Petition for Writ of Certiorari — Williams Pipe Line Co. v. Farmers Union Central Exchange, Inc.
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Office - Supreme Court, U.S.
84 -184 FILED
oes AUG & 1004
No. 84-
AS.
CLERK
IN THE
Supreme Court of the United States
OCTOBER TERM, 1984
WILLIAMS PIPE LINE COMPANY,
. Petitioner
FARMERS UNION CENTRAL EXCHANGE, INC., et al.,
FEDERAL ENERGY REGULATORY COMMISSION, and
UNITED STATES OF AMERICA,
Respondents
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
ROBERT G. BLEAKNEY, JR.*
One Post Office Square
Boston, MA 02109
(617) 338-2903
DAVID M. SCHWARTZ
ROBERT L. CALHOUN
1025 Connecticut Ave., N.W.
Washington, D.C. 20036
SULLIVAN & WORCESTER (202) 775-2190
WILLIAM J. COLLINGSWORTH
JOHN S. ESTILL, JR.
HALL, ESTILL, HARDWICK, Bank of Oklahoma Tower
GABLE, COLLINGSWORTH One Williams Center
& NELSON Tulsa, OK 74172
Of Counsel (918) 588-2655
Attorneys for Williams Pipe
Line Company
August 2, 1984 * Cou sel of Record
EE EE | TE
WILSON - EPES PRINTING Co., INC. - 789-0096 - WASHINGTON. D.C. 20001
QUESTIONS PRESENTED FOR REVIEW
1. Whether the Court of Appeals has improperly re-
stricted the authority of the Federal Energy Regulatory
Commission to adopt its own methodology for evaluating
the reasonableness of oil pipeline common carrier rates?
2. Whether Williams Pipe Line Company has been de-
nied procedural due process by the Circuit Court’s af-
firmance of FERC’s finding, in a general industry-wide
rulemaking proceeding, that the purchase price paid by
Williams in 1966 would not be considered for ratemaking
purposes where Williams had received no notice of any
such issue?
(i)
ii
PARTIES TO THE PROCEEDINGS BELOW
The parties to the proceedings before the Court of Ap-
peals, whose judgment is sought to be reviewed, were as
follows:
Farmers Union Central Exchange, Inc.
Farmland Industries and its subsidiary, CRA, Inc.
Kerr-McGee Refining Corporation
Land O’Lakes, formerly Midland Cooperatives, Inc.
National Cooperative Refining Association
Williams Pipe Line Company
Association of Oil Pipe Lines
Phillips Pipe Line Company
ARCO Pipe Line Company
Mid-America Pipeline Company
Marathon Pipe Line Company
Buckeye Pipe Line Company
Hydrocarbon Transportation, Inc.
Texas Eastern Transmission Corporation
Belle Fourche Pipe Line Company
Getty Pipeline, Inc.
Sun Pipe Line Company
Federal Energy Regulatory Commission
United States of America
TABLE OF CONTENTS
QUESTIONS PRESENTED FOR REVIEW ................
PARTIES TO THE PROCEEDINGS BELOW ............
TABLE OF AUTHORITIES CITED .............................-
EE MEINE cecincincecsinmnindéinssndssinnnntiphneienniiennnnsenseetiinittian
SII iskttaccnsnivowncticdeonunciannihensoveen eonieeisnaetsedaaeateed
CONSTITUTIONAL PROVISIONS AND STATUTES
TID ssi chic nelegdaenlensikccetennahaseincietesieesanntmiainoatalitatat
ye we 1 ty Di iy i OF | ea
A. Proceedings Prior to the FERC Proceedings......
B. Proceedings Before the FERC ..............................
C. Proceedings Before the Court of Appeals -...........
REASONS FOR GRANTING THE WRIT .....................
I. THE FERC IS EMBARKING UPON A NEW
ERA IN THE REGULATION OF THE OIL
PIPELINE COMMON CARRIER INDUSTRY ;
FOR THAT REASON ALONE THE WRIT
i eB BE). o 5 | ee
II. THE COURT OF APPEALS HAS IMPROP-
ERLY RESTRICTED THE SCOPE OF FERC’S
AUTHORITY TO ARRIVE AT ITS OWN
METHODOLOGY FOR EVALUATING THE
REASONABLENESS OF OIL PIPELINE
COMMON CARRIER RATES ................-.......-...
A. Preliminary Comments ............-....----.--.2-2020-022-
B. The Court of Appeals Decision ................--------
C. The Court of Appeals’ Incorrect Interpreta-
tion of the Interstate Commerce Act’s Rate
REET P aE eS OO nee
Page
aA a f&# NY WY W
10
10
12
13
iv
TABLE OF CONTENTS—Continued
Page
III. WILLIAMS HAS BEEN DENIED PROCE-
DURAL DUE PROCESS BY THE CIRCUIT
COURT'S AFFIRMANCE OF THE FERC
FINDING, WITHOUT NOTICE, THAT THE
PURCHASE PRICE WILLIAMS PAID IN
1966 FOR THE GREAT LAKES PIPE LINE
COMPANY PROPERTIES WOULD NOT BE
CONSIDERED FOR RATEMAKING PUR-
TONES EET iti 25 |
NY acnicnssesbienccindainilevinisnichatssinnaietitaiianietiintaaimdea 29
[THE APPENDIX IS SEPARATELY BOUND]
Vv
TABLE OF AUTHORITIES
Cases Page
American Commercial Lines, Inc. v. Louisville &
NB. Co., 998 U.S. Gl CIGGB) ncnncncccce 23
American Paper Institute v. American Electric
Power Service Corp., U.S. , 103 S.Ct.
ROME CROTD assent ce eee 16
Baltimore Gas and Electric Co. v. NRDC, ——
U.S. , 106 S.Ct. 2346 (1668) .........0. 24
Bob Jones University v. United States, US.
» BOB BK. BURT Ce kc cc 23
Chevron U.S.A. Inc. v. Natural Resources Defense
Council, Inc., U.S. , 52 LW 4845 (June
i SOY ines ceiickcnciciccie enone eee 24, 25
Colorado Interstate Co. v. FPC, 324 U.S. 581
SPR RDMEP are Nae a Mee natgayt Hse rk. PL 23
Farmers Union Central Exchange v. FERC, 584
F.2d 408 (D.C. Cir. 1978); cert. den. sub nom.
Williams Pipe Line Company v. FERC, 439 U.S.
De CD ccstnvcntsctestcidctaicnboeneacee eee passim
Farmers Union Central Exchange v. Federal En-
ergy Regulatory Commission, 734 F.2d 1486
ERED sarivcicivccprvcenicasisigiaaideelinaan ieee passim
FPC v. Hope Natural Gas Co., 320 U.S. 591
ENED sxscsitsisenreapssacccksicalibebdimedht ecko leessaeneabte tia asaaiiaenaaes 8, 19, 24
FPC v. Natural Gas Pipeline Co., 315 U.S. 586
CRED caisccctcnnsideeiencan ipl Rate telat biel ccece ee cate 19
Haig v. Agee, 453 U.S. 280 (1981) ................00........ 23
ICC v. New York, N.H. & H.R.R. Co., 287 U.S. 187
«SARGENT CRN ses ene ene NRT OBA UE PNR eo SO: BI 18
Minnelusa Oil Corp. v. Continental Pipe Line Co.,
Ee es ID ~.icascscs a ticeiscescnisieepetenanere esas 11
Mobil Alaska Pipeline Co. v. United States, 434
hs RE. y 3 Reece te NL veto od ee nt ee Cru 13
Mobil Oil Corp. v. FPC, 417 U.S. 283 (1974) .......... 14, 18
Motor Vehicle Manuf. Assn. v. State Farm Mutual,
U.S. , 108 S.Ct. 2856 (1983) -............... 23
National Association of Greeting Card Pubs. v.
