United Gas Pipe Line Company v. Federal Energy Regulatory Commission , 707 F.2d 1507 ( 1983 )

Opinion for the court filed by Circuit Judge GINSBURG.

Dissenting opinion filed by Circuit Judge WILKEY.

GINSBURG, Circuit Judge:

United Gas Pipe Line Company (United), in its March 31, 1982, rate change filing with the Federal Energy Regulatory Commission (FERC),¹ included a “tracker” designed to apply to all of United’s transportation costs and revenues. The proposed tracker, which would yield automatic, semiannual rate adjustments, concededly contravened a longstanding rate regulation policy currently stated in an explicit FERC regulation.² FERC refused to waive the regulation and consequently rejected the portion of the filing providing for the all-inclusive transportation tracker. The Commission recognized, however, that the time was ripe for fresh consideration of a tracker system for transportation costs and revenues.³ It therefore stated that rejection of the filing was “without prejudice” to United’s demonstration at the scheduled rate hearing that a transportation tracker should be adopted prospectively.

United’s petition for review urges that FERC acted arbitrarily and abused its discretion when it denied the waiver and rejected the tracker. For the reasons stated below, we hold that the Commission exercised its discretion in a permissible, rational manner. We therefore have no warrant to disturb the course FERC is pursuing. Accordingly, we affirm the challenged Commission orders.

I. Background

On March 31, 1982, United filed with FERC, pursuant to section 4 of the Natural Gas Act,⁴ a rate increase request. The primary reason for the filing, United stated, was “to reflect the impact of deliveries through the Northern Border Pipeline Company (Northern Border) system on United’s costs ... and revenues.” Joint Appendix (J.A.) 2. Because United’s transportation costs have increased significantly in recent years and resist accurate prediction,⁵ United proposed automatic, semi-annual rate adjustments to reflect any increase or decrease in its transportation costs and revenues. This proposal ran directly counter to 18 C.F.R. § 154.38(d)(3), a FERC regulation excluding from tariffs “price adjustments or periodic changes ... which in any way purport[] to effect the modification or change of any rate or charge specified in [a] rate schedule.”⁶ United therefore invited FERC’s waiver of the regulation. Alternately, in the event FERC denied the requested waiver, United proposed a tracker limited to the transportation of gas by Northern Border, the eastern leg of the Alaska Natural Gas Transportation System. J.A. 4.

In support of its principal proposal, United presented figures showing that from 1977 to 1981, its transportation costs had quadrupled; in United’s March 31, 1982, filing, “the transportation cost component ... accounted] for approximately 71 percent of [all] operating and maintenance expenses exclusive of gas costs.” J.A. 10; see Brief of Petitioner 5. The proposed tracking mechanism, United asserted, “will assure that [it] neither overrecovers nor underrecovers these significant system costs.” J.A. 6.

On April 30, 1982, FERC accepted and suspended most of United’s filing, and ordered a public hearing concerning the lawfulness of the proposed rate increase. 19 FERC H 61,081 (1982); J.A. 13-20.⁷ The Commission permitted United to track Northern Border transportation charges based on an earlier opinion authorizing such limited tracking, Northwest Alaskan Pipeline Company, 11 FERC 161,088 (1980),⁸ but tersely declared that United “ha[d] not demonstrated good cause” for a broader, immediate waiver of the anti-tracking regulation. J.A. 16. The April 30, 1982, order noted, however, that FERC’s denial of the waiver and consequent rejection of the all-inclusive transportation tracker at the filing stage⁹ did not preclude any party from raising questions associated with this tracking mechanism in the scheduled hearing on the justness and reasonableness of United’s proposed rates. J.A. 16 n. 4; see Brief for Respondent 3.

In a July 1, 1982, order denying United’s rehearing application, 20 FERC 161,005 (1982); J.A. 29-32, FERC devoted several paragraphs to United’s charge, J.A. 23-27, that the Commission’s peremptory rejection of the unlimited transportation tracker furthered no sound regulatory policy and was therefore unlawful. First, FERC explained:

We have disallowed these types of trackers because a just and reasonable rate under the Natural Gas Act is based upon a review of all costs incurred by a pipeline during the period used to determine those costs. Trackers, however, modify automatically a pipeline’s rate to reflect a change in cost level of one item of cost. Thus, tracking an increase in cost level for one expense, e.g., transmission costs of pipeline suppliers, does not consider any changes in a pipeline’s other costs and revenues.

