Laclede Gas Co. v. Federal Energy Regulatory Commission

Opinion for the Court filed by Circuit Judge D.H. GINSBURG. Dissenting opinion filed by Circuit Judge STARR. D.H. GINSBURG, Circuit Judge: We grant the petition of Laclede Gas Company and United Municipal Distributors Group (collectively, Laclede) for review of an order of the Federal Energy Regulatory Commission rejecting a settlement of certain contested issues among United Gas Pipe Line Company and its customers, including Laclede. United intervenes in support of FERC and argues that we are without jurisdiction, but its jurisdiction argument does not merit discussion. I. Facts In September 1985, United filed a rate application in Docket No. RP85-209-000 (Docket 85). In October, after receiving various objections, FERC accepted the tariff sheets for filing, suspended their effectiveness, and set the case for hearing before an Administrative Law Judge. Thereafter, United and its customers held various meetings at which they attempted to resolve certain disputed issues in Docket 85. In September 1986, the parties submitted to the AU a proposed settlement consisting of an Interim Agreement and a [239] Base Agreement (collectively, the Settlement). The Interim Agreement was intended to put into effect the rate changes made by the Base Agreement for the period during which FERC was considering whether to accept the Base Agreement. The Base Agreement provided for various changes in United’s rates and contained three other terms of particular relevance here: (1) for the period from May 1, 1986 until FERC accepted the Settlement, United would refund to its customers the difference between its filed rates and the rates it would have collected had the Settlement been in effect during that period; (2) by January 1, 1987, United would make a new rate filing to raise certain enumerated issues that were not resolved by the Settlement; and (3) no provision of the Settlement would become effective until “[a] Final Commission Order approving, without modification or condition, all the terms and provisions of this Agreement shall have been issued____” The ALJ certified the Settlement to FERC. On January 1, 1987, when United’s obligation under the Settlement to file a new rate case would have matured, FERC had not yet approved the Settlement. Accordingly, United notified FERC that it would not then make the filing, but that it would make it within 60 days of FERC’s order approving the Settlement, and in no event later than April 1. FERC had taken no action on the Settlement when, on March 31, United made its filing in Docket No. RP87-52-000 (Docket 87). On April 30, 1987, FERC accepted for filing the tariff sheets proffered in Docket 87, suspended their effectiveness for five months, and set the case for hearing. Several customers petitioned for rehearing on the ground that, because the filing made certain estimated usage volumes (known as Monthly Entitlement Quantities or MEQs) that they had previously filed with United the basis for determining whether a customer would have to pay overrun charges, they should be permitted to re-estimate those quantities before the new tariff sheets took effect. In response to these concerns, FERC issued an order on July 23 conditioning its acceptance of the Docket 87 tariff sheets upon United’s permitting its customers to refigure their MEQs. On September 9, United notified FERC that it would not be filing amendments to its tariff sheets based upon the reestimated MEQs because its pipeline customers had submitted unrealistically low figures, thereby shifting costs to others of United’s customers and adversely affecting United’s ability to compete. Recognizing that its failure to comply with FERC’s conditions would result in the Commission’s rejection of the Docket 87 filing, United committed to filing a new rate case by October 1, 1988. In October 1987, FERC issued an order rejecting for filing United’s tariff sheets in Docket 87 and terminating that proceeding. At the same time, the Commission rejected the Settlement in Docket 85, stating, in effect, that United had violated the Settlement by its actions in the Docket 87 case: United’s failure to comply with the conditions imposed on the acceptance of its filing in Docket [87] has precipitated the' rejection of that required filing. This is not what the parties bargained for and is not acceptable to the Commission. United Gas Pipe Line Company, 41 FERC ¶ 61,089 at 61,237 (1987). The result of its rulings, said FERC, was that United’s rates would continue to be determined under the pre-Settlement tariff sheets in Docket 85 “with United’s customers protected by the refund obligation.” Id. at 61,236. The Commission then ordered that hearings proceed in Docket 85 “to address the issues which had been reserved for consideration in Docket [87]____” Id. at 61,237. Several of United’s customers filed petitions for rehearing, arguing that there was substantial doubt whether FERC’s statutory power to award refunds would be available in this case and suggesting various alternative means by which FERC’s apparent desire to proceed to an immediate hearing on the issues unresolved by the Settlement could be accommodated without rejecting the Settlement and proceeding to a hearing in Docket 85. United itself filed such a petition, committing itself, on the [240] condition that FERC approve the Settlement, to file a new rate case by March 31, 1988 (6 months earlier than its previous, October 1, 1988 