USPE, USS. , 103 S.Ct. 2717 (1983)... 23
Permian Basin Area Rate Cases, 390 U.S. 747
RARE -ceskscinajissisitetcnininlelcaacalchicchctieeelicipsdeibaacealdga Scena 9,10
vi
TABLE OF AUTHORITIES—Continued
Page
Petroleum Products, Williams Bros. Pipe Line
Company, 351 1.C.C. 102 (1975) ......................... 2
Petroleum Products, Williams Bros. Pipe Line
Company, 355 1.C.C. 479 (1976) .......0000.....eeee eee 2
Petroleum Rail Shippers Ass’n v. Alton & S. R.R.,
Oe Reese Ee PTE dstanisieeencacttlieinestoncnnmincnce 3,11
Public Serv. Comm’n v. Mid-Louisiana Gas Co.,
U.S. , 108 S.Ct. 3024 (1988) .....0 16, 22
Reduced Pipeline Rates and Gathering Charges,
243 I.C.C. 115( 1940), 272 I.C.C. 375 (1945) ...... 11
Smyth v. Ames, 169 U.S. 466 (1898) —...000200022. ooo... 17
Southwestern Bell Tel. Co. v. Missouri Pub. Serv.
Comm’n, 262 U.S. 276 (1928) .............-.---.-..----.--. 19
Trans Alaska Pipeline Rate Cases, 436 U.S. 591
EEE Sissi scscniierecccaddabaneeimcaamataaceciata Gabaansanl 3, 10, 13
Udall v. Tallinan, 380 U.S. 1 (1965) ............2.02.222.... 23
United States v. Champlin Refining Co., 341 U.S.
Be TIP kcstiatcecemcdsincctbadiccntanes | nipcnntiananeeaies 22
Vermont Yankee Nuclear Power Corp. v. NRDC,
Ge Sak ee Ce ction 24
Williams Pipe Line Company, 21 FERC (CCH)
© 61,260 (November 30, 1982) ..............00000..000000... passim
Statutes and Constitutional Provisions
Constitution of the United States, Fifth Amend-
I nisiaitaceicinnsetinass okintdceaceasoarisicingaibin caine itt lead ete: 2, 26
re Oe tic Oe OS eeiscrsiccanccnccitsvicatnnlnnbaraebadabeimcamees 2, 26
De Wi ee ocd is secsenecntsrcinntaetouaaiiiagocgd 14
BU a I seein nnisnsonevvsieoceninsitenenn ttsisaiamniigecstiaa ee sala sath 16
Be te FI bewiceinesncsinsicincensisiensiesaiianincinsinmedaciigubmadibamuasines 2
Be Ne IE eitiiteinaetisoncccninnesssnsnnteamvansiivilsisbceicccenitibounabanioca 5
Be es Be I eiinisnerses sticsnesninsinnninsdenwnitivessenpsslacldntcslehbadibseinons 5
Be I I bic dccsacielcunsonnpanaseniosnssicininlehcpsscinsndeisiibeniacbaabeananiois 2
I Tres Oe a anes iannncscecitienticcctkascsinnssssaeetecersacs 3
49 U.S.C. $1, et seq. ........................... siete Retirees 2
kL Le eee ne een ewe. 21
TD © ccericitaenscesiscntgeasichscctetiigibicnidieselammean tala 26
I pidscisinscsioncictnssnrevionietaticlaseiipediaemaiaiadeaniaiad ale 21
Ge Te I sitieceiniserntesiniintnis ieiuaasieaa aan ae passim
vii
TABLE OF AUTHORITIES—Continued
Page
Hepburn Act of 1906, 34 Stat. 584 00. 17, 18, 22
Staggers Rail Act of 1980, Public Law 96-448, 96th
Cong., Oct. 14, 1980, 94 Stat. 1895 -...........0........... 21
Valuation Act of 1913, 62 Cong. Sess. III, c. 92, 37
BMI. < WHITE cicnssn vsicointscnsdisasincbodeaisniseaschantiastaaeiaiatasaaanannaane passim
Miscellaneous
, _ eeNON Re Se pk Pe 18
Ee FI I cokvstksinenttesbcietiodcsntaepetniendcoenanietens 18
First Independent Offices Appropriation Act, 1954,
Oe Cy SE . cicetercscncctcicvoncccenimavesinnercs 19
General Appropriations Act, 1951, 64 Stat. 595,
5 SRR ei deere tar roe Line ae een iy "50 NRE a 19
Hearings on Independent Offices Appropriations,
1951, of the House Appropriations Committee,
8ist Cong., 2d Sess., pt. 3, at 763 (1950) _........... 19
Hearings on Independent Offices Appropriations,
1951, Before the Subcommittee on Transporta-
tion of the Senate Appropriations Committee,
81st Cong., 2d Sess., at 794, 805-6 (1950) _........ 19
ICC Annual Reports, 1961-1968, inclusive .............. 19
Independent Offices Appropriation, 1950, 63 Stat.
I I toe a ee 19
Independent Offices Appropriation, 1953, 66 Stat.
393, 403-4 (1952) _... Bo ahllaceiuecaeaniaaee se tesaepiimen maine ce 19
Independent Offices Appropriation Act, 1955, 68
I I, ME IED apth cerca chcerssb sacekcsoiene eteaecoccucn 19
Senate Report No. 1373 to Accompany S.757 Elimi-
nation of Unnecessary Valuation and Reporting
Requirements, 90th Cong. 2d Sess., July 9, 1968,
i is We is een een idemaicn 21
87th Congress, 2d Session, H.R. 12249 and §.3420.. 20
88th Congress, Ist Session, H.R. 5247 and §.1149.... 20
90th Congress, Ist Session, H.R. 6535 and S.757...... 20
IN THE
Supreme Court of the Wuited States
OCTOBER TERM, 1984
No. 84-
WILLIAMS PIPE LINE COMPANY,
os Petitioner
FARMERS UNION CENTRAL EXCHANGE, INC., et al.,
FEDERAL ENERGY REGULATORY COMMISSION, and
UNITED STATES OF AMERICA,
Respondents
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Petitioner, Williams Pipe Line Company (Williams),
prays that a writ of certiorari issue to review the judg-
ment of the United States Court of Appeals for the Dis-
trict of Columbia Circuit entered March 9, 1984 in pro-
ceedings styled Farmers Union Ce..tral Exchange v.
Federal Energy Regulatory Commission and the United
States of America, No. 82-2412 (Farmers Union II).
Williams is an oil pipeline common carrier and partici-
pated in the proceedings before the Court of Appeals both
as a petitioner and as an intervenor-respondent.
OPINIONS BELOW
The decision of the Court of Appeals sought to be re-
viewed has been reported as Farmers Union Central Ex-
change v. Federal Energy Regulatory Commission, 734
F.2d 1486 (1984). The decision of the Federal Energy
2
Regulatory Commission (FERC) that was reviewed by
the Court of Appeals is Williams Pipe Line Company, 21
FERC (CCH) { 61,260 (November 30, 1982). Copies of
both decisions are included in a separately bound Appen-
dix.
JURISDICTION
The jurisdiction of the Court is invoked under 28
U.S.C. §§ 1254 and 2350. The decision of the Court of
Appeals was entered March 9, 1984. Petitions for re-
hearing filed by Texas Eastern Transmission Corpora-
tion, the AOPL and Williams with respect to certain is-
sues were denied by the Court of Appeals on May 4,
1984,
CONSTITUTIONAL PROVISIONS AND
STATUTES INVOLVED
This case involves the due process clause of the Fifth
Amendment to the United States Constitution. It also
involves sections of the Interstate Commerce Act (49
U.S.C. §§ 1, et seq.) and the Administrative Procedure
Act (5 U.S.C. §§ 551, et seg.). The text of the pertinent
parts of each is set forth in the separately bound Ap-
pendix filed simultaneously with this petition.
STATEMENT OF THE CASE
A. Proceedings Prior to the FERC Proceedings
These proceedings began over 12 years ago before the
Interstate Commerce Commission (ICC) when that
agency had regulatory jurisdiction over oil pipeline rates.