J.A. 30. FERC acknowledged that it had “excepted from the general prohibition against trackers” certain items of cost, including “purchased gas costs, research and development costs, and costs associated with the Louisiana First Use Tax.” But rulemaking procedures, the Commission pointed out, not individual tariff filings, had been the vehicle for implementing such permanent tracking provisions. J.A. 30.¹⁰ FERC also acknowledged that it had approved transportation trackers in rate settlement agreements, applicable for the life of the agreement, but the Commission distinguished these limited duration arrangements from trackers permanently featured in a pipeline’s tariffs. J.A. 30-31. Finally, FERC indicated again that United would have an opportunity in the scheduled rate hearing to demonstrate why an unlimited transportation tracker should be adopted on a prospective basis. J.A. 31.

II. Decision

We deal first with the threshold question in this appeal, whether FERC arbitrarily denied United’s request for a broad and immediate waiver of the Commission’s regulation prohibiting cost trackers in rate schedules. Next, we turn to the two subsidiary issues United’s petition presents: (1) whether, absent a threshold waiver, FERC abused its discretion in rejecting the unlimited transportation tracker proposed in United’s filing; and (2) whether FERC’s rejection of the proposed tracker at the filing stage, without prejudice to full airing of the matter at the section 4 rate hearing, constituted an indefinite suspension of a rate, in violation of the Natural Gas Act’s five-month suspension limit.¹¹

A. Waiver

Judicial review of an agency’s denial of a waiver application is tightly contained. See WAIT Radio v. FCC, 459 F.2d 1203, 1207 (D.C.Cir.), cert. denied, 409 U.S. 1027, 93 S.Ct. 461, 34 L.Ed.2d 321 (1972) (WAIT II); Sudbrink Broadcasting, Inc. v. FCC, 509 F.2d 418, 422 (D.C.Cir.1974). Challengers must show that the agency acted arbitrarily by failing to give “meaningful consideration” to the application. See WAIT Radio v. FCC, 418 F.2d 1153, 1159 (D.C.Cir.1969) (WAIT I). In WAIT I, this court elaborated:

The applicant for waiver must articulate a specific pleading, and adduce concrete support, preferably documentary. Even when an application complies with these rigorous requirements, the agency is not required to author an essay for the disposition of each application. It suffices, in the usual case, that we can discern the “why and wherefore.”

Id. at 1157 n. 9.

FERC’s initial denial of United’s waiver request, stating, without explanation, that United “ha[d] not demonstrated good cause,” J.A. 16, was inadequate to indicate the “why and wherefore.” In denying United’s rehearing application, however, FERC explained its position. FERC cited its long-held policy of permitting rate adjustments only on the basis of a pipeline’s total package of costs and revenues: Trackers for one portion of a pipeline’s costs do not take account of offsetting changes in other costs or overall revenues and therefore might yield rates incompatible with the Act’s “just and reasonable” standard. The Commission recognized that its traditional policy is less firm today in view of significant departures carved out through rule-making procedures.¹² FERC also acknowledged its approval of “settlement agreements that incorporate third-party transportation cost trackers similar to that proposed by United.” J.A. 30. While the Commission left open the possibility that it might change its policy should United renew the matter at the rate hearing,¹³ FERC was unwilling to depart from its regulation and allow the broad waiver United sought in advance of a full airing of the matter at which views, other than those of United, could be presented. This explanation, while it might have been more expansive, enables us to discern the “why and wherefore” of the Commission’s reasoning. FERC’s denial of the waiver, pre-hearing, in view of the Commission’s long-held, recently reiterated policy,¹⁴ we conclude, was not based on grounds “so insubstantial as to render [the] denial an abuse of discretion.” WAIT II, supra, 459 F.2d at 1207.

