Keryn Newman v. FERC

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 10, 2021 Decided December 28, 2021
No. 20-1324
KERYN NEWMAN AND ALISON HAVERTY,
PETITIONERS
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
POTOMAC-APPALACHIAN TRANSMISSION HIGHLINE, LLC, ON
BEHALF OF ITS OPERATING COMPANIES, PATH WEST VIRGINIA
TRANSMISSION COMPANY, LLC ("PATH-WV") AND PATH
ALLEGHENY TRANSMISSION COMPANY, LLC ("PATH-AYE"),
INTERVENOR
On Petition for Review of Orders
of the Federal Energy Regulatory Commission
Keryn Newman and Alison Haverty, pro se, argued the
causes and filed the briefs for petitioners.
Jared B. Fish, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With him on
the brief were Matthew R. Christiansen, General Counsel, and
Robert H. Solomon, Solicitor. Beth G. Pacella, Deputy
Solicitor, entered an appearance.
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David M. Gossett argued the cause for intervenor
Potomac-Appalachian Transmission Highline, LLC in support
of respondent. On the brief were P. Nikhil Rao, Stacey
Burbure, Richard P. Sparling, and Bradley Miliauskas.
Morgan Parke entered an appearance.
Before: SRINIVASAN, Chief Judge, PILLARD, Circuit
Judge, and RANDOLPH, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge PILLARD.
PILLARD, Circuit Judge: Proceeding pro se, Keryn
Newman and Alison Haverty (Petitioners) petition for review
of a pair of Federal Energy Regulatory Commission (FERC or
Commission) orders that raised their electricity rates. The
FERC orders validated accounting by Potomac-Appalachian
Transmission Highline, LLC (PATH) under its formula rate,
allowing it to pass through to ratepayers more than $6 million
PATH spent for public relations and advocacy activities.
Those activities related to PATH’s pursuit of Certificates of
Public Convenience and Necessity (Certificates) to build its
proposed electric power transmission line. Using FERC’s
Uniform System of Accounts, PATH booked those
expenditures in accounts designated for “Outside Services
Employed” and “General Advertising Expenses.” Petitioners
argue that the expenditures instead belong in an account
designated for “Expenditures for Certain Civic, Political and
Related Activities,” which would exclude them from the
formula rate. PATH asserts that account includes expenditures
made for the purpose of directly influencing the decisions of
public officials, but not the disputed expenditures, which were
for indirect influence. Because we conclude that
“Expenditures for Certain Civic, Political and Related
Activities” include expenditures made for the purpose of
indirect as well as direct influence, we grant the petition.
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I. Background
A. Regulatory Framework
The Federal Power Act’s section 205 requires that
interstate electric utilities file and receive FERC’s approval for
tariffs establishing the rates they charge customers each year.
16 U.S.C. § 824d. Since the 1970s, FERC has allowed those
tariffs to be filed as “formula rates.” See Pub. Utils. Comm’n
of Cal. v. FERC, 254 F.3d 250, 254 (D.C. Cir. 2001). Rather
than stating specific prices, a formula rate “specifies the cost
components that form the basis of the rates.” Id. In other
words, a formula rate describes which categories of the utility’s
expenditures will be folded into retail customers’ prices. Once
FERC approves a formula rate as the tariff, a utility is then
excused from filing new tariffs every year. See id. at 254. It
instead need only file an annual report of its categorized
expenditures, which in turn act as the inputs to the approved
formula that generates prices customers pay. Id. FERC’s
Uniform System of Accounts provides ready-made “accounts,”
including descriptions of what belongs in them, for
categorization purposes. See 18 C.F.R. pt. 101. A formula rate
built on the Uniform System identifies by account which
expenditures are passed on to ratepayers, and which fall outside
the formula rate so must be absorbed by the utility itself.
This case concerns such a formula rate, filed by PATH and
approved by FERC. PATH’s formula adopted FERC’s
Uniform System of Accounts to identify expenditure categories
incorporated into or excluded from customer rates. As relevant
here, PATH’s formula rate passes through to customers all
costs booked to Account 923 (“Outside Services Employed”)
and some costs booked to Account 930.1 (“General
Advertising Expenses”). By contrast, PATH’s formula rate
does not pass through to customers expenditures booked to
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Account 426.4 (“Expenditures for Certain Civic, Political and
Related Activities”).
B. PATH’s Expenditures
In 2007, the regional transmission organization PJM
determined that a new electricity transmission line was needed
to address a reliability shortfall on its electric grid. Two of
PJM’s member utilities formed PATH to build the new line—
which would traverse West Virginia, Virginia, and Maryland—
and to secure the necessary Certificates of Public Convenience
and Necessity for the line’s construction. Those Certificates
could be provided only by the utility commissions of each of
the three states that the transmission line would cross.
