from the East Hynes station qualified for grandfathering because the July 1992 "filing did not involve a change to a rate or service SFPP was providing at the time the EPAct was enacted." Opinion No. 435, 86 FERC at 61,063. SFPP's revision to its tariffs Id.
The question essentially boils down to the Commission's interpretation of the term "rate" in Section 1803. As...
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