B. Rejection

A tariff filing is appropriately rejected if it is “patently ... either deficient in form or a substantive nullity.” Municipal Light Boards v. Federal Power Commission, supra note 9, at 1345. The Commission does not urge that United’s proposed transportation tracker is a “substantive nullity.” Brief for Respondent 7, 9. However, the tracker permits adjustments that FERC regulations prohibit. In face of 18 C.F.R. § 154.38(d)(3),¹⁵ the Commission treated the filing as plainly “deficient in form.” Our conclusion that FERC did not act without reason in refusing to waive the regulation in advance of the section 4 hearing, at which time the Commission could receive presentations not only from United but from others as well, virtually answers this first subsidiary question. A filing is “deficient in form” if it is inconsistent with Commission regulations. FERC is not obligated to reject a defective filing, see Papago Tribal Utility Authority v. FERC, 628 F.2d 235 (D.C.Cir.), cert. denied, 449 U.S. 1061, 101 S.Ct. 784, 66 L.Ed.2d 604 (1980), but neither is it required to accept such a filing. Particularly in view of the “broad discretion” FERC has to determine whether a filing substantially complies with its regulations, City of Groton v. FERC, 584 F.2d 1067, 1070 (D.C.Cir.1978), we regard FERC’s decision to reject the unlimited transportation tracker portion of the filing, once a threshold waiver was properly denied, as a permissible exercise of the Commission’s discretion.

C. Indefinite Suspension

United characterizes the Commission’s rejection of its proposed tracker, without prejudice to development of an evidentiary record at the section 4 hearing, as a “hybrid” procedure unauthorized by the Natural Gas Act; in essence, United asserts, FERC’s action indefinitely suspends a portion of United’s rate filing, in violation of the Act’s five-month suspension limit.¹⁶ Brief of Petitioner 17 — 18; Reply Brief of Petitioner 6-7. United’s argument, embraced in the dissenting opinion, would limit FERC to three choices: the Commission could accept a filing and allow the rates to become effective without suspension; it could accept and suspend for up to five months; or it could reject the filing “with prejudice” to reconsideration at the rate hearing.

We do not read the Act to preclude the course FERC is taking.¹⁷ FERC might have rejected the tracker unconditionally, thereby denying United any immediate opportunity for further airing of the matter and remitting United to a petition for a rulemaking procedure as the only administrative route to reassessment of the Commission’s long-held position on permanent transportation trackers. United conceded as much at oral argument. Far from truncating United’s rights under the Act, FERC argues and we agree, the Commission has accorded United “more than the minimum required by law.” Brief for Respondent 16.¹⁸

In short, we discern no harm to United nor any statutory roadblock to FERC’s approach, which permits development of the tracker issue “in the give and take of a hearing, with an opportunity for others to participate”; “if the Commission does permit a transportation tracker, it will do so on a prospective basis, as it did in the rulemakings [authorizing other permanent trackers].” Brief for Respondent 14. FERC’s procedure not only affords United a reasonably prompt, full hearing, it also facilitates ultimate judicial review of FERC’s final decision. With a well-developed factual record, both the Commission and a reviewing court will be better situated to determine whether FERC’s traditional position on permanent transportation trackers continues to rest on solid ground or has become obsolete.¹⁹

Conclusion

For the reasons stated the orders under review are

Affirmed.

1 . FERC has authority to regulate rates charged by interstate natural gas pipelines pursuant to the Natural Gas Act, 15 U.S.C. §§ 717-717w. United filed the tariff changes under section 4 of the Act, 15 U.S.C. § 717c, which provides in relevant part:

(a) All rates and charges made, demanded, or received by any natural-gas company for or in connection with the transportation or sale of natural gas subject to the jurisdiction of the Commission, and all rules and regulations affecting or pertaining to such rates or charges, shall be just and reasonable, and any such rate or charge that is not just and reasonable is declared to be unlawful.

(d) Unless the Commission otherwise orders, no change shall be made by any natural-gas company in any such rate, charge, classification, or service, or in any rule, regulation, or contract relating thereto, except after thirty days’ notice to the Commission and to the public. Such notice shall be given by filing with the Commission and keeping open for public inspection new schedules stating plainly the change or changes to be made in the schedule or schedules then in force and the time when the change or changes will go into effect....