From 2009 through 2011, PATH spent more than $6
million on various activities to support its applications for
Certificates. Through hired public relations contractors, PATH
organized “reliable power coalitions” that would recruit
individuals—often prominent business and labor leaders—to
testify before the state utility commissions in support of
PATH’s certificate applications. PATH’s contractors also
polled public opinion of the project, ran promotional
advertisements, and sent lobbyists to persuade state officials
that the Certificates should be granted.
There is little question that PATH made these disputed
expenditures to influence the decisions of public officials. The
record is full of statements to that effect. The internal
communications of PATH’s public relations contractors, for
example, declared that “[w]e have but one singular goal—to
help get PATH approved,” a goal that would be achieved by
“generating the political cover that commissioners/legislators
need to ‘do the right thing.’” J.A. 66; see also J.A. 142-44
(contractor agreement with public relations firm). And the
advertisements PATH’s agents ran were persuasive rather than
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merely informational, focusing on arguments in support of
approval and construction of PATH’s proposed transmission
line. See, e.g., J.A. 115, 117-18, 121.
In its 2010, 2011, and 2012 annual filings, PATH
categorized most of those expenditures into Accounts 923
(“Outside Services Employed”) and 930.1 (“General
Advertising Expenses”). Per PATH’s formula rate, the costs
had been passed on to customers—including petitioners—in
the form of higher rates during 2009, 2010, and 2011. But in
2012, based on updated analyses that there was no longer a
projected reliability shortfall, PJM cancelled the PATH project.
PATH therefore withdrew its applications for Certificates,
ended public relations and advocacy expenditures for the
project, and never constructed the transmission line.
To incentivize investment in energy transmission
infrastructure, FERC rules generally authorize public utilities
to recover qualifying investments if an approved project must
be abandoned for reasons beyond the utility’s control. See 18
C.F.R. § 35.35(d)(1)(vi). Pursuant to section 205 of the
Federal Power Act, PATH accordingly made a filing with
FERC to recover “abandonment costs”—including its eligible
expenditures and a proposed return on equity—totaling over
$121 million. The money at issue here is a subset of the
abandonment-costs recovery PATH sought.
C. Procedural History
The history of this case spans more than a decade.
Petitioners were among the customers charged higher rates
because of PATH’s accounting, and they challenged PATH’s
2010, 2011, and 2012 annual filings. Petitioners asserted that
they were overcharged because the over $6 million in public
relations and advocacy expenditures belonged in Account
426.4 (“Expenditures for Certain Civic, Political and Related
6
Activities”), which is not incorporated in PATH’s formula rate
and therefore not recoverable from ratepayers, rather than
Accounts 923 and 930.1, to which PATH had assigned them.
Petitioners initially succeeded—twice—on those claims.
In 2015, an ALJ consolidated petitioners’ three years of
challenges with other related claims and ruled in their favor on
the accounting determinations. Relying on the text of FERC’s
Uniform System of Accounts and FERC precedent, the ALJ
reasoned “that the ‘intended use’ and ‘reason behind’ the
expenditure[s]” dictates their appropriate account, and that “the
ultimate aim” of PATH’s public relations and advocacy
expenditures “was to influence the decisions of public officials
in an effort to obtain [Certificates] and other licensing
approvals.” Potomac-Appalachian Transmission Highline,
LLC, 152 FERC ¶ 63,025, at 8-9 (2015) (“Initial Decision”),
J.A. 315-16 (quoting ISO New England Inc., 117 FERC
¶ 61,070, at 42 (2006)). Thus, the ALJ decided that
“[a]ctivities of this nature must be recorded in Account 426.4,”
not 923 or 930.1. Id. at 9, J.A. 316.
In 2017, after the parties filed briefs on exceptions to the
ALJ’s ruling, FERC affirmed the ALJ’s decision on the
accounting determinations. In Opinion 554, the Commission
held that Account 426.4 is “focused on expenses related to
public activity, either influencing public opinion with respect
to a variety of public activities or directly influencing public
officials.” Potomac-Appalachian Transmission Highline,
LLC, 158 FERC ¶ 61,050, at 12 (2017) (“Opinion 554”), J.A.
352. Following the recommendation of its Trial Staff, the
Commission specifically observed that Account 426.4’s list of
government actions potentially affected by efforts to influence
public opinion “is not all-inclusive, but rather provides
illustrative examples.” Id., J.A. 352. The Commission also
relied on its own precedent to conclude that Account 426.4
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broadly covers “any costs ‘incurred to influence the opinion of
the public during the’ period when public officials were
deliberating on whether to approve a new project.” Id. at 13(quoting Alaskan Nw. Nat. Gas Transp. Co., 19 FERC
¶ 61,218, at 12 (1982)), J.A. 353. “By [PATH’s] own
admission,” the Commission reasoned, that is what the
activities funded by PATH’s disputed expenditures were
attempting to do. Id., J.A. 353. FERC then ordered PATH to
refund those expenditures to ratepayers. Id. at 19, J.A. 363-64.