commitment), in order to provide the forum that FERC considered essential. FERC denied rehearing nonetheless, and reiterated its view that rejection of the Settlement was justified because United had already violated it and because it was “integral” to the Settlement that there be an immediate forum in which to resolve the issues left open. United Gas Pipe Line Company, 42 FERC ¶ 61,233 at 61,764 (1988). The Commission did not discuss any of the proffered alternative methods of providing such a forum, and it refused to consider, as “premature,” the question whether it had authority to grant refunds apart from the rejected Settlement. II. Analysis Laclede challenges both of FERC’s asserted rationales for rejecting the Settlement and argues, in addition, that FERC erred in refusing to consider the refund issue. A. United’s “Violation” of the Settlement The Commission asserts that United violated the Settlement in two respects: failing to make a rate filing by January 1, 1987, and refusing to accept the conditions that FERC imposed on its acceptance of United’s March 31 filing. In our view, neither action violated the Settlement. Preliminarily, we question whether a three month delay in United’s compliance with the Settlement is a sufficient reason for FERC to reject it when the vast majority of the parties continued to support it. Nor are we convinced that a Settlement obligation to file tariff sheets necessarily carries with it an obligation to accept whatever conditions FERC might seek to impose upon their acceptance. Most fundamentally, however, we do not think it is possible for a party to “violate” an agreement by which it is not bound; and the Settlement here expressly provided that (except for United’s obligations while the Base Agreement was pending FERC approval) it did not “become effective unless and until ... [a] Final Commission Order approving, without modification or condition, all the terms and provisions of this [Settlement] shall have been issued____” Because the Settlement never became effective and binding on United, FERC’s assertion that United had violated it is necessarily in error. B. The Need for an Immediate Forum In rejecting the Settlement, FERC also reasoned (1) that it was integral to that agreement that there be an immediate forum for the resolution of the issues it left unresolved, and (2) that it was necessary to reject the Settlement and to set Docket 85 for hearing in order to provide that forum. Laclede challenges both FERC’s premise and its conclusion. FERC defends its premise by pointing out that, at the time the parties entered into the Settlement, some of them specifically mentioned that they considered United’s obligation to file a new rate case by January 1987 important to the success of the Settlement. When United told FERC it would not comply with the conditions FERC had placed on its acceptance of United’s Docket 87 filing, however, only one party (Texas Eastern Transmission Corporation) objected. The other parties to the Settlement were apparently content to wait for United to file its proposed new rate case in October 1988. Therefore, insofar as FERC was purporting to enforce the will of the parties to the Settlement, substantially all of which supported the Settlement at the time FERC denied it, the Commission was acting irrationally. In these circumstances, the relevant intent of the parties was their present intent, when FERC made its decision, to adhere to the Settlement despite the delay, not their original intent that the Settlement be implemented without delay. To be sure, FERC is not required to approve a settlement simply because the parties support it. FERC must also consider the public interest, and insofar as it found the Settlement “not acceptable to the [241] Commission,” 41 FERC at 61,287, we understand it to have referred to the public interest. In particular, FERC perceived a public interest in the early resolution on the issues deferred in the Settlement. FERC never explained, however, why it was so critical to move quickly on the unresolved issues that FERC would not approve the Settlement and rely upon United’s promised March 1988 filing to provide the necessary forum. Even assuming that FERC was correct about the need for an immediate forum, it is not clear that rejecting the Settlement was necessary to secure such a forum. Various parties suggested four other possibilities to the Commission: (1) UMDG suggested that the Commission approve the Settlement and immediately exercise its power under § 5 of the Natural Gas Act, 15 U.S.C. § 717d, to institute a rate proceeding; (2) Laclede Gas Company suggested that FERC approve the Settlement and, exercising its enforcement authority, order United immediately to file a new rate case; (3) United itself suggested that FERC approve the Settlement and not terminate the Docket 87 proceeding until United made its new rate filing in March 1988, since in that way, the parties could continue discovery in Docket 87, allowing for more expeditious consideration of the 1988 case when filed; and (4) Entex, Inc. and Louisiana Gas Service Company suggested that the Commission approve the Settlement as to all consenting parties and set Docket 85 for hearing only as to the one non-consenting party (Texas Eastern). Laclede argues before this court that it was arbitrary and capricious for FERC to reject the Settlement without considering any of these alternatives. It relies, however, solely on cases holding, in the context of rulemaking