(e) Whenever any such new schedule is filed the Commission shall have authority, either upon complaint of any State, municipality, State commission, or gas distributing company, or upon its own initiative without complaint, at once, and if it so orders, without answer or formal pleading by the natural-gas company, but upon reasonable notice, to enter upon a hearing concerning the lawfulness of such rate, charge, classification, or service; and pending such hearing and the decision thereon, the Commission, upon filing with such schedules and delivering to the natural-gas company affected thereby a statement in writing of its reasons for such suspension, may suspend the operation of such schedule and defer the use of such rate, charge, classification, or service, but not for a longer period than five months beyond the time when it would otherwise go into effect; and after full hearings, either completed before or after the rate, charge, classification, or service goes into effect, the Commission may make such orders with reference thereto as would be proper in a proceeding initiated after it had become effective. If the proceeding has not been concluded and an order made at the expiration of the suspension period, on motion of the natural-gas company making the filing, the proposed change of rate, charge, classification, or service shall go into effect. Where increased rates or charges are thus made effective, the Commission may, by order, require the natural-gas company to furnish a bond, to be approved by the Commission, to refund any amounts ordered by the Commission, to keep accurate accounts in detail of all amounts received by reason of such increase, specifying by whom and in whose behalf such amounts were paid, and, upon completion of the hearing and decision, to order such natural-gas company to refund, with interest, the portion of such increased rates or charges by its decision found not justified. At any hearing involving a rate or charge sought to be increased, the burden of proof to show that the increased rate or charge is just and reasonable shall be upon the natural-gas company, and the Commission shall give to the hearing and decision of such questions preference over other questions pending before it and decide the same as speedily as possible.

2 . The regulation, 18 C.F.R. § 154.38(d)(3), provides:

No rule, regulation, exception or condition such as tax, commodity price index, wholesale price index or other similar price adjustments or periodic changes shall be included in the rate schedule or any other part of the tariff which in any way purports to effect the modification or change of any rate or charge specified in the rate schedule, or the substitution therefor of any other rate or charge: Provided, however, a natural-gas company may state in the service agreement or in rate schedules filed pursuant to § 154.52 that it is or will be its privilege, under certain specified conditions, to propose to the Commission a modification, change or substitution of the then effective rate or charge: Provided further, That no such clause may effectuate a change in an effective rate or charge except in the manner provided in section 4 of Natural Gas Act, as amended, and the regulations in this part.

The current text carries forward the original regulation, 13 Fed.Reg. 6371, 6374 (Oct. 30, 1948), but without the former prohibition against purchased gas adjustment clauses. See 37 Fed.Reg. 8376, 8377 (Apr. 26, 1972).

3 . This court has twice suggested that, in view of current conditions and the forecasting difficulties today’s rate filings entail, FERC should bring its expert judgment to bear on the propriety of allowing tracker systems of the sort proposed by United. Transcontinental Gas Pipe Line Corp. v. FERC, 652 F.2d 179, 181 (D.C.Cir.1981); Panhandle E. Pipe Line Co. v. FERC, 613 F.2d 1120, 1133 & n. 66 (D.C.Cir.1979), cert. denied, 449 U.S. 889, 101 S.Ct. 247, 66 L.Ed.2d 115 (1980).

4 . See supra note 1.

5 . United urged particularly that “[t]he historical test period approach generally used to establish rates [with the adjusted period ending at or about the time the proposed rates become effective] will inevitably result in overrecovery or underrecovery of transportation costs and revenues not only because the volumes of gas transported for and by United may vary widely between periods but also because not all of the pipelines transporting for United seek or achieve rate increases on a uniform schedule.” Brief of Petitioner 6-7 (footnote omitted).

6 . For the full text of the regulation, see supra note 2.

7 . The maximum suspension period under section 4, see supra note 1, is five months. FERC suspended the operation of United’s filing for the maximum period, i.e., until October 1, 1982. J.A. 15. The accepted portions of United’s filing are now in effect, subject to the Commission’s authority to order refunds should it eventually find any increased rates unjust or unreasonable. The hearing was scheduled to begin on March 8, 1983, Brief for Respondent 3 n. 3, but at oral argument FERC’s counsel stated that July 1983 is now the anticipated starting time.