PATH immediately requested rehearing, based in part on
its contention that all its disputed expenditures—except those
for direct lobbying services—had been correctly categorized in
its original accounting. PATH Request for Rehearing at 5-6,
J.A. 384-85. In the meantime, PATH also submitted filings to
FERC calculating and recording its refunds to ratepayers
pursuant to Opinion 554. When petitioners challenged those
updated filings as erroneous or incomplete, the Commission
again agreed and ordered further corrections or clarifications in
PATH’s accounting consistent with Opinion 554. Potomac-
Appalachian Transmission Highline, LLC, 166 FERC
¶ 61,035, at 7-8 (2019), J.A. 445-57. PATH completed the
refunds as ordered.
In January 2020, FERC reversed course. Acting on
PATH’s three-year-old request for reconsideration of Opinion
554, FERC issued Opinion 554-A, holding that none of the
disputed expenditures belonged in Account 426.4 after all.
Potomac-Appalachian Transmission Highline, LLC, 170
FERC ¶ 61,050 (2020) (“Opinion 554-A”), J.A. 467. In
Opinion 554-A, FERC “continue[d] to affirm” the principle
that the purpose of an expenditure “dictates its accounting
assignment.” Id. at 25 (internal quotation marks omitted), J.A.
506. However, the Commission concluded that the “matters”
on which PATH incurred costs to influence public opinion
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were “not contemplated” by Account 426.4. Id., J.A. 506. To
that end, it reasoned that neither of Account 426.4’s two
inclusion clauses encompassed the expenditures. As to the first
clause, the expenditures PATH made to seek “public
convenience and necessity determination[s]” did not “fall
within the ambit of referenda, legislation, ordinance, the grant
of franchise and the like” because they were “general
promotional efforts on behalf of an” already “[regional
transmission organization (RTO)]-approved project.” Id. at 26,
J.A. 507-08. As to the second clause, FERC saw the
expenditures as more like an “operating expense” intended
only “to indirectly influence public officials.” Id. at 25-26, J.A.
505-08. The Commission thus held the expenses belonged in
accounts other than 426.4. Id. at 27, J.A. 508.
Petitioners, in turn, sought rehearing. The Commission
promptly issued Opinion 554-B denying petitioners’ request
and augmenting the reasoning in Opinion 554-A. Potomac-
Appalachian Transmission Highline, LLC, 172 FERC ¶ 61,048(2020) (“Opinion 554-B”), J.A. 576. In Opinion 554-B, FERC
revisited the analysis of Account 426.4’s individual clauses.
As to the first clause, FERC distinguished “a franchise
application—in which the utility competes for a potentially
lucrative status for itself—from an application in service of an
RTO-approved project—in which the utility represents not
only its own interests but those of the RTO as a whole.” Id. at
6, J.A. 584. And FERC similarly treated “the fact that the
PATH Project ha[d] been approved by an RTO” as “a
determinative factor” for excluding the expenditures from the
second clause because that approval “motivate[d] PATH’s
actions.” Id., J.A. 585. Thus, Opinion 554-B reaffirmed
Opinion 554-A: The disputed expenditures were appropriately
placed in Accounts 923 and 930.1 rather than Account 426.4.
Id. at 5, 12, J.A. 583, 593.
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Petitioners timely sought review of Opinions 554-A and
554-B. We granted PATH’s motion for leave to intervene in
support of FERC.
D. Standard of Review
Because Opinions 554-A and 554-B involve FERC’s
interpretation of its own regulations—the Uniform System of
Accounts—we first consider whether to defer to that
interpretation. If deference applies, then FERC’s interpretation
“becomes of controlling weight unless it is plainly erroneous
or inconsistent with the regulation.” Kisor v. Wilkie, 139 S. Ct.
2400, 2411 (2019) (internal quotations omitted). For an
interpretation to receive deference, a rule must be “genuinely
ambiguous” after a court has “exhaust[ed] all the traditional
tools of construction.” Id. at 2415 (internal quotation omitted).
For the reasons explained below, after examining the “text,
structure, history, and purpose of [the] regulation” here, id.(internal quotation omitted), we conclude that FERC’s
interpretation of at least one clause of Account 426.4 is “plainly
. . . inconsistent with the regulation.” Id. (quoting Bowles v.
Seminole Rock & Sand Co., 325 U.S. 410, 414 (1945)).
Pursuant to that clause, correctly understood, the disputed
expenses belong in Account 426.4. As a result, no issue of
deference arises. To so depart from “the regulation’s obvious
meaning” would “permit the [Commission], under the guise of
interpreting a regulation, to create de facto a new regulation.”
Christensen v. Harris Cnty., 529 U.S. 576, 588 (2000); accord
Chase Bank USA, N.A. v. McCoy, 562 U.S. 195, 211 (2011)
(internal quotation omitted). And because the disputed
expenses belong in Account 426.4 under at least one of its
clauses, we need not interpret the other. We grant the petition
and vacate FERC’s contrary orders.
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II. Discussion
Petitioners challenge FERC’s reconsideration orders
approving PATH’s accounting determinations. The dispositive
question is whether PATH’s disputed expenditures fit within
Account 426.4. FERC clearly erred in reading Account 426.4’s
second clause as implicitly limited to expenditures for the
purpose of directly influencing the decisions of public officials.
