Petition for Writ of Certiorari — Arctic Slope Regional Corp. v. Federal Energy Regulatory Commission

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upreme Court, U.S.

87 1869 —

MAY 14 1988

Ghia 1, JR.

CLERK

In the Supreme Court of the United States

OCTOBER TERM, 1987

No.

ARCTIC SLOPE REGIONAL CORPORATION, PETITIONER

Vv.

FEDERAL ENERGY REGULATORY

COMMISSION, ET AL., RESPONDENTS

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

PAUL M. BATOR

MARK I. LEvy *

Mayer, Brown & Platt

190 South La Salle Street

Chicago, Illinois 60603

(312) 782-0600

O. YALE LEWIS, JR.

RICHARD A. CURTIN

Hendricks & Lewis

2675 First Interstate Center

Seattle, Washington 98104

(206) 624-1933

WILLIAM W. BECKER

Landfield, Becker & Green

1818 N Street, N.W.

Suite 300

Washington, D.C. 20036

(202) 775-0300

Counsel for Petitioner

* Counsel of Record

a 2 remnants

WILSON - Epes PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001

QUESTIONS PRESENTED

1. Whether FERC’s dismissal from a ratemaking pro-

ceeding of a party that is currently and directly harmed

by the challenged rates, in order to approve a settlement

reached by other parties and thus terminate the proceed-

ing without a decision on the lawfulness of the rates, is a

violation of the Due Process Clause, the Interstate Com-

merce Act, and FERC regulations.

2. Whether the court of appeals, in affirming FERC’s

dismissal of petitioner from the Trans Alaska Pipeline

System ratemaking proceeding, erred by adopting a ra-

tionale that the agency itself had not considered or

adopted.

PARTIES TO THE PROCEEDING

AND RULE 28.1 STATEMENT

In addition to the parties listed in the caption, the

United States was a respondent in the court of appeals.

Intervenor-respondents in the court below were the State

of Alaska and the eight owners of the Trans Alaska

Pipeline System: Amerada Hess Pipeline Corporation,

Arco Pipe Line Company, BP Pipelines Inc., Exxon

Pipeline Company, Mobil Alaska Pipeline Company, Phil-

lips Alaska Pipeline Corporation, Sohio Pipe Line Com-

pany, and Unocal Pipeline Company.

Pursuant to Rule 28.1 of the Rules of this Court, peti-

tioner Arctic Slope Regional Corporation states that it

has no parent companies and that its subsidiaries or af-

filiates (other than those that are wholly-owned or owned

by Alaska Natives) are Alliance Bancorporation, Ameri-

ean Indian National Bank (‘Metropolitan Bank”), Anglo

Alaska Drilling Associates, Executone of Alaska, Metro-

Comm Inc., Natchig, Inc., PCA of Alaska, and Petro Star

Ine.

TABLE OF CONTENTS

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STATUTORY AND REGULATORY PROVISIONS

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REASONS FOR GRANTING THE PETITION

I. The Court Of Appeals Erred In Upholding

FERC’s Order On A Ground That The Agency

I].

Had Not Adopted

Approval Of A Settlement Over The Objections

Of An Aggrieved Party, Without Resolving

The Dispute On The Merits, Violates The Dve

Process Clause, The Interstate Commerce Act,

And FERC Regulations

The Due Process Clause Prohibits FERC

From Dismissing A Currently Injured Party

And Approving A Contested Settlement

Without Resolving The Dismissed Party’s

Objections On The Merits _

. The Interstate Commerce Act And FERC’s

Regulations Do Not Permit The Approval

Of A Settlement Over The Objections Of An

Aggrieved Party

1. The Interstate Commerce Act Requires

FERC To Decide The Merits Of An Ag-

grieved Party’s Complaint That Pipeline

Dee

2. FERC’s Regulations Require That The

Commission, In Approving A Contested

Settlement, Resolve An Aggrieved Par-

ty’s Objections On The Merits _.......

(111)

TABLE OF CONTENTS—Continued

Page

3. Judicial Decisions Establish That FERC

Must Decide An Aggrieved Party’s Ob-

jections On The Merits In Order To Ap-

prove A Contested Settlement -................. 28

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TI a can shueteiaeaned 71a

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TABLE OF AUTHORITIES

Cases: Page

Aberdeen & Rockfish R.R. Co. v. SCRAP, 422 U.S.

I | I hh icaecs titsaiank sth ea eee neato 23

Alexander Sprunt & Son v. United States, 281

EF —___ar ipriceP nr RS T omN OL 23

Amalgamated Util. Workers v. Consolidated Edi-

son Co., 300 U.S. 261 (1940) ................................ 21

Arrow Transp. Co. v. Southern Ry. Co., 372 U.S.

Oe a rk a 23

Atchison, T. & S.F.R. Co. v. United States, 284

Oe re 18

Atchison, T. & S.F.R. Co. Vv. Wichita Bd. of Trade,

OO es eM cai ces 16

Bell v. Burson, 402 U.S. 535 (1971) ........................ 18

Bowen v. American Hosp. Ass’n, 106 S.Ct. 2101

PUI isncseehcaccdastah bdaitinlioiincbanicoutiubatedsne bi gaieeienme cana 16

Burlington Truck Lines v. United States, 371 U.S.

UE IIE | innaittecnetesee ea ae er 16

Chicago R.I. & P. Ry. Co. v. United States, 274

Lift Sp Bs 5 mane Rice eS Sremesrd sme ney Sa 23

City of Chicago v. United States, 396 U.S. 162

faa Rae eat aes WALENTA PO aL 24

Consolidated Rail Corp. v. Recycling Indus., 449

ti IE MID piccdssateceesh itis acca ee eek 15

Farmers Union Cent. Exchange, Inc. v. FERC,

734 F.2d 1486 (D.C. Cir.), cert. denied, 469

it SG, SRE enn pret GA a 3, 6, 12

FERC vy. Triton Oil & Gas Corp., 712 F.2d 1450

(8g > SRD. | SPIER ae DAs ie ee ln 29

First English Evan. Luth. Ch. v. Los Angeles Cty.,

We Wa ee CE ii ie ee 19

Fuentes v. Shevin, 407 U.S. 67 (1972) .................. 18

Hugoton-Anadarko Area Rate Case, In re, 466

Pe ee Gee Ge, Bt oe a 28

ICC v¥. Baird, 194 U.S. 25 (1904) ............................ 21

ICC v. Brotherhood of Locomotive Engineers, 107

EAT. Fe IE essence i 15

Lewis-Simas-Jones Co. v. Southern Pac. Co., 283

ee re CD nt ee ees 23

tt ll

Cases—Continued : Page

Long Island R. Co. v. Aberdeen & Rockfish R. Co.,

GD TEs SSD Kccerteeticccceieenntenbiietidisieiion 15

Minneapolis Gas Co. v. FPC, 294 F.2d 212 (D.C.

Os an 24

Mississippi River Transmission Corp. v. FERC,

760 F.2d 945 (D.C. Cir. 1966) —...............200...-.--+ 29

Mobil Oil Corp. v. FPC, 417 U.S. 283 (1974) —...... 29

Motor Veh. Mfrs. Ass'n Vv. State Farm Mut., 463

Chel Ge CD cccrentttncsatthecesecacdiincoedisacansiainicoasien 15

National Ass'n of Greeting Card Pubs. v. USPS,

PF pis Pi: | ee 17

NLRB Vv. Metropolitan Life Ins. Co., 380 U.S. 438

CRED <ciccccsasciernpstneibacicitenieniaenietanindaaa ata 16

National Licorice Co. v. NLRB, 309 U.S. 350

CRIED seccdccsnnnsosntsticesstiacechicie unitate ie iaiadenese aaa 19

Natural Gas Pipeline Co., 39 F.E.R.C. (CCH)

TGR AGD: TEES csccashusccattceuctiniiniieetaaann 28

New Orleans Public Service v. FERC, 659 F.2d

i Pe |) noe 28

Northern Natural Gas Co., 35 F.E.R.C. (CCH)

f 5 el): Re ee es 28

Ohio Bell Tel. Co. Vv. Public Util. Comm'n, 301 U.S.

A fj er ce ener Sa ST SEE 19

Placid Oil Co. v. FPC, 483 F.2d 880 (5th Cir.

1973), aff'd, Mobil Oil Corp. v. FPC, 417 U.S.

A RRR TRE Roy th en RON tan Sas 29

Postal Telegraph Cable Co. v. Newport, 247 US.

GEG CRIT eenticicetetwecncensccectesatiniaeeedeian tis 19

SEC v. Chenery Corp., 332 U.S. 194 (1947)........ 15 .

South Dakota Pub. Util. Comm'n v. FERC, 668 ;

iy ft fo | | eee 28

Southern Ry. Co. v. Seaboard Allied Milling Corp.,

ee! Ee ee ee 21, 22, 23

Trans Alaska Pipeline Rate Cases, 436 U.S. 631

COU Vinincncscantinasiicteunldedadasiiban ae 3, 4, 5, 18, 23

Trans Alaska Pipeline S) ystem, 21 F.E.R.C. (CCH)

7 61,092 (1982) . Rl 12

Trans Alaska Pipeline System, 10 F. E. R. Cc. (CCH) |

i Oe csqubeumeaiaiae eatin 6

vil

Cases—Continued : Page

Trans Alaska Pipeline System, 355 LC.C. 80

SO hrc an kee am 5, 22

Trunkline Gas Co., 22 F.E.R.C. (CCH) { 61,011

GUI: billstictesicnstinnsiiscteehcnensiaes adateniuaauseeeiiinameaseieee caiaeuan 28

United Municipal Distributors Group v. FERC,

. oe > 9 "oR, 3. | ureaene 26, 27

Williams Pipe Line Co., 21 F.E.R.C. (CCH)

* 61,260 (1982), rev'd sub nom. Farmers Union

Cent. Exchange, Inc. v. FERC, 734 F.2d 1486

(D.C. Cir.), cert. denied, 469 U.S. 1034 (1984)... 6

Wisconsin Vv. FPC, 373 U.S. 294 (1963) 24

Constitution, statutes, and rules:

Due Process Clause (Amend. V) 14, 17, 18, 19

Alaska Native Claims Settlement Act, 43 U.S.C.

ir I CII hu coca uticniciebsicdaenstidnsclaaseddesentbonmeinken 3

a Dadadaandeheaaiabesedienasi 12

i soa 12

Interstate Commerce Act, 49 U.S.C. §§ 1 et seq... 3,14,

17, 20

5 | ft RE ca ee ee ecncaaa 3, 13, 20

(Seen PRR ee eee EE Pe Ne 8, 24

EA ORO ee a 20, 21, 22, 23

IE cee RNAI

EEL Te ee amen: Tray, 21

Rae ge aS ae See 7! 22, 23, 24

anal 5, 22, 23

USES Sea PEC oa 23

EES AE RTC OP TTL MEET: 3

FERC Rules:

Rule 602(g), 18 C.F.R. § 385.602(g¢) 7, 8, 10,

16, 25

Rule 602(h), 18 C.F.R. § 385.602(h) ss s«d0, 16,

25, 26

Rule 602(h) (1) (i),

18 C.F.R. § 385.602 (h) (1) (i)

Rule 602 (h) (1) (ii) (A),

18 C.F.R. § 385.602 (h) (1) (ii) (A) 26

VIII

Constitution, statutes, and rules—Continued :

Rule 602 (h) (1) (ii) (B),

18 C.F.R. § 385.602 (h) (1) (ii) (B) -...............

Rule 602 (h) (1) (iii),

18 C.F.R. § 385.602 (h) (1) (iii)

Miscellaneous :

43 Fed. Reg. 32814, 32815 (1978) ...............-------.-----0++

44 Fed. Reg. 34936 (1979) :

H.R. Rep. No. 523, 92d Cong., Ist Sess. (4971)...

U.S. Fish and Wildlife Service, Dep’t of the In-

terior, Arctic National Wildlife Refuge, Alaska,

Coastal Plain Resource Assessment (Apr.

TITTY 4 ‘axsiesnaseeotnsnkeoaeccabecenenensidaslineibauddigdanessanidgdiatnen

ttn

Iu the Supreme Court of the United States

OCTOBER TERM, 1987

No.

ARCTIC SLOPE REGIONAL CORPORATION, PETITIONER

FEDERAL ENERGY REGULATORY

COMMISSION, ET AL., RESPONDENTS

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Arctic Slope Regional Corporation respectfully peti-

tions for a writ of certiorari to review the judgment of

the United States Court of Appeals for the District of

Columbia Circuit in this case.

OPINIONS BELOW

The opinion of the court of appeals (App., infra, la-

19a) is reported at 832 F.2d 158. The order of the Fed-

eral Energy Regulatory Commission approving the final

settlement and dismissing Arctic’s complaint (App., infra,

22a-44a) and its previous order approving the initial

settlement (id. at 54a-64a) are reported respectively at

35 F.E.R.C. (CCH) {61,425 and 33 F.E.R.C. (CCH)

7 61,064. Other orders of the Commission and of the ad-

ministrative law judges (App., infra, 45a-49a, 50a-53a,

65a-70a) are reported at 35 F.E.R.C. (CCH) { 63,018;

33 id. § 61,392; and 32 iad. {| 63,058.

JURISDICTION

The judgment of the court of appeals (App., infra,

76a-78a) was entered on October 27, 1987. A timely pe-

tition for rehearing was denied on January 15, 1988

(id. at 79a-80a). On April 4, 1988, the Chief Justice

granted an extension of time to and including May 14,

1988, within which to file a petition for a writ of cer-

tiorari (id. at 90a). The jurisdiction of this Court is

invoked under 28 U.S.C. § 1254(1).

STATUTORY AND

REGULATORY PROVISIONS INVOLVED

The relevant provisions of the Interstate Commerce

Act and of FERC’s regulations are set forth at App.,

infra, 8la-89a.

STATEMENT

This case raises important issues of pipeline rate reg-

ulation and administrative law in the context of a major

ratemaking proceeding involving the Trans Alaska Pipe-

line System (“TAPS”). Petitioner’s vital economic in-

terests are currently and directly harmed by high TAPS

rates, and it has pursued its challenge to the legality of

those rates through nine years of administrative pro-

ceedings. Nevertheless, the court of appeals has allowed

FERC to dismiss petitioner’s complaint, without deter-

mining the lawfulness of the rates, in order to approve a

settlement reached by other parties. This fundamentally

unfair procedure violates the Due Process Clause, the

Interstate Commerce Act, and FERC regulations. More-

over, the ruling below sanctions current and future

TAPS rates that are alleged to be unlawful, thereby

jeopardizing both the interests of oil owners and con-

sumers protected under the Interstate Commerce Act

and the interests of Alaskan Natives conferred by Con-

gress in the Alaska Native Claims Settlement Act.

1. The background of this case is already familiar to

the Court. See Trans Alaska Pipeline Rate Cases, 436

U.S. 631 (1978) (“TAPS I’). In 1968, large reserves

of oil were discovered at Prudhoe Bay in the Alaska

Arctic. The eight intervenor-respondents constructed

TAPS to transport that oil to the all-weather port of

Valdez. TAPS is the only feasible means for transporting

oil out of the Alaska Arctic. See TAPS I, 436 U.S. at

634 & n.3; App., infra, 2a & n.1.

TAPS was completed in 1977 at a cost of more than

$9 billion—some $8 billion more than its projected cost.

The TAPS owners filed proposed TAPS rates with the

Interstate Commerce Commission.' These rates were im-

mediately protested by the State of Alaska, the United

States Department of Justice, the ICC’s Bureau of In-

vestigation and Enforcement, and petitioner Arctic Slope

Regional Corporation (‘Arctic’), on the ground that the

charges were not “just and reasonable” under Section

1(5) of the Interstate Commerce Act, 49 U.S.C. §1(5)2

See TAPS I, 436 U.S. at 634-635; App., infra, 3a.

2. Arctic is a private for-profit corporation established

under Alaska law pursuant to the Alaska Native Claims

Settlement Act (“ANCSA”), 43 U.S.C. §$ 1601 et seg.

In order te promote the development of the oil reserves

! Prior to October 1, 1977, the ICC had jurisdiction over oil pipe-

lines. Effective on that date, jurisdiction was transferred to the

Federal Energy Regulatory Commission. See TAPS I, 436 U.S.

at 634 n.4.

* The Interstate Commerce Act was recodified in October 1978. See

49 U.S.C. §§ 10101 et seq. However, oil pipelines continue to be

regulated under the original Act. See Farmers Union Cent. Ex-

change, Inc. vV. FERC, 734 F.2d 1486, 1493 n.18 (D.C. Cir.), cert.

denied, 469 U.S. 1034 (1984). In this petition, we shall refer to the

original version of the statute prior to the recodification.

discovered in Alaska, ANCSA extinguished the Natives’

aboriginal land claims and compensated them with cash

and land. Arctic, one of 13 regional corporations, admin-

isters that award for the benefit of its Inupiat Eskimo

shareholders. See TAPS I, 436 U.S. at 635 & n.7; App.,

infra, 3a.

Arctic is the largest private owner of land on the

Alaska North Slope, holding title to approximately 4.5

million acres. This land contains proven, probable, and

possible oil reserves and is Arctic’s single most important

economic asset. Arctic’s holdings include substantial in-

terests in the Arctic National Wildlife Refuge, an area

that is “potentially rich in oil and gas resources” and

“one of the most outstanding prospective oil and gas areas

remaining in the United States.” See U.S. Fish and Wild-

life Service, Dep’t of the Interior, Arctic National Wild-

life Refuge, Alaska, Coastal Plain Resource Assessment

43, 56, 57, 143 (Apr. 1987).

Arctic derives revenue by leasing its lands to oil com-

panies for exploration and development. Arctic receives

significant current income from bonuses paid for enter-

ing into leases and rentals paid during the terms of the

leases; the bonuses and rentals reflect the anticipated

profitability of the oil projects and are paid whether or

not oil is actually produced. In addition, leases fix royalty

rates and working interests based on the expected profit-

ability of the fields and thus determine the amount per

barrel that Arctic will receive in production payments.

The value of the oil on Arctic’s lands is reduced dollar-

for-dollar by the TAPS charges for transporting the oil

to market (see TAPS I, 436 U.S. at 635 n.6), and hence

the value of Arctic’s leasing rights is inversely related to

the TAPS tariffs. Moreover, excessive TAPS costs can

preclude or delay both the leasing and the development of

marginal oil fields by making such oil uneconomical in the

market. See C.A. App. 174, 208. Thus, Arctic’s current

economic interest is directly and adversely affected by

unjust and unreasonable TAPS rates. See, e.g., id. at

173-174, 197, 206-208.