After lengthy hearings before that Commission, Wil-
liams’ rates were twice found to have been just and rea-
sonable under that agency’s standard. Petroleum Prod-
ucts, Williams Bros. Pipe Line Company, 351 I.C.C. 102
(1975); Petroleum Products, Williams Bros. Pipe Line
Company, 355 1.C.C. 479 (1976) .*
1 The standard applied by the ICC to Williams had been used by
that Commission in prescribing rates for Williams’ predecessor,
3
The ICC decisions were appealed to the United States
Court of Appeals for the District of Columbia Circuit by
the group of shipper complainants (Mid-Continent Ship-
pers). Before that appeal was argued, the Department
of Energy Organization Act was passed (42 U.S.C.
§§ 701, et seg.), transferring from the ICC to the FERC
the federal regulatory authority over oil pipeline rates.
As a result, FERC was substituted for the ICC as the
respondent agency before the Court of Appeals. The FERC
took no position as to the merits of the ICC’s decisions,
but instead urged that the court remand the case to it so
that FERC might form its own industry-wide principles
for evaluating the reasonableness of oil pipeline rates.
The Court of Appeals granted that request in its decision
in Farmers Union Central Exchange v. FERC, 584 F.2d
408 (D.C. Cir. 1978) (Farmers Union I). Williams’ pe-
tition for certiorari was denied by this Court in Williams
Pipe Line Company v. FERC, 439 U.S. 995 (1978).
In response to the remand order of the Court of Ap-
peals in Farmers Union I, FERC commenced its own
further proceedings. Those proceedings were separated
into two phases, the first of which (Phase I) was the
subject of the FERC decision which led to the further
Court of Appeals decision (Farmers Union II) that is
the subject of this petition. The stated object of Phase I
of the FERC proceedings was the development of generic
ratemaking criteria for all oil pipelines subject to FERC’s
regulatory jurisdiction. Phase I was to be followed by
Phase II proceedings, dealing with the application of the
Phase I criteria to the specific rates of Williams chal-
lenged by the Mid-Continent Shippers.
Great Lakes Pipe Line Company, over thirty years before in Petro-
leum Rail Shippers Ass’n. v. Alton & S. R.R., 243 I.C.C. 589 (1941).
See also, Trans Alaska Pipeline Rate Cases, 436 U.S. 591, 636, n.13
(1978), where this Court recognized the ICC’s use of a valuation
rate base for oil pipelines.
4
B. Proceedings Before the FERC
The Phase I proceedings before the FERC developed a
record of thousands of pages of prepared testimony and
exhibits presented by over 50 witnesses. An official tran-
script of over 8,000 pages resulted from 59 hearing days
before the FERC Administrative Law Judge. In addi-
tion, there were two oral arguments before the members
of the Commission.
On November 30, 1982, FERC’s decision was issued. In
a lengthy opinion, FERC analyzed the pros and cons of
the contentions of the parties as to the ratemaking cri-
teria it should adopt, and set out its own evaluation of
the industry, its statutory responsibilities, and the rea-
sons why particular ratemaking regulatory approaches
were or were not, in its view, appropriate. It concluded
that for oil pipelines a light rather than a heavy regula-
tory hand was appropriate (App. B-65, B-66; 21 FERC
at 61,585, 61,586) ,* thereby implicitly endorsing the regu-
latory approach that had been used by the ICC for this
industry for over 40 years. Like the ICC, the FERC de-
cided to continue the use, for rate base purposes, of
pipeline valuations prepared by the Commission (and
previously by the ICC) under Section 19a of the Inter-
state Commerce Act (49 U.S.C. §19a) (App. B-233 to
B-235; 21 FERC at 61,632).
While Williams-specific issues were to be dealt with in
a later Phase II, FERC inexplicably made one finding in
its Phase I decision on a Phase II issue of immense im-
portance to Williams. That issue was the ratemaking
treatment to be given to the price Williams had paid in
1966 for the assets of the former Great Lakes Pipe Line
Company. FERC held that Williams’ purchase price was
* The appendix references are to sections of the separately bound
Appendix.
5
to be given no consideration whatsoever for ratemaking
purposes even though that issue was not then before it
(App. B-243; 21 FERC at 61,636).
C. Proceedings Before the Court of Appeals
FERC’s Phase I decision was the subject of several
petitions for review brought in the Court of Appeals
pursuant to the provisions of 28 U.S.C. §§ 2321(a), (b)
and 28 U.S.C. §§ 2341(2), (3). The ratemaking approach
adopted ty FERC was challenged by the Mid-Continent
Shippers and by the Department of Justice, each of
whom argued that utility-type, original cost ratemaking
was the only approach that could properly be adopted by
FERC for the oil pipeline industry. On behalf of the
industry, the AOPL appealed from FERC’s treatment
of two limited issues, but did not challenge FERC’s con-
clusion as to its overall ratemaking approach. Williams
also did not challenge FERC’s overall approach but, as
a petitioner before the Court of Appeals, raised two addi-
tional issues. First, Williams argued that FERC had
erred in its treatment of Williams’ purchase price in its
Phase I decision. Second, Williams claimed that FERC
had improperly failed to provide that its new ratemaking
standard would not be applied retroactively to rates es-
tablished under a different standard.
The Court of Appeals’ decision essentially adopted the
contentions of the Department of Justice and the Mid-
Continent Shippers, while it substantially rejected the
positions advanced by FERC, AOPL, Williams and other
members of the oil pipeline industry. While giving oc-
easional lip service to the proposition of agency discre-
tion and the limited scope of its review of FERC’s con-
clusions (App. A-30, A-31), the court did everything but
specifically mandate to the FERC, in haec verba, that
FERC should utilize utility-type original cost ratemaking
for this non-utility industry (App. A-33). Flatly stating
that cost-based ratemaking was to be used absent a
6
showing of sufficient reasons for departure therefrom,
the Court of Appeals concluded that FERC’s Phase I de-
cision had not made the requisite showing (App. A-34).
Of particular relevance to the questions sought to be
reviewed, the Court of Appeals concluded that FERC’s
overall approach contravened its statutory directive to
determine whether rates are “just and reasonable” (App.
A-30). This failure was held to have resulted (1)
from FERC’s establishment of maximum rate ceilings
above the “zone of reasonableness” required by the stat-
ute; (2) from FERC’s failure to specify in detail how
“non-cost” factors might justify such high maximum
rate levels; (3) from FERC’s erroneous belief that the
climate of opinion in 1906 “shaped a congressional pur-
pose to impose only very lighthanded rate regulation on
the oil pipelines”; and (4) from FERC’s improper re-
liance on its findings that oil pipeline rate regulation
was unimportant to consumers at large and that regula-
tion for this industry was best left to market forces
(id.).
The Court of Appeals opinion gave but limited atten-
tion to the two issues raised by Williams. Concerning
Williams’ claim that FERC should have made a specific
finding that its new ratemaking standard would not be
applied retroactively, the decision contained no extended
discussion, but indicated agreement with Williams on the
issue. Thus, the Court of Appeals noted that this phase
of the case constituted rulemaking, and pointed out that
the definition of “rule” under the Administrative Proce-
dure Act included “the approval or prescription for the
future of rates” (emphasis added) (App. A-25). Even
more significantly, in discussing potential problems that
could arise from a change to a new regulatory approach,
the court specifically affirmed the principle stated by the
Farmers Union I court that the solution to reliance by
the pipeline industry on the ICC’s return on valuation
approach was “not to perpetuate that reliance but to end
it prospectively, without allowing reparations based on
7
its occurrence in the past” (emphasis added) Farmers
Union I, 584 F.2d at 419; Farmers Union II, App. A-
66.
As to Williams’ challenge to FERC’s treatment of its
1966 purchase price, the court’s opinion devoted but a
single paragraph and three footnotes. On the critical
point of whether Williams had been given proper notice
that its purchase price was at issue in Phase I, the court
specifically found that Williams had in fact received
such notice (App. A-87, n.78). As shall subsequently be
shown, that conclusion relied solely on two documents
that compel precisely an opposite conclusion. Other argu-
ments of Williams as to FERC’s treatment of its pur-
chase price were rejected with virtually no discussion,
with several characterized as frivolous.
REASONS FOR GRANTING THE WRIT
I. THE FERC IS EMBARKING UPON A NEW ERA
IN THE REGULATION OF THE OIL PIPELINE
COMMON CARRIER INDUSTRY; FOR THAT REA-
SON ALONE THE WRIT SHOULD BE GRANTED.