Because the disputed expenditures here were all admittedly
made for the purpose of influencing state officials’ certification
decisions, they should have been booked into Account 426.4.
FERC thus erred in allowing PATH to treat those expenditures
as residual, so to categorize them in residual Accounts 923 and
930.1, and to include them in PATH’s formula rate during the
challenged years.
A. Account 426.4 Includes the Challenged Expenditures
Account 426.4 is called “Expenditures for Certain Civic,
Political and Related Activities.” 18 C.F.R. pt. 101, Account
426.4. The first and second clauses of the Account description
identify two categories of included expenditures, and the last
clause excludes a third category, as follows:
This account shall include expenditures [1] for the
purpose of influencing public opinion with respect to
the election or appointment of public officials,
referenda, legislation, or ordinances (either with
respect to the possible adoption of new referenda,
legislation or ordinances or repeal or modification of
existing referenda, legislation or ordinances) or
approval, modification, or revocation of franchises;
or [2] for the purpose of influencing the decisions of
public officials, but [3] shall not include such
expenditures which are directly related to
appearances before regulatory or other governmental
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bodies in connection with the reporting utility’s
existing or proposed operations.
Id. (bracketed and bolded numbers added). For ease of
reference, we refer to the first inclusion clause as the “Public
Opinion Clause” and to the second as the “Official Decisions
Clause.”
Opinions 554-A and 554-B held that PATH’s disputed
expenditures fit neither of the two inclusion clauses. Before us,
the Commission insists that the Public Opinion Clause is
inapposite because PATH’s activities “influencing public
opinion” in favor of state officials granting certification did not
count as influence with respect to “the election or appointment
of public officials, referenda, legislation, or ordinances” or the
“approval, modification, or revocation of franchises.” Resp.
Br. 22-29; see also Int. Br. 11-16. FERC maintains that the
Official Decisions Clause does not apply because, to
reasonably bound its scope and prevent it from subsuming the
Public Opinion Clause, it should be read to cover only direct
forms of influence over the decisions of public officials. Resp.
Br. 30-37; see also Int. Br. 16-20. No party argues that the third
clause excludes the disputed expenditures.
Petitioners respond that FERC did not intend to create an
exhaustive list of all items that belong in the Account and that,
in any event, the term “franchise” includes the Certificates that
PATH sought here. Pet. Br. 26-29; Reply Br. 20. And they
point out that the Official Decisions Clause broadly covers all
expenditures “for the purpose of influencing the decisions of
public officials,” presumably including officials’ decisions to
grant certificates of public convenience and necessity. Pet. Br.
32-36. The Official Decisions Clause is not, in petitioners’
view, limited to direct forms of influence.
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We hold that the Official Decisions Clause includes
expenditures for the purpose of indirectly as well as directly
influencing the decisions of public officials. Virtually “all the
traditional tools of construction,” Kisor, 139 S. Ct. at 2415(internal quotation omitted), bear out the conclusion that
purpose, not directness, is the touchstone of that Clause.
Account 426.4’s plain language communicates that meaning.
Regulatory context and history, together with FERC precedent,
all confirm it. Because indirect influence of state officials
responsible for certification decisions was the undeniable
purpose of the expenditures at issue here, they should have
been assigned to Account 426.4. And because the Official
Decisions Clause includes the disputed expenditures, we need
not decide whether the Public Opinion Clause does, too. We
therefore express no opinion as to the scope of that latter clause.
1. Regulatory Text
The Official Decisions Clause’s plain language is clear.
To state the obvious, the phrase “expenditures . . . for the
purpose of influencing the decisions of public officials,” 18
C.F.R. pt. 101, Account 426, is not by its terms confined to
expenditures made to directly influence the officials’ decisions.
There is no ambiguity. The word “directly” simply does not
appear in the text.
The Commission gave two reasons to imply the word
“directly” into the text of the Official Decisions Clause. Both
are unpersuasive. First, FERC claims that “directly” must be
implied to “bound[] [the Clause’s] reach in a reasonable way.”
Resp. Br. 32. The Commission seeks support in FERC v.
Electric Power Supply Association, 577 U.S. 260 (2016). The
Supreme Court there read the Federal Power Act’s grant of
federal regulatory jurisdiction over “any rule, regulation,
practice, or contract affecting” wholesale rates of electric
13
utilities to be necessarily limited to direct regulation of the
wholesale power market. 16 U.S.C. § 824e(a) (emphasis
added); see 577 U.S. at 264. The Court observed that, “[t]aken
for all it is worth,” the word “affecting” could extend FERC’s
power to “the whole economy,” and accordingly implied the
word “directly” into the statutory text. 577 U.S. at 277-78.
FERC contends that here, too, “a non-hyperliteral reading is
needed to prevent the [regulation] from assuming near-infinite
breadth.” Resp. Br. 32 (quoting 577 U.S. at 278). Not so.