Arctie has been actively engaged in leasing its lands

for exploration and development. By 1985, it had en-

tered into leases that provide both substantial bonuses

and royalties ranging from 12.5-20% for 2.1 million acres

of its land. Arctic continues to negotiate leases on an

ongoing basis. See C.A. App. 158-170. It is expected that

oil from Arctic’s lands will begin to be shipped through

TAPS sometime in the 1990s.

3. Based on the protests of Arctic and the other com-

plainants, the ICC suspended the proposed TAPS rates

for the maximum period of seven months pursuant to 49

U.S.C. § 15(7). The Commission found that there was

“reason to believe the proposed rates are not just and

reasonable” and that “protestants have made a showing

of probable unlawfulness.” Trans Alaska Pipeline System,

355 1.C.C. 80, 81, 82 (1977); see TAPS I, 436 US. at

636. The Commission commenced a formal investigation

of the lawfulness of the TAPS rates and prescribed in-

terim rates to be effective during the suspension period;

the weighted average of those rates was 22% below that

of the rates filed by the TAPS owners. This Court up-

held the Commission’s action in TAPS I.

Following transfer of jurisdiction over oil pipelines

{see note 1, supra), the Federal Energy Regulatory Com-

mission conducted administrative proceedings to deter-

mine just and reasonable TAPS rates. These proceed-

ings were divided into two parts. Phase I addressed is-

sues concerning the ratemaking methodology, including

the proper rate base and rate of return. Phase II con-

sidered the prudence and reasonableness of the $9.6 bil-

lion TAPS construction cost and various cost-of-service

issues.

On February 1, 1980, after a lengthy administrative

proceeding, the FERC administrative law judge ren-

dered an initial decision on Phase I that established a

comprehensive ratesetting methodology for the economic

life of TAPS. See 10 F.E.R.C. (CCH) { 63,026. Rates

under this methodology (even without an adjustment for

Phase II issues) were 9-20% below the tariffs filed by

the TAPS owners for the initial years and declined

sharply thereafter. |

On appeal of the initial decision, Arctic, the State of

Alaska, the Department of Justice, and the FERC staff

urged the Commission to uphold the principal elements

of the ALJ’s ratesetting methodology. While the appeal

was pending, the Commission decided Williams Pipe Line

Co., 21 F.E.R.C. (CCH) {§ 61,260 (1982), which essen-

tially deregulated oil pipeline rates in the lower 48 states.

In light of Williams Pipe Line, FERC remanded the Phase

I decision in this case for further proceedings before the

ALJ. Before the remand proceedings had been com-

pleted, however, FERC’s Williams Pipe Line decision was

reversed in Farmers Union Cent. Exchange, Ine. V.

FERC, 734 F.2d 1486 (D.C. Cir.), cert. denied, 469 U.S.

1034 (1984). The Phase I remand proceedings were then

suspended, but FERC never issued a final ruling on the

appeal of the Phase I initial decision.

In the meantime, the Phase II proceedings were under-

way. The extensive Phase II record was closed in De-

cember 1984. The parties submitted initial briefs and

proposed findings in September 1985, and were prepar-

ing reply briefs when Phase II proceedings were sus-

pended on October 24, 1985, because of a proposed settle-

ment between the State of Alaska and six of the eight

TAPS owners.

4. a. In 1984, and unbeknownst to Arctic, Alaska and

certain TAPS owners engaged in settlement negotiations.

The first publicly announced settlement offer was with-

drawn after Arctic submitted comments to FERC oppos-

ing the settlement. Thereafter, Alaska and six TAPS

owners, with the support of the United States Depart-

ment of Justice, agreed to a second settlement offer.

Arctic, the other two TAPS owners, and the Alaska Pub-

lic Interest Research Group opposed the settlement. Arc-

tic was never allowed to participate in any of the settle-

ment discussions.

The centerpiece of the settlement was the “TAPS Set-

tlement Methodology” (“TSM”) for determining maxi-

mum rates through the year 2011. The TSM is not

cost-based and produces rates for the entire period that

are substantially higher than those proposed by Arctic or

permitted by the ALJ’s initial decision in Phase I; for

example, in 1982, Arctic’s proposed rate per barrel was

$2.34, the initial decision rate was $3.08, and the TSM

rate was $6.05. Under the settlement, no settling party

ean challenge the TAPS owners’ rates set pursuant to the

TSM. In addition, with respect to the Phase II issues,

the settlement provided that approximately 25% of the

contested amount of the cost of construction would be ex-

cluded from the TAPS rate base but recovered through

depreciation. The settlement also contained a pooling ar-

rangement that allowed the TAPS owners to reallocate

fixed costs as though they were variable. Finally, the

settling TAPS owners agreed to pay refunds for the rates

charged during the period 1982-1985 and to reimburse

Alaska for its litigation expenses.

The settling parties moved the ALJs to sever Arctic

from the proceedings and to certify the settlement to

FERC as an “uncontested” offer of settlement under

FERC Rule 602(g), 18 C.F.R. § 385.602(g), which pro-

vides that ‘“[a]n uncontested offer of settlement may be

approved by the Commission upon a finding that the settle-

ment appears to be fair and reasonable and in the public

interest” (App., infra, 87a). The ALJs, noting that

Arctic vigorously contested the settlement and that ex-

tensive proceedings had already been conducted, denied

the motion as “feckless” (C.A. Supp. App. 212-213).

iii |

However, they subsequently certified the proposal to the

Commission as a contested settlement “without dealing at

this level with the technical intricacies” of FERC’s rules

on the resolution of disputed factual issues (App., infra,

67a).

b. On October 23, 1985, FERC approved the six-carrier

settlement as uncontested under Rule 602(g), finding

that it was fair and reasonable and in the public inter-

est. App., infra, 54a-64a. Stating that the settlement

was a “comprehensive, long-term settlement of complex

issues in a hotly contested, lengthy and expensive pro-

ceeding,” the Commission concluded that such settlements

“are to be encouraged” and that “the settling parties are

entitled to the benefits of their bargain” (id. at 60a).

In addition, the Commission approved the pooling arrange-

ment under Section 5(1) of the Interstate Commerce Act

(49 U.S.C. §5(1)), concluding that it was part of an

overall settlement that met the statutory requirements for

pooling agreements (App., infra, 63a).

Although it approved the proposed settlement as to the

settling parties, the Commission “[njonetheless * * *

acknowledge[d] the concerns of the nonsettling parties”

(App., infra, 60a) and stated that it was not “imposing

the terms of the Settlement Agreement on any nonsettling

party” (id. at 60a n.17). Accordingly, it remanded the

case to the ALJs “to allow the nonsettling parties a

hearing only on those issues which apply to them” (id.

at 60a).

ec. While the case was on remand, the remaining two

TAPS owners agreed to the terms of the six-carrier set-

tlement. On that basis, the ALJs certified the settlement

proposal for the Commission’s consideration with respect

to all eight TAPS owners. App., infra, 45a-49a.

d. FERC approved the settlement for the two addi-

tional TAPS owners as an uncontested settlement pur-

suant to Rule 602(g). App., infra, 22a-44a. In order to

treat the settlement as uncontested, the Commission dis-

missed Arctic from the proceeding on the ground that it

was not “particularly ‘aggrieved’” (id. at 36a) by the

TAPS rates and therefore lacked “standing” under ju-

dicial principles for standing in federal court (ibid.).

Although acknowledging Arctic’s claim that excessive

TAPS rates have a present effect on the value of its

lands and leasing rights (id. at 37a), the Commission be-

lieved that this interest was not sufficiently “direct” or

“immediate” to confer standing because “[a]t present

* * * Arctic neither ships oil through TAPS nor does it

have a royalty interest in any oil being shipped via

TAPS” (ibid.). In the Commission’s view, Arctic had

only a “contingent, potential future interest” since its

oil was unlikely to be shipped before the early to mid-

1990s (ibid.).

Because it concluded that Arctic had no cognizable

present interest in TAPS rates, the Commission found

that Arctic was adequately protected by the future avail-

ability of FERC procedures for determining just and

reasonable rates at such time as Arctic’s oil began to be

shipped. Noting that it was not “imposing the settle-

ment on Arctic” (App., infra, 26a), the Commission

stated that “[i]f and when Arctic is actually aggrieved,

it may contest TAPS’ rates” (id. at 43a), and “[t]he

carriers cannot rely on the approved settlements to es-

tablish the justness of [future rates] since the settle-

ment rates were never adjudicated to be just and rea-

sonable” (id. at 26a n.17).

Based on its dismissal of Arctic and the approval of

the settlement among the remaining parties, the Com-

mission terminated the TAPS dockets and closed the

inquiry into the lawfulness of the TAPS rates.

5. The court of appeals upheld FERC’s order, although

not on the rationale adopted by the Commission. App.,

infra, 1a-19a.

The court of appeals disagreed with the Commission

on the central issue whether Arctic was sufficiently ag-

grieved to have standing. In line with the earlier ruling

of a motions panel,* the court below expressly rejected

the argument that “Arctic has no standing to challenge

the settlement because * * * [it] has suffered no present

aggrievement” (App., infra, 10a n.10). As the court

explained (ibid.) :

[T]he allegations of present injury on the part of

Arctic suffice to satisfy the Hobbs Act jurisdictional

(and the separate constitutional) requirements of

injury in fact necessary to accord a party standing.

In particular, Arctic persuasively contends that ex-

cessive present and future tariffs adversely affect

both the wellhead value of its oil, and its lease bonus

and royalty interests. Although [respondents] chal-

lenge the “extent” of this injury, * * * [there is] a

sufficient present injury to satisfy jurisdictional

prerequisites.

Thus, the court made clear “that the settlement currently

affects Arctic’s interests” (id. at 17a) and has an “as-

suredly real * * * impact” on Arctic (id. at 18a n.20).

Notwithstanding that holding, however, the court of

appeals affirmed FERC’s order. The court recognized

that the Commission had rested its dismissal of Arctic on

the legal conclusion that Arctic had “no present aggrieve-

ment” (App., infra, 8a) and had approved the settlement

as uncontested pursuant to Rule 602(g) (id. at Ta-8a).

Nevertheless, the court held that the Commission had

“discretion” (id. at 17a-18a n.20 (emphasis added)) to

take such action under Rule 602(h) on contested settle-

ments (id. at lla, 17a).

The court found that the Commission’s order consti-

tuted “appropriate” action within the meaning of Rule

3 The TAPS owners initially moved to dismiss Arctic’s petition

for review on the ground that Arctic was not aggrieved and there-

fore lacked standing to appeal. A motions panel of the D.C. Circuit

(Edwards and Bork, JJ.) denied the motion to dismiss. App., infra,

20a-21a.

602 (h) because it left a remedy to Arctic “in the future”

(App., infra, 17a (emphasis in original) ) :

[I]t is appropriate for the Commission * * * to serve

[Arctic’s present] interests by not forcing the settle

ment upon Arctic and by preserving possible future

challenges for a riper moment.

Ibid. Because the settling parties “have the most direct

and immediate interest” in the TAPS rates (ibid.), and

“in light of Arctic’s currently less direct interest in rates

than it may well have at some later time” (id. at 18a

n.21), the court concluded that it was not “inappropri-

ate” for the Commission to “relegat[e] Arctic to a future

proceeding” to obtain a determination of the lawfulness

of TAPS rates (id. at 17a n.19). By severing Arctic and

consigning it to a future remedy, the Commission served

“the general policy favoring settlement of administrative

proceedings” (id. at 14a) and promoted the “public-

interest considerations” supporting “settlement of these

extraordinarily complex and burdensome proceedings” (id.

at lla).

By the court’s own admission, its decision “that Arctic

can properly be left out in the cold for the moment” was

an “unhappy conclusion” (App., infra, 18a). The court

acknowledged both “Arctic’s frustration with the labyrin-

thine regulatory process in which it has participated” and

“the force of some of its arguments” (id at 10a). And

the court conceded that it appeared “curious that a party

who participated fully in the litigation for nine years

could at the end be told that its interest is not immediate

enough to challenge the settlement” (id. at 18a n.21)

and “odd” that FERC “would elect to conclude a nine-

year long proceeding without reaching the merits” (id.

at 16a). However, because it was “unable to discern any

insurmountable impediment” to the Commission’s order

(id. at 10a), the court felt “constrained” (id. at 18a) to

hold that “the Commission’s action is within lawful

bounds” (id. at 2a).

REASONS FOR GRANTING THE PETITION

Without question, the TAPS ratemaking proceeding is

of considerable public importance. TAPS revenues are

as great as the combined revenues of all other oil pipe-

lines in the United States. See Farmers Union, 734 F.2d

at 1494 n.21. TAPS rates will have a critical effect on

the development and cost of oi] from the Alaska North

Slope, an energy resource vital to our nation’s economy

and security. As FERC itself has noted, “TAPS moves

enormous quantities of oil” and its rates are “of real

moment to ultimate consumers.” Trans Alaska Pipeline

System, 21 F.E.R.C. (CCH) § 61,092 at 61,285 (1982).

In addition, TAPS rates have a direct and immediate

impact on Alaskan Natives. In order to promote the de-

velopment of Alaska’s oil resources, Congress enacted

ANCSA, which extinguished the Natives’ aboriginal

title and in return compensated them with land to gen-

erate revenues to meet their “real economic and social

needs” (43 U.S.C. § 1601(b)). See, e.g., H.R. Rep. No.

523, 92d Cong., 1st Sess. 6 (1971) (compensation re-

flected “the need for adequate resources to permit the

Natives to help themselves economically”’) ; id. at 16 (Sec-

retary of the Interior Morton) (lands will “provide the

natives with a permanent economic future in the State’’).

The value of the Natives’ oil lands and leasing rights is

thus integral to the ANCSA scheme. It is this interest

that Arctic seeks to protect and that the decisions of

FERC and the court of appeals frustrate. Moreover,

because the other regional corporations share in 70% of

the net revenues Arctic earns from many of its oil leases

(see 43 U.S.C. § 1606(i)), the adverse rulings below af-

fect all Alaskan Natives.

The questions presented in this case concern the fun-

damental fairness of the TAPS proceeding and the proper

exercise of judicial review of FERC’s actions. The issue

of who can contest TAPS rates, and when, is crucial to

iene |

realizing the mandate of the Interstate Commerce Act

that charges be “just and reasonable” (49 U.S.C.

§1(5)). As this Court explained in TAPS IJ, it is a vir-

tual certainty that producers and shippers of Alaskan

oil will not challenge TAPS rates, for they

are almost exclusively parents or co-subsidiaries of

TAPS owners. Thus, to an indeterminate, but pos-

sibly large extent, excess transportation charges to

shippers will be offset by excess profits to TAPS

owners, creating a wash transaction from the stand-

point of parent oil companies. Indeed, it is telling

that no shipper of oil protested the TAPS rates.

436 U.S. at 644. Likewise, the settlement in this case

bars the State of Alaska from contesting the terms of

the agreement or the rates set by the TAPS Settlement

Methodology; what is more, Alaska’s interest diverged

from that of Arctic and the Alaskan Natives since, in

return for agreeing to TSM rates that are not cost-based,

the State received several hundred million dollars for

overcharges on shipments during the period 1982-1985

as well as $35 million in reimbursement for its litigation

expenses. See C.A. App. 473, 513.

Realistically, therefore, only the Alaska Native Re-

gional Corporations can be expected to challenge TAPS

rates. Despite this singular role, however, the decisions

below preclude the regional corporations from mounting

a rate challenge until such time as their oil is actually

being shipped, which will not occur before the 1990s

and may never occur if excessive TAPS rates render

their lands uneconomical to develop. Hence, the conse-

quence of this case, if it is not reviewed by the Court,

is that TAPS rates—rates that are alleged to be unlaw-

ful and whose legality FERC has never resolved—will be

effectively immune from challenge. The court of appeals

correctly held that Arctic has standing because it is cur-

rently aggrieved by high TAPS rates, and, as this litiga-

tion amply demonstrates, Arctic’s stake ensures that it

will vigorously pursue the objective of just and reason-

able rates. To foreclose it from proceeding for the in-

definite future injures Arctic’s economic interests under

ANCSA and is inimical to national energy policy.

Two issues are raised in this petition. The first is

whether FERC can approve a settlement over the objec-

tions of an aggrieved party without resolving the merits

of the dispute. As we show below, such a “cram down”

of a settlement is a clear violation of the Due Process

Clause, the Interstate Commerce Act, and FERC regu-

lations. The D.C. Circuit’s decision, allowing FERC to

approve a contested settlement without an adjudication

on the merits, conflicts with decisions of this Court and

of other courts of appeals; and even apart from that con-

flict, the unique position of the D.C. Circuit in formulat-

ing principles of administrative law and overseeing the

work of federal agencies makes the decision below a sig-

nificant one. Because the propriety of forced settlements

is an important and recurring issue, and because courts

and agencies are under increasing pressure to settle liti-

gation, the question of the rights of objecting parties

warrants this Court’s review.

The second issue in this case is whether the court of

appeals erred in affirming FERC’s order on a rationale

that the agency itself had not adopted: while FERC

had approved the settlement as uncontested after dis-

missing Arctic on the legal ground that it lacked stand-

ing, the court of appeals—although overturning the

agency on the central question of Arctic’s standing—

sustained FERC’s action as an appropriate exercise of

discretion to approve a contested settlement. By invent-

ing a theory that FERC has never suggested or adopted,

the court departed from the cardinal rule of judicial re-

view that agency action may be upheld only on the basis

on which the agency relied.

Because the latier error of the court of appeals is

manifest, the Court may wish to consider summary re-

versal of the judgment below. See, e.g., Consolidated

Rail Corp. v. Recycling Indus., 449 U.S. 609 (1981) (per

curiam); Long Island R. Co. v. Aberdeen & Rockfish R.

Co., 439 U.S. 1 (1978) (per curiam). Accordingly, we

begin with that issue.

I. THE COURT OF APPEALS ERRED IN UPHOLD-

ING FERC’S ORDER ON A GROUND THAT THE

AGENCY HAD NOT ADOPTED

It is a “well established” axiom of administrative law

that “an agency’s action must be upheld, if at all, on the

basis articulated by the agency itself.” Motor Veh. Mfrs.