The FERC decision reflects the effort of that agency to
develop its own approach to the regulation of oil pipeline
rates. The opportunity to do so within the framework of
this case was granted FERC by the Court of Appeals in
Farmers Union I. That court remanded the case, previ-
ously twice-decided by the ICC, to give FERC, in re
sponse to FERC’s specific request, the opportunity to be-
gin its new “regulatory duties in this area with a clean
slate” (584 F.2d at 421). Thus, the November 30, 1982
decision of FERC and the March 9, 1984 decision of the
Court of Appeals involve matters of major significance
to an industry that is the major transporter of this
nation’s supply of crude petroleum and refined petroleum
products. Indisputably this industry is of extreme im-
portance to the economic well-being of the nation.
Moreover, it is not only the importance of this indus-
try to the nation that calls for granting certiorari in this
8
case. This Court should take this case because it involves
important questions of statutory interpretation and of
the role of the judiciary in administrative appeals, and,
for Williams, an important issue of procedural due proc-
ess. This is a case where the Court of Appeals for the
District of Columbia Circuit has once more reached well
beyond its proper judicial review role and, instead, has
acted as a super-agency.
As will be shown, the Court of Appeals has indulged
in a selective, contorted view of the Interstate Commerce
Act and its legislative history that results in an improper
conclusion as to the scope of administrative discretion to
approve rates under the Act. By so doing, the court has
ignored clear evidence of Congressional intent that the
“just and reasonable” standard for common carrier rates
under the Interstate Commerce Act was not intended by
Congress either in the past or the present to permit rates
measured only by the restrictive original cost standards
commonly imposed today by regulators, including FERC,
on franchised public utilities.
The court has also ignored that FERC’s use of a valua-
tion rate base, not only accords with prevailing legal con-
cepts at the time oil pipelines were first made subject to
the Interstate Commerce Act, but that such use is in ac-
cord with clear evidence of a continuing Congressional
intent. That intent was specifically enacted into law in
1913 in the Valuation Act (49 U.S.C. $19a) and has
been subsequenlty reaffirmed on numerous occasions.’
Finally, the Court of Appeals has turned the teaching
of this Court in the Hope* case on its head. Where the
Court, in Hope, freed regulators from strict requirements
% Significantly and without explanation, the Court of Appeals does
not even discuss the legislative history, referred to hereinafter, of
§ 19a of the Interstate Commerce Act prior and subsequent to its
enactment.
*FPC v. Hope Natural Gas Co., 320 U.S. 591 (1944).
9
as to ratemaking methodology, the Court of Appeals
would hold FERC to the use of a single methodology—
original cost. The Court of Appeals has plainly confused
what is permissible with what is mandatory.
Over the course of this case, two different federal
agencies have reached similar conclusions as to how to
regulate oil pipeline rates. The decisions of both agencies
have been rebuffed by the Circuit Court. In the first in-
stance, Farmers Union I, the overruling of the agency
(ICC) was at least in part because the new agency
(FERC) wanted its chance. The Court of Appeals in
Farmers Union I claimed to be giving it that chance—
the freedom to write on a clean slate (584 F.2d at 421).
Yet, when the second agency, after great effort, pub-
lished its conclusions, the result was the same—another
rebuff. What was merely hinted at as only an option
in the Farmers Union I decision, but is now virtually
mandated in the decision in Farmers Union II, is that
this Court of Appeals wants to have its ideas of rate
regulation imposed on this industry and will not ap-
prove an agency decision that uses a different approach.
At issue is whether the policy as to how this industry’s
rates are to be regulated is to be decided by FERC or by
the Court of Appeals for the District of Columbia Cir-
cuit.
In the Permian Basin Area Rate Cases, 390 U.S. 747
(1968), this Court granted a petition for a writ of cer-
tiorari to review a Court of Appeals decision involving
a new area rate-making approach of the Federal Power
Commission, FERC’s predecessor. The Court stated its
reason for granting the petition in that case, as follows
(id. at 755):
Because these proceedings began a new era in the
regulation of natural gas producers, we granted
certiorari and consolidated the cases for briefing and
extended oral argument.
10
When this Court denied Williams’ petition for certio-
rari after the Farmers Union I decision, FERC had not
begun its consideration of its own ratemaking approach.
Now, after lengthy proceedings it has done so, but the
Court of Appeals has, nevertheless, expressed its strong
criticism of that approach. As in the Permian case, an
industry of crucial importance to the economy of the na-
tion is involved. As in Permian, “a new era in the regula-
tion” of oil pipeline rates is beginning, and the shape of
that era and the freedom with which FERC will be per-
mitted to deal with that new era are at stake. The rea-
sons that supported the granting of certiorari in Permian
are present here: the requested writ should issue.
II. THE COURT OF APPEALS HAS IMPROPERLY RE-
STRICTED THE SCOPE OF FERC’S AUTHORITY
TO ARRIVE AT ITS OWN METHODOLOGY FOR
EVALUATING THE REASONABLENESS OF OIL
PIPELINE COMMON CARRIER RATES.
A. Preliminary Comments.
Although oil pipeline common carrier rates have been
subject to federal regulation under the Interstate Com-
merce Act since 1906, this Court has never had occasion
to consider the regulatory approach used by the ICC or
the FERC in evaluating the reasonableness of that in-
dustry’s rates.® In fact, apart from the various phases of
the present protracted case, there has been little formal
litigation concerning oil pipeline rates in any forum, ad-
ministrative or judicial.
This relative lack of litigation over a span of almost
eighty years must be attributed at least in part to the
ICC’s conclusion that a light regulatory hand was appro-
5 The Trans Alaska Pipe Line Rate Cases, supra, decided by this
Court in 1978, did not involve review of the ICC’s oil pipeline rate-
making criteria, although the Court’s opinion included recognition
of that Commission’s customary use of a return-on-valuation meth-
odology (436 U.S. at 636, n.13).
11
priate for this industry and to its use of a guideline
return-on-valuation, thereby giving weight to both orig-
inal cost factors and to the value of the assets dedicated
to carrier service. Reduced Pipeline Rates and Gather-
ing Charges, 248 I.C.C. 115 (1940), 272 IC.C. 375
(1945); Petroleum Rail Shippers Assn. v. Alton & S.
R.R., 243 1.C.C. 589 (1941) ; Minnelusa Oil Corp. v. Con-
tinental Pipe Line Co., 258 I.C.C. 41 (1944). While “if
it ain’t broke, don’t fix it” may not be a legal maxim,
this lack of litigation and the lack of Congressional ac-
tion to interfere with or modify the ICC’s regulatory
approach when requests therefor were made would, at the
minimum, indicate that the past regulatory approach has
served the nation well and that it has been consistent
with Congressional desires.
As previously noted, the FERC asked the Court of
Appeals for the opportunity to develop its own rate
making approach. That request was granted and the
Court of Appeals gave FERC permission to “write on
a clean slate.” Farmers Union I, 584 F.2d at 421. It is
significant that FERC was the successor to the former
Federal Power Commission (FPC), that was given the
additional responsibility of oil pipeline regulation under
the Interstate Commerce Act, a statute with which it had
no prior experience. Thus, FERC began its existence as
an agency whose rate regulatory background and experi-
ence was almost entirely in the field of strictly regulated,
franchised, public utilities such as electric generating
companies and natural gas transmission companies.
Therefore, its rate experience at that time was limited to
the use and application of original cost-based ratemaking,
at least during the period since this Court’s decision in
the Hope case, supra.
FERC admittedly had a “strong predisposition” to ex-
tend the same, utility-type regulatory approach to this
additional industry placed under its jurisdiction (App.
B-191; 21 FERC at 61,619). However, in this case,
FERC concluded that a different and far less restrictive
12
approach for the oil pipeline industry was desirable. That
approach would continue use of the valuation rate base
used by the ICC and would permit returns on that rate
base measured by returns earned by the more successful
sectors of the economy (App. B-275; 21 FERC at
61,645). Thus, this case, which is unusual in many re-
spects, involves the novel situation where two different
federal agencies of divergent backgrounds have each con-
sidered how to regulate the rates of the oil pipeline indus-
try and have arrived at similar regulatory approaches.