Unlike the provision at issue in Electric Power Supply
Association, the text of the Official Decisions Clause already
contains a sharp limit: “for the purpose of.” Purpose, not
directness, is the definitional boundary. That phrase
circumscribes the Clause’s scope and obviates any justification
for implying a nontextual limit.
Viewing Account 426.4 as a whole further undermines
FERC’s position. The Account’s third, exclusionary clause
uses the term “directly” to limit excluded activities to those
“directly related to appearances before regulatory or other
governmental bodies.” 18 C.F.R. pt. 101, Account 426.4.
Where drafters use a term in one provision but not another, “it
is generally presumed” that the drafter acted “intentionally and
purposely in the disparate inclusion or exclusion.” United
States v. Villanueva-Sotelo, 515 F.3d 1234, 1248 (D.C. Cir.
2008) (quoting Barnhart v. Sigmon Coal Co., 534 U.S. 438,
452 (2002)). Account 426.4’s drafters could have used
“directly” in the Official Decisions Clause as they did in the
third, exclusionary clause, but they did not. We do not second-
guess that decision absent stronger grounds than FERC has
offered here.
Second, FERC claims we must imply “directly” into the
Official Decisions Clause lest it subsume and make surplusage
all of the Public Opinion Clause. FERC contends an implicit
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“direct” limitation is needed to “imbu[e] the first and second
clauses with independent meaning.” Resp. Br. 35. “If an
expense can indirectly ‘influenc[e] the decisions of public
officials’ by targeting public opinion, and thus qualify under
the second clause,” FERC argues, “then the specified list of
items in the first clause”—regarding influencing public
opinion—“falls out of the Account.” Id.But the surplusage point fails. In the first place, several
items of the Public Opinion Clause would not also be the
targets of expenditures seeking to indirectly influence public
officials’ decisions by swaying public opinion. “[T]he election
. . . of public officials,” along with the “adoption of new
referenda” and the “repeal or modification of existing
referenda” are direct popular decisions, not “the decisions of
public officials.” 18 C.F.R. pt. 101, Account 426.4.
Expenditures for the purpose of achieving those results would
not fall into the Official Decisions Clause, even without a
directness limitation. Reading the Official Decisions Clause as
written therefore does not render the Public Opinion Clause
superfluous because it covers activities that the Official
Decisions Clause does not.
Reading the Official Decisions Clause as written also
ensures that it covers activities that the Public Opinion Clause
does not. A utility has many options for indirectly influencing
the decisions of public officials, including some used by PATH
here, that do not involve influencing public opinion. For
example, a utility could recruit a business leader to speak at a
state utility commission hearing in support of its application for
a Certificate. According to PATH and FERC, that is not direct
influence so not within the Official Decisions Clause as FERC
construes it because the utility itself would not have “direct
contact with public officials.” Opinion 554-B, at 13, J.A. 588.
However, the cost of that recruitment would not fall within the
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Public Opinion Clause either, because it is not an effort to
influence public opinion, but to convince the state officials on
the commission to grant the Certificate. Reading the Official
Decisions Clause to capture expenditures for that and similar
activities does not render the Public Opinion Clause
superfluous. This underscores that each clause retains
independent meaning and effect even without inserting the
word “directly” into the Official Decisions Clause.
In all events, “our hesitancy to construe statutes to render
language superfluous does not require us to avoid surplusage
at all costs. It is appropriate to tolerate a degree of surplusage
rather than adopt a textually dubious construction that threatens
to render the entire provision a nullity.” United States v. Atl.
Rsch. Corp., 551 U.S. 128, 137 (2007). What FERC asks us to
do here—insert a word into a regulation that the drafters left
out—is “textually dubious.” And while the Commission’s
interpretation of Account 426.4 would not render the entire
provision a nullity, it would severely truncate its explicit scope.
The text of the Account does not invite us to implant entirely
extra-textual limiting language.
The text of Account 426.4’s Official Decisions Clause is
reason enough to reject the Commission’s interpretation. But
other tools of interpretation confirm that the simple answer
here is the right one: The Clause is not confined to
expenditures for “directly” influencing the decisions of public
officials.
2. Whole Regulation
The Commission’s insistence that Account 426.4’s
Official Decisions Clause covers only “direct” forms of
influence is also in tension with the rest of FERC’s Uniform
System of Accounts. Just two other portions of the regulation
refer to Account 426.4. One is Account 930.1’s Note B, which
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redirects “expenses for advertising activities, which are
designed to solicit public support or the support of public
officials in matters of a political nature,” to Account 426.4. 18
C.F.R. pt. 101, Account 930.1 Note B (emphasis added). Far
from implying a directness requirement for the influence of
public officials, Note B reinforces that purpose is the relevant
limiting factor. Note B applies the purpose requirement with
equal measure to influencing the public and influencing public
officials. That drives home how the Public Opinion and
Official Decisions Clauses are governed by the same limiting
factor—purpose—not the piecemeal directness limitation that
FERC engrafted. The only other reference to Account 426.4,
in Account 909’s Note A, likewise does not give any indication
of a directness requirement, merely describing Account 426.4
as covering “expenses of a . . . political nature.” Id. at Account
909 Note A.
3. Regulatory History
The regulatory history of Account 426.4 further reinforces
its text. Most relevant is FERC’s Order 276, which created
Account 426.4 in 1963 and describes the Account’s purpose,
drafting, and scope. Order No. 276, 30 F.P.C. 1539 (1963),
J.A. 286. Order 276 corroborates that the Commission did not
implicitly limit the Official Decisions Clause to payments
made for the purpose of directly influencing public officials.
