OXY USA, Inc. v. F.E.R.C., s. 94-1061
| Decision Date | 02 November 1995 |
| Docket Number | 94-1132,94-1402,94-1466,Nos. 94-1061,94-1430,94-1476 and 94-1487,s. 94-1061 |
| Parties | , Util. L. Rep. P 14,063 OXY USA, INC., Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Amerada Hess Pipeline Corporation, BP Pipelines (Alaska) Inc., Exxon Pipeline Company, Mobil Alaska Pipeline Company, Phillips Alaska Pipeline Corporation, Unocal Pipeline Company, State of Alaska, ARCO Alaska, Inc., ARCO Transportation, Alaska, Inc., MAPCO Alaska Petroleum, Inc., BP Exploration (Alaska), Inc., Tesoro Alaska Petroleum Company, Petro Star, Inc., and Exxon Company, U.S.A., Intervenors. District of Columbia Circuit |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Eugene R. Elrod and Stephen S. Hill argued the cause and were on the joint briefs for Exxon Co., U.S.A., petitioner in No. 94-1402 and intervenor in No. 94-1061.
John W. Griggs argued the cause and filed the briefs for OXY USA, Inc., petitioner in No. 94-1061 and intervenor in No. 94-1132.
Bradford G. Keithley, with whom Carolyn Y. Thompson was on the briefs, argued the cause for BP Exploration (Alaska), Inc., petitioner in No. 94-1132 and intervenor in No. 94-1061.
Randolph L. Jones Jr. argued the cause and was on the joint briefs for MAPCO Alaska Petroleum, Inc., petitioner in No. 94-1430 and intervenor in Nos. 94-1061 and 94-1132.
W. Stephen Smith argued the cause and was on the joint briefs for State of Alaska, petitioner in No. 94-1487 and intervenor in No. 94-1061.
Robert H. Benna and Jeffrey G. DiSciullo were on the joint briefs for Tesoro Alaska Petroleum Co., petitioner in No. 94-1466 and intervenor in No. 94-1061. James C. Reed and David S. Berman entered appearances for Tesoro Alaska Petroleum Co.
O. Yale Lewis and Richard A. Curtain were on the joint briefs for Petro Star, Inc., petitioner in No. 94-1476 and intervenor in Nos. 94-1061 and 94-1132.
Samuel Soopper, Federal Energy Regulatory Com'n ("FERC"), with whom Jerome M. Feit, Sol., Joseph S. Davies, Deputy Sol., and Edward Geldermann, Atty., FERC, and Anne K. Bingaman, Asst. Atty. Gen., and John J. Powers III, and Robert J. Wiggers, Attys., U.S. Dept. of Justice, were on the brief, argued the cause for respondents.
Matthew W.S. Estes, with whom Clifford M. Naeve was on the brief, argued the cause for intervenor ARCO Alaska, Inc.
Steven H. Brose and Steven Reed were on the brief for intervenor ARCO Transp., Alaska, Inc.
John E. Kennedy and Albert S. Tabor Jr. were on the brief for intervenors Amerada Hess Pipeline Corp., et al.
Before BUCKLEY, WILLIAMS and SENTELLE, Circuit Judges.
Opinion for the court filed by Circuit Judge BUCKLEY.
The Trans Alaska Pipeline System ("TAPS") provides the sole means of shipping petroleum produced from the North Slope of Alaska south to the Port of Valdez, Alaska. Because there are multiple shippers and only a single pipeline, TAPS commingles the various shippers' petroleum. Necessity dictates that TAPS return to shippers a portion of that "common stream" at Valdez, regardless of whether their contributions were more or less valuable than the resulting mixture. The TAPS "Quality Bank" is an accounting arrangement approved by the Federal Energy Regulatory Commission ("FERC" or "Commission") that makes monetary adjustments between shippers in an attempt to place each in the same economic position it would enjoy if it received the same petroleum at Valdez that it delivered to TAPS on the North Slope. To accomplish this, the Quality Bank charges shippers of relatively low-quality petroleum who benefit from commingling and distributes the proceeds to shippers of higher quality petroleum whose product is degraded by commingling.
While the concept is simple enough, the devil is in the details: it is difficult to determine which contributions improve or degrade the value of the common stream, and to what extent. The operators of the pipeline must employ a method of estimating the value of various contributions to the common stream and for determining the relative values of the petroleum products delivered at Valdez. This methodology, which the Commission must approve pursuant to its authority under the Interstate Commerce Act ("ICA"), 49 U.S.C.App. Secs. 1 et seq. (1988); see also 42 U.S.C. Sec. 7172(b) (1988) (); Exxon Pipeline Co. v. United States, 725 F.2d 1467, 1468 n. 1 (D.C.Cir.1984) (), is embodied in tariffs filed by the owners of TAPS ("TAPS Carriers").