The opinion of the Court of Appeals in Farmers Union
II, which Williams now asks this Court to review, would
virtvally compel FERC to adopt a method for which the
Court of Appeals has an obvious “strong predisposition,”
a method which—after thousands of pages of record,
many days of hearings, lengthy briefs, and two oral ar-
guments—the Commission rejected.
B. The Court of Appeals Decision.
The Court of Appeals would impose on this industry
its view that all rate regulation, no matter what the na-
ture of the industry, should be utility-type, original cost-
based. As we shall demonstrate hereinafter, the Court of
Appeals’ opinion is based upon an erroneous interpreta-
tion of the Interstate Commerce Act and of the scope of
agency discretion under that Act. Moreover, by its opin-
ion, the Court of Appeals has again intruded into the
area of agency discretion far beyond the proper scope of
its judicial review function despite repeated admonitions
from this Court. In so doing, the court has improperly
sought to impose its views on economic and regulatory
policy on the agency assigned that task by the Congress.
Rewriting the Interstate Commerce Act is the function
of the Congress, not that of the Court of Appeals. Mak-
ing policy determinations under that Act with respect to
the regulation of oil pipeline rates has been delegated by
the Congress to the FERC, not the Court of Appeals.
However, by its opinion in this case, the Court of Ap-
peals has usurped the responsibilities of both the Con-
gress and the FERC.
13
C. The Court of Appeals’ Incorrect Interpretation of
the Interstate Commerce Act’s Rate Standards.
The Court of Appeals’ conclusion that the FERC deci-
sion “contravenes” the statutory directive to determine
whether rates are “just and reasonable” was a principal
reason for its overruling of that decision and for its
remanding of the case for further consideration (App.
A-50). Critical, in turn, to that ultimate conclusion
was the Court’s finding that “the legislative history of
the Hepburn Act betrays FERC’s belief that ‘the climate
of opinion’ in 1906 shaped a Congressional purpose to
impose only very light-handed rate regulation on the oil
pipelines” (App. A-80). This issue—the Congressional
intent as to the degree of oil pipeline rate regulation to
be applied by FERC (and previously by the ICC)—is one
of fundamental importance in this proceeding. Its resolu-
tion will determine the future course of rate regulation
of this important industry.
It is important to note that, in seeking support for its
narrow interpretation of the “just and reasonable” stan-
dard of the Interstate Commerce Act (“ICA”), the Court
of Appeals relied on decisions of this Court, none of
which involved that language in that Act (App. A-32 to
A-35). All but one of the cases cited by the court in-
volved other types of regulated industries regulated under
other regulatory statutes (id.).* It is from those cases
that the Court of Appeals panel derives what it calls
“established ratemaking principles” (App. A-33) which
it would apply to oil pipelines as if they were public
utilities.
6 The only decision of this Court involving the Interstate Com-
merce Act among those cited by the Appeals Court in that section
of its opinion was the Trans Alaska Pipeline Rate Cases, supra.
That case, however, did not involve interpretation of the “just and
reasonable” standard of the ICA. It is to be noted, nevertheless,
that in another phase of that case, this Court upheld the ICC’s
policy determination to apply to oil pipelines an Interstate Com-
merce Act standard as to allowable interest on refunds by railroads.
Mobil Alaska Pipeline Co. v. United States, 434 U.S. 949 (1977).
14
Chief among the “principles” so found by the panel is
one described in a quotation from Mobil Oil Corp. v.
FPC, 417 U.S. 288 (1974), at 308, that “each deviation
from cost-based pricing [must be] found not to be un-
reasonable and to be consistent with the Commission’s
[statutory] responsibility” (emphasis added). Based on
this quotation, taken from a case arising under the Nat-
ural Gas Act, 15 U.S.C. §§ 717, et seq., the Court of
Appeals stated (App. A-33) :
Thus, when FERC chooses to refer to non-cost fac-
tors in ratesettting, it must specify the nature of
the relevant non-cost factor and offer a reasoned
explanation of how the factor justifies the resulting
rates.
The thrust of the latter statement, notwithstanding pur-
ported recognition elsewhere in the opinion that the “just
and reasonable” standard is not precise (App. A-31),
is that the Court of Appeals would hold FERC, as a mat-
ter of law, to utility-type, cost-based ratemaking for oil
pipelines absent an explanation, satisfactory to the court,
justifying consideration of other factors.
The reliance of the Court of Appeals on the decision
of this Court in Mobil Oil, supra, to support its ultimate
conclusion is misplaced even for public utilities, much
less the oil pipeline industry. The quotation from Mobil
Oil relied upon by the Court of Appeals contains words
inserted in brackets that twist the meaning of this
Court’s actual words. The court changed the phrase “was
found” to the phrase “must be found.” The complete
statement of this Court and its context reads as follows
(417 U.S. at 308-9) (emphasis added) :
Applying these criteria, Permian reversed the Court
of Appeals and sustained the Commission’s order,
although noting that the Commission had not ad-
hered rigidly to a cost-based determination of rates,
much less to one that based each producer’s rates on
15
his own costs.* Each deviation from cost-based pric-
ing was found not to be unreasonable and to be con-
sistent with the Commission’s responsibility to con-
sider not merely [417 US 309] the interests of the
producers in “maintain[ing] financial integrity, at-
tract[ing] necessary capital, and fairly compen-
sat[ing] investors for the risks they have assumed,”
but also “the relevant public interests, both existing
and foreseeable.” 890 US, at 792, 20 L Ed 2d 812.
“The Commission’s responsibilities necessarily oblige
it,” the Court said, “to give continuing attention to
values that may be reflected only imperfectly by pro-
ducers’ costs; a regulatory method that excluded as
immaterial all but current or projected costs could
not properly serve the consumer interests placed un-
der the Commission’s protection.” Jd., at 815, 20
L Ed 2d 312;
* Indeed, in addition to its general approval of such an ap-
proach, see 390 US, at 814-815, 20 L Ed 2d 312, the Court in
Permian Basin listed each of the noncost factors used by the
Commission and approved them. See id., at 815 n.98, 20
L Ed 2d 812.
The Court of Appeals thus converted a statement of fact
by this Court in a Natural Gas Act case into a purported
directive and on that constructed directive built its theory
as to what is required by the Interstate Commerce Act’s
“just and reasonable” standard. In fact, the Court of
Appeals is plainly of the view that this proposition is
applicable to any rate-regulated entity.
Yet, no cases under the Interstate Commerce Act sup-
port the Court of Appeals’ conclusion that these “prin-
ciples,” even if they exist under the Natural Gas Act,
are applicable to common carrier oil pipelines. Moreover,
the court’s reliance upon interpretations of “just and
reasonable” in cases arising under other statutes as a
basis for determining the meaning of that phrase under
the Interstate Commerce Act runs counter to the ruling
of this Court in a recent case arising under section 210
of the Public Utility Regulatory Policies Act of 1978
16
(“PURPA”), 16 U.S.C. § 824a, American Paper Insti-
tute v. American Electric Power Service Corp., ——
U.S. ——, 103 S.Ct. 1921 (1983). In that case, this
Court rejected a similar attempt to transfer the mean-
ing of a phrase from one statute to another, stating
(103 S.Ct. at 1928):
Simply on the basis of the statutory language, we
would be reluctant to infer that Congress intended
the terms “just and reasonable,” which are fre-
quently associated with cost-of-service utility rate-
making, . . . to adopt a cost-of-service approach in
the very different context of cogeneration and small
power production by nontraditional facilities.‘
Ironically, in Farmers Union I, supra, a different
panel of the same Court of Appeals expressed a reluc-
tance very similar to that expressed by this Court in the
American Paper Institute case. After noting the limited
degree of regulation of oil pipelines under the Interstate
Commerce Act, the Farmers Union I panel said (584
F.2d at 413):
For this reason, we may infer a congressional intent
to allow a freer play of competitive forces among
oil pipeline companies than in other common carrier
industries and, as such, we should be especially loath
uncritically to import public utilities notions into
this area without taking note of the degree of regu-
tion and of the nature of the regulated business.