Order 276’s reasoning supports our conclusion that
Account 426.4 includes expenditures for activities attempting
to indirectly influence the decisions of public officials. Noting
that it “would be impractical” to create “an exhaustive list” of
what the Account covers, the Order provides a list of examples
to “illustrate[] the type of expenditures” that do or do not
belong in 426.4. Id. at 542, J.A. 289. As might be expected,
the examples exclude from Account 426.4 costs of general
17
promotional advertising and related activities not intended to
influence governmental decisions or policy—such as
“promotional and ‘good will’ advertising.” Id., J.A. 290. They
include expenditures made for the purpose of influencing the
decisions of public officials, whether directly or indirectly—
like “[p]ayments for lobbying or other fees to persons or
organizations including law firms, service companies or other
affiliated interests, for influencing the passage or defeat of
pending legislative proposals or influencing official decisions
of public officers.” Id. (emphasis added), J.A. 290. That
identification of lobbyists separately from agents of less direct
influence, like law firms and other service companies (such as
public relations firms), substantiates the Official Decisions
Clause’s inclusion of indirect as well as direct forms of
influence. Other examples are to similar effect. Id., J.A. 290-
91.
Both PATH and the Commission point us to a portion of
Order 276 describing how Account 426.4’s language evolved
during the drafting process, but it does not support their
position. According to the Order, a prior draft of the Account
included expenditures “having any direct or indirect
relationship to political matters, including the influencing of
public opinion with respect to public policy,” but that phrase
was deleted as “ambiguous and indefinite.” Id. at 1540, J.A.
287-88. PATH and FERC see that deletion as “confirm[ing]
that costs of indirect efforts to influence public officials . . .
should not be recorded in Account 426.4.” Int. Br. 24; see
Resp. Br. 34. We disagree. For one thing, the deletion did not
affect the Official Decisions Clause, which was already present
in the prior draft. For another, the deletion is double-edged: It
removed the word “direct” as well as the word “indirect” from
the Account’s description. We cannot, then, treat only the
deletion of “indirect” as significant. Nothing in the drafting
history counsels against taking the Official Decisions Clause
18
on its own terms. To the contrary, the Commission’s deletion
of directness and retention of purpose as the core limiting
principle reinforces our reading of Account 426.4.
4. FERC Precedent
On balance, FERC precedent also favors reading the
Official Decisions Clause to include expenditures aimed at
indirect as well as direct forms of influence of public officials.
The Commission has repeatedly affirmed that purpose to
influence is the key feature of expenditures that belong in
Account 426.4. It has never before interposed a directness
requirement. In at least two cases, FERC has ordered costs like
those disputed here to be sorted into Account 426.4. The only
case allowing recovery of similar costs involved recovery
based on a stated rate and sought by a regional transmission
organization—neither of which is present here.
FERC has consistently held that indirect expenditures
made for the purpose of influencing the decisions of public
officials belong in Account 426.4. In Northwest Alaskan
Pipeline Co. & Northern Border Pipeline Co., 15 FERC ¶
61,116 (1981) (Northern Border), FERC reviewed an audit
report of expenditures for “preliminary activities related to the
construction of a natural gas transmission line.” Id. at 3. The
activities included paying firms “to print a booklet entitled
‘What Happens When a Pipeline Goes Through’” and to
“assemble and distribute the ‘Northern Border Pipeline Press
Kits.’” Id. at 4. Those materials were “intended and used to
influence public opinion and the opinion of public officials
during the selection process of the project,” so FERC
concluded that the “Uniform System of Accounts requires that
expenditures of this nature be recorded in Account 426.4.” Id.FERC claims that because Northern Border “failed to
explain how those materials ‘influenc[ed] . . . the opinion of
19
public officials’—i.e., whether that influence was direct or
indirect . . . , it is uncertain whether PATH is similarly
situated.” Resp. Br. 50 (emphasis in original). But that
omission seems to cut against FERC’s reading of Account
426.4, which depends on the distinction it says Northern
Border did not make. PATH takes a different tack, stating that
“[i]t is unreasonable to compare” Northern Border with this
case because there, the influence happened “during the
selection process” rather than the Certificate application
process following a regional transmission organization’s
approval. Int. Br. 26-27. But both processes require decisions
by public officials—the central focus of the Official Decisions
Clause—one determining which of several proposals to adopt
and the other determining whether to greenlight a single
proposed project. PATH’s distinction thus finds no support in
Northern Border.
