Iowa State Commerce Com'n v. Office of Federal Inspector of Alaska Natural Gas Transp. System

• Decision Date: 06 April 1984
• Docket Number: No. 83-2156,83-2156
• Citation: 730 F.2d 1566
• Parties: IOWA STATE COMMERCE COMMISSION, Petitioner v. OFFICE OF the FEDERAL INSPECTOR OF the ALASKA NATURAL GAS TRANSPORTATION SYSTEM and United States of America, Respondents, Northern Border Pipeline Company, Intervenor.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1566

730 F.2d 1566

235 U.S.App.D.C. 136

IOWA STATE COMMERCE COMMISSION, Petitioner v. OFFICE OF the FEDERAL INSPECTOR OF the ALASKA NATURAL GAS TRANSPORTATION SYSTEM and United States of America, Respondents Northern Border Pipeline Company, Intervenor.

No. 83-2156.

United States Court of Appeals District of Columbia Circuit.

Argued Jan. 25, 1984.

Judgement Filed Feb. 1, 1984.

Opinion Filed April 6, 1984.

Petition for Review of an Order of the Office of the Federal Inspector of the Alaska Natural Gas Transportation System.

Diane L. McIntire, Washington, D.C., for petitioner.

Rhodell G. Fields, Acting Gen. Counsel, Washington, D.C., Office of the Federal Inspector of the Alaska Natural Gas Transp. System, et al., for respondents.

Ronald Johnson, Washington, D.C., with whom Rush Moody, Jr. and William J. Grealis, Washington, D.C., were on the brief, for intervenor.

Before WALD and MIKVA, Circuit Judges, and VAN DUSEN, ^* Senior Circuit

Judge for the United States Court of Appeals for the Third Circuit.

Opinion for the Court filed by Circuit Judge WALD.

Dissenting opinion filed by Circuit Judge MIKVA.

WALD, Circuit Judge:

Petitioner, the Iowa State Commerce Commission (ISCC), seeks review of two final orders of the Office of the Federal Inspector (OFI) of the Alaska Natural Gas Transportation System (ANGTS) concerning inclusion of expenditures in the rate base of Northern Border Pipeline Co., the operator of the eastern leg of ANGTS. Specifically, ISCC challenges that part of OFI's final rate base determination which included profit realized by Northern Engineering International Co. (NEICO) as part of project management costs paid by Northern Border. ISCC also challenges the OFI denial of a rehearing on the same issue. As grounds for its challenges, ISCC alleges that (1) the OFI denied it an evidentiary hearing to which it was entitled under the Natural Gas Act, 15 U.S.C. Sec. 717c (1982), (2) the OFI decision was unsupported by substantial evidence, and (3) the OFI failed to enter findings and conclusions on all material issues of fact and law in contravention of the Administrative Procedures Act, 5 U.S.C. Sec. 557(c)(A) (1982).

Because we find that our review of the OFI orders is governed by section 10 of the Alaska Natural Gas Transportation Act (ANGTA), 15 U.S.C. Sec. 719h (1982), the scope of that review is severely limited: We may only consider whether the OFI orders denied ISCC's constitutional rights, or were "in excess of statutory jurisdiction, authority, or limitations, or short of statutory right." 15 U.S.C. Sec. 719h(b)(2) (1982). Under this standard of review, we affirm the OFI's orders.

I. BACKGROUND

This controversy is over an OFI determination of Northern Border's rate base for the eastern leg of the ANGTS. ¹ This determination will later be used by FERC in deciding whether Northern Border's filed rate tariffs are "just and reasonable." 15 U.S.C. Sec. 717c (1982); see also, e.g., Northern Border Pipeline Co., Docket No. CP 78-124-008 (Dec. 30, 1983) (Order Accepting for Filing and Suspending Proposed Tariff Sheets, Subject to Refund and Conditions, and Granting Waiver). In setting the rate base OFI proceeded according to its "Statement of Policy on General Standards and Procedures for Rate Base Audit and Approval for the Alaska Natural Gas Transportation System." 46 Fed.Reg. 51726 (1981) [hereinafter cited as Policy Statement]. The Policy Statement says that "OFI will establish procedures [for rate base determinations] which comport with both the mandate for expedition (under section 9 of [ANGTA] ...) and also basic principles of procedural fairness (under the Natural Gas Act and other relevant authority)." 46 Fed.Reg. 51728 (1981) (footnotes omitted). The Policy Statement also explains that, since OFI exercises more direct planning and construction oversight as to ANGTA than FERC ordinarily does as to its licensees, OFI will therefore be familiar with the cost pipeline operators incur, and "most disputes [will] be resolvable on the basis of pleadings alone." Id. The Policy Statement goes on to provide a three-step proceeding for the rate base determination: (1) The Director of OFI's Audit and Cost Analysis will issue a tentative determination based on quarterly audit and management systems assessment reports, informal comments by the sponsor companies, and internal comments by the OFI staff; (2) the tentative decision will be publicly noticed, and all interested parties given an opportunity to comment on it. A protesting party will be required to (i) state clearly its position and specify any errors of material fact or law; (ii) file a brief supporting statement of its position; and (iii) provide sworn affidavits substantiating any counter-statements of material fact; (3) under ordinary circumstances, the Federal Inspector will render a final determination on this record. If the Federal Inspector finds that extenuating circumstances warrant additional information, he may call for further documentation, and even hearings on the record.