8 . The Commission has also issued a notice of proposed rulemaking regarding shipper tracking of Alaska Natural Gas Transportation System charges. 47 Fed.Reg. 45021 (Oct. 13, 1982). In that notice, the Commission identified the “unprecedented scale and cost” of the Alaska system, “as well as its unique international character and legal framework,” as factors justifying a departure from FERC’s general policy, which continues to be “the disallowance of long-term authority to flow-through, or ‘track,’ third-party transportation charges.” Id. at 45024.

9 . Under the Commission’s regulations, FERC “shall reject any material submitted for filing with the Commission which patently fails to substantially comply with the applicable requirements.” 18 C.F.R. § 35.5. See Kentucky Utils. Co. v. FERC, 689 F.2d 207, 211 (D.C.Cir.1982). As this court has stated:

A “rejection” of a filing ... is ... like a motion to dismiss on the face of the pleading, and indeed goes even beyond that. It is appropriate where the filing is so deficient on its face that the agency may properly return it to the filing party without even awaiting a responsive filing by any other party in interest.

It is “a peremptory form of response to filed tariffs” which classically is used not to dispose of a matter on the merits .... [But its] use is not limited to defects of form. It may be used by an agency where the filing is so patently a nullity as a matter of substantive law, that administrative efficiency and justice are furthered by obviating any docket at the threshold rather than opening a futile docket.

Municipal Light Bds. v. Federal Power Comm’n, 450 F.2d 1341, 1346 (D.C.Cir.1971) (footnote omitted), cert. denied, 405 U.S. 989, 92 S.Ct. 1251, 31 L.Ed.2d 455 (1972).

10 . See 18 C.F.R. § 154.38(d)(4) (purchased gas costs); id. § 154.38(d)(5) (research development costs); id. § 154.38(h) (costs associated with the Louisiana First Use Tax); Brief for Respondent 6. See also supra note 8.

11 . See supra notes 1 & 7.

12 . In its brief on appeal, FERC noted that United “has the right to petition the Commission to revise the rule prohibiting transportation trackers.” Brief for Respondent 14 n. 8. United, it appears, has not elected to pursue the rulemaking route.

13 . However, at oral argument, FERC’s counsel informed the court that a filing by Commission staff in the scheduled rate hearing opposed allowance of the transportation tracker United requested.

14 . See supra note 8.

15 . See supra note 2.

16 . See supra notes 1 & 7.

17 . See Kentucky Utils. Co. v. FERC, supra note 9, at 211, holding that FERC acted within its discretion when it delayed assignment of a “filing date” to a filing which did not substantially comply with FERC regulations. Under the Commission’s regulations, the “filing date” is “the date on which a rate schedule is completed by the receipt in the office of the Secretary [of the Commission] of all supporting ... data required to be filed in compliance with the requirements of this part, unless such rate schedule is rejected." 18 C.F.R. § 35.2(c) (emphasis added). If a filing is complete but rejected, no filing date is assigned which means the tendered filing was never recognized as filed. Any rates contained in a rejected filing, therefore, will be ineffective, just as if the rates had never been proposed.

Under section 4, FERC cannot suspend a filing “for a longer period than five months beyond the time when it would otherwise go into effect.” The five-month suspension limit, then, applies to filings which “would otherwise go into effect.” Because a rejected filing will never go into effeet, the five-month suspension limit is inapplicable.

18 . While we lack authority to command an agency to afford a petitioner a procedural opportunity not required by law, see Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, Inc., 435 U.S. 519, 524, 98 S.Ct. 1197, 1202, 55 L.Ed.2d 460 (1978), the agency itself is not similarly limited.

19 . When this court suggested that current conditions may have overtaken the Commission’s decades-old position on trackers, see supra note 3, it was careful to avoid expressing any opinion “on the appropriate course of action,” because “this matter should be' left to the expert judgment of the Commission in the first instance.” Transcontinental Gas Pipe Line Corp. v. FERC, supra note 3, at 181. See also Panhandle E. Pipe Line Co. v. FERC, supra note 3, at 1133 n. 66 (while court cannot force Commission’s hand, FERC might begin approving tracking clauses in individual section 4 proceedings or, by rulemaking, might adopt a policy allowing inclusion of such clauses in rate filing under section 4).