FERC’s reliance on Alaskan Northwest Natural Gas
Transportation Co., 19 FERC ¶ 61,218 (1982), fares no better.
There, FERC reviewed a company’s report of its expenditures
“to various public relations firms for preparing and
disseminating during the selection process information about”
its proposed natural gas pipeline and potential alternatives. Id.
at 11. In holding that those expenditures belonged in Account
426.4, the Commission explained:
Expenditures incurred to influence the opinion of the
public during the selection process have little or no
benefit to the ratepayers, and therefore must be borne
by stockholders. Just and reasonable expenditures
incurred to keep the general public informed on the
progress of the project and other public relations
activities are proper expenses to be borne by
ratepayers after operations commence.
20
Id. at 12. Because the expenditures in Alaskan Northwest
Natural Gas “were intended and used to influence public
opinion and the opinions of public officials during the selection
process,” they were “in the nature of lobbying” and should not
have been passed on to ratepayers. Id. at 11-12. FERC
specifically observed that “there is no real distinction between
what has been characterized as influencing public opinion and
public relations activities. The distinction lies in the intended
use and reason behind the payments.” Id. at 12.
PATH and the Commission argue that Alaskan Northwest
Natural Gas included the disputed expenditures in Account
426.4 only because the proposal at issue required legislative
approval, thus bringing it within the purview of the Public
Opinion Clause’s reference to influence regarding
“legislation.” See Resp. Br. 49; Int. Br. 25-26. FERC never
identified that point as relevant in its decision. To the contrary,
it expressly referred to official decisions as well as public
opinion and emphasized that the core distinction between
Account 426.4 and other categories is the purpose of the
expenditures. 19 FERC ¶ 61,218, at 12. The Commission’s
understanding of Account 426.4 as expressed in Alaskan
Northwest Natural Gas therefore supports the Official
Decisions Clause’s inclusion of expenditures for influence,
whether direct or indirect.
For its part, FERC relies on its decision in ISO New
England Inc., 117 FERC ¶ 61,070 (2006), and our affirmance
of that decision in Braintree Electric Light Department v.
FERC, 550 F.3d 6 (D.C. Cir. 2008). That case concerned the
recoverability of ISO New England’s “corporate
communications” and “external affairs” expenditures. ISO
New England, an independent regional transmission
organization, had used the disputed funds to “monitor hearings
and proposed legislation” and to “communicate[] with state and
21
federal legislators regarding specific legislation or ideas on
which there was pending legislation” related to ISO-New
England’s operations. 117 FERC ¶ 61,070, at 13. Despite the
expenses having been assigned to Account 426.4, the
Commission allowed ISO New England to recover them
because the expenditures:
(1) represented an educational, communicative
function of ISO-NE essential to its mission of
efficiently and reliably operating the New England
markets; (2) supported specific legislation that ISO-
NE determined was in the collective best interests of
its customers/stakeholders and from which it could
not reap any financial or other benefit; and (3) did not
include the types of activities that would not be
recoverable, such as participation in Political Action
Committees, candidate fundraising, entertainment
expenses (e.g., meals, sporting events, junkets) and
other activities not at issue here that do not directly
relate to ISO-NE's operations.
Id. We upheld FERC’s determination, affirming that an
expenditure’s placement in Account 426.4 did not necessarily
preclude its recovery from ratepayers where the conditions
identified by the Commission were met. Braintree, 550 F.3d
at 11-12.
FERC’s analogy to ISO New England and Braintree has a
fatal flaw: ISO New England used a markedly distinct
ratemaking process from the one at issue here. As described
above, PATH used a “formula rate” in which rates are variable,
depending on how expenditures are sorted into pre-approved
accounts. By contrast, ISO New England “annually files with
the Commission stated rates.” ISO New England Inc., 134
FERC ¶ 61182, at 1 (2011) (emphasis added). Unlike a
22
formula rate, a “stated rate” remains the same each year, not
changing until a new one is filed and approved by FERC.
Crucially, when a stated rate is used, the recoverability of
expenditures does not depend on the identity of the account to
which the expenditures are assigned. Accounts may be used
for convenience and organization, but lack the legal
significance they have in formula rates. Instead, the
Commission examines expenditures on a case-by-case basis to
determine whether they can be recovered from ratepayers as
“just and reasonable” costs of serving the public under section
205 of the Federal Power Act. Braintree, 550 F.3d at 9 (citing
16 U.S.C. § 824d(a)).
That was the issue in ISO New England: whether, in setting
its stated rate, ISO New England could recover certain kinds of
expenditures acknowledged to be correctly assigned to
Account 426.4. Braintree, 550 F.3d at 11. Indeed, no party
there argued that the disputed expenditures belonged anywhere
else. Relying on that case here as FERC suggests would prove
too much, potentially allowing for recovery under a formula
rate like PATH’s of even direct lobbying expenditures that no
party disputes belong in Account 426.4. Neither FERC nor
PATH argues that such expenditures are recoverable here. ISO
New England and Braintree thus do not control our decision.