The panel in Farmers Union II attempted to reconcile
its own opinion with this statement in Farmers Union I
(App. A-47, n.51). In its attempt, however, it claimed
no disagreement with the statement but, to the contrary,
said that it expressed a principle, “followed here” (id.).
The principle said to have been “followed here” was
7 Moreover, even as to a cost-of-service approach, this Court has
recently recognized that a particularized adherence to such a regu-
latory regime has proved impractical in the past. Public Serv.
Comm'n v. Mid-Louisiana Gas Co., —— U.S. ——, 103 S.Ct. 3024
(1983).
17
that neither original-cost based utility type regulation
nor valuation regulation “suggested by the Valuation
Act” must necessarily be used (id.). Putting aside the fact
that the Valuation Act (§19a of the Interstate Com-
merce Act, 49 U.S.C. § 19a) does far more than “sug-
gest” the use of a valuation rate base, the Court of Ap-
peals’ decision in this case can hardly be described as
following the principle referred to. The Farmers Union
II panel’s plain view is that cost-based pricing must be
used and its outright rejection of the use of a valuation
rate base contradicts rather than follows the statement
in Farmers Union J. It is the Farmers Union II court
that has uncritically imported “public utilities notions
into this area without taking note of the degree of regu-
lation and of the nature of the regulated business.”
The Court of Appeals also sought to justify its restric-
tive conclusion on portions of the legislative history of
the Hepburn Act of 1906. The court’s reliance on that
legislative history is unwarranted. At the time of the
Hepburn Act, the general ratemaking approach to “other
common carriers’ under the Interstate Commerce Act
was the fair return on the fair value of the property ap-
proach set forth by this Court in Smyth v. Ames, 169
U.S. 466 (1898). Thus, a Congressional intent in 1906
to subject oil pipelines to the same general ratemaking
standards of “other common carriers” supports rather
than refutes the methods used by both the FERC and the
ICC.
Moreover, the fact that value was an intended rate-
making consideration at that time was subsequently con-
firmed by the legislative history and passage of the Val-
uation Act of 1913, section 19a of the Interstate Com-
merce Act (49 U.S.C. § 19a, 62 Cong. Sess. III, ¢. 92, 37
Stat. 701). The Valuation Act compels Commission de-
termination of the valuation of oil pipeline assets and
provides that such a valuation figure shall be prima facie
evidence of the value of the carrier’s property in all pro-
ceedings under the Act (id. at §19a(i)). The Court of
18
Appeals’ opinion, while highly critical of valuations of
oil pipeline properties (App. A-18), fails even to mention
the fact that they are required (not merely suggested)
by statute. Nor is there room for any doubt that the
statute means what it says and that ratemaking is in-
cluded among the proceedings covered by its terms.
Senator LaFollette of Wisconsin, who presented the
legislation to the Senate, made this absolutely clear by
answering “certainly” when asked whether the Valuation
Act’s ultimate purpose was “the equitable adjustment of
rates.” 49 Cong. Rec. 3800. Indeed, this Court has rec-
ognized that the public purpose goal of Congress in en-
acting § 19a looked for “an accuracy that will make an
advance upon previous uncertainty.” ICC v. New York,
N.H. & H.R.R. Co., 287 U.S. 187, 205 (1932). Similarly,
in explaining the effect of a final valuation, the late Sen-
ator said it would be final “to the extent it is prima facie
evidence whenever a rate case arises,” 49 Cong. Rec.
3799.
In spite of the above, once having found a Congres-
sional intent in 1906 to apply the same ratemaking prin-
ciples to oil pipelines as then applied to other common
carriers, the Court of Appeals then made a wholly un-
warranted leap in logic by transferring to 1906 com-
mon carrier regulation the “established ratemaking prin-
ciples” it claims to have found in Mobil Oil, and other
non-common carrier cases (App. A-33). Nothing in
the cases cited in the court’s opinion, nor in the legisla-
tive history relied upon by the court, warrants any such
conclusion. There is a great deal, however, to support a
conclusion quite different from that of the Court of Ap-
peals. As previously noted, the Hepburn Act was passed
not at a time of original cost ratemaking but of fair
value ratemaking, and passage of the Valuation Act codi-
fied the Congressional intent that the current value of
assets at least be considered in common carrier rate
cases.
19
The court’s failure to recognize § 19a of the Interstate
Commerce Act and its legislative history cannot be ex-
plained away because the Valuation Act was enacted
prior to Justice Brandeis’ dissent in Southwestern Bell
Tel. Co. v. Missouri Pub. Serv. Comm’n, 262 U.S. 276
(1923), and this Court’s decision in the Hope case, supra,
because there is substantial evidence of a continuing Con-
gressional intent that oil pipeline valuations be made and
used in ratemaking. Evidence of such Congressional in-
tent is found in the history of Congressional actions on
appropriations for the operation of the ICC. Over the
years, when Congress enacted appropriations legislation
for that commission, it regularly included funds for oil
pipeline valuation activities. Significantly, in the 1950’s,
when the then Bureau of the Budget sought to eliminate
such funds,* the Congress regularly earmarked specific
monies for such activities. Then, as now, earmarking
was an unusual legislative step. Later, from 1961 to
1968, the ICC itself repeatedly sought to have Congress
amend 49 U.S.C. § 19a, expressly proposing such amend-
ments in light of this Court’s holdings in FPC v. Natural
Gas Pipeline Co., 315 U.S. 586 (1942), and in the Hope
case, supra.” The principal change sought by the ICC
8 See, in particular, Hearings on Independent Offices Appropria-
tions, 1951, of the House Appropriations Committee, 81st Cong., 2d
Sess., pt. 3, at 763 (1950) ; Hearings on Independent Offices Appro-
priations, 1951, Before the Subcommittee on Transportation of the
Senate Appropriations Committee, 81st Cong., 2d Sess., at 794, 805-
6 (1950).
® Independent Offices Appropriation, 1950, 63 Stat. 631, 654
(1949) ; General Appropriations Act, 1951, 64 Stat. 595, 710 (1950) ;
Independent Offices Appropriation Act, 1953, 66 Stat. 393, 403-4
(1952); First Independent Offices Appropriation Act, 1954, 67 Stat.
298, 308 (1953); Independent Offices Appropriation Act, 1955, 68
Stat. 272, 284 (1954).
ICC 75th Annual Report 1961 at pp. 188-189; ICC 76th Annual
Report 1962 at pp. 199-200; ICC 77th Annual Report 1963 at pp.
18-19; ICC 78th Annual Report 1964 at pp. 66-67; ICC 79th Annual
Report 1965 at p. 118; ICC 80th Annual Report 1966 at p. 125; ICC
20
was one that would make optional the requirement that
the Commission keep itself informed of changes in the
quantity of the property of carriers, following the com-
oletion of the original valuation. Such ICC proposals
were introduced in three different Congresses, but were
never adopted.”
The Congressional action on the ICC’s legislative pro-
posal in the 90th Congress is particularly instructive.
The Senate Commerce Committee—the ICC’s substantive
law committee—reported out the ICC’s proposed legisla-
tion on July 9, 1968 with a proposed amendment, as de-
scribed and supported in its Report, as follows:
The Committee amendment to S. 757 would specifi-
cally retain the mandatory requirements of Section
19(f) with respect to oil pipeline companies, and
specifically require the Commission to make annual
valuations of all oil pipeline carriers as to which
initial valuations have been made. The committee
agrees with the Commission as to the importance of
oil pipeline carrier valuations and the need for their
continuance. The Commission in two important deci-
sions, 243 ICC 115 (1940) and 243 ICC 589 (1941),
affirmed in principle by 258 ICC 41 (1944), held
that the tariff rates of a crude oil pipeline which
produced earnings which do not exceed 8 percent of
the Commission’s valuation of that line are just and
reasonable, and that the tariff rate of a pipeline
transporting refined products which produce earn-
ings that do not exceed 10 percent of the Commis-
sion’s valuation of that line are just and reasonable.
* * * *
In addition, the oil pipeline valuation reports of the
Commission make it possible for shippers to readily
81st Annual Report 1967 at p. 119; ICC 82d Annual Report 1968 at
p. 129.