Ass'n v. State Farm Mut., 463 U.S. 29, 50 (1983). This

Court has “frequently reiterated that an agency must

cogently explain why it has exercised its discretion in a

given manner” (id. at 48), and courts “may not supply

a reasoned basis for the agency’s action that the agency

itself has not given” (id. at 43). The Court has never

varied from the “simple but fundamental rule of admin-

istrative law” that

a reviewing court, in dealing with a determination

or judgment which an administrative agency alone

is authorized to make, must judge the propriety of

such action solely by the grounds invoked by the

agency. If those grounds are inadequate or im-

proper, the court is powerless to affirm the admin-

istrative action by substituting what it considers to

be a more adequate or proper basis.

SEC v. Chenery Corp., 332 U.S. 194, 196 (1947). See

also, e.g., ICC v. Brotherhood of Locomotive Engineers,

107 S.Ct. 2360, 2368 (1987); id. at 2371-2372 (Stevens,

J., concurring).

This settled doctrine reflects the fundamental alloca-

tion of responsibilities between federal courts and ad-

ministrative agencies and the proper role of judicial

review of agency action.

For the courts to substitute their * * * discretion for

that of the [agency] is incompatible with the orderly

functioning of the process of judicial review. This

is not to deprecate, but to vindicate * * *, the admin-

istrative process, for the purpose of the rule is to

avoid “propel[ling] the court into the domain which

Congress has set aside exclusively for the adminis-

trative agency.”

Burlington Truck Lines v. United States, 371 U.S. 156,

169 (1952). The complementary concepts of “the integ-

rity of the administrative process” (NLRB v. Metropoli-

tan Life Ins. Co., 8380 U.S. 488, 444 (1965)) and the

“responsibility” and “accountability” of the agency

(Bowen v. American Hosp. Ass’n, 106 §8.Ct. 2101, 2113,

2121 (1986) (plurality opinion)) require that courts

limit their review to “the rationale adopted by the

agency * * *. Only in that way may [they] ‘guard

against the danger of sliding unconsciously from the nar-

row confines of law into the more spacious domain of

policy.’” Atchison, T. & S.F.R. Co. v. Wichita Bd. of

Trade, 412 U.S. 800, 807 (1973).

The application of these principles to this case is

straightforward. There is no dispute, and the court of

appeals correctly understood, that FERC had dismissed

Arctic from the proceeding for lack of standing and then

approved the settlement among the remaining parties as

uncontested pursuant to Rule 602(g). Nonetheless, the

court, although reversing FERC’s ruling on the legal

issue of standing, upheld the agency’s order as a proper

exercise of administrative “discretion” (App., infra, 17a-

18a nn.20, 21) to take appropriate action to approve a

contested settlement under Rule 602(h) (id. at lla,

17a). Whether or not “FERC could choose within its

sound discretion” (id. at 18a n.21) to act as it did (a

point we dispute below), it is quite clear that the agency

did not in fact invoke such discretion in dismissing Arc-

tic as unaggrieved and approving the uncontested settle-

ment. In these circumstances, the court improperly sub-

situted its judgment for that of FERC by exercising

a discretion that Congress vested in the agency alone.

Since FERC’s rejection of Arctic’s standing constituted

“an error of law,’” it was the court of appeals’ “ ‘duty

** * to correct the error ..., and after doing so to re-

mand the case to the [agency] so as to afford it the oppor-

tunity of * * * [proceeding] as required by law.’” Na-

tional Ass’n of Greeting Card Pubs. v. USPS, 462 U.S.

810, 825 n.19 (1983). This the court of appeals failed

to do. Accordingly, the judgment below should be sum-

marily reversed, and the case remanded for further ad-

ministrative proceedings.

Ii, APPROVAL OF A SETTLEMENT OVER THE OB-

JECTIONS OF AN AGGRIEVED PARTY, WITH-

OUT RESOLVING THE DISPUTE ON THE MERITS,

VIOLATES THE DUE PROCESS CLAUSE, THE IN-

TERSTATE COMMERCE ACT, AND FERC REGU-

LATIONS

The court of appeals held that the Commission may

approve a settlement over the objections of an aggrieved

party without resolving the merits of the dispute. Under

the decision below, a hotly contested and objectionable

settlement may be transformed into a so-called “uncon-

tested” settlement by the simple device of cavalierly ex-

cluding a proper party from the case. The stated justifi-

cation for thus ignoring the interests of an adversely

affected party is the “policy favoring settlement of ad-

ministrative proceedings” (App., infra, 14a). To sacrifice

the rights of a party to the expediency of settling the

proceeding, as the court of appeals has sanctioned, vio-

lates the Due Process Clause, the Interstate Commerce

Act, and FERC’s own regulations.

A. The Due Process Clause Prohibits FERC From Dis-

missing A Currently Injured Party And Approving

A Contested Settlement Without Resolving The Dis-

missed Party’s Objections On The Merits

The court of appeals correctly recognized that Arctic is

suffering “present injury” because excessive TAPS rates

“adversely affect” the value of its oil holdings and leas-

ing rights (App., infra, 10a n.10). Thus, the settlement

“currently affects Arctic’s interests” (id. at 17a) and has

an “assuredly real * * * impact * * * on Arctic” (id. at

17a-18a n.20). For a court or agency to dismiss an ag-

grieved party from a proceeding that directly affects its

interests, without ruling on the merits of its claim, is

an elemental deprivation of due process.

As this Court has explained, “|f]or more than a cen-

tury the central meaning of procedural due process has

been clear: ‘Parties whose rights are to be affected are

entitled to be heard.’” Fuentes v. Shevin, 407 U.S. 67,

80 (1972). Moreover, because “[i]t is equally funda-

mental that the right to * * * an opportunity to be heard

‘must be granted at a meaningful time and in a meaning-

ful manner,’” the required hearing must be held “at a

time when the deprivation can still be prevented” (id. at

80, 81). Thus, “[t]he right to a prior hearing has long

been recognized by this Court * * *. ‘[ The] root require-

ment [of due process is] that an individual be given an

opportunity for a hearing before he is deprived of any

significant property interest * * *’” (id. at 82 (em-

phasis in original)). See also, e.g., Bell v. Burson, 402

U.S. 535, 541-542 (1971).

Due process can, of course, make proceedings more ex-

pensive and protracted. We recognize the general public

interest in resolving disputes through settlements volun-

tarily reached by all parties. Indeed, Arctic would have

joined the settlement in this case if certain modifications

were made, which the State of Alaska accepted but the

TAPS owners rejected. App., infra, 46a.

Absent unanimous consent, however, the general policy

in favor of settlements provides no basis for running

roughshod over Arctic’s rights. Due process “ ‘recognizes

higher values than speed and efficiency’” (Fuentes v.

Shevin, 407 U.S. at 90 n.22), and “the prospect that a

hearing may be long does not justify its denial if it is

required by the essential demands of justice.” Atchison,

T. & S.F.R. Co. v. United States, 284 U.S. 248, 262

(1932). Under the Due Process Clause, “[t]here can be

no compromise on the footing of convenience or expedi-

ency” where the “minimal requirement” of a hearing—

“one of ‘the rudiments of fair play’”—is “neglected or

ignored.” Ohio Bell Tel. Co. v. Public Util. Comm’n, 301

U.S. 292, 304-305 (1937).

We take it as clear—indeed, it is indisputable—that

FERC could not have approved a settlement that would

be binding on Arctic over its objections. See, e.g., Na-

tional Licorice Co. v. NLRB, 309 U.S. 350, 362 (1940);

Postal Telegraph Cable Co. v. Newport, 247 U.S. 464, 476

(1918). The court of appeals thought that its decision

did not run afoul of this principle because the settlement

was not imposed on Arctic or determinative of its rights,

thereby leaving Arctic free in the future to resort to

FERC’s ratemaking procedures if and when its oil was

being shipped through TAPS. It was sufficient, the court

believed, that the settlement ensure the “efficacy of this

future remedy” by “preserv[ing]” Arctic’s challenges

and allowing it to “return to the Commission when the

impact of TAPS rates upon it is more concrete and sub-

stantial” (App., infra, 16a, 19a).

That reasoning, however, ignores the fact that, as the

court itself held, dismissal of Arctic from the proceeding

and approval of the settlement did have a present adverse

effect on Arctic. Without affording Arctic a hearing to

resolve its contention that TAPS rates are unlawful, the

court deprived Arctic of its current interest in deriving

the full value of its ANCSA lands and sustained a FERC

order that threatens to prevent Arctic from ever develop-

ing its substantial holdings in marginal oil fields. This

harm to Arctic is irreparable: its present and continuing

injury cannot be cured by a future determination of just

and reasonable rates. Cf. First English Evan. Luth. Ch.

v. Los Angeles Cty., 107 S.Ct. 2378 (1987).

Thus, “the remedy provided to Arctic in the future”

(App., infra, 17a (emphasis in original) ) is no substi-

tute for the remedy required by the Constitution here

and now. The fact that the court characterized the TAPS

owners as having a more “direct and immediate interest”

(ibid.) in TAPS rates than Arctic, or that Arctic’s in-

terest in the rates is “currently less direct” than it might

be “at some later time” (id. at 18a n.21), does not justify

or excuse the present infringement of Arctic’s right to

due process. To dismiss Arctic from the proceeding with-

out ruling on its claims, thus leaving it aggrieved by

allegedly excessive rates at this point, is just as much a

denial of due process as the binding imposition of the

settlement would have been.

B. The Interstate Commerce Act And FERC’s Regula-

tions Do Not Permit The Approval Of A Settlement

Over The Objections Of An Aggrieved Party

In addition to this constitutional violation, neither the

Interstate Commerce Act nor FERC’s regulations permit

the approval of a settlement over the opposition of an

aggrieved party. If a party’s current interest is ad-

versely affected, FERC is required to provide an imme-

diate procedure for resolving its claims on the merits and

may not, as the court of appeals’ decision allows, simply

“relegat[e it] to a future proceeding” (App., infra, 17a

n.19). Moreover, the decision below conflicts with deci-

sions in other circuits that recognize that the Commis-

sion must rule on the merits of such objections in order

to approve a contested settlement.

1. The Interstate Commerce Act Requires FERC

To Decide The Merits Of An Aggrieved Party’s

Complaint That Pipeline Rates Are Unlawful

In clear and unambiguous terms, the Interstate Com-:

merce Act directs that ‘“[a]ll charges * * * shall be just

and reasonable’ and that “every unjust and unreason-

able charge * * * is prohibited and declared to be unlaw-

ful” (49 U.S.C. §1(5)). The central means for enfore-

ing this provision is contained in Section 13, which pro-

vides that “[a]ny person” may petition the Commission

to complain of a violation of the Act (49 U.S.C.

$13(1)) If there “appear[s] to be any reasonable

ground for investigating said complaint, it shall be the

- LEI RI RE OS

duty of the Commission to investigate the matters com-

plained of in such manner and by such means as it shall

deem proper” (ibid. (emphasis added) ). The statute but-

tresses this enforcement scheme by further stating that

“[njo complaint shall at any time be dismissed because

of the absence of direct damage to the complainant” (49

U.S.C. § 18(2)).

By the plain language of Section 13, therefore, FERC

is under a “duty” to investigate alleged violations of the

Act if there is “any reasonable ground” for doing so

upon the complaint of “any person.” This Court has long

recognized the mandatory duty that the statute imposes

on the Commission. In ICC v. Baird, 194 U.S. 25 (1904),

the Court held that, even where “the complainant before

the commission did not show any real interest in the

case” (id. at 39), “no alternative is left the commission

but to investigate the complaint, if it presents matter

within the purview of the act and the powers granted to

the Commission” (ibid. (emphasis added)).* More re-

cently, in Southern Ry. Co. v. Seaboard Allied Milling

Corp., 442 U.S. 444, 454 (1979), the Court reiterated

that a Section 13 complaint “require[s] the Commission

to investigate the lawfulness of any rate at any time”

and that “any decision not to do so” is subject to judicial

review. See also id. at 450 (ICC stated that § 13 pro-

vides for “mandatory posteffective proceedings to inquire

into and remedy violations of the Act”) (emphasis

added) ; Amalgamated Util. Workers v. Consolidated Edi-

son Co., 309 U.S. 261, 269 (1940) ($18(1) “affords ‘a

private administrative remedy,’” and an “interested per-

son can file as of right a complaint before the Interstate

Commerce Commission”’).

4 FERC sought to distinguish Baird on the ground that it “merely

recognizes the possibility of indirect damage” but “in no way bars

a dismissal where, as here, there is no immediate damage” (App.,

infra, 40a n.51). Whatever its validity otherwise, that attempted

distinction does not survive the court of appeals’ holding that

Arctic suffered present injury.

The court of appeals’ decision is flatly inconsistent with

the Commission’s statutory obligation under Section 13—

a section that is “one of [the Act’s] * * * most frequently

used provisions” (Southern Ry. Co. v. Seaboard Allied

Milling Corp., 442 U.S. at 457). The court’s decision per-

mits FERC to terminate a ratemaking investigation and

dismiss a complaint even though an aggrieved party is

challenging the lawfulness of rates. An investigation

was commenced in this case (and an initial suspension

was ordered under 49 U.S.C. § 15(7)) based on the deter-

mination that “there is reason to believe the proposed

rates are not just and reasonable” and that “the protest-

ants have made a showing of probable unlawfulness.”

Trans Alaska Pipeline System, 355 1.C.C. at 81, 82. Just

as the Commission could not have ignored Arctic’s com-

plaint at the outset by refusing to begin an investigation,

it equally could not short circuit Arctic’s complaint by

ending the investigation without a ruling on the merits

of the legality of the TAPS rates.

The court of appeals’ only response to Arctic’s conten-

tion was that the proceeding into the lawfulness of the

TAPS rates was being conducted under Sections 15(1)

and 15(7) of the Interstate Commerce Act (49 U.S.C.

$$ 15(1) and 15(7)) rather than under Section 13 (App.,

infra, 12a & n.13). That conclusion reflects a fundamental

confusion about the structure of the Act. Section 13,

which was part of the Interstate Commerce Act of 1887,

established an enforcement mechanism for private parties

to obtain a determination of the justness and reasonable-

ness of rates. If rates were found to be unlawful, the

original Act allowed the ICC to enter cease-and-desist

orders. It did not, however, authorize the ICC affirma-

tively to prescribe the legal rate (or maximum and mini-

mum legal rates) for carriers to charge. Accordingly, in

the Hepburn Act of 1906, Congress conferred that power

on the Commission under Section 15(1). In addition, the

Commission had no authority to act until after rates

had already taken effect and the public had been sub-

jected to the allegedly illegal charges; the Mann-Elkins

at) DN clara Pe ned A EO ODEN a Ste Dish Oi TRC ARO te AT a Kiar

Act of 1910 corrected this defect by granting the Com-

mission the power in Section 15(7) to suspend proposed

rates. See, e.g., TAPS I, 436 U.S. at 639-642.

It is thus clear that Section 15(1) and 15(7) do not,

as the court of appeals believed, create an alternative ad-

ministrative procedure for complainants to pursue.

Rather, they provide additional remedies to “augment! ]”

(TAPS I, 436 U.S. at 641) the enforcement mechanism

established in Section 13 of the original Act. Indeed, the

text of Section 15(1) makes clear this interrelation

among the provisions by authorizing the Commission to

order relief for unlawful rates “upon a complaint made

as provided in section 13” (49 U.S.C. §15(1) (empha-

sis added) ). See also Alexander Sprunt & Son v. United

States, 281 U.S. 249, 258-259 (1930) (rates are subject

to challenge “in a proceeding before the Commission insti-

tuted under sections 13 and 15,” and complainants “have

their remedy before the Commission under sections 13

and 15’). Moreover, because there is no requirement that

the complainant or the Commission expressly cite Section

13 in order to invoke that provision (see, e.g., Chicago,

RJ. & P. Ry. Co. v. United States, 274 U.S. 29, 36-37

(1927); Lewis-Simas-Jones Co. v. Southern Pac. Co., 283

U.S. 654, 659, 662 (1931)), the court of appeals erred

in relying on the absence of any such explicit reference

in concluding that Section 13 was not involved in this

ease (App., infra, 12a n.13) 5

5 The Court has recognized that the Commission has unreviewable

discretion under other provisions of the Interstate Commerce Act,

where the statutory language is permissive rather than mandatory

or where it would be a practical impossibility to require Commission

action. See, e.g., Southern Ry. Co. v. Seaboard Allied Milling Corp.,

supra (decision not to investigate seasonal rates under 49 U.S.C.

§ 15(8)); Aberdeen & Rockfish R.R. Co. v. SCRAP, 422 U.S. 289

(1975) (decision whether to suspend or investigate the suspension

of rates under 49 U.S.C. § 15(7)); Arrow Transp. Co. v. Southern

Ry. Co., 372 U.S. 658 (1963) (same). Those decisions, however, in

no way support the court of appeals’ sweeping conclusion that “the

Commission enjoys unreviewable discretion to determine whether to

initiate section 15 investigations at all” (App., infra, 12a).

Indeed, FERC’s refusal to resolve the lawfulness of the

TAPS rates was especially improper in the circumstances

of this case. At the time the investigation was terminated,

extensive administrative proceedings had been underway

for nearly a decade. The Phase I record had been com-

pleted, and an ALJ initial decision had been rendered

and appealed to the Commission; the Phase II record

likewise had been closed, opening briefs had been filed

before the ALJs, and reply briefs were being drafted.

Having come this close to resolving the ratesetting meth-

odology for the life of TAPS, however, FERC set these

efforts for naught by concluding the proceeding without

a decision. That action was inconsistent with the require-

ments of the statute and improperly frustrated the legiti-

mate interests of both Arctic and the public in obtaining

a determination of the legality of TAPS rates. See City

of Chicago v. United States, 396 U.S. 162, 166 (1969) ;

Wisconsin V. FPC, 373 U.S. 294, 311 (1963); Minne-

apolis Gas Co. v. FPC, 294 F.2d 212, 215 (D.C. Cir.

1961).°

2. FERC’s Regulations Require That The Commis-

sion, In Approving A Contested Settlement, Re-

solve An Aggrieved Party’s Objections On The

Merits

FERC’s regulations likewise do not permit the Com-

mission to approve a settlement over the objections of an

6 In addition, the decisions below are incorrect for another reason

with respect to the pooling arrangement under the settlement.

