Amerada Hess Pipeline Corp. v. F.E.R.C.

• Decision Date: 15 September 1997
• Docket Number: 96-1153 and 96-1267,Nos. 95-1305,s. 95-1305
• Citation: 117 F.3d 596
• Parties: , 137 Oil & Gas Rep. 463, 27 Envtl. L. Rep. 21,475 AMERADA HESS PIPELINE CORPORATION, et al., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, MAPCO Alaska Petroleum Inc., et al., Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 596

117 F.3d 596

326 U.S.App.D.C. 42, 137 Oil & Gas Rep. 463,

27 Envtl. L. Rep. 21,475

AMERADA HESS PIPELINE CORPORATION, et al., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent MAPCO Alaska Petroleum Inc., et al., Intervenors.

Nos. 95-1305, 96-1153 and 96-1267.

United States Court of Appeals District of Columbia Circuit.

Argued Jan. 31, 1997.

Decided July 8, 1997.

Rehearing Denied Sept. 15, 1997.

On Petitions for Review of Orders of the Federal Energy Regulatory Commission.

Steven Reed and Eugene R. Elrod, Washington, DC, argued the cause, for petitioners TAPS Carriers, with whom Steven H. Brose, Washington, DC, Albert S. Tabor, Jr., Houston, TX, and John E. Kennedy were on the joint briefs. Dean H. Lefler, Houston, TX, entered an appearance.

Samuel Soopper, Attorney, Federal Energy Regulatory Commission, Mount Rainier, MD, argued the cause, for respondent, with whom Jerome M. Feit, Washington, DC, Solicitor at the time the brief was filed, Joseph S. Davies, Deputy Solicitor, Bethesda, MD, Joel I. Klein, Acting Assistant Attorney General, United States Department of Justice, Washington, DC, John J. Powers, III, Washington, DC and Robert J. Wiggers, Attorneys, were on the brief. Janet K. Jones, Attorney, Federal Energy Regulatory Commission, entered an appearance.

Robert H. Loeffler, Washington, DC, argued the cause, for intervenor State of Alaska, with whom Jonathan Band, Bryan A. Schwartz, Bradley S. Lui, Washington, DC and John P. Griffin were on the brief. David S. Berman, James C. Reed, Jeffrey G. DiSciullo, Washington, DC, Robert H. Benna, Washington, DC and Randolph L. Jones, Jr., entered appearances.

Before WILLIAMS, SENTELLE, and ROGERS, Circuit Judges.

SENTELLE, Circuit Judge:

A group of oil pipeline carriers petitions for review of a decision of the Federal Energy Regulatory Commission ("FERC" or the "Commission"). The decision rejected a filing by the carriers seeking a rate increase because of the inclusion of litigation and settlement costs in the carriers' tariffs. Tariff rates for the carriers are governed by a settlement agreement between the carriers and the State of Alaska. FERC determined that litigation and settlement costs incurred by the carriers in connection with the Exxon Valdez oil spill were "extraordinary expenses" within the meaning of the settlement agreement, and determined that the terms of the settlement prohibited recovery of "extraordinary expenses" as part of the carrier's tariffs. We defer to the Commission's determination as to the extraordinary nature of the litigation and settlement costs and as to the meaning of the settlement agreement. Accordingly, the petitions for review are denied.

I.

In March of 1989, the Exxon Valdez oil tanker ran aground in Prince William Sound, Alaska, spilling almost eleven million gallons of petroleum into the waters of the Sound. Pursuant to federal and state right-of-way agreements, Alyeska Pipeline Service Company ("Alyeska") assumed initial responsibility for clean-up of the spill. Alyeska operates the Trans Alaska Pipeline System ("TAPS"), a petroleum pipeline that runs from Prudhoe Bay to Valdez, Alaska. Alyeska is jointly owned by the petitioners, otherwise known as the TAPS Carriers, who also jointly own TAPS. Although Exxon reimbursed Alyeska for costs associated with the clean-up, Alyeska incurred additional costs settling claims against it related to the spill. Under the terms of the settlement, Alyeska paid $98 million to private parties. Alyeska's litigation costs totaled approximately $19 million. Each of the TAPS Carriers paid a proportional share of the settlement and, in December 1993, filed tariff rates that included the litigation and settlement costs. Because the tariff increase would reduce the amount of money the State of Alaska earns in royalties and taxes, the State filed a protest to the TAPS Carriers' new tariffs. The State argued that the litigation and settlement costs were not properly included in the Carriers' rates. Tariff rates for the Carriers are set pursuant to a formula laid out in the TAPS Settlement Agreement, a 1985 agreement between the State of Alaska and the TAPS Carriers which was approved by FERC. Trans Alaska Pipeline Sys., 33 F.E.R.C. p 61,064 (1985); Trans Alaska Pipeline Sys., 35 F.E.R.C. p 61,425 (1986). The Settlement Agreement provides that the "maximum interstate tariff shall be calculated by dividing the relevant portion of the Total Revenue Requirement for a year by the net deliveries of petroleum projected for that particular type of transportation for that year." The State challenged the Carriers' definition of one component of the Total Revenue Requirement, "Operating Expenses."