11 87th Congress, 2d Session, H.R. 12249 and S. 3420; 88th Con-
gress, Ist Session, H.R. 5247 and S. 1149; and 90th Congress, 1st
Session, H.R. 6535 and S. 757.
rei scr puteneneees
21
determine the pipeline carriers’ rate of return, and
the committee is advised that only a relatively small
number of pipeline rate cases have come to hearing
before the Commission.
* * * *
The committee amendment to S. 757 makes clear the
committee’s intention that the Interstate Commerce
Commission shall continue to compile the necessary
information and make annual valuations of pipe-
lines.
Senate Report No. 1873 to Accompany S. 757 Elimi-
nation of Unnecessary Valuation and Reporting Re-
quirements, 90th Cong., 2d Sess., July 9, 1968, at pp.
5-6. (Emphasis added. )
Among other things, this report makes clear the Senate
Committee’s full awareness and endorsement of the ICC’s
oil pipeline regulatury approach, including the Commis-
sion’s use of Section 19a valuations. Consistent with the
Committee’s Report, Congress did not enact the ICC’s
proposed legislation; oil pipeline valuations have con-
tinued to be required on a current basis and the funding
thereof has stayed intact to this day. Thus, the required
use of oil pipeline valuations to determine the present
value of their properties has been left legislatively un-
changed, even in the face of repeated recommendations
for change by the ICC itself.
Further evidence of this continuing Congressional ap-
proval of the method of oil pipeline regulation is found
in the fact that while Congress has changed the stand-
ards in the Interstate Commerce Act for railroad rate-
making over the years, it was careful, both before and
- after the creation of FERC, to limit such action so as
not to include cil pipelines within the scope of such
amendments. See, e.g., 49 USC §$15 and 15a and as
amended, codified, and repealed, and the Staggers Rail
Act of 1980, Public Law 96-448, 96th Cong., Oct. 14,
1980, 94 Stat. 1895.
Thus, there is substantial legislative history, none of
which was even considered by the Court of Appeals,
22
showing it to be the continuing intent of Congress that
a light rather than a heavy regulatory hand be applied
to this industry,’ and that the approach used be one that
gives substantial weight to value considerations.
In its analysis of legislative history, the Court of Ap-
peals also criticized FERC for relying on the “climate
of opinion” prevalent at the time of the Hepburn Act’s
passage to support FERC’s interpretation of the just and
reasonable standard (App. A-35). Yet, as to this spe-
cific Act, this Court has said that the circumstances ex-
isting at the time were not to be ignored and has stated
what it considered to be the Act’s purpose. In United
States v. Champlin Refinery Co., 341 U.S. 290 (1951), a
case not even cited by the Court of Appeals, this Court
described the Hepburn Act’s purpose as follows (341 U.S.
at 297):
The statute cannot be divorced from the circum-
stances existing at the time it was passed, and from
the evil which Congress sought to correct and pre-
vent. The circumstances and the evil are well-
known. Pipelines were few in number and heavily
concentrated under the control of one company,
Standard Oil. That company, through the owner-
ship of subsidiaries and affiliates, had “made itself
mastex of the only practicable oil transportation be-
tween the oil fields east of California and the At-
lantic Ocean and carried much the greater part of
the oil between those points . . . availing itself of
its monopoly of the means of transportation [it] re-
fused through its subordinates to carry any oil un-
less the same was sold to it or to them... on
terms more or less dictated by itself.” [Citation
omitted] Small independent producers—who lack
12 As this Court has recently held as to the Natural Gas Policy
Act of 1978, given a comprehensive scheme of less regulation, Con-
gress would have clearly itemized any elements of regulation which
it had intended to be excluded from such a lighter pattern. See,
Public Serv. Comm’n v. Mid-Louisiana Gas Co., —— U.S. at ,
103 S.Ct. at 3034.
23
the resources to construct their own lines, or whose
output was so small that a pipeline built to carry
that output alone would be economically unfeasible—
were in a desperate competitive position. There is
little doubt, from the legislative history, that the
Act was passed to eliminate the competitive advan-
tage which existing or future integrated companies
might possess from exclusive ownership of a pipe-
line (emphasis added).
This decision is particularly significant because it sub-
stantiates the FERC’s reasoning as to the purpose of the
Hepburn Act, which was dismissed out of hand by the
Court of Appeals (App. A-35).
The utter failure of the Court of Appeals to consider
the manifest Congressional intent and purpose violates
holdings of this Court in several additional respects.
First, such failure violates this Court’s directive that
“. . . if the statute provides a formula, the agency is
bound to follow it.” National Association of Greeting
Card Pubs. v. USPE, —— U.S. ——, 103 S.Ct. 2717,
2728 (1983), citing American Commercial Lines, Inc. v.
Louisville & N.R.Co., 392 U.S. 571, 590-93 (1968) and
Colorado Interstate Co. v. FPC, 324 U.S. 581, 589 (1945).
Section 19a certainly provides a formula. Second, it ignores
the rulings of this Court that a consistent administrative
interpretation, shown clearly to have been brought to the
attention of Congress and not changed by it, is almost
conclusive evidence that the agency’s interpretation has
Congressional approval."* Bob Jones University v. United
States, US. , 103 S.Ct. 2017, 2033 (1988);
Haig v. Agee, 453 U.S. 280, 291-800 (1981); Udall v.
Tallman, 380 U.S. 1, 17-18 (1965). Third, as previously
noted, it places a burden on, and a directive to FERC
13 Had FERC itself chosen to depart from the traditional use of a
valuation rate base, any such change would have had to carry with
it a cogent degree of proof, one that is not even suggested to have
been met on the record. See Motor Vehicle Manuf. Assn. v. State
Farm Mutual, —— U.S. ‘ , 103 S.Ct. 2856, 2869 (1983).
24
so plainly biased in favor of original cost ratemaking
that the “end result” principle of the Hope case, supra,
would be totally vitiated. Fourth, the Court of Appeals’
action is contrary to this Court’s explicit directives con-
cerning the broad discretion to be accorded administra-
tive decisions, and emphasizing the limited scope of judi-
cial review. See Baltimore Gas and Electric Co. v.
NRDC, —— USS. , 103 S.Ct. 2246 (1983), reaff’g
Vermont Yankee Nuclear Power Corp. v. NRDC, 435
U.S. 519 (1978) which held that courts generally lack
the authority to impose “hybrid” procedures greater than
those contemplated by the governing statutes.
To the same effect, this Court had occasion in a recent
decision to remind the same Court of Appeals of the dif-
ferent roles of the judiciary and administrative agencies
in matters of regulation. In Chevron U.S.A. Inc. v.
Natural Resources Defense Council, Inc., —— U.S. ——,
52 LW 4845, 4853 (June 25, 1984), this Court said:
When a challenge to an agency construction of a
statutory provision, fairly conceptualized, really cen-
ters on the wisdom of the agency’s policy, rather
than whether it is a reasonable choice within a gap
left open by Congress, the challenge must fail.
in such a case, federal judges—who have no con-
scituency—have a duty to respect legitimate policy
choices made by those who do. The responsibilities
for assessing the wisdom of such policy choices and
resolving the struggle between competing views of
the public interest are not judicial ones: “Our Con-
stitution vests such responsibilities in the political
branches.” TVA v. Hill, 487 U.S. 153, 195 (1978).
The Court of Appeals decision in the present case imposes
on FERC, and thereby imposes on the oil pipeline industry,
the court’s policy choice of the type of regulatory ap-
proach to be used. Notwithstanding legislative history,
notwithstanding section 19a, and notwithstanding the
fact that for many years ratemaking based on value
rather than cost concepts was not just a possible ap-
25
proach but the only allowed approach, the Court of Ap-
peals would bar FERC even from giving any weight to
value in its ratemaking approach. To reach that result,
the Court of Appeals has written a Procrustean opinion
that leaves FERC virtually no room within which to ex-
ercise its own judgment on such policy matters, one ob-
viously designed to force FERC to apply the original cost
mold to this industry. This is exactly the type of intru-
sion by the judiciary into policy matters reserved for the
political branches that was condemned by this Court in
Chevron.