While FERC approved the rate provisions as a settlement, 49 U.S.C.

§5(1) requires that the pooling agreement be approved on the

merits, and the Commission did so here (App., infra, 42a-43a & n.58,

63a, 64a). However, in granting substantive approval, the Commis-

sion erred by not considering the merits of the pooling arrangement

apart from the overall settlement to determine whether the pooling

provision itself satisfied the requirements of the statute. Thus, what-

ever the correctness of the rulings of the court of appeals and FERC

relegating Arctic to a future rate challenge because the Commission

had not approved TAPS rates, that reasoning is simply inapplicable

to the pooling agreement, which the Commission did approve—albeit

erroneously—on the merits.

aggrieved party. In fact, FERC has consistently de-

clined to take such an action. In adopting a contested

settlement, the Commission must hear the nonconsenting

party’s opposition on the merits.

FERC’s regulations clearly distinguish between uncon-

tested settlements (which are covered by Rule 602(g),

18 C.F.R. § 385.602(g) (App., infra, 87a)) and con-

tested settlements (which fall under Rule 602(h), 18

C.F.R. § 385.602(h) (App., infra, 87a-89a)). Although

FERC approved the settlement here as uncontested under

Rule 602(g) on the legally erroneous ground that Arctic

lacked standing, the court of appeals held that the Com-

mission’s action was an appropriate disposition of a con-

tested settlement under Rule 602(h) (1) (ii) (B). This

is a plain misreading of the text, structure, and history

of Rule 602.

Rule 602(h) clearly contemplates that the Commission

will resolve the merits of contested settlements (or of

those portions of a settlement that are contested). Rule

602(h) (1) (i) authorizes the Commission to “decide the

merits of the contested settlement issues” if either “the

record contains substantial evidence” for a decision or

there is “no genuine issue of material fact.” This provi-

sion enables the Commission to “render a decision on

contested issues on the basis of substantial record evi-

dence, consistent with the requirements of due process.”

43 Fed. Reg. 32814, 32815 (1978). At the same time,

under Rule 602(h) (1) (iii), any issues that are not con-

tested may be severed and treated as an uncontested

settlement pursuant to Rule 602(g). In contrast to the

requirements of Rule 602(h) for a contested settlement,

Rule 602(g) “is clear * * * that substantial evidence is

not required as support for unopposed offers of settle-

ment” because they do not entail a decision on the merits.

44 Fed. Reg. 34936, 34939 (1979).

If there is no adequate factual basis for FERC to

decide the contested issues on the merits, Rule 602(h)

states that the Commission “will * * * [e]stablish pro-

cedures for the purpose of receiving additional evidence

before [an ALJ]” (Rule 602(h) (1) (ii) (A)) or—in the

provision upon which the court of appeals relied—“will

* * * [t]ake other action which the Commission deter-

mines to be appropriate” (Rule 602(h) (1) (ii) (B)). In

the court’s view, subsection B “trumpet[s]” “sweeping”

authority in the Commission to take any settlement action

that it finds “appropriate” (App., infra, lla).

The court of appeals’ decision would give FERC

largely unlimited discretion to convert contested settle-

ments into uncontested ones by ordering the dismissal of

the objecting parties as “appropriate” in order to settle

the case. As a matter of both legal analysis and common

sense, that self-evidently is not a correct understanding

of the Rule. Rather, the language, context, and back-

ground of Rule 602(h) show that subsection B was de-

signed as a residual source of procedural flexibility for

the Commission to take “appropriate” action, other than

a remand to an ALJ for a factual hearing under subsec-

tion A, to develop an adequate record for rendering a

decision on the merits. The purpose of subsection B

manifestly was not to circumvent the procedure for re-

solving the merits of contested issues; as FERC itself

explained the regulation:

If substantial evidence is lacking * * * [for deciding

contested settlement issues], the Commission may

order proceedings before a Presiding Officer for re-

ceiving substantial evidence upon which a decision

can reasonably be based or other appropriate pro-

cedures.

44 Fed. Reg. 34936, 34938 (1979) (emphasis added).

Both the court of appeals (App., infra, 8a, lla, 17a

n.19) and the Commission (id. at 27a, 32a-33a, 55a n.3)

placed great weight on the decision in United Municipal

Distributors Group v. FERC, 732 F.2d 202 (D.C. Cir.

1984). In that case, FERC severed a party that objected

to part of a settlement under the Natural Gas Act and

then approved the uncontested agreement among the

other parties. For the reasons stated above, we disagree

with United to the extent it is read to establish broad

discretionary power in the Commission to deprive an

aggrieved party of an effective remedy based on the ex-

pediency of approving a settlement.

But that is not in fact what United held. In United,

the objecting party, after being severed from the settle-

ment, was granted an immediate hearing to resolve its

allegations on the merits—exactly the same hearing that

would have been conducted for all of the parties in the

absence of the settlement. Because the nonconsenting

party was given its “legally prescribed remedies” (732

F.2d at 210 n.12) for the adjudication of its claims, it

was free to litigate its complaint then and there, and its

injury was not left unredressed. This is how the Com-

mission understood United. App., infra, 27a (“in United

* * * the objecting parties were entitled to an immediate

hearing on the merits * * * because those parties had

immediate interests”). Here, in sharp distinction, the

court of appeals’ decision does not allow Arctic to pursue

its legally prescribed remedies or provide it with an im-

mediate and effective avenue for relief from the present

harm that, as the court itself held, renders it aggrieved.

In other words, Arctic is seeking precisely the remedy

that was afforded in United but denied in this case.

United, therefore, does not sustain the decision below

depriving Arctic of a current remedy and “relegating

[it] to a future proceeding” (App., infra, 17a n.19).

In its rulings in this case, FERC did not purport to be

able to withhold a hearing from an aggrieved party. On

the contrary, it clearly indicated that Arctic would be

entitled to a hearing in the future when, under the Com-

mission’s erroneous standing requirement, Arctic would

first be aggrieved. App., infra, 27a, 39a, 43a. Nor has

FERC denied hearings to aggrieved parties in other cases

by approving settlements over their objections. Quite the

opposite, the Commission has consistently refused to ap-

OOOO eVvcOOooOoOOT

prove such settlements and required that a hearing be

held." To our knowledge, FERC has never asserted or

exercised—and, as discussed above, lawfully could not do

so—the unbridled power that the court of appeals’ deci-

sion has conferred upon it to divest an aggrieved party

of its right to a hearing and decision on the lawfulness

of challenged rates.

3. Judicial Decisions Establish That FERC Must

Decide An Aggrieved Party’s Objections On The

Merits In Order To Approve A Contested Settle-

ment

The erroneous decision of the court below conflicts

with decisions of other courts of appeals. In line with

the foregoing analysis, those decisions demonstrate that

the Commission is required to resolve contested settle-

ments on the merits and cannot accept a settlement qua

settlement over the objections of an aggrieved party.

In New Orleans Public Service v. FERC, 659 F.2d 509,

511-512 (5th Cir. 1981), for example, the Fifth Circuit

stated as a “well settled” principle that “the Commission

can approve contested settlements as long as it deter-

mines that the proposal will establish just and reasonable

rates” (emphasis added). Likewise, in Jn re Hugoton-

Anadarko Area Rate Case, 466 F.2d 974, 981 (9th Cir.

1972). the Ninth Circuit, after referring to the Commis-

sion’s statement that a contested settlement proposal

“must be considered on its merits,” held that the Com-

mission could “accept the settlement proposal over [par-

ties’] objections” because it “deal[t] with the settlement

proposal on the merits” and “rendered a decision, based

on findings which it believed were supported by substan-

tial evidence, prescribing lawful rates.” And in South

Dakota Pub. Util. Comm’n v. FERC, 668 F.2d 333, 336

(8th Cir. 1981), the Eighth Circuit, recognizing that a

contested settlement constitutes a resolution of the merits,

7™See Trunkline Gas Co., 22 F.E.R.C. (CCH) {61,011 (1983);

Northern Natural Gas Co., 35 F.E.R.C. (CCH) {§ 61,105 (1986);

Natural Gas Pipeline Co., 39 F.E.R.C. (CCH) § 61,149 (1987).

explained that “[a] final Commission decision on a con-

tested settlement must be supported by substantial evi-

dence.”

Indeed, in every other case of which we are aware, the

Commission has treated its approval of a contested set-

tlement over the objections of an aggrieved party as a

decision on the merits. The leading illustration is Mobil

Oil Corp. v. FPC, 417 U.S. 283 (1974). There, the

Commission accepted a contested settlement in establish-

ing just and reasonable rates; as the Fifth Circuit ex-

plained, “[a]lthough the lack of unanimity of support

from some of the various parties precluded the possi-

bility of its functioning as a settlement in the traditional

sense, FPC adopted it as a decision on the merits.”

Placid Oil Co. v. FPC, 483 F.2d 880, 893 (5th Cir.

1973). This Court expressly approved the analysis of

the court of appeals that “even if there is a lack of una-

nimity, it may be adopted as a resolution on the merits, if

FPC makes an independent finding supported by ‘substan-

tial evidence on the record as a whole’ that the proposal

will establish ‘just and reasonable’ rates” (417 U.S. at

314, quoting 483 F.2d at 893 (emphasis in original) ). Re-

viewing courts have consistently recognized that the Com-

mission’s approval of a contested settlement represents

a determination on the merits. See, e¢.g., Mississippi

River Transmission Corp. v. FERC, 759 F.2d 945, 951-

952 & n.7 (D.C. Cir. 1985); FERC v. Triton Oil & Gas

Corp., 712 F.2d 1450, 1458 (D.C. Cir. 1983).

The ruling below cannot be squared with these au-

thorities. The court of appeals has allowed the Commis-

sion to approve contested settlements without resolving

the merits of the objections raised by aggrieved parties.

A heretofore uniform line of decisions in several circuits

has recognized that such an action is impermissible, and

indeed FERC itself has not claimed to have that power

in this case or any other. The unprecedented and errone-

ous decision of the D.C. Circuit will be a continuing

source of confusion in FERC proceedings, will engender

controversy in the area of settlements where clarity and

certainty are especially important, and will lead to a lack

of uniformity among the courts of appeals in reviewing

FERC orders. Review by this Court is accordingly war-

ranted.

CONCLUSION

The petition for a writ of certiorari should be granted.

The Court may wish to consider summary reversal of

the judgment of the court of appeals with respect to

Question 2.

Respectfully submitted.

PAUL M. BATOR

MARK I, LEvy *

Mayer, Brown & Platt

190 South La Salle Street

Chicago, Illinois 606083

(312) 782-0600

O. YALE LEWIS, JR.

RICHARD A. CURTIN

Hendricks & Lewis

2675 First Interstate Center

Seattle, Washington 98104

(206) 624-1933

WILLIAM W. BECKER

Landfield, Becker & Green

1818 N Street, N.W.

Suite 300

Washington, D.C. 20036

(202) 775-0300

Counsel for Petitioner

MAY 1988 * Counsel of Record

inl

fated

APPENDIX A

UNITED STATES COURT OF APPEALS

DISTRICT OF COLUMBIA CIRCUIT

Nos. 86-1115, 86-1427

ARCTIC SLOPE REGIONAL CORPORATION,

Petitioner,

FEDERAL ENERGY REGULATORY COMMISSION, and

UNITED STATES OF AMERICA,

Respondents,

STATE OF ALASKA, AMERADA HESS PIPELINE CORP.,

ARCO PIPE LINE COMPANY, EXXON PIPELINE CO.,

SoHIO ALASKA PIPELINE Co., UNION ALASKA PIPELINE

Co., BP PIPELINES INC., MopiL ALASKA PIPLINE Co.,

PHILLIPS ALASKA PIPELINE CORP.,

Intervenors.

ARCTIC SLOPE REGIONAL CORPORATION,

Petitioner,

FEDERAL ENERGY REGULATORY COMMISSION, and

UNITED STATES OF AMERICA,

Respondents,

AMERADA HESS PIPELINE CORP., EXXON PIPELINE CO.,

ARCO PIPE LINE COMPANY, BP PIPELINES INC.,

MopiL ALASKA PIPELINE Co., UNOCAL PIPELINE Co.,

PHILLIPS ALASKA PIPELINE CORP., STATE OF ALASKA,

SOHIO ALASKA PIPELINE Co.,

Intervenors.

Argued Sept. 22, 1987

Decided Oct. 27, 1987

Before RUTH BADER GINSBURG, STARR and

NIES”, Circuit Judges.

Opinion for the Court filed by Circuit Judge STARR.

STARR, Circuit Judge:

These consolidated cases present a challenge to orders

by the Federal Energy Regulatory Commission approving

a multi-party settlement of extended administrative liti-

gation attacking rates filed by the owners of the Trans

Alaska Pipeline System (TAPS). After reviewing the

various contentions pressed by the sole remaining party

which contested the settlement, we conclude that the Com-

mission’s action is within lawful bounds and accordingly

deny the petitions for review.

The story of the Trans Alaska Pipeline System has

been oft repeated and scarcely requires recounting yet

again. Suffice it to say that, after the discovery of vast

oil reserves on the North Slope of Alaska in 1969, various

oil companies constructed an 800-mile pipeline from the

Prudhoe Bay field south to the warm water port of Val-

dez. From rather modest estimates at the outset, TAPS

was ultimately completed at a cost of over $9 billion.

Oil started to flow through TAPS in the summer of 1977

and has continued since. TAPS’ owners,' common car-

* Of the United States Court of Appeals for the Federal Circuit,

sitting by designation pursuant to 28 U.S.C. § 291(a).

1The eight owners of TAPS are: Arco Pipe Line Company

(ARCO), BP Pipelines Inc. (BP), Exxon Pipeline Company, Mobil

Alaska Pipeline Company, Phillips Alaska Pipeline Corporation,

riers under the Interstate Commerce Act, 49 U.S.C.

§$1 et seg. (ICA or Act), duly filed their tariff rates

with the Interstate Commerce Commission in 1977, as

required by law, see 49 U.S.C. §1(1) (b). The rates as

filed in 1977 ranged from $6.04 to $6.44 per barrel.

Promptly thereafter, in June 1977, several parties filed

protests and petitions seeking to invoke the Commission’s

investigatory powers pursuant to sections 15(1) and

15(7) of the Act and challenging the rates as unjust and

unreasonable. The parties included the Department of

Justice, the State of Alaska, the ICC Bureau of Investi-

gations and Enforcement, and the Arctic Slope Regional

Corporation (Arctic), the petitioner in these two cases.

Arctic is a private corporation. It represents the inter-

ests of Alaskan natives whose aboriginal claims were ex-

tinguished by an act of Congress granting them title to

4.5 million acres of land on the North Slope.* Arctic thus

enjoys ownership interests in substantial nossible and

proven oil reserves, the only possible method of transport

for which is TAPS. However, Arctic’s interest in TAPS

tariffs stems from its ongoing negotiation of exploration

leases and the level of bonus and royalty payments it

may achieve, sources of compensation that are potentially

affected by transportation costs in bringing oil via TAPS

to market. Arctic has never shipped any oil through the

pipeline; indeed, all agree that Arctic has no realistic

possibility of doing so until sometime in the 1990’s.

Following the filing of initial rates and the ensuing

protests, protracted administrative litigation unfolded be-

fore FERC, which on October 1, 1977 stepped into the

Union Alaska Pipeline Company, Sohio Alaska Pipe Line Company

(Sohio), and Amerada Hess Pipeline Corporation (Amerada Hess).

The owners will be referred to at times as the “Carriers” or

“Intervenors.”

2 Alaska Native Claims Settlement Act of 1971, codified at 43

U.S.C. §§ 1601-1628 (1982 & Supp. III 1985).

shoes of the ICC as regulator of oil pipeline rates.* The

rate challenges fell into two categories. First, the chal-

lengers objected to the rate setting methodology and pro-

posed rate of return established in the initial filing.

Second, the objectors claimed that imprudent costs had

been incurred during construction of the pipeline. Ac-

cordingly, the Administrative Law Judge assigned to the

ease divided the litigation into so-called Phase I and

Phase II proceedings to coincide with these two distinct

areas of challenge. See Brief for Petitioner at 10. The

complexity of the issues and the magnitude of the pro-

ceedings which followed are dramatically evidenced by the

expenditure of hundreds of days of hearings before sev-

eral ALJs, with over 15,000 exhibits and upwards of

65,000 pages of transcript. See Brief for Intervenors

at 7.

With the agency proceeding grinding on at a glacial

pace, Alaska and two of the TAPS owners, ARCO and

BP, entered into settlement negotiations in 1984. From

this beginning, Alaska and six of the eight owners man-

aged to reach settlement by July 1985. See Settlement

Agreement (June 28, 1985), Joint Appendix (J.A.) at

502. (Phillips Alaska, not an original party to the settle-

ment, agreed to join on July 3, 1985, see Stipulation

Adopting Offer of Settlement (July 3, 1985) (J.A. at

681).) Among other things, the settlement established a

complex and comprehensive rate-setting methodology (the

TAPS Settlement Methodology or TSM) until the year

2011, the estimated remaining useful life of the pipeline.

The settlement further established rate ceilings for the

3In October 1978, the Interstate Commerce Act was recodified

at 49 U.S.C. §§ 10101-11916. However, oil pipelines continue to be

regulated under the original Act, and statutory references in this

opinion will be to the prior version of Title 49 of the United States

Code.

# There were various other issues in both the proceedings, but

the primary focus of the litigation was as indicated in text.

life of the pipeline and provided for a substantial refund

to the State of Alaska for tariff costs previously in-

curred. Under the TSM, which is the centerpiece of the

settlement agreement, rates are set on an annual basis,

and are regarded under the regulatory scheme as any

other rate filings by a common carrier. Thus, any such

rates are subject to challenge by non-settling parties,

such as Arctic, as well as any other non-signatory. Over

the long haul, the financial impact of the settlement is

two-fold: (1) to “front-end load” the tariffs charged by

the owners in the early, pre-settlement years of the pipe-

line and (2) to provide for diminishing rates beginning

with the initial rates filed under the settlement in De-

cember 1985.°

5 The settlement also contains a provision which allows the car-

riers under some circumstances to reallocate certain costs and

revenues among themselves. This provision, Section II-2(f) of the

Settlement Agreement, seeks to correct certain inequities that re-

sult from the methods of cost recovery under the TSM versus the

previous system for allocating costs among the owners. Under this

provision, Carriers whose pipeline ownership percentage exceed

their terminal ownership percentage are required to make per

barrel payments to Carriers whose terminal percentage ownership

exceed their pipeline ownership. The need for these payments

arises because the recovery of costs under TSM is keyed to barrel-

mile share, which does not fully account for those Carriers’ costs

who own a disproportionately large share of terminal tankage.