The Tentative Rate Base Determination regarding Northern Border Pipeline Company's costs during the period January 1, 1980, through March 31, 1982, was issued December 3, 1982. Letter from J. Richard Beuman, Director, Office of Audit and Cost Analysis, OFI, to John T. Rhett, Federal Inspector [hereinafter cited as Tentative Determination], Joint Appendix at 315-26 [hereinafter cited as J.A.]. It recommended inclusion in the rate base of all payments made to NEICO for project management services (including NEICO's profit). Tentative Determination, J.A. at 317-23. NEICO is a wholly-owned subsidiary of InterNorth, as is Northern Plains Natural Gas Company (Northern Plains), which owns 22.75% of Northern Border. In addition, Northern Plains is the managing partner of Northern Border, and its directorate is interlocking with those of both InterNorth and NEICO. Noting these facts, the Tentative Determination explained its conclusion that NEICO did not "control" Northern Border, and therefore that the "no profits to affiliates" rule of FERC, which usually prevents profits from being allowed for ratemaking purposes when services are rendered by companies in a control relationship with the applicant, did not apply in this case. It further explained that, under a market test the profits paid to NEICO were reasonable. Id. The ISCC filed comments disagreeing with the Tentative Determination's treatment of NEICO profits. These comments focused on the finding of "no control" and on the proper reading of precedent regarding the reasonableness of profits included in a rate base. Approximately six months later, the Federal Inspector issued his Final Determination affirming the Tentative Determination. Final Determination Approving in Part and Disallowing in Part Expenditures Claimed for Inclusion in Rate Base by Northern Border Pipeline Co. [hereinafter cited as Final Determination], J.A. at 356. The Final Determination responded to ISCC's comments by noting that ISCC had alleged no basic facts contrary to those considered in making the Tentative Determination. It concluded that the Tentative Determination had been correct in finding

that [Northern Border] and NEICO are not affiliated companies; that NEICO's profit should be judged on the basis of a market test; that the tests employed by the Director were adequate; and that payments under the contract ... should be considered reasonable.

J.A. at 361.

ISCC applied for a rehearing, claiming that the OFI's Final Determination was legally faulty because it failed to: (1) disclose the basis and reasons for its results in findings of fact and conclusions of law; (2) apply or distinguish existing precedent; (3) support its conclusion by substantial evidence; and (4) accord interested parties an opportunity to dispute material inferences of fact underlying the Determination. The Federal Inspector denied ISCC's application for rehearing. He found that "contentions 2 and 3 [were] totally untenable and warrant[ed] no further response." Denial of Rehearing, J.A. at 372. He also found that ISCC raised no genuine issue of material fact about the NEICO contract--that the only issue raised was purely "a question of law." Id. J.A. at 373. Finally, the Federal Inspector was satisfied that the Final Determination had taken "a hard look at the issue" raised by ISCC as required by this court in Greater Boston Television Corp. v. Federal Communications Commission, 444 F.2d 841 (D.C.Cir.1970), cert. denied, 403 U.S. 923, 91 S.Ct. 2233, 29 L.Ed.2d 701 (1971). Id. After denial of its request for a rehearing, the ISCC filed its petition for review in this Court.

II. STANDARD OF REVIEW FOR RATE BASE DETERMINATIONS UNDER ANGTA

Before proceeding to the merits of ISCC's claims, we must determine the standard under which we will review the OFI Final Determination and Denial of Rehearing. In particular, if the rate base determination comes within agency action reviewable under section 10 of ANGTA, the scope of our review is severely restricted to issues of constitutionality, jurisdiction, and denial of statutory rights. See 15 U.S.C. Sec. 719h(b)(2) (1982). ²

Two kinds of agency action are reviewable under section 10. First, section 10 "provides the exclusive avenue of judicial review for actions taken pursuant to section 9 of the Act." See 15 U.S.C. Sec. 719h(a) (1982). Section 9 actions include any "certificate, right-of-way, permit, lease or other authorization" that is required for "action which is necessary or related to the construction and initial operation of [ANGTS]." Second, enforcement of any "statutes ..., regulations ... [or] terms, conditions and stipulations of grants, certificates, permits, and other authorizations issued by Federal agencies with respect to pre-construction, construction and initial operation" of ANGTS "constitutes 'action' for purposes of Section 10." Sections 102, 201(a) of Reorganization Plan ...