Ill. WILLIAMS HAS BEEN DENIED PROCEDURAL
DUE PROCESS BY THE CIRCUIT COURT’S AF-
FIRMANCE OF THE FERC FINDINGS, WITHOUT
NOTICE, THAT THE PURCHASE PRICE WIL-
LIAMS PAID IN 1966 FOR THE GREAT LAKES
PIPELINE COMPANY PROPERTIES WOULD NOT
BE CONSIDERED FOR RATEMAKING PURPOSES.
The other issue on which Williams seeks review re-
lates to the extent to which the price Williams paid in
an arms-length transaction for the acquisition of the
physical properties of Great Lakes Pipe Line System in
1966 will be recognized for ratemaking purposes. At the
time of the purchase, the ICC had no criteria governing
such transfers, nor did either the Interstate Commerce
Act or ICC regulation require regulatory approval. No
expression by the ICC or FERC as to a regulatory policy
on this question was issued until the FERC opinion of
November 30, 1982 that is the subject of the present pro-
ceedings. In its decision, FERC stated that it would not
recognize pipeline purchases, at prices either above or
below depreciated original cost, for ratemaking purposes
unless the purchaser could meet certain specified criteria
(App. B-243; 21 FERC at 61,636). FERC also invited
cautious future purchasers to seek declaratory orders
before proceeding with a transaction (id., n. 406).
Williams injury is that FERC also found, in this
generic phase of the case, that Williams’ purchase
26
price in 1966 would not be considered in any respect for
ratemaking purposes (App. B-243; 21 FERC at 61,636).
FERC’s error was that this issue—the extent to which
Williams’ specific purchase price would be considered
with respect to its rates—was to be dealt with in Phase
II of the case and not in Phase I, and that Williams
never was on notice that the Commission intended to do
anything to the contrary. The Court of Appeals in two
sentences considered and rejected Williams’ due process
argument. Again, the Court of Appeals has patently
erred. The entire treatment of this issue by the Court
of Appeals is as follows (App. A-87, n.78) :
First, Williams argues that FERC gave no notice
that the issue was to be discussed in Phase I of the
Williams proceeding. The record, however, shows
that such notice was given and Williams briefed the
issue during Phase I, See, ¢.g., J.A. at 241 (ALJ’s
Invitation to Submit Comments on Ratemaking
Principles for Oil Pipeline Rate Cases); id. at
4103-08 (Williams Opening Brief in Phase I.)
The record shows no such thing, as even a casual look at
the two items relied on by the Court readily demon-
strates. Copies of both have been included in the sepa-
rately bound Appendix, as Appendices F and G. The
first of the two documents cited by the Court of Appeals
outlines the Phase I issues. Rather than supporting the
Court of Appeals’ finding of notice, this document sup-
ports Williams’ claim that the purchase price issue in
Phase I was the industry-wide issue as to FERC’s policy
generally and not the specific issue of how the Williams
purchase of 16 years earlier should be treated in evalu-
ating Williams’ rates. In his Invitation to Submit Com-
ments, FERC’s Administrative Law Judge stated at the
14 No one has ever suggeste:! that Williams was not entitled under
the Fifth Amendment to the Constitution, the Interstate Commerce
Act (49 U.S.C. § 15(1)), and the Administrative Procedure Act (5
U.S.C. § 554) to a full hearing where issues involving Williams’ own
rates were specifically being decided.
italia
27
very outset that Phase I would address “ratemaking
principles,” and that Phase II would deal with the “appli-
cation of those ratemaking principles to the five specific
[Williams rate] cases consolidated for decision in this
proceeding” (App. F-2). In addition, the only specific
mention in the document of oil pipeline purchase prices is
found at page 2, item D.2.b., where the general treatment
of purchase prices for rate base purposes was listed as an
issue only on the premise that the Commission adopted an
“original-cost-minus-depreciation” method (App. F-3)
—which it did not do. This could by no means be
deemed notice of a Williams-specific issue, a fortiori
where Williams’ purchase was made when valuation was
the rate base method used.
Nor does the only other reference relied on by the
court (Williams’ opening brief to FERC) support the
court’s conclusion. Consistent with the issues set forth
by the Administrative Law Judge, Williams’ brief shows
only argument addressed to the industry-wide issue of
the treatment of purchase prices generally, if an original
cost approach were to be used, and makes no argument
as to the ultimate treatment to be accorded the Williams
purchase from Great Lakes in evaluating Williams’ rates.
in fact, the brief specifically noted that issues specific to
Williams were to be the subject of separate, future treat-
ment in subsequent Phase II litigation (App. G-5, G-9 to
G-10).
Before the Court of Appeals, counsel for FERC essen-
tially admitted that Williams had yet to be heard on this
issue. At page 89 of its brief to the Court of Appeals,
FERC stzted:
Moreover, now that the Commission has established
the general rule, Williams will have the opportunity
in Phase II to establish whether it is entitled to
an exception.
The only party before the Court of Appeals to argue
that Williams had been on notice that its purchase price
28
would be dealt with in Phase I was the Mid-Continent
Shippers, but they were unable to point to any specific
notice to that effect. More importantly, the Mid-Continent
Shippers’ argument to that court was the exact opposite
of their position on the same issue before FERC’s Ad-
ministrative Law Judge. When FERC’s Staff offered an
exhibit indicating that Williams’ purchase price war-
ranted special consideration, Mr. Twomey, counsel for the
Mid-Continent Shippers, objected strenuously to the ad-
mission of such an exhibit on the very ground now
claimed by Williams, i.e. that Williams’ specific rate base
was not at issue in Phase I. Mr. Twomey stated “that
particulars of the rate base for a particular pipeline were
not to be the subject of Phase I of this proceeding” (App.
H-1). The Presiding Administrative Law Judge agreed.
Accordingly, the exhibit objected to was admitted only
for limited purposes and not for the purpose of determin-
ing Williams’ rate base (App. H-3).
Elsewhere in its opinion, the court found Williams to be
entitled to be heard in Phase II on whether it falls within
the single exception contained in FERC’s newly adopted
general rule on pipeline transfers (App. A-22, n.34).
However, that limited right fell far short of giving Wil-
liams, or any other carrier, the right to be heard on
whether the newly adopted general rule should be applied
to past purchases. It also deprived Williams of the right
to show that on other grounds the 1982 rule should not
be applied to its 1966 purchase.
It is absolutely clear that Phase I was not to deal with
the ratemaking treatment of the Williams purchase—as
Williams, the Presiding Administrative Law Judge, and
counsel for the Mid-Continent Shippers all agreed in the
hearings before FERC. The action of FERC in injecting
a decision on that single Williams-specific issue into its
industry-wide rulemaking decision in Phase I was with-
out basis and contrary to the specific notice of issues its
own Administrative Law Judge published and inter-
29
preted. FERC’s action having been wrong, the Court of
Appeals’ hasty approval of that action was equally
wrong. It is imperative that this Court act to restore to
Williams the bona fide and untrammeled hearing to
which it is entitled under the Constitution and applicable
statutes.
CONCLUSION
For each of the foregoing reasons, and, more particu-
larly, because of the clear denial of due process of law,
the patent conflicts in the decision of the court below
with numerous Supreme Court precedents and with mani-
fest Congressional purpose and intent, this Court should
grant this Petition for Certiorari.
Respectfully submitted,
ROBERT G. BLEAKNEY, JR.*
One Post Office Square
Boston, MA 02109
(617) 338-2903
DAviID M. SCHWARTZ
ROBERT L. CALHOUN
1025 Connecticut Ave., N.W.
Washington, D.C. 20036
SULLIVAN & WORCESTER (202) 775-8190
WILLIAM J. COLLINGSWORTH
JOHN S. ESTILL, JR.
HALL, ESTILL, HARDWICK, Bank of Oklahoma Tower
GABLE, COLLINGSWORTH One Williams Center
& NELSON Tulsa, OK 74172
Of Counsel (918) 588-2655
Attorneys for Williams Pipe
Line Company
August 2, 1984 * Counsel of Record
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.