Another aspect of the reallocation provision corrects potential

inequities that may arise if the volume of TAPS throughout falls

below capacity. Because costs are charged to Carriers based on

percentage of pipeline ownership, but recovered based on barrel

miles, if throughput falls below capacity, those owners with dis-

proportionately large percentage ownership would not recover their

fair share of the costs. Section II-2(f) seeks to mitigate this po-

tential inequity.

Because this reallocation provision constitutes a pooling arrange-

ment within the meaning of §5(1) of the ICA, 49 U.S.C. $5(1),

the Carriers applied for specific approval of the arrangement apart

from the general settlement. See Application for Approval under

49 U.S.C. §5(1) of an Agreement for the Reallocation of Certain

Costs and Revenues (September 3, 1985) (J.A. at 996). The pooling

Blessed with Justice Department approval, this Six-

Carrier Settlement Agreement was presented to the vari-

ous ALJs responsible for the multi-faceted litigation and

subsequently was certified by them to the Commission.

However, the proposed arrangement was attacked by sev-

eral parties, namely Arctic, the Alaska Public Interest

Research Group (AkPIRG),* and the two remaining non-

settling owners, SOHIO and Amerada Hess. The bases

for these attacks included assertions that numerous gen-

uine material issues of fact remained and that the settle-

ment established unjust and unreasonable, non-cost based

tariffs.

The Commission severed the contesting parties and

approved the Six-Carrier Settlement as uncontested on

October 23, 1985. See October 23 Order, 33 F.E.R.C.

(CCH) 761,064 (S.A. at 220). Buoyed by the Justice

Department’s support and that of its own staff, the Com-

mission concluded that the settlement was fair and rea-

sonable and in the public interest, as required by its

rules. See 18 C.F.R. § 385.602(g) (1987). To accommo-

agreement is explained in detail in the September 3, 1985 applica-

tion. The Commission, pursuant to its statutory responsibilities,

approved the arrangement in its October 23, 1985 approval of the

settlement. See Order Approving Settlement as to Settling Parties,

Granting Application, and Remanding Proceedings as to Non-

settling Parties (October 23, 1985), 33 F.E.R.C. (CCH) % 61,064

(Supplemental Appendix (S.A.) at 220) (hereinafter referred to as

the October 23 Order).

In view of our resolution that Arctic may properly be pre-

vented from challenging the settlement as a whole, we have no

occasion in this case to pass on the propriety of the Commission’s

treatment of the pooling agreement.

* AkPIRG dropped out of the litigation, apparently before the

Commission’s final order terminating the TAPS proceeding, see

Order Approving Settlement, Granting Application, Affirming Initial

Decision, and Terminating Dockets, 35 F.E.R.C. (CCH) ¢ 61,425, at

61,982 n. 52 (June 27, 1986) (S.A. at 239, 245), and is not a party

in this court.

date the interests of the non-settling parties, the Commis-

sion remanded the case to the ALJs to consider the non-

settling parties’ objections and to determine whether the

settlement should be imposed upon them. On December

19, 1985, the Commission denied Arctic’s motion for re-

hearing of the October 23 Order. See Order Denying

Rehearing, 33 F.E.R.C. (CCH) { 61,392 (December 19,

1985) (S.A. at 226) (the “December 19 Order”).

Arctic then petitioned this court for review of the De-

cember 19 Order. That petition comprises No. 86-1115.

The TAPS owners, as intervenors, moved to dismiss the

petition on the grounds that Arctic was not aggrieved by

the settlement, and that Arctic therefore lacked standing

under the Hobbs Act, 28 U.S.C. § 2344 (1982), to seek

review of the Commission’s action. Concluding that Arc-

tic’s “contentions present the requisite injury to make

petitioner an aggrieved party,” a motions panel of this

court denied intervenors’ motion to dismiss, see Order

Denying Motion to Dismiss in No. 86-1115 (D.C.Cir.

July 14, 1986) (Edwards and Bork, JJ.).

Meanwhile, as the settlement proceedings were pending

on remand to the ALJs, the two remaining owners agreed

to join in the settlement agreement. Accordingly, the

State of Alaska and the Department of Justice proposed

that the two owners be formally added to the Six-Carrier

Agreement. Arctic strenuously objected to the amended

settlement. However, inasmuch as the ALJs viewed the

agreement as identical in all material respects to the Six-

Carrier Settlement, they promptly certified the amended

settlement agreement to the Commission. See Presiding

Judges’ Certification of Settlement Proposal to the Com-

mission, 35 F.E.R.C. (CCH) {63,018 (April 15, 1986)

(S.A. at 232).

Pursuant to its settlement rules, the Commission in

June 1986 severed Arctic (which by that time was the

sole non-consenting party) from the proceeding and ap-

proved the proposed settlement as uncontested under

FERC Rule 602(g).7 See Order Approving Settlement,

Granting Application, Affirming Initial Decision, and

Terminating Dockets, 35 F.E.R.C. (CCH) {61,425

(June 27, 1986) (S.A. at 239) (hereinafter the June 27

Order) .* This action was taken in reliance on this court’s

decision in United Municipal Distributors Group v.

FERC, 732 F.2d 202 (D.C.Cir.1984), a case that looms

large in both sides’ arguments before us. There, briefly

stated, the court approved FERC’s severance of a pro- |

testant-ratepayer from a proposed settlement where the

ratepayer was afforded a further procedural remedy (con-

sistent with the statute and the Commission’s rules) to

challenge the rates it was being charged. Relying upon

that decision, FERC discerned no present aggrievement ° |

on Arctic’s part by virtue of the settlement. '

Finally, the Commission terminated all dockets in the

TAPS proceeding. But in so doing, FERC made several

things abundantly clear: that the settlement was not being

imposed on Arctic and that Arctic therefore retained the

right to challenge any future rates; that FERC’s approval

7 Rule 602(g) provides in pertinent part:

(3) An uncontested offer of settlement may be approved by

the Commission upon a finding that the settlement appears to

be fair and reasonable and in the public interest.

18 C.F.R. § 385.602(g) (3).

8In its June 27 Order, the Commission also approved the appli-

cation of Sohio and Amerada Hess to be added to the pooling

arrangement. See Motion of Amerada Hess Pipeline Corporation

and Sohio Pipe Line Company (March 12, 1986) (J.A. at 1103).

* Arctic makes much out of its assertion that FERC, contrary to

principles of standing, required Arctic to be “particularly ag-

grieved”—meaning highly or extraordinarily aggrieved—in order to

challenge the settlement. We believe the more natural reading of

the Commission’s language is that Arctic must be individually

aggrieved. This usage of the word “particular” is of course com-

mon; such a reading eliminates any potential problem with the

Commission's treatment of Arctic within its own standing require-

ments.

of the settlement did not in any manner determine that

the rates established under it are (or will be) just and

reasonable; that the settlement would be of no prece-

dential value in future rate challenges; and that what-

ever material in the record may be relevant would be

fully available to Arctic in any future proceedings.

Following the Commission’s June 27 order, Arctic timely

petitioned this court for review, and that case, No. 86-

1427, consolidated with No. 86-1115, present the issues

now before us.

The thrust of Arctic’s challenge is that the Commission

acted improperly in approving the proposed settlement in

the face of its, Arctic’s, vigorous opposition. In Arctic’s

view, the Commission was duty bound under the Inter-

state Commerce Act to see the 1977 rate proceeding to the

terminus of determining whether the challenged rates were

“just and reasonable.” Arctic maintains that all parties

to the proceeding, not to mention the Supreme Court, see

Trans Alaska Pipeline Rate Cases, 436 U.S. 631, 98 S.Ct.

2053, 56 L.Ed.2d 591 (1978), contemplated that the

mammoth administrative litigation would culminate in the

establishment of just and reasonable rates. Discounting

the role of settlements in the administrative process, Arc-

tic emphasizes instead the agency’s duty to assure lawful

rates. Petitioner discerns this overriding obligation in the

ICC’s (now FERC’s) general statutory mandate to assure

that rates charged are just and reasonable, and in case

law suggesting that once the agency has substantially com-

pleted an investigation, it is obliged to see the matter

through to completion. See Minneapolis Gas Co. v. FPC,

294 F.2d 212 (D.C.Cir.1961) (a rate case under the

Natural Gas Act); see also City of Chicago v. United

States, 396 U.S. 162, 90 S.Ct. 309, 24 L.Ed.2d 340 (1969)

(holding that an agency decision to terminate an investi-

gation into termination or changes of rail service requires

a full statement of conclusions under 49 U.S.C. § 14(1),

]

10a

when that termination is akin to a decision on the

merits) North Carolina Utilities Comm’n v. FERC, 653

F.2d 655, 665-66 (D.C.Cir.1981) (interpreting City of

Chicago).

In addition, Arctic maintains that the Commission ap-

proved the settlement in violation of applicable settlement

rules, see 18 C.F.R. § 385.602(h) (Rule 602(h)), and

this court’s opinion in United Municipal Distributors

Group v. FERC, supra, 732 F.2d 202. As Arctic sees it,

the Commission could not approve the settlement as un-

contested when, unlike the party in United, Arctic was

contesting the entirety of the settlement and not seeking

to benefit from the agreement at all. According to Arctic,

the Commission was obliged under these circumstances to

carry on with the proceeding and adjudicate the issues

raised by its objections.

Ill

We understand fully Arctic’s frustration with the

labyrinthine regulatory process in which it has partici-

pated.’ We also acknowledge the force of some of its

arguments. But, upon analysis, we have been unable to

discern any insurmountable impediment to the Commis-

sion’s actions in this case. What is more, substantial

10 Intervenors strenuously urge that Arctic has no standing to

challenge the settlement because, in their view, Arctic has suffered

no present aggrievement. We disagree. Like our colleagues who

resolved the motion to dismiss, we conclude that the allegations of

present injury on the part of Arctic suffice to satisfy the Hobbs

Act jurisdictional (and the separate constitutiomal) requirements

of injury in fact necessary to accord a party standing. In particu-

lar, Arctic persuasively contends that excessive present and future

tariffs adversely affect both the wellhead value of its oil, and its

lease bonus and royalty interests. Although Intervenors challenge

the “extent” of this injury, emphasizing the recent decline in world

oil prices, they have failed to persuade us that our colleagues erred

in discerning a sufficient present injury to satisfy jurisdictional

prerequisites. See Order Denying Motion to Dismiss in No. 86-1115

(D.C.Cir. July 14, 1986) (Edwards and Bork, JJ.).

lla

public-interest considerations undergird FERC’s approval

of the settlement of these extraordinarily complex and

burdensome proceedings.

At the outset of our analysis, we pause to state the

obvious: this dispute is entirely about a FERC-approved

settlement. Of critical importance to this case, therefore,

are the Commission’s rules governing settlements.'' Those

rules are, unhelpfully for Arctic, quite broadly worded.

Of particular breadth is the operative provision before us,

namely Rule 602(h) (1) (ii) (B). That provision states

in rather sweeping terms that when confronted with a

contesting party to a settlement, the agency may take

such “action which the Commission determines to be ap-

propriate.” Rule 602(h) (1) (ii) (B). The breadth of dis-

cretion trumpeted by that provision is manifest. And thus

it was that the rule was construed in United to permit

the Commission to sever a contesting party from the pro-

ceedings and to treat the matter as uncontested, so long

as a forum was provided to resolve the dissenter’s chal-

lenge. Thus, both the wording of the rule and its con-

struction by this court are quite generous and flexible.

Arctic’s retort is simple and straightforward: it is in-

appropriate and indeed unlawful for FERC not to assure

just and reasonable rates. This duty is all the more

11 Arctic has not questioned the validity of the Commission’s

settlement rules under the statute. Rather, Arctic maintains that

the rules cannot be applied so as to gut what it views as FERC’s

statutory mandate.

12In particular, Arctic contends that this court’s decision in

Farmers Union Central Exchange, Inc. v. FERC, 734 F.2d 1486

(D.C.Cir. 1984), requires the Commission to establish just and

reasonable rates. Our holding today is in no wise inconsistent

with Farmers Union. For that case held that once the Commission

endeavors to set rates and adopts a methodology for setting those

rates, the “just and reasonable” standard of the statute mandates

that the Commission consider broad statutory purposes, alternatives

to its methodology, and the like; the Commission may not set rates,

and then choose not to substantially justify its choice as consistent

with the statute’s requirements. Here, the Commission has as-

12a

acute, Arctic contends, when so much water has flowed

over the litigation dam. Although this argument is hardly

without force, we are nonetheless unable to discern in

either the statute’s language or its structure an absolute

command in the form Arctic would have it.

The Commission did, after all, consistently treat this

proceeding as a hearing and investigation under sections

15(7) and 15(1) of the Act." Those provisions confer

broad discretion upon the Commission to structure its pro-

ceedings as it sees fit. For example, the Commission

enjoys unreviewable discretion to determine whether to

initiate section 15 investigations at all, see Southern Ry.

Co. v. Seaboard Allied Milling Corp., 442 U.S. 444, 99

S.Ct. 2388, 60 L.Ed.2d 1017 (1979), and whether to sus-

pend challenged rates, see Aberdeen & Rockfish R.R. Co.

v. SCRAP, 422 U.S. 289, 311, 95 S.Ct. 2336, 45 L.Ed.2d

191 (1975); Arrow Transp. Co. v. Southern Ry. Co., 372

U.S. 658, 83 S.Ct. 984, 10 L.Ed.2d 52 (1963)."* More-

suredly not set any rates, nor has it determined on the merits

that any rates are “just and reasonable” within the meaning of

the ICA. Thus, Farmers Union is unavailing to Arctic.

18 Arctic’s position that the proceedings, from their inception,

were conducted under section 13 of the ICA is belied by the Com-

mission's initial orders in 1977. For example, in Trans Alaska Pipe-

line System, 355 L.C.C. 80 (1977) (S.A. at 1), the order initiating

the investigation and suspending the initial rates, the ICC states,

“[t}hese [parties] seek to invoke our power under section 15(7)

of the Interstate Commerce Act... .” Later, the ICC ordered

“{t}hat an investigation be .. . instituted . . . pursuant to section

15(1) and section 15(7)... .£” 355 LC.C. 80, 87 (1977) (S.A. at 1,

8). For further indications that the proceedings were conducted

pursuant to section 15, see Report and Order on Pre-Hearing Con-

ference, Investigation and Suspension Docket No. 9164, et al.

(August 16, 1977) (S.A. at 16), and Initial Decision Phase I

Issues, 10 F.E.R.C. (CCH) © 63,026 (February 1, 1980) (S.A. at

33). Arctic has advanced no reason to persuade us that section 13

was ever involved in this case.

Arctic concedes that the decisions whether to begin an in-

vestigation and whether to suspend rates are entirely discretionary.

[Continued]

13a

over, decisions under the ICA not to pursue an investiga-

tion once begun lie squarely within the agency’s discre-

tion, even if the initial investigation reveals that some

rates, though not all, are illegal. See generally United

States v. Louisiana, 290 U.S. 70, 54 S.Ct. 28, 78 L.Ed

181 (1933) (refusing to invalidate agency decision not

to prescribe rates, even though some individual rates were

unjust and unreasonable); see also United States v.

SCRAP, 412 U.S. 669, 692 n. 16, 93 S.Ct. 2405, 2418 n.

16, 37 L.Ed.2d 254 (1973) (even after preliminary in-

vestigation of rate schedules and finding that they contain

individually unreasonable rates, refusal to suspend rates

as generally unlawful not a reviewable decision on the

merits). What is more, the Supreme Court has suggested,

albeit in dicta, that a party dissatisfied with a decision to

terminate an ongoing investigation is without recourse to

the courts. See National R.R. Passenger Corp. v. National

14 [Continued ]

But it contends that once an investigation has begun, the Com-

mission is bound to prescribe just and reasonable rates. Its primary

statutory support is the language of section 15(7), which states

that “pending such hearing and the decision thereon the Commis-

sion ...may... suspend” and “upon completion of the hearing

and decision may by further order require the interested carrier or

carriers to refund... .” 49 U.S.C. § 15(7). Arctic argues that in

light of this language, once the Commission has entered on an in-

vestigation, it must see it through to a decision on the merits.

We cannot agree that section 15(7) so hamstrings the Commission.

The language relied upon describes what the Commission may do

when it completes an investigation; it in no way requires an investi-

gation to be completed. Otherwise, even settlements to which all

concerned consent would be proscribed by the statute. Moreover,

the language of section 14(1) rebuts the view that every investiga-

tion must end with a decision on the merits, for it prescribes find-

ings of fact only if damages are awarded; in other circumstances,

the Commission need only state its conclusions in writing. See 49

U.S.C. § 14(1). Moreover, City of Chicago, properly read, required

a more extensive explanation under section 14(1) only in limited

cireumstances, namely where the termination of the investigation

was akin to prescribing rates. Here, the Commission has explicitly

disavowed any intention to prescribe rates.

—

l4a

Assoc. of R.R. Passengers, 414 U.S. 453, 462 n. 9, 94 S.Ct.

690, 695 n. 9, 38 L.Ed.2d 646 (1974)." This congres-

sionally granted, judicially confirmed discretion, coupled

with the general policy favoring settlement of adminis-

trative proceedings, see United, supra, 732 F.2d at 209;

Pennsylvania Gas & Water Co. v. FPC, 463 F.2d 1242

(D.C.Cir.1972), lead us to the conclusion that neither the

statute nor the agency’s corpus of rules requires the Com-

mission under any and all circumstances to prescribe just

and reasonable rates whenever a party requests that it do

so, even after administrative proceedings have been under-

way for some considerable time.

In the absence of any absolutist and rigid statutory re-

quirement, Arctic falls back to the position that, under the

particular circumstances here, the Commission was duty

bound to see the case through to the end. In this regard,

Arctic relies on Minneapolis Gas Co. v. FPC, supra, 294

F.2d 212, for support. Minneapolis Gas, however, is a

far cry from the unique situation before us. For one

thing, that case did not involve a settlement. Moreover,

all that remained for the agency to do before issuing its

final decision was to approve or disapprove the ALJ’s

initial decision. The court held, under those circum-

stances, that once the record is complete, and the final

decision is all that remains before the entire proceeding is

concluded, the agency cannot at that late hour choose to

terminate its investigation and successfully invoke its

broad grant of discretion to shield its action."