under the Administrative Procedure Act, that an agency must consider all reasonable alternatives presented to it. See Motor Vehicle Manufacturers Association v. State Farm Mutual Auto Insurance Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 2866, 77 L.Ed.2d 443 (1983); Walter O. Boswell Memorial Hospital v. Heckler, 749 F.2d 788, 797, 802-03 (D.C.Cir.1984); Farmers Union Central Exchange, Inc. v. FERC, 734 F.2d 1486, 1511 (D.C.Cir.1984); International Ladies’ Garment Workers’ Union v. Donovan, 722 F.2d 795, 817-18 (D.C.Cir.1983). The Commission responds with a case involving a license proceeding, Vermont Yankee Nuclear Power Corp. v. NRDC, 435 U.S. 519, 551, 98 S.Ct. 1197, 1215, 55 L.Ed.2d 460 (1978), which held that the requirement in the National Environmental Policy Act (NEPA) that an agency provide “a detailed statement [considering] alternatives to the proposed action” did not mean that an agency’s NEPA statement can “be found wanting simply because the agency failed to include every alternative device and thought conceivable by the mind of man.” We need not now decide how the logic of these cases applies in the context of a proceeding under the Natural Gas Act, on review of which “we must uphold the order if it is just and reasonable in its consequences____” East Tennessee Nat. Gas Co. v. FERC, 631 F.2d 794, 798 (D.C. Cir.1980) (citing Permian Basin Area Rate Cases, 390 U.S. 747, 767, 88 S.Ct. 1344, 1360, 20 L.Ed.2d 312 (1968)). For present purposes, it is enough to say that, where a party raises facially reasonable alternatives to FERC’s decision to reject a contested settlement, the agency must either consider those alternatives or give some reason, within its broad discretion over contested settlements, Arctic Slope Regional Corp. v. FERC, 832 F.2d 158, 164 (D.C.Cir.1987), for declining to do so. The court cannot say that the consequences of the agency’s rejection are “just and reasonable” if it risks visiting on one party a substantial hardship that, for all that appears in the agency’s decision, might be avoided without injury to any other party or to the public interest. Nor may we redeem, as our dissenting colleague argues we should (Dissent at 1504-1505), FERC’s failure to consider these alternatives by providing our own explanations for why each of the proffered alternatives was inadequate. Had FERC itself advanced such explanations, we would consider them in determining whether its actions were reasonable. It did not [242] do so, however, and we “must judge the propriety of [administrative] action solely by the grounds invoked by the agency.” SEC v. Chenery Corp., 332 U.S. 194, 196, 67 S.Ct. 1575, 91 L.Ed. 1995 (1947). C. FERC’s Power to Order Refunds Laclede also contends that, because the Settlement provided for United to make refunds for the period from May 1, 1986 until such time as FERC approved the Settlement, and because there was a substantial dispute over whether the Commission would have the power to order such refunds if the Settlement were not approved, FERC should have considered whether it could later order such refunds before it determined to reject the Settlement. In its initial order, FERC simply asserted that “United’s customers [were] protected by the refund obligation.” 41 FERC at 61,-236. After a number of commenters challenged that conclusion on rehearing, FERC merely repeated its assertion, again without analysis. Assertion and reassertion, without more, is not the reasoned decision-making required of an administrative body.* The Commission did also observe that “[r]efunds are a remedy,” and held that any concern about the availability of a remedy is appropriately addressed only after the existence of a wrong has been determined. Even assuming that the Commission was correct both that an immediate forum for the resolution of the previously unresolved issues was in the public interest and that none of the alternatives proffered by the parties was satisfactory, however, it does not follow, without more, that the Settlement should be rejected. That depends upon the consequences of rejecting it — which the Commission refused to consider. If the consequence is to foreclose later ordering United to make refunds comparable to those provided for in the Settlement, that may or may not weigh determinatively against rejection — that is for the Commission to decide. If it is immaterial whether the Commission could later order such a refund because, in its judgment, countervailing considerations would still lead it to reject the Settlement and the refunds along with it, let it say so. But willfully to blind itself to the consequences of its actions is neither logical nor within the agency’s broad discretion over contested settlements. Many millions of dollars of ratepayers’ money may be at stake. When so much depends upon the agency having a sure footing, it is not too much for us to demand that it look first, and then leap if it likes. III. Conclusion For the foregoing reasons, we grant the petition for review and remand the case to FERC. So Ordered. Footnotes [*] But see Lewis Carroll, The Hunting of the Snark, Fit the First, The Landing (1876): "Just the place for a Snark!” The Bellman cried, As he landed his crew with care; Supporting each man on the top of the tide By a finger entwined in his hair. "Just the place for a Snark! I have said it twice; That alone should encourage the crew. "Just the place for a Snark! — I have said it thrice; What I tell you three times is true.”