Pipelines: Tariffs; Reparations Administrative Law: Scope of Judicial Review; Chevron Deference

摘要

A shipper of petroleum products over the SFPP, L.P. system challenges three orders of the FERC approving the SFPP tariff. The initial issue relates to the FERC order granting income tax allowances to pipelines operating as limited partnership. In an earlier decision, BP West Coast Products, LLC v. F.E.R.C., 374 F.3d 1263, 160 O.&G.R. 703 (D.CCir. 2004), the court had overturned a similar decision by the FERC because it was granting a tax allowance to entities that do not actually pay income taxes. In this case, however, the court finds mat FERC appropriately explained why under its Lakehead policy partnerships are entitled to an income tax allowance. Unlike BP West Coast Products, where the FERC did not provide a reasoned explanation, in mis case, such a reasoned explanation accompanied the order. Hie income tax allowance is limited to the extent that the owners of the partnership interests had an actual or potential tax liability during the periods at issue. Under the arbitrary and capricious standard for review of FERC orders, FERC has substantial discretion to weigh the competing policy factors in setting what is a just and proper rate. While there are contrary views as to the FERC analysis, mat analysis merely has to be reasonable and not perfect. The second issue relates to the impact of Section 1803 of the Energy Policy Act of 1992 which grandfathers certain oil pipeline rates subject to those rates being challenged where a substantial change has occurred in the economic circumstances of the oil pipeline. Plaintiff argues that either SFPP lines are not eligible for grandfathering under the Act or that there have been substantial changes in the economic circumstances requiring the elimination of the grandfathered rates. The FERC reaffirms its earlier decision that the West Line was de-grandfathered while the North and Oregon lines were not. The interpretation of the Act is entitled to Chevron deference, so the FERC's determination mat a substantial change requires a substantial change in the overall rate of return is upheld. While the income tax holding does provide additional revenue to the pipeline, the court finds that FERC is entitled to look at a bigger picture in determining whether there has been a substantial change so as to trigger the de-grandfathering provisions of the Act. As to a number of other challenges to the grandfathering decisions, the court finds mat one set of petitioners waived those Challenges by not first raising them with the FERC. Finally, the court overturns the FERC decision denying the shippers their claim for reparations for the service rates they have paid SFPP for service on the East Line.