15 Arctic correctly points out that this case may be read to apply

only to an agency decision to terminate an investigation it realizes

it ought never to have begun. See Reply Brief at 24 n.58. But

even on its face, this statement from National R.R. Passenger

Corp. is consistent with City of Chicago, which held that an agency

decision to discontinue an investigation, if it has the effect of being

a decision on the merits, must be supported by a section 14 state-

ment. This court, in North Carolina Utilities Comm’n, supra, 653

F.2d at 666, similarly interpreted City of Chicago.

16 We further note that the FPC’s termination of the investiga-

tion in Minneapolis Gas had the explicit effect of approving the

15a

Here, the case was regrettably far from complete. True,

the administrative litigation was far along; indeed, many

years marked by vigorous litigation had passed. None-

theless, the agency was not even considering, much less

near the point of decision on, the reasonableness of the

TSM and the rates established under it.‘7 There was a

long way to go, as evidenced by the State of Alaska’s

desire to conclude these nigh interminable proceedings

through the avenue of settlement. And the settlement

itself, sanctioned by the broad sweep of the Commission’s

rules, sets this case quite apart from Minneapolis Gas.

There is another factor as well. The reasonableness

of rates to be charged into the 1990’s (and beyond) can

hardly be evaluated exclusively on the basis of a factual

record that draws to a close in 1982. Indeed, Arctic un-

dercuts its own position in this respect—that the case is

now ready for final decision—by arguing that the record

is now and will perforce remain “stale” (save as to the

Phase II record regarding costs of TAPS construction).

These factors, buttressed by the fact that Minneapolis

Gas reserved judgment on the type of line-drawing ques-

tion at issue here, see 294 F.2d at 215, amply warrant

the conclusion that the Commission had not reached the

point of no return contemplated in that case.* Although

rates as just and reasonable. See 294 F.2d at 214. Here, of course,

FERC has explicitly stated just the opposite—that its settlement

approval in no way establishes the justness or reasonableness of

any rates.

17 Although at the outset of the investigation in 1977, the Com-

mission did refer to any rate schedules that were issued while the

investigation was pending, see 355 I.C.C. 80, 87 (1977) (S.A. at 8),

the Commission’s nine-year proceedings did not (and could not)

focus upon or have anything to do with the TSM and the rates it

established.

18 This case would be much closer to Minneapolis Gas if after

nine years the Commission simply ended its investigation and

allowed the 1977 rates to stand. Here, however, the TSM and the

16a

we readily agree that it seems odd, at least at first

glance, that the Commission would elect to conclude a

nine-year long proceeding without reaching the merits, we

cannot fail to appreciate the unique nature of the pro-

tracted and extraordinarily complex TAPS investigation

that prompted the principal parties in the proceeding to

settle the case. The very uniqueness of the proceeding and

the subsequent settlement renders the Commission’s ac-

tion more readily understandable and defensible.

Nor does our decision in United rescue Arctic’s position.

There, as we alluded to above, a current gas ratepayer

wanted to embrace a settlement agreement in a rate case

while slicing out one issue (a tax treatment question)

which the other parties had subsumed wiihin the terms

of the global settlement. To the dissenting ratepayer’s

dist: ..y, the Commission required it to litigate its entire

case, thereby thwarting its effort to have its cake and

eat it too. In that setting, this court upheld the Commis-

sion’s determination to make the challenger live with the

consequences of an all-or-nothing choice and to litigate its

rate challenge in its entirety.

Here, Arctie is, for starters, not even a current rate

payer. Its interest is therefore considerably less immedi-

ate than that of the ratepayer in United. But in addition,

the Commission has made it clear that Arctic’s challenges,

including its assault on the TSM, are fully preserved and

can be advanced in an appropriate proceeding under sec-

tion 15 or section 13. The efficacy of this future remedy

is reinforced by the fact that the Commission has ex-

pressly stated that its June 27 Order is not preclusive;

that whatever evidence in the record is relevant may be

used in the future; and that Arctic is in no way bound

by the settlement. See June 27 Order, 35 F.E.R.C. (CCH)

rates established pursuant to it are unrelated to the rates initially

filed in 1977; moreover, the TSM is of course the product of a settle-

ment, which was not the setting of Minneapolis Gas.

Cpe ealeT Weathers the pela

17a

1 61,425 (S.A. at 239) ; supra text at 10. The Commission

has thus safeguarded Arctic’s future interest, while say-

ing that it will not be permitted to torpedo a fair and

reasonable settlement as to all who have the most direct

and immediate interest in these long-lived proceedings.

In regarding the remedy provided to Arctic in the

future as “appropriate” within the meaning of Rule

602 (h) (1) (ii) (B) ,"® we should make it clear that we do

not unduly discount the fact that the settlement currently

affects Arctic’s interests. See supra note 10. We hold

only that it is appropriate for the Commission, under the

specific circumstances at hand, to serve those interests

by not forcing the settlement upon Arctic and by pre-

serving possible future challenges for a riper moment.”

19 Rule 602(h), concerning contested settlements, provides in rele-

vant part:

(1)(i) If the Commission determines that any offer of settle-

ment is contested in whole or in part, by any party, the Com-

mission may decide the merits of the contested settlement

issues, if the record contains substantial evidence upon which

to base a reasoned decision or the Commission determines

there is no genuine issue of material fact.

(ii) If the Commission finds that the record lacks substan-

tial evidence or that the contested issues cannot be severed

from the offer of settlement, the Commission will:

(A) Establish procedures for the purpose of receiving ad-

ditional evidence before a presiding officer upon which a de-

cision on the contested issues may reasonably be based; or

(B) Take other action which the Commission determines

to be appropriate.

18 C.F.R. § 385.602(h) (1).

Arctic cannot challenge the appropriateness of severing contesting

parties to a settlement; United disposed of that argument. Thus,

Arctic must contest the “action” the Commission then took, namely

relegating Arctic to a future proceeding, as inappropriate within

the meaning of subsection (B).

20 Our conclusion in this respect is entirely consistent with

United. That case suggested that some remedy is to be afforded a

contesting party. Under its settlement rules, the Commission has

18a

Thus, while Arctic is understandably unenamored of the

prospect of beginning anew,” the harsh reality of long

and protracted regulatory proceedings appears at times

endemic to the regulatory structure that Congress has

seen fit to fashion. In short, neither the statute nor the

Commission’s rules prevent FERC from embarking upon

the course it has chosen, and thereby satisfying the mani-

fold interests of virtually all the parties to this mam-

moth proceeding.

We thus are constrained to conclude that Arctic can

properly be left out in the cold for the moment. But we

are comforted in this unhappy conclusion by the specific

reasons advanced by the Commission in approving the

settlement. The Commission discerned a number of pub-

lic-interest advantages flowing from the arrangement.

Quite apart from bringing a merciful conclusion to the

protracted litigation, the settlement’s salutary features

include the fact that rates have come down substantially

—and continue to do so—under the TSM; that the State

of Alaska has received substantial refunds redounding

to the benefit of its citizens; and that, in the Commis-

wide latitude in determining the appropriate remedy. In view of

the indirect—though assuredly real—impact of the settlement on

Arctic, we are unprepared to say that the remedy of preserving

future challenges lies outside the bounds of the Commission’s

discretion.

21To be sure, it seems curious that a party who participated

fully in the litigation for nine years could at the end be told that

its interest is not immediate enough to challenge the settlement.

But that view overlooks the difference between the Commission’s

liberal policies regarding participation in proceedings and its inter-

est in ending seemingly interminable litigation, which virtually all

parties are seeking to conclude. As long as the Commission provides

Arctic with a meaningful remedy contemplated by the statute,

FERC could choose within its sound discretion to approve the

settlement (bearing in mind that the standards of Rule 602(¢)

must be met), especially in light of Arctic’s currently less direct

interest in rates than it may well have at some later time.

19a

sion’s view, competition will be increased in the settle-

ment’s wake. Finally, it is of no little moment that the

entities charged with protecting the public interest, in-

cluding the State of Alaska and the Department of Jus-

tice, have heartily approved of the settlement. And, even

as to Arctic, the impact of the settlement is less severe

and direct than would be the impact visited upon a dis-

senting ratepayer (such as the ratepayer in the United

litigation) here and now.

In sum, the Commission acted within its lawful au-

thority and sound discretion in closing a long and weari-

some chapter in the saga of TAPS rate regulation.

Should Arctic see fit to do so, it may return to the Com-

mission when the impact of TAPS rates upon it is more

concrete and substantial. Until that time, we can see no

reason in law that the Commission should be precluded

from taking “appropriate” and sensible action in approv-

ing a settlement as in the public interest, while ensuring

that Arctic can avail itself of its future remedies when

its interest is more fully developed.”

Denied.

22 We have considered petitioner’s various other contentions and

find them sufficiently lacking in merit to warrant discussion.

20a

APPENDIX B

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 86-1115

ARCTIC SLOPE REGIONAL CORPORATION,

Petitioner

Vv.

FEDERAL ENERGY REGULATORY COMMISSION and

UNITED STATES OF AMERICA,

Respondents

STATE OF ALASKA, et al.,

Intervenors

[Filed July 14, 1986]

Before: EDWARDS and BorK, Circuit Judges

ORDER

Upon consideration of intervenors’ Motion to Dismiss,

the opposition and reply thereto, petitioner’s Motion to

Defer Further Proceedings, and the opposition and reply

thereto, it is

ORDERED by the court that the motion to dismiss be

denied. Petitioner claims that the order of the Federal

Energy Regulatory Commission deprived petitioner of

the right to pursue certain challenges in the proceedings

2la

that are the subject of the order being petitioned from.

Petitioner’s contentions present the requisite injury to

make petitioner an aggrieved party. See National Treas-

ury Employees Union v. United States Merit Systems

Protection Board, 743 F.2d 895, 910 (D.C. Cir. 1984);

United Municipal Distributors Group v. FERC, 732 F.2d

202, 206 n.3 (D.C. Cir. 1984). It is

FURTHER ORDERED by the court that the motion to

defer further proceedings be dismissed as moot. Peti-

tioner sought to defer further proceedings pending a rul- ©

ing by the Federal Energy Regulatory Commission. That

ruling has already been issued.

Per Curiam

22a

APPENDIX C

[{ 61-425]

Docket Nos. OR78-1-041, OR78-1-042 and OR78-1-043

TRANS-ALASKA PIPELINE SYSTEM

Docket No. IS84-13-000

SoHIO PIPE LINE COMPANY

Order Approving Settlement, Granting Application,

Affirming Initial Decision, and

Terminating Dockets

(Issued June 27, 1986) |

Before Commissioners: Anthony G. Sousa, Acting Chair-

man; Charles G. Stalon, Charles A. Trabandt and

C. M. Naeve.

(Note: Initial Decision of the Presiding Administrative

Law Judges, issued April 23, 1986, appears at 35 |

FERC { 63,027. ]

On October 23, 1985, the Commission approved a Set-

tlement Agreement between the State of Alaska (Alaska)

and six of the eight TAPS owners—ARCO Pipe Line Com-

pany, BP Pipelines Inc., Exxon Pipeline Company, Mobil

Alaska Pipeline Company, Phillips Alaska Pipeline Cor-

poration, and Union Alaska Pipeline Company (now

Unocal Pipeline Company).’ As to the nonsettling par-

ties, the Commission remanded the proceeding to the ad-

ministrative law judges (ALJs) “to enable the nonset-

tling parties to discuss at a hearing the settlement issues

they have raised only as those issues apply to them.” ”

133 FERC { 61,064, reh’g denied, 33 FERC § 61,392 (1985).

233 FERC { 61,064, at p. 61,140 (1985).

ieee ernie

23a

The Commission also directed the ALJs to transmit an

initial decision to the Commission within six months of

the order of October 23, 1985. On December 19, 1985,

the Commission denied the Arctic Slope Regional Cor-

poration’s (Arctic) request for rehearing. The Commis-

sion reiterated the above-quoted language and further

stated that “Arctic is afforded an opportunity to raise

its issues at a hearing.” *® In December 1985, the ALJs

held a hearing and received evidence filed by Arctic and

by the Alaska Public Interest Research Group (AkPIRG).

Thereafter, the ALJs received initial briefs from the

Sohio Pipe Line Company (Sohio), Amerada Hess Pipe-

line Corporation (Amerada Hess), AkPIRG, Arctic, and

Alaska and a reply brief from Sohio. On April 23, 1986,

the ALJs issued their initial decision as directed by the

Commission.’ The ALJs concluded that “the Commission

does not have the authority, under the facts of the re-

manded proceeding, to impose the settlement on the ob-

jecting parties.”* On May 23, 1986, Arctic filed a brief

on exceptions to the initial decision. On June 6, 1986,

Alaska, Sohio, and the six original settling owners filed

briefs opposing Arctic’s brief on exceptions. On June 13,

1986, Amerada Hess filed a brief opposing Arctic’s ex-

ceptions.

The six original settling TAPS owners also moved to

intervene on June 6, 1986, for the limited purpose of

replying to Arctic’s brief on exceptions. The six original

settling owners filed their motion on the ground that

they were not parties to the settlement remand proceed-

ing. On June 16, 1986, Arctic filed an answer in opposi-

3 Jd. at pp. 61,140-41.

433 FERC { 61,392 (1985).

5 Jd. at p. 61,757.

635 FERC { 63,027 (1986).

7 Id. at p. 65,076.

24a

tion to the six original settling owners’ motion to inter-

vene. Because the six original settling owners are parties

to the overall TAPS proceeding, we see no reason to rule

on their motion to intervene or Arctic’s answer in oppo-

sition. Accordingly, the reply of the six original settling

owners is accepted.

Amendment to Settlement Agreement

On March 12, 1986, Alaska filed with the ALJs an

amendment to the Settlement Agreement (Amended Set-

tlement Agreement) pursuant to which Amerada Hess

and Sohio entered into and agreed to be bound as parties

to the Settlement Agreement. The Commission’s trial

staff and the United States Department of Justice (Jus-

tice) support the Amended Settlement Agreement. Arc-

tic opposes the Amended Settlement Agreement. On April

15, 1986 [85 FERC { 63,018], the ALJs certified the

Amended Settlement Agreement to the Commission.

Because the Amended Settlement Agreement is iden-

tical in all material respects to the Settlement Agreement

approved by the Commission in its order of October 23,

1985, it is not necessary to again set forth the terms and

provisions of the agreement.*®

As discussed below, the Commission finds that since it

is not imposing the settlement on Arctic, Arctic’s inter-

ests are not affected by it. Accordingly, its opposition to

the settlement is moot. Since the result of the settlement

does not present any current, genuine, material issues,

we may dispose of the matter before us by treating the

Amended Settlement Agreement as an uncontested settle-

ment. In its order of October 23, 1985, the Commission

exhaustively discussed why approval of the Settlement

8 The terms are set forth at 33 FERC { 61,064, pp. at 61,138-39.

The Amended Settlement Agreement specifies maximum interstate

tariffs for Amerada Hess and Sohio for 1986 of $4.49 for Sadlerochit

reservoir and $4.60 for Kuparuk reservoir petroleum.

i cainiaiieneaialaii amen

25a

Agreement was fair and reasonable and in the public

interest. Likewise, the Commission finds that the

Amended Settlement Agreement is fair and reasonable

and in the public interest for the reasons given in the

order of October 23, 1985.

Initial Decision and Arctic’s Exceptions Thereto

In their initial decision on remand, the ALJs concluded

that the settlement could not be imposed on objecting

parties by the Commission." On May 23, 1986, Arctic

filed a brief on exceptions to the initial decision. Arctic

agrees with the ALJs’ conclusion that the settlement can-

not be imposed on objecting parties, including Arctic.

Despite Arctic’s satisfaction with the ALJs’ conclusion,

it excepts to several of their statements. Arctic objects to

the ALJs’ statement that two of its witnesses “essentially

merely echo the comments made in connection with

[Arctic’s] opposition to the six-carrier settlement pro-

posal” and to their statement that “if approved [the

instant settlement] effectively would terminate the pend-

ing rate proceedings with respect to the transportation of

oil by all eight carriers who own individual interests in

TAPS” ” and “will terminate these proceedings as far

as the Commission is concerned.” Arctic argues that

the Commission may not lawfully dismiss its protest

over its objection unless the Commission establishes just

and reasonable rates. We discuss each of Arctic’s spe-

cific contentions in turn.

Arctic argues that approval of the settlement and dis-

missal of its protest will in effect impose the settlement

*33 FERC at pp. 61,139-40.

1035 FERC { 63,027, at p. 65,076.

11 Jd. at p. 65,075.

12 Td.

13 Jd,

26a

on it. It claims that such action would not comport with

Rule 602(g) of the Commission’s Rules of Practice and

Procedure which governs uncontested settlements,* the

decision of the United States Court of Appeals for the

District of Columbia Circuit in United Municipal Dis-

tributors Group v. F.E.R.C. (United), and our recent

order in Northern Natural Gas Co. (Northern). We

disagree. We are not imposing the settlement on Arctic

either directly or indirectly.’ Therefore, in accordance

with the Commission’s regulations, we may treat the set-

tlement as uncontested. Hence, we may approve the

settlement pursuant to Rule 602(g) as fair and reason-

able and in the public interest.

Moreover, in our view, our action comports with the

holdings in both United and Northern. In both cases, the

settlement was not imposed on the objecting party. Here,

also, we are not imposing the settlement on Arctic. Arctic

is not in any way bound by the settlement. As observed

by the six original settling owners in their briefs, the

1418 C.F.R. § 385.602(¢) (1985).

18 732 F.2d 202 (D.C. Cir. 1984).

17 Approval of the settlement does not in any way affect Arctic’s

rights. If Arctic wishes to litigate just and reasonable rates,

Arctic will have the opportunity to do so in the future. This is

because under the terms of the settlement, specifically Section I-4,

the TAPS carriers will make annual filings of the maximum inter-

state tariffs. We view these filings as rate filings under the ICA,

and Arctic will have the opportunity to protest these filinges as it

would any rate change filing under the ICA. The burden of showing

that the new rate is just and reasonable will be on the TAPS car-

riers, pursuant to section 15(7) of the ICA which provides that in

any “hearing involving a change in rate . . . the burden of proof

shall be upon the carrier to show that the proposed changed ra‘e

. Is just and reasonable .. .” The carriers cannot rely on the

approved settlements to establish the justness of these filed rate

changes, since the settlement rates were never adjudicated to be

just and reasonable.