"Operating Expenses" are defined by Section II-3 of the TAPS Settlement Agreement to be "those expenses includable in Account 610." References in the Settlement Agreement to specific accounts, such as Account 610, are to the FERC Uniform System of Accounts ("USOA") applicable to oil pipelines, 18 C.F.R. pt. 352 (1996). The USOA states that Account 610 is the omnibus account for "Operating expenses." Id. (Income Accounts). The State argued that the litigation and settlement costs should have been recorded under Account 680, which is used for "Extraordinary items." Id. Extraordinary items are those "characterized by both their unusual nature and infrequent occurrence taking into account the environment in which the firm operates; they must also meet the materiality standard." Id. (General Instruction 1-6(a)).

In April 1995, the Commission agreed and determined that litigation and settlement costs related to the Exxon Valdez were unusual, infrequent, and material, and so were properly recorded in Account 680. The Commission then held in March 1996 that the TAPS Settlement Agreement does not permit recovery of Account 680 expenses in the Carriers' tariffs. This petition, which challenges both the April 1995 and the March 1996 orders, followed.

II.

We consider first the issue raised by the April 1995 order, that is, whether the litigation and settlement expenses were properly recorded in Account 680. As a preliminary matter, we must determine the appropriate standard of review of the Commission's interpretation of the USOA. Ordinarily, an agency's interpretation of its own regulations is entitled to considerable deference. Udall v. Tallman, 380 U.S. 1, 16, 85 S.Ct. 792, 801, 13 L.Ed.2d 616 (1965); Bluestone Energy Design, Inc. v. FERC, 74 F.3d 1288, 1292 (D.C.Cir.1996). We give effect to the agency's interpretation "so long as it is 'reasonable.' " Martin v. OSHRC, 499 U.S. 144, 150, 111 S.Ct. 1171, 1176, 113 L.Ed.2d 117 (1991) (quoting Ehlert v. United States, 402 U.S. 99, 91 S.Ct. 1319, 28 L.Ed.2d 625 (1971)). The Carriers argue that deference is not appropriate in this case because the USOA regulations were promulgated by the Interstate Commerce Commission ("ICC") before the ICC's authority over oil pipelines was transferred to FERC. The Carriers assert that because FERC did not promulgate the accounting regulations, it has no special expertise to bring to bear on the question.

We generally do not accord deference to an agency's interpretation of regulations promulgated by another agency that retains authority to administer the regulations. See United States Dept. of the Air Force v. FLRA, 952 F.2d 446, 450 (D.C.Cir.1991); National Treasury Employees Union v. FLRA, 848 F.2d 1273, 1275 (D.C.Cir.1988). In this case, however, jurisdiction over oil pipelines was transferred from the ICC to FERC by the Department of Energy Organization Act ("DOE Act"), Pub.L. No. 95-91, § 402(b), 91 Stat. 565, 584 (1977), codified at 42 U.S.C. § 7172(b) (1988) (repealed 1994), recodified as amended at 49 U.S.C. § 60502 (1996), and Exec. Order No. 12,009, 42 Fed.Reg. 46,267 (1977). The DOE Act provides that rules and regulations relating to functions transferred to FERC would remain in effect until modified by FERC. FERC subsequently ordered that rules and regulations relating to its jurisdiction over oil pipelines would remain in effect until modified. 42 Fed.Reg. 55,450. FERC, therefore, adopted the rules and regulations of the ICC and stands in precisely the same position as the predecessor agency with regard to the transferred functions. There is no danger that the Court will be presented with a conflicting interpretation by the promulgating agency. Moreover, we reject the argument that FERC does not have an expertise in the area merely because it did not promulgate the regulations; FERC is entrusted with administering the regulations relating to oil pipelines and has an expertise in the field based on that jurisdiction. We note also that deference is not accorded to agency interpretations merely because they possess a special expertise. Courts defer to agency interpretations in large part because Congress has chosen to delegate to the agency decisionmaking in the field. See Chevron U.S.A. Inc. v. Natural Resources Defense Council, 467 U.S. 837, 865-66, 104 S.Ct. 2778, 2792-93, 81 L.Ed.2d 694 (1984). We therefore regard FERC's interpretation of the regulations with the same level of deference accorded to the ICC prior to the transfer of authority.

The Carriers also argue that deference to FERC is not appropriate because the USOA General Instructions are modeled after, and virtually identical to, the accounting standards enunciated in Accounting Principles Board Opinion No. 30 (APB-30). The General Instructions specifically state that Carriers "may refer to generally accepted accounting principles." 18 C.F.R. pt. 352 (General Instruction 1-6, Note). Generally accepted accounting principles, or "GAAP," are standards adopted by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants. The Commission acknowledges that "[t]he USOA relies to some extent on ... (GAAP), which may provide" interpretive guidance to the Commission's accounting...