In 1993, FERC determined that due to changed circumstances the existing Quality Bank valuation methodology was no longer just and reasonable; and it consequently ordered a new one to be implemented. Trans Alaska Pipeline System, 65 F.E.R.C. p 61,277 (1993) ("1993 Order "). Various shippers filed petitions for review, claiming that aspects of the new methodology violated substantive provisions of law or were arbitrary and capricious and thus violated the Administrative Procedure Act ("APA"), 5 U.S.C. Sec. 706(2)(A) (1994). We consolidated these petitions and now grant them in part and deny them in part. We find that the Commission was justified in ordering a change in the Quality Bank valuation methodology and in declining to order certain refunds. We also find, however, that two aspects of the new methodology and the Commission's claim that it lacked jurisdiction to consider one shipper's complaint do not comport with the APA's requirement of reasoned decisionmaking.
TAPS is a 48-inch diameter pipeline that extends nearly 800 miles from its origin on Alaska's North Slope near Prudhoe Bay to its terminus at Valdez on Alaska's south central coast. The pipeline is jointly owned by seven TAPS Carriers. Affiliates of some of the TAPS Carriers constitute a subset of the group of companies that ship petroleum through the line. TAPS carries a mixture of crude oils and natural gas liquids ("NGLs") from a series of North Slope oil fields. The Quality Bank makes monetary adjustments among the shippers to compensate for the commingling of differing qualities of crude oil.
The Quality Bank operates at three locations. At Pump Station No. 1, located at the Prudhoe Bay origin of the pipeline, the Bank values the petroleum streams delivered to TAPS by the various shippers. It charges some shippers and makes payments to others based on the difference in value between their individual contributions and the weighted average of all incoming streams. More than 400 miles south of Prudhoe Bay, at the junction of TAPS and the Golden Valley Electric Association pipeline ("GVEA") near Fairbanks, refineries operated by petitioners MAPCO Alaska Petroleum, Inc. ("MAPCO") and Petro Star, Inc. ("Petro Star") divert a portion of the common stream and remove certain petroleum products from it. That portion of the common stream less the products removed, known as the refinery "return stream," is then returned to TAPS. At GVEA, the Quality Bank compares the value of the diverted portion of the common stream to that of the return stream, charging the refiners and compensating other shippers for the reduction in the common stream's value caused by the removal of the refinery products. Finally, at the Port of Valdez, TAPS returns the common stream to the shippers in amounts proportionate to the quantity of petroleum they originally delivered to the pipeline. Because there are minor daily fluctuations in the value of the petroleum delivered at Valdez, the Quality Bank makes price adjustments based on the difference in value between the petroleum received by a shipper on a given day and the average value of the common stream at Valdez over the course of the month. Thus shippers who receive a tanker-full of oil of a higher-than-average quality will make a payment to the Quality Bank so that it may in turn compensate those who receive oil of a lower-than-average value.
In 1984, following years of litigation between the TAPS Carriers and MAPCO over the valuation methodology used by the Quality Bank, FERC approved a settlement between the parties that embodied a notably simple approach. Trans Alaska Pipeline System, 29 F.E.R.C. p 61,123 (1984) ("1984 Order" ). Because lighter, high gravity crude oil (as gravity is measured on the American Petroleum Institute ("API") scale) is generally more valuable than a heavier, low gravity crude, the settlement proposed to equate the gravity of the petroleum with its value: contributors of petroleum having a gravity higher than that of the TAPS common stream would receive payments from the Quality Bank while contributors of petroleum having a gravity lower than that of the stream would make payments to the Bank. Under this system, known as the "intra-field gravity differential" methodology, the amounts of these payments were calculated using the adjustments to the posted prices for variations in gravity appearing in the postings for a number of Texas and California crude oils having a range of gravity that includes the average API gravity of the TAPS commingled stream. Id. at 61,239.
Tesoro Alaska Petroleum Co. ("Tesoro"), a TAPS shipper, contested the settlement on the ground that the gravity of petroleum is an inaccurate measure of its value. Tesoro favored a "distillation" methodology that would value the petroleum based on the boiling point of various hydrocarbons in the streams. Id. In approving the settlement over Tesoro's objection, FERC conceded that there is no perfect valuation methodology and that other approaches might produce more accurate measurements than the one proposed by the settlement. Nevertheless, the Commission found that the proposed gravity method passed the threshold test of being "just and reasonable." Id. The Commission noted that Tesoro or any other...
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