27a

settlement in no way limits Arctic’s legal remedies.

Hence, the procedure endorsed by the court in United of

both preserving the bargain of the settling parties and

also protecting the rights of non-consenting parties has

been utilized. While it is true that in United and North-

ern the objecting parties were entitled to an immediate

hearing on the merits, this was because those parties had

immediate interests as customers (United) and a state

commission (Northern).

It is most ironic that Arctic argues United as support

for its position. The Commission correctly interpreted

United as judicial approval for the approach adopted in

its October 23, 1985 order. The court in United expressly

negated the precise arguments presented by Arctic, in-

cluding the novel concept of being “settlement bound,”

where the court stated that “where a settlement is rea-

sonable, we think it could not be coercion to leave a party

who declines to join it to his legally prescribed reme-

dies.” * The court spoke in terms of permitting a non-

settling party to preserve its objection, while allowing the

settling parties to have the benefit of a settlement found

by the Commission to be fair and reasonable and in the

public interest. The court stated that the Supreme

Court’s opinion in Mobil Oil Corp. v. F.P.C., (Mobil) 417

U.S. 283 (1974) and this Commission’s regulations sup-

port that approach. The court also emphasized that

Mobil and other precedent recognize that settlements of

rate proceedings are to be encouraged, and the Commis-

sion’s action in the United case “serves this salutary

policy by preserving a settlement for all non-objecting

parties and by also permitting [the objecting party] to

preserve its objection.” ’® The court found nothing in

Mobil to preclude the Commission from taking that ac-

tion. The approach adopted in the October 23, 1985 order

18 United at 210 n. 12.

19 United at 209.

28a

is supported clearly and categorically by the court’s anal-

ysis and opinion in United.

The Commission has been faithful to both the letter

and the spirit of the court’s opinion and guidance in

United by providing Arctic a full opportunity to pre-

serve its objections to the settlement and pursue its

legally prescribed remedies separately, while preserving

the benefits of the settlement for the settling parties.

Since the ALJs first certified the original settlement as

to the six owners, Alaska and Justice in August 1985,

the Commission has provided Arctic the procedural op-

portunity to establish its standing to contest the settle-

ment, to challenge the Commission’s procedures in con-

sidering the settlement and to make a record of its sub-

stantive analysis and objections to the settlement. Arc-

tic’s concerns were not and have not been unceremoni-

ously dismissed out of hand by the Commission. Quite

the contrary, the Commission has sought at each step of

the TAPS settlement proceeding to ensure Arctic’s full

procedural due process, consistent with United, to pursue

its legally prescribed remedies. As the Commission stated

in its October 23, 1985 order:

The Commission will approve the settlement with

respect to the settling parties because it is fair and

reasonable and in the public interest. The settling

parties have fashioned an innovative methodology

which achieves their respective aims in this proceed-

ing. The settlement is a comprehensive, long-term

settlement of complex issues in a hotly contested,

lengthy and expensive proceeding. Such settlements

necessarily involve compromises by the parties from

their litigation positions. Otherwise, settlements such

as this one, which are to be encouraged and which

are in the interests of this Commission, the regulated

companies, their customers, other parties such as

Alaska and Justice, and the public would not be pos-

sible. The Commission strongly believes the settling

29a

parties are entitled to the benefits of their bargain

and to not adopt the settlement would be contrary to

the public interest.

Nonetheless, the Commission acknowledges the

concerns of the nonsettling parties and shall remand

the proceedings with regard to them to the adminis-

trative law judges to allow the nonsettling parties a

hearing only on those issues which apply to them.”

In footnote 17, to the order of October 23, 1985, the

Commission reiterated its intent that the remand of the

proceedings would “enable the nonsettling parties to air

their objections at a hearing,” and “the Commission is

not at this time imposing the terms of the Settlement

Agreement on any nonsettling party.” ** Subsequently,

in denying rehearing of that order, the Commission fur-

ther addressed the concerns of Arctic in its order of

December 19, 1985:

Additionally, Arctic presents a summary of the

settlement’s alleged deficiencies to bolster its request

for rehearing. However, the Commission has given

Arctic a forum in which to present these arguments.

The order of October 23, 1985, allows Arctic to air

*ts specific objections to the Settlement Agreement at

the hearing on remand as those issues apply to it.”

Our commitment to provide Arctic with a full oppor-

tunity to address these issues has not been without oppo-

sition. Despite the concerted efforts of some of the

settling parties, we have remained steadfast in our re-

solve to provide Arctic that opportunity and have stayed

the course on completing the remand proceedings without

any deviation from our regular procedures. Shortly after

20 33 FERC at p. 61,140.

21 Jd. at p. 61,141.

2233 FERC at p. 61,757.

30a

the ALJs certified to the Commission the Amendment to

the Original Settlement, Alaska petitioned the Commis-

sion to abandon the regular procedures which would

otherwise apply to the remand proceedings and to sub-

stitute expedited briefs and reply briefs by the parties

concerning the disposition of any relevant matters in lieu

of an Initial Decision by the ALJs and subsequent sub-

mission of briefs on exceptions and reply briefs.* Alaska

argued that the substituted approach was appropriate in

light of the settlement amendment by the two remaining

owners and was necessary because the terms of that set-

tlement allowed any party to withdraw from the agree-

ment if the Commission did not approve the settlement

by May 31, 1986. Consequently, Alaska argued, the Com-

mission was compelled to adopt the substitute procedure

to complete final action by May 31 and thereby insure

that no party would withdraw from the settlement. We

set an expedited schedule for briefs commenting on

Alaska’s petition.** Arctic strenuously objected to Alas-

ka’s proposal and urged that the Commission to proceed

with an Initial Decision. Arctic persuasively argued that

there was “no good reason to grant the requested relief”

and that Arctic “cannot lawfully be deprived of the bene-

fit of the closed settlement remand record that was cre-

ated principally by [Arctic] at considerable expense and

effort pursuant to the Commission’s October 23, 1985,

order.” * Almost all of the settling parties submitted

comments supporting Alaska’s petition which was also

supported by the Commission’s trial staff. Ultimately,

the Commission took no action on Alaska’s petition and

on April 14, 1986, Alaska withdrew the petition, stating

23 Motion of Alaska to Establish Procedures for the Expeditious

Resolution of the Present Proceeding filed on March 24, 1986.

24 See, Order Limiting Time to Answer Motion, issued March 27,

1986.

25 Opposition of Arctic Slope Regional Corporation to Motion of

Alaska, filed March 31, 1986, at 1, 2.

3la

that the motion had “precipitated an unnecessary con-

frontation with [Arctic] which perceives, incorrectly,

that it will lose some substantive or technical advantage

from the motion.” ** While Alaska eventually withdrew

its petition in the face of Arctic’s opposition and the

Commission’s inaction, it is quite obvious that Alaska’s

substitute approach would have significantly narrowed

the substantive scope of our consideration of the issues

in the remand proceeding, limited the submissions of the

parties accordingly, and imposed a much shortened sched-

ule for our consideration of these matters.

Ultimately, the ALJs rendered an Initial Decision in

the remand proceedings on April 23, 1986, and there has

been no deviation from the subsequent briefing schedule

under our regulations, despite the pleadings of the set-

tling parties or our action and the passage of the May

31, 1986, deadline, which was imposed by the settlement.

The Initial Decision concluded that the Commission does

not have the euthority under the facts of the remanded

proceeding to impose the settlement on the objecting

parties.27 Arctic, in fact, has relied repeatedly on that

conclusion in its pleadings.”

As it sought in its opposition to Alaska’s petition,

Arctic has had a full opportunity to pursue all of its

objections to the settlement in the context of the remand

proceedings. Arctic, in a pleading filed June 16, 1986,

has‘acknowledged that fact, as follows:

In summary, the Commission’s purpose in ordering

the settlement remand hearing was to:

allow ... [Arctic] to air its specific objections to

the settlement agreement at the hearing on remand

as those issues apply to it.

26 Notice of Withdrawal by Alaska, filed April 14, 1986, at 1.

27 Text at footnote 7 above.

28 See e.g., Arctic’s Brief on Exceptions to Initial Decision at 6.

bi,

32a

33 FERC (CCH) {61,392 at 61,757. Because the

settlement remand hearing was the first and only

evidentiary opportunity Arctic ever has had to ad-

dress the principal defects in the settlement as those

issues affect Arctic’s interests, Arctic, at great cost

and subject to what Arctic believed to be improper

and unfair strictures of the Administrative Law

Judges, took that opportunity seriously and pre-

pared and presented detailed testimony of highly

qualified expert witnesses on specific aspects of the

settlement that have an immediate, continuing and

highly detrimental impact on Arctic’s very specific

interests as a landowner and prospective shipper.”

Consequently, we are confident that Arctic has had the

fullest possible procedural due process in the remand

proceedings. Arctic has been provided a formal hearing

at which to preserve its objections and pursue its legal

remedies. Arctic, as it has acknowledged, has taken full

advantage of that opportunity. The efforts of Alaska to

limit the substantive scope and procedural approach of

the remand proceedings, opposed strenuously by Arctic,

were unsuccessful. The Initial Decision before us has

been the subject of full briefing on exceptions and in

reply briefs by all participating parties. The Commission,

as a result, has satisfied the Court’s guidance in United

by procedurally allowing Arctic to preserve its objections

and pursue its legal remedies through the full remand

process, which it has done. The court in United, how-

ever, did not conclude that the Commission had a further

obligation, beyond the procedural preservation of objec-

tions and pursuit of legal remedies, to grant the specific

relief sought by a non-settling party, independent of the

substantive results of the procedural opportunity to pro-

vide for such preservation and pursuit. For example,

Arctic, citing the United opinion cannot both accept the

29 Answer of Arctic in opposition to motion of six original

settling owners to intervene, filed June 16, 1986, at 8, 9.

conclusion resulting from the remand proceedings that it

is not bound by the settlement, and demand that the Com-

mission either reject the settlement or, in the alternative,

modify the settlement with five specific modifications,

which substantially alter the settlement, as a condition

to its withdrawal of opposition to the settlement. Our

substantive conclusions of fact and law must and will

reflect the complete record before us, including the re-

mand proceedings, pursuant to United. As a result, our

approach will have afforded Arctic every procedural op-

portunity under our rules to proceed with such preserva-

tion and pursuit in seeking its requested substantive re-

sult in full satisfaction of United. It is in that regard

that Arctic has misconstrued our action under United in

the Northern case.

We were persuaded on rehearing in Northern by the

arguments of the Iowa State Commerce Commission

(ISCC) that it was bound by the settlement remedy, be-

cause the Commission in approving the offer of settle

ment, including specific refunds, without modification had

precluded itself, in fact, from ordering the further re-

funds sought by ISCC. ISCC argued that the Commis-

sion therefore could not consider any other result in the

remand proceedings involving only ISCC and order fur-

ther refunds. In effect, ISCC argued it was bound by

the settlement, because the Commission under applicable

precedent could not order any further refunds ISCC

sought upon conclusion of the original remand proceed-

ings. Furthermore, the settlement in Northern, if ap-

proved, would have resolved the issue of past gas pur-

chasing practices by the pipeline challenged by ISCC and

required current refunds and immediate action by the

pipeline; which would be of clear and present concern

to ISCC and Iowa consumers. Consequently, we were per-

suaded that approval of the settlement there with a sep-

30 Arctic’s Brief on Exceptions filed May 23, 1986, at 13, 14.

34a

arate remand for ISCC would foreclose as a matter of

law the further consideration of the gas purchasing

practices issue and the additional refunds. Our conclu-

sions and decision in Northern turned solely on the issue

of whether approval of the settlement would prevent the

further immediate refunds sought now by ISCC. Arctic

quite simply does not stand in the shoes of ISCC substan-

tively or procedurally, and as a result, our decision in

Northern does not apply to the instant case. Further-

more, as we stated in our October 23 order, “the Com-

mission strongly believes the settling parties are entitled

to the benefits of their bargain and to not adopt the

settlement would be contrary to the public interest.” ™

Failure to adopt the settlement would also be completely

contrary to the approach in United.

Arctic claims that dismissal of its protest will vio-

late the Interstate Commerce Act (the Act) which re-

quires that the Commission issue a decision on the merits.

The Commission agrees with Arctic that section 14(1)

of the Act requires it “to make a report in writing. . .

which shall state the conclusions of the Commission, to-

gether with its decision, order, or requirement in the

premises.” * We do not agree that the report must be

on the merits. While the Supreme Court stated that the

report “deals with the merits,”™ the appellants before

the Court were aggrieved. As we shall discuss below,

Arctic is not at the present time aggrieved by the settle-

ment. Under these circumstances, we believe that this

order complies with the requirements of section 14(1) of

the Act.

3133 FERC at p. 61,140.

32 49 U.S.C. § 14(1) (1976).

83 City of Chicago v. United States, 396 U.S. 162, 166 (1969).

%4 Jd. at 163.

35a

Arctic further cites our recent order in Southern Pa-

cific Pipe Lines, Inc.™ for the proposition that we may

not approve the settlement as uncontested and dismiss

its protest. In that order, we stated that “section 15(7)

of the Interstate Commerce Act requires that changed

rates be just and reasonable” and that we can approve

contested settlements that “establish just and reasonable

rates.” * Here, we are dealing, as aforesaid, with an

uncontested settlement, not applicable to Arctic, which

involves initial rates filed in 1977. Such uncontested set-

tlements may be approved if they are fair and reasonable

and in the public interest.*’ Both on October 23, 1985

and in this order, we find this settlement to be fair and

reasonable and in the public interest.

Arctic also argues that its testimony demonstrates the

disastrous financial consequences it will suffer if the set-

tlement is approved. We shall address Arctic’s conten-

tions regarding its pecuniary interests in TAPS rates

in the next section of this order.

In Arctic’s June 16, 1986, answer in opposition to the

motion of the six original settling owners to intervene,

Arctic states that it has spent over $2 million establish-

ing an evidentiary record in this proceeding. Arctic com-

plains that dismissal of its protest would force it to start

from scratch in some future proceeding for which the

present presiding ALJs might not be available. The evi-

dentiary record made in this proceeding will be available

to Arctic in the future. To the extent that the present

record is material and relevant to the issues raised in

any future proceeding, Arctic and any other participant

in the present proceeding may request incorporation of

the present evidentiary record into the record of the fu-

3535 FERC { 61,242 (1986).

36 Jd. Slip Op. at 3.

8718 C.F.R. § 385.602(g¢)(3) (1985).

36a

ture proceeding. Moreover, if at all possible, we will try

to have one or both of the present presiding ALJs as-

signed to any future proceeding.

To conclude, we affirm the conclusion of the ALJs that

the settlement may not be imposed on any objecting

party, including Arctic, and affirm the initial decision.**

Arctic is Not Aggrieved by the Settlement

It is uncontested that Arctic is a party to this pro-

ceeding. However, no party may automatically create

a genuine, material issue in a settlement merely by its

opposition to the settlement. As the Commission has

stated:

If a party’s interests are not immediately and ir-

reparably affected by approval of a settlement... ,

that party’s opposition to a settlement does not cre-

ate a genuine, material issue.” (Emphasis added).

Arctic must be particularly “aggrieved” by the set-

tlement in order to legitimately challenge the settlement

on the merits. The courts have fashioned a test to de-

termine judicial standing which we think is appropriate

in this context as well. The test is whether a party “has

sustained an injury in fact to an interest arguably within

the zone of interests protected or regulated by the [In-

terstate Commerce Act].” * (Emphasis added).

Whether Arctic is aggrieved must be determined on

the basis of the specific facts of this proceeding. As the

United States Court of Appeals for the District of Co-

lumbia Circuit has stated, this requires:

38 Sohio observes in its reply that the initial decision has given

Arctic what it sought: .0 imposition of the settlement on Arctic.

39 El Paso Natural Gas Co., 25 FERC { 61,292, at p. 61,673

(1983).

49 ANR Pipeline Co. v. F.E.R.C., 771 F.2d 507, 515 (D.C. Cir.

1985); National Treasury Employees Union v. United States Merit

Systems Protection Board, 743 F.2d 895, 910 (D.C. Cir. 1984).

_———————

37a

not only present and immediate harm, but also a

“looming unavoidable threat” of harm. In other

words, it is sufficient . .. if a party has an “im-

mediate prospect of future injury.” *

Such aggrievement “must be present and immediate.” *

Therefore, Arctic’s injury must be real, not speculative,

and “must be ‘immediately pressing.’ ” *

At present, Arctic neither ships oil through TAPS nor

does it have a royalty interest in any oil being shipped

via TAPS. It has no direct present interest in TAPS’

rates. Arctic informs us that it has interests in prob-

able and possible [oil] reserves on the Alaskan North

Slope (ANS) and the oil in which it has a royalty in-

terest will be shipped over TAPS soon. At best, the rec-

ord indicates this shipment may occur in the early to

mid-1990’s.* This contingent, potential future interest is

not so present and immediate to justify allowing Arctic

to raise this proceeding to the level of a contested settle-

ment. The prospect of any injury is ».t only not im-

mediate but may not occur, if it occurs at all, until the

1990’s.*

Arctic also claims that an excessive TAPS rate will

reduce the value of its land and its crude oil resources

by reducing the wellhead value of ANS oil. Arctie ar-

41 ANR Pipeline Co. v. F.E.R.C., 771 F.2d 507, 515-16 (D.C. Cir.

1985) (citation omitted).

42 Cincinnati Gas & Electric Co. v. F.E.R.C., 246 F.2d 688, 694

(D.C. Cir. 1957).

43 Jd., quoting Eccles v. Peoples Bank, 333 U.S. 426, 432 (1948).

44 Prepared Direct Testimony of Thomas E. Kelly on behalf

of Arctic at 9.

45 As Alaska and the six original settling owners observe in

their replies, the recent plunge in the world price of oil makes it

questionable whether Arctic’s reserves will ever be developed. See

Oil and Gas Journal 43, 46, 48 (March 31, 1986).