5. Regulatory Purpose
The purposes of Account 426.4 underscore the logic of the
Official Decisions Clause’s applicability to expenditures for
indirect as well as direct forms of influencing public officials.
As described above, FERC itself has explained that
“[e]xpenditures incurred to influence the opinion of the public
during the selection process have little or no benefit to the
ratepayers, and therefore must be borne by stockholders”
instead. Alaskan Nw. Nat. Gas Transp. Co., 19 FERC ¶ 61218,
23
at 12. In establishing Account 426.4, Order 276 distinguished
between expenditures appropriate for that Account and
expenditures for “above-the-line operating expense[s]” that are
part of the ordinary costs of maintaining service for current
ratepayers. 30 F.P.C. at 1540, J.A. 287. Injecting a nontextual
directness requirement into the Official Decisions Clause
would hamper those objectives. The Commission’s arguments
in this case illustrate how: A utility’s “public relations
contractors” could simply recruit “individual[s]” to influence
public officials on their behalf, and because the utility’s
payments to such contractors would be “one step removed”
from the influence, “the disputed expenses” could go to other
accounts and be recovered under the formula rate. Resp. Br.
42-43. That would obscure the purpose of the expenditures and
shift to ratepayers the costs of the utility’s lobbying—costs
with “little or no benefit” to them that exceed the ordinary
operating costs of power transmission services. The risk of
such end-runs around the core function of Account 426.4
further confirms our straightforward reading of the text of the
Official Decisions Clause.
* * *
The language of Account 426.4’s Official Decisions
Clause clearly encompasses the disputed expenditures. Other
traditional tools of statutory interpretation—context, history,
precedent, and purpose—align with the most natural reading of
its text. Expenditures for the purpose of influencing the
decisions of public officials—whether directly or indirectly—
belong in Account 426.4.
B. Accounts 923 and 930.1 Are Residual so Inapplicable
Lastly, we conclude that Accounts 923 and 930.1 are, by
their express terms, only residual categories. Because the
disputed expenditures here fit into Account 426.4, it would be
24
inappropriate to resort to any residual account. The text of each
account supports that conclusion.
FERC correctly acknowledges that, while Account 923 is
potentially “broad in scope,” Resp. Br. 55, it does not include
expenses “eligible for Account 426.4 in the first place,” id. 57.
And for good reason. The description of Account 923, entitled
“Outside Services Employed,” explicitly excludes
expenditures that could be categorized in other accounts:
This account shall include the fees and expenses of
professional consultants and others for general
services which are not applicable to a particular
operating function or to other accounts. It shall
include also the pay and expenses of persons engaged
for a special or temporary administrative or general
purpose in circumstances where the person so
engaged is not considered as an employee of the
utility.
18 C.F.R. pt. 101, Account 923 (emphasis added).
So too with Account 930.1, titled “General Advertising
Expenses,” which is described to include:
the cost of labor, materials used, and expenses
incurred in advertising and related activities, the cost
of which by their content and purpose are not
provided for elsewhere.
18 C.F.R. pt. 101, Account 930.1 (emphasis added). “Note B”
to the Account’s description confirms that its reference to
expenditures “provided for elsewhere” covers those in Account
426.4. It directs parties to:
25
Exclude from this account and include in account
426.4, Expenditures for Certain Civic, Political and
Related Activities, expenses for advertising
activities, which are designed to solicit public
support or the support of public officials in matters
of a political nature.
Id., Account 930.1 Note B.
For our purposes, what matters is that Account 923 and
Account 930.1 each excludes expenditures that fit into any
other account. For all the reasons discussed above, we hold
that PATH’s disputed expenditures belong in Account 426.4.
Thus, beyond identifying their residual nature, we need not
further consider the scope of Accounts 923 or 930.1 to
conclude that they are not the appropriate categories for
PATH’s disputed expenditures.
* * *
We need only apply Account 426.4’s Official Decisions
Clause to PATH’s expenditures to decide this petition. As
recounted above, PATH’s own internal statements confirm that
their disputed expenditures were made for the purpose of
influencing the decisions of public officials. See J.A. 66, 115,
117-18, 142-44. That makes sense. PATH was formed to
construct a power transmission line, for which state as well as
federal approval was required. The Commission itself
concedes that PATH’s disputed expenses were “indirectly
aimed at influencing public officials’ decisions.” Resp. Br. 46;
see also id. 40 (referring to “the indirect efforts of [the public
relations contractors] to secure state Certificates”). The
disputed expenditures therefore should have been included in
Account 426.4 rather than Accounts 923 and 930.1, and so not
incorporated into PATH’s formula rate during the challenged
years.
26
Accordingly, we grant the petition for review, vacate
FERC’s Opinions 554-A and 554-B, and remand for further
proceedings consistent with this opinion.
So ordered.