38a

gues that this will reduce its lease revenues from po-

tential bidders by reducing bids and bonus payments it

will receive in lease negotiations. While we recognize

that potential bids and bonus payments are of legitimate

concern to Arctic, we observe that potential offers of any

bids and bonus payments are not linked to the TAPS

settlement rates, since they do not apply to Arctic. Logi-

cally, potential offers must be concerned with TAPS’

rates when and if the ANS oil starts flowing at some

future date. As the record indicates, the earliest projec-

tion for potential shipment of any of this oil is in the

1990’s. Hence, we cannot agree that our approval of

this particular settlement and the setting of rates there-

under will have any particular linkage to Arctic’s future

bids and bonus payments, if any, because the settlement

doesn’t set rates for Arctic’s oil. The settlement only

establishes a maximum tariff which contains elements

such as rate of return, capital structure, and a $0.35 per

barrel charge starting in 1990. As in any rate case, such

items are subject to change. In addition, as observed by

the six original settling carriers in their reply, TAPS’

rates in the 1990’s will be based on cost-of-service data

and throughput estimates for the rate year in question.

Current cost data and hypothetical throughput estimates

are irrelevant to rates in the 1990’s. In light of the fore-

going, we conclude that the settlement will not cause any

real harm to Arctic’s potential bids and bonus payments

either now or in the future.”

We conclude that Arctic has not shown any present or

immediate harm or demonstrated any “immediate pros-

pect of future injury” to its interests.*”7 It will not have

‘For the same reasons, bidders’ decisions to bid at all and

lessees’ decisions to develop will not be affected by the settlement

‘T Arctic asserts that the ALJs in their initial decision acknow!

edged that:

The TAPS tariffs affect the economics of the leases that [Arc

tic] can negotiate and they determine whether some marginal

39a

an interest in any oil shipped through TAPS until the

1990’s, if then.** Moreover, as we discussed above, we

fail to see how the settlement will have any impact on

Arctic’s bids and bonus payments either at present or

in the future.

In response to numerous allegations, we categorically

state that our approval of this settlement is not a prece-

dent as to future TAPS’ rates. As a non-settling party,

Arctic will simply not be bound by the settlement. By

approving the settlement we are making no determina-

tions adverse, prejudicial, or precedential to Arctic’s in-

terests. Moreover, the settlement merely sets maximum

tariffs. It does not preclude lower future tariffs. Indeed,

we think the knowledge that there is a cap on TAPS’

rates may well aid the developers of ANS oil in their

decision-making processes and should, as both Alaska and

Justice believe, encourage the development of ANS oil.*

In summary, we conclude that Arctic has not, at this

time, raised a genuine, material issue sufficient to con-

stitute a contested settlement.” There are no persuasive

arguments in Arctic’s brief which compel a different re-

properties can be leased at all or will be developed. (35 FERC

at 65,075).

We read the ALJ’s initial decision as merely stating, without

adopting, the above testimony. In any event, for the reasons given

in the text, we have concluded that the TAPS settlement tariffs do

not affect the negotiation of Arctic’s leases or the development of

its properties. Despite Arctic’s allegation that its witnesses pre-

sented evidence of present economic harm, for the reasons given

above, we reject Arctic’s analysis.

48 See n. 45, supra.

4933 FERC at p. 61,139.

» Accordingly, we also see no reason to modify the settlement

as Arctic requested both in its brief on exceptions and initial com-

ments on the settlement.

40a

sult." To determine, as Arctic would have us do, that

the Commission may not terminate a rate proceeding

merely because a proceeding has begun, is erroneous. To

conclude otherwise would require the Commission to

routinely proceed in cases where there is no actual case

or controversy. Congress could not have intended such a

result. The Commission may take any appropriate action

in any proceeding, at any time, including termination,

as long as the parties have had a fair opportunity to

present arguments and relevant evidence. Arctic has

been given that opportunity. The Commission has no

further obligation other than to state the rationale for

its decision, as it does in this order.

Consequently, we approve the settlement, and termi-

nate the proceeding without prejudice.“ As recommended

by the ALJs in their initial decision, we do not impose

the settlement on Arctic nor is Arctic bound by our

5! Arctic observes that Section 13 of the Interstate Commerce

Act forbids the dismissing of complaints “because of the want of

direct damage,” 49 U.S.C. §13(2) (1976). ICC wv. Baird, 194 U.S.

25, 39 (1903). That section merely recognizes the possibility of

indirect damage. However, it in no way bars a dismissal where,

as here, there is no immediate damage. -

52 AKPIRG did not contest the instant settlement. It did oppose

the settlement between Alaska and the initial group of six settling

TAPS owners. Because we are terminating the dockets herein,

we shall address whether AkPIRG may oppose the settlement ap-

proved by the Commission in its order of October 23, 1985. AKPIRG

states that it is a citizen group organized to represent the interests

of consumers and taxpayers before government agencies, and con-

sequently it is interested in TAPS’ rates as those rates impact on

Alaska’s taxes and royalties. But a mere interest in those rates is

not enough to render AkPIRG aggrieved. Sierra Club v. Morton,

405 U.S. 727, 739 (1972). AkPIRG must have a “particularized

injury that sets [it] apart from the man on the street.” United

States v. Richardson, 418 U.S. 166, 194 (1974) (Powell, J., con-

curring). We see no such injury here, either direct or indirect.

Hence, we find AkPIRG’s interest insufficient to result in a con-

tested settlement.

4la

approval of the settlement. If, and when Arctic is

actually aggrieved, it may contest TAPS’ rates, including

requesting reconsideration of our approval of the pool-

ing agreement, infra, by filing a complaint or protest to

a rate filing.“ Furthermore, our approval of the Amend-

ment to the TAPS Settlement Agreement here, and in-

deed our approval of the prior TAPS Settlement Agree-

ment under our order of October 23, 1985, does not in

any way limit or modify any of the rights of Arctic un-

der the Interstate Commerce Act with regard to the

terms, conditions and operation of the settlement.* To

that extent, the respective procedural rights of Arctic

and Alaska should not differ materially, despite Arctic’s

stated concerns to the contrary. Additionally, Arctic, as

well as any entity which is not a party to the settlement,

may file at any time in the future for an adjudicated

rate, which does not exceed the settlement rate, under

* Alaska agrees that “by not imposing the settlement on [Arc-

tic], the Commission will fully protect whatever rights [Arctic]

has under the Interstate Commerce Act to seek future tariffs even

lower than those filed by the TAPS Carriers pursuant to the

settlement” (Brief opposing Arctic’s exceptions at 5). The six

original settling owners are in accord that Arctic has “the legal

right to challenge rates filed by the TAPS carriers even if those

rates comply with the ceiling established by [the settlement]”

(Reply to Arctic’s brief on exceptions at 18, 19).

“In its reply, Alaska questions whether the continuation of the

present proceeding would serve any useful purpose, especially for

Arctic. Alaska observes that Arctic has no interest in any refunds

because it has never shipped oil through TAPS, that actual cost-of-

service data exists in the record only through 1981, that the pro-

ceeding may be affected by our opinions in Williams Pipe Line Co.,

31 FERC * 61,377 (1985) and 33 FERC f§ 61,327 (1985), and that

this docket is essentially locked-in. It is not for us to tell Arctic

what will serve its purposes. But the points raised by Alaska are

well taken. In the absence of Arctic’s aggrievement, we do not

think it would be prudent for us to continue this proceeding and

force continued and protracted litigation on the settling parties.

42a

the holding of Sea-Land Service, Inc. v. ICC.* Finally,

while we will not here so condition our approval of the

settlement, we encourage all of the parties to the origi-

nal TAPS Settlement Agreement and the Amendment to

the TAPS Settlement Agreement to seek a negotiated set-

tlement at the earliest possible time with regard to Arc-

tic’s recoupment of litigation expenses in the proceedings

before this Commission, paralleling the recoupment of

Alaska’s litigation expenses.

Section 5(1) Relief

Section II-2(f) of the Settlement Agreement has two

provisions dealing with the allocation of certain costs

among the settling TAPS owners beginning in 1986. In

its order of October 23, 1985, the Commission granted

the six settling owners’ application for approval under

section 5(1) of the Interstate Commerce Act * of Section

II-2(f) as a pooling agreement for the reallocation of

certain costs and revenues. On March 12, 1986, Amerada

Hess and Sohio filed a motion in which they ask the

Commission to find that “the pooling arrangement under

Section II-2(f) of the TAPS Settlement Agreement with

respect to Amerada Hess and Sohio is in the interest of

better service to the public and economy of operation and

will not unduly restrain competition. For the reasons

given in the order of October 23, 1985, we so find.”

Moreover, as requested by Amerada Hess and Sohio, we

find that Amerada Hess and Sohio are authorized to par-

ticipate as parties in the pooling arrangement.

55738 F.2d 1311 (D.C. Cir. 1984).

5649 U.S.C. § 5(1) (1976).

57 33 FERC at p. 61,140.

58 Arctic contends that the pooling agreement has significant anti-

competitive effects on Arctic now. We disagree. First, we have

found that the pooling agreement will not unduly restrain competi-

tion. Second, the pooling agreement provision in question (Section

The Commission orders:

(A) The Amendment to TAPS Settlement Agreement

filed in these dockets on March 12, 1986, is approved.

(B) Amerada Hess’ and Sohio’s request for approval

under section 5(1) of the Interstate Commerce Act of a

pooling agreement for the reallocation of certain costs

and revenues is granted.

does not constitute approval of, or precedent regarding,

any principle or issue in this proceeding.

(D) The ALJs’ Initial Decision of April 23, 1986, is

affirmed, and Arctic’s exceptions thereto are denied.

(E) The settlement and the rates thereunder are not

imposed on Arctic which is not bound by the settlement.

If and when Arctic is actually aggrieved, it may contest

TAPS’ rates, including requesting reconsideration of the

Commission’s approval of the pooling agreement. Our

approval of the Amendment to TAPS Settlement Agree-

ment and our approval of the prior TAPS Settlement

Agreement in our order of October 23, 1985, does not in

any way limit or modify any of the rights of Arctic un-

der the Interstate Commerce Act with*regard to the

terms, conditions and operation of the settlement. Arctic,

as well as any entity which is not a party to the settle

ment, may file at any time in the future for an ad-

judicated rate, which does not exceed the settlement rate.

(F) Docket Nos. OR78-1 and IS84-13-000 (including

all subdockets and consolidated dockets) are hereby ter-

II - 2(f) (ii) of the settlement) will not be operative until 1990

and will not be operational until TAPS is running at less than

capacity. Hence, we fail to see how the pooling agreement will

have any effect on Arctic until the 1990’s, if ever. In any event, as

observed by the six original settling owners in their reply, Arctic

is not precluded from challenging the pooling agreement in the

future.

44a

minated upon issuance of this order, and to the extent

inconsistent with the Settlement Agreement and the

Amendment to TAPS Settlement Agreement, all protests

in those dockets are denied. The evidentiary record made

in this proceeding will be availeble to Arctic in the fu-

ture. To the extent that the present record is material

and relevant to the issues raisec in any future proceed-

ing, Arctic and any other partic pant in the present pro-

ceeding may request incorporatim of the present eviden-

tiary record into the record of tie future proceeding.

(G) Arctie’s motion for oral ergument is denied.

‘45a

APPENDIX D

[1 63,018]

Docket Nos. OR78-1-041, OR78-1-042 and OR78-1-043

TRANS ALASKA PIPELINE SYSTEM

Presiding Administrative Law Judges’ Certification of

Settlement Proposal to the Commission

(Issued April 15, 1986)

Max L. Kane and Isaac D. Benkin, Administrative

Law Judges.

We are herewith certifying to the Commission a Stipu-

lation and Offer of Settlement between the State of

Alaska (Alaska), the United States Department of Jus-

tice (Justice), Amerada Hess Pipeline Corporation

(Amerada), and Sohio Pipe Line Company (Sohio)

which, if approved by the Commission, would effectively

terminate the pending rate proceedings with respect to

the transportation of oil by all eight of the carriers who

own undivided interest in the Trans Alaska Pipeline

System (TAPS) .2 °

The instant settlement proposal, as the earlier settle-

ment proposal of the six other carriers, referred to in

footnote 1, is opposed by Arctic Slope Regional Corpora-

tion (Arctic) and the Alaska Public Interest Research

Group,? two parties who are neither carriers nor ship-

1 This Settlement Offer is identical in all material aspects to the

June 28, 1985 settlement proposal filed by Alaska and the six other

carriers, which was approved by the Commission in its order issued

October 23, 1985 (33 FERC { 61,064).

2TOSCO Corporation also filed objections, renewing its com-

ments objecting to the earlier six-carrier settlement. However,

TOSCO’s motion to intervene in these proceedings was denied by

46a

pers. However, in its comments opposing the settlement

and in its reply comments to the comments of the six

carriers who supported the March 12th Settlement Offer,

Arctic, without “waiving any of the objections to the

settlement offer . . . nevertheless would withdraw its

opposition to the Settlement Offer if the Commission were

to approve the Settlement Offer subject to the modifica-

tions of the offer as it applies to ASRC.” Arctic sets

forth five conditions (Comments pp. 265, 257), and con-

cludes that “. . . if the settlement is to be approved at

all, there is ‘no good reason’ not to modify the Settlement

as it applies to ASRC.” (Jd. at 259).

With respect to Arctic’s proposal, it is well to note

that the State of Alaska in its reply comments asserts

that it is “prepared to accept the substance of ASRC’s

proposal if that proposal is lawful (as ASRC apparently

believes it is), but, by the same token, ASRC would be

irrevocably bound to a final resolution of the TAPS pro-

ceeding whether or not its proposal is lawful.” On the

other hand, the six TAPS owners in their Reply Com-

ments indicate that they disapprove compliance with

Arctic’s conditions.

The proposed settlement is in all material aspects iden-

tical to the six-carrier settlement proposal we certified to

the Commission on August 9, 1985, and which the Com-

mission approved in its order of October 23, 1985. Ap-

proval of this proposal would write “finis” to the Com-

-mission’s preoccupation with the TAPS proceeding in all

its ramifications as far as the eight carriers and the other

consenting participants are concerned. It would put into

place a mechanism for calculating maximum tariffs that

may be charged by the TAPS owners until the year 2011.

As far as non-signatory parties to the settlement are

concerned, they will be free to challenge any tariffs filed

the Commission, but the Commission’s denial is currently under

judicial review.

47a

pursuant to the settlement, which are subject to Commis-

sion jurisdiction, and which provide rates that they be-

lieve to be unjust and unreasonable.

There is no need to repeat our reasons set forth in our

certification of August 9, 1985, for certifying the settle-

ment proposal te the Commission for its consideration.

Suffice it to say, the Commission in its order issued

October 23, 1985, after considering the comments of

ASRC, “approved the settlement with respect to the set-

tling parties because it is fair and reasonable and in the

public interest.” Furthermore, said the Commission, “the

settling parties are entitled to the benefits of their bar-

gain and to not adopt the settlement would be contrary

to the public interest.” 33 FERC at p. 61,140.

We reiterate, for the reasons stated in our earlier cer-

tification, that it is “undeniably in the public interest to

short-circuit this lengthy and expensive process by dis-

posing of the TAPS proceeding through a negotiated set-

tlement”. Furthermore, since Sohio and Amerada should

be considered in the same light as the carriers who exe-

cuted the six-carrier settlement, no reason appears why

they should be treated differently from such other car-

riers with respect to certification of their bargain.

We are mindful of the fact that the Commission had

remanded the TAPS proceedings with regard to the non-

settling parties to the six-carrier settlement agreement

in order to allow the non-settling parties a hearing on the

issues as applied to them. That hearing was held and

concluded with the final submission of briefs. The record

of that hearing and the briefs submitted are hereby cer-

tified to the Commission. We believe that there is nothing

in that record that would restrict or prevent the Com-

mission from considering the merits of the proposed set-

tlement. There was no attempt made, and none was

indicated in the testimony introduced, to impose the pre-

vious settlement on any non-signatory party. Whatever

48a

rights Arctic, or any other non-signatory party had prior

to the hearing remained intact.

In certifying this settlement proposal to the Commis-

sion, we wish to call attention to the fact that under

Paragraph 4 (at p. 2) of the proposed Stipulation,

Amerada and Sohio “shall each have the right to cancel

its participation in this Offer of Settlement” if by May

31, 1986, the Commission “fails to approve an application

made in accordance with Paragraph 3... ”. Paragraph

3 refers to an approval of the application of a section of

the Settlement Agreement for the pooling or division of

traffic under Section 5(1) of the Interstate Commerce

Act.

In consideration of the foregoing there are hereby cer-

tified to the Commission under the provisions of Rule 602

of the Rules of Practice and Procedure the following doc-

uments:

A. Stipulation and Offer of Settlement dated March 12,

1986, containing:

1. Proposed Order Approving Settlement;

2. Second Amendment to. TAPS Settlement Agreement

of 28 June 1985;

3. Explanatory Statement of the State of Alaska and

the United States Department of Justice in support of

Settlement Offer;

4. Explanatory Statement of Sohio Pipe Line Com-

pany in support of Seitlement Offer;

5. Explanatory Statement of Amerada Hess Pipeline

Corporation in support of Settlement Offer.

B. Initial Comments of Arctic Slope Regional Corpora-

tion in Opposition to the Settlement Proposal and Reply

Comments to the carriers’ comments.

C. Comments of TOSCO Corporation.

49a

D. Comments recommending approval of proposed

settlement:

1. Comments and reply comments of six TAPS car-

riers whose settlement has been approved by Commission ;

2. Reply Comments of State of Alaska;

3. Reply Comments of Sohio;

4. Reply Comments of Amerada;

5. Reply Comments of FERC Staff supporting the

agreement and adopting the reply comments filed with

respect to the six-carrier settlement.

E. The record and briefs in the remanded proceedings

in Docket Nos. OR78-1-041, OR78-1-042 and OR78-1-043.

50a

APPENDIX E

[7 61,392]

Docket No. OR78-1-045

TRANS ALASKA PIPELINE SYSTEM

Docket No. IS83-29-002

BP PIPELINES INC.

Docket No. IS83-27-002

EXXON PIPELINE COMPANY

Order Denying Rehearing

(Issued December 19, 1985)

Before Commissioners: Raymond J. O’Connor, Chair-

man; A. G. Sousa, Charles G. Stalon, Charles A. Tra-

bandt and C. M. Naeve.

On October 23, 1985, the Commission approved a Set-

tlement Agreement between the State of Alaska and six

of the eight TAPS owners—ARCO Pipe L

This text is long and has been trimmed here. Open the source document for the complete record.

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