Association of Oil Pipe Lines v. FERC , 876 F.3d 336 ( 2017 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 12, 2017 Decided November 28, 2017
No. 16-1059
ASSOCIATION OF OIL PIPE LINES,
PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION AND UNITED
STATES OF AMERICA,
RESPONDENTS
AIR TRANSPORT ASSOCIATION OF AMERICA, INC., D/B/A
AIRLINES FOR AMERICA, ET AL.,
INTERVENORS
On Petition for Review of an Order of
the Federal Energy Regulatory Commission
Steven Reed argued the cause for petitioner. With him on
the briefs were Steven H. Brose, Daniel J. Poynor, and Steven
M. Kramer.
Susanna Y. Chu, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondents. With her on
the brief were James J. Fredricks and Robert J. Wiggers,
Attorneys, U.S. Department of Justice, Robert H. Solomon,
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Solicitor, Federal Energy Regulatory Commission, and Beth G.
Pacella, Deputy Solicitor.
Richard E. Powers Jr., Steven A. Adducci, Matthew D.
Field, Thomas J. Eastment, Gregory S. Wagner, David A. Berg,
Jeffrey M. Petrash, and James H. Holt were on the brief for
Shippers Intervenors in support of the Federal Energy
Regulatory Commission.
Before: KAVANAUGH and SRINIVASAN, Circuit Judges,
and EDWARDS, Senior Circuit Judge.
Opinion for the Court filed by Senior Circuit Judge
EDWARDS.
EDWARDS, Senior Circuit Judge: Pursuant to authority
granted to it under the Interstate Commerce Act, 49 U.S.C. app.
§ 15(1) (1988), and the Energy Policy Act of 1992, Pub. L. No.
102-486, § 1801(a), 106 Stat. 2776, 3010 (codified at 42 U.S.C.
§ 7172 note (2006)), the Federal Energy Regulatory
Commission (“FERC” or “Commission”) employs an indexed
ratemaking system to govern oil pipeline rates. See Order No.
561, Revisions to Oil Pipeline Regulations Pursuant to the
Energy Policy Act of 1992, 58 Fed. Reg. 58,753, 58,753-54
(Nov. 4, 1993). The Commission calculates the index each year
using a formula aimed at capturing the change in costs
experienced by the oil pipeline industry. Id. at 58,754. It
reexamines the formula it utilizes to set the annual index every
five years. Id. With limited exceptions, it has applied a
generally consistent methodology, approved by this court, to
calculate the change in normal industry costs at each five-year
interval. See Ass’n of Oil Pipe Lines v. FERC (AOPL I), 83 F.3d
1424 (D.C. Cir. 1996).
3
On December 17, 2015, after engaging in notice and
comment rulemaking, the Commission issued an order
adopting the index formula for the 2016 to 2021 period. Five-
Year Review of the Oil Pipeline Index, 80 Fed. Reg. 81,744(Dec. 31, 2015) [hereinafter 2015 Order]. The Association of
Oil Pipelines (“AOPL”) filed a petition for review of the 2015
Order in this court on February 16, 2016. AOPL alleges that
the Commission acted arbitrarily and capriciously in violation
of the Administrative Procedure Act (“APA”) by departing in
two ways from the methodology used in past index reviews:
First, according to AOPL, FERC, without reasoned
explanation, impermissibly relied solely on the middle 50
percent of pipeline cost-change data and failed to incorporate
the middle 80 percent of cost-change data. Second, AOPL
asserts that FERC, without adequate justification,
impermissibly used “Page 700” cost-of-service data to
calculate the index level instead of the “Form No. 6”
accounting data that had been employed in the past. We find no
merit in AOPL’s claims.
Because “[t]he Commission, not this or any court,
regulates” oil pipeline rates, our role on review of the 2015
Order is limited. FERC v. Elec. Power Supply Ass’n, 136 S. Ct.
760, 784 (2016). The record makes it plain that the
Commission adequately and reasonably explained its decision
not to consider the middle 80 percent of pipelines’ cost-change
data. Furthermore, contrary to AOPL’s assertion, nothing in
any of FERC’s past index review orders bound the agency to
use the middle 80 percent of pipelines’ cost-change data.
Likewise, the Commission’s rationale for utilizing the cost-of-
service data from Page 700 is clear and reasonable. And there
is nothing in the record to support AOPL’s claim that FERC’s
decision to use Page 700 data indicates an unexplained shift in
its measurement objective. In this situation, the words of the
Supreme Court are quite apt:
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The disputed question[s in this case involve] both
technical understanding and policy judgment. . . . Our
important but limited role is to ensure that the
Commission engaged in reasoned decisionmaking—
that it weighed competing views, selected [an index]
with adequate support in the record, and intelligibly
explained the reasons for making that choice. FERC
satisfied that standard. . . . [T]he Commission met its
duty of reasoned judgment. FERC took full account
of the alternative policies proposed, and adequately
supported and explained its decision.
Id. The conclusions reached by the Court in FERC v. Electric
Power Supply Association apply here as well. We therefore
deny the petition for review.
I. Background
A. Statutory and Regulatory History
Oil pipelines have long been subject to rate regulation
under the Interstate Commerce Act. See Hepburn Act, Pub. L.
No. 59-337, 34 Stat. 584 (1906). As currently codified, that
statute charges FERC with ensuring that pipeline rates are “just
and reasonable.” 49 U.S.C. app. § 15(1) (1988). For many
years, the Commission calculated rates using a cost-of-service
methodology under which pipelines could recover “only a real
(inflation-adjusted) rate of return each year.” AOPL I, 83 F.3d
at 1429; see Opinion No. 154-B, Williams Pipe Line Co., 31
FERC ¶ 61,377 (June 28, 1985), opinion on reh’g, 33 FERC
¶ 61,327 (1985).
In 1992, Congress enacted the Energy Policy Act, which
directed FERC to issue a rule to simplify the ratemaking
methodology for oil pipelines. Energy Policy Act of 1992,
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§ 1801(a), 106 Stat. at 3010. To fulfill its Energy Policy Act
mandate, the Commission promulgated Order No. 561,
adopting an indexed ratemaking system. See 58 Fed. Reg. at
58,754. Under this system, the Commission sets an annual
index, which is used to calculate pipeline-specific rate ceilings;
pipelines may increase their rates without seeking the
Commission’s approval, so long as the increase does not
exceed the annual limit, computed using the index. 18 C.F.R.
§ 342.3(a), (d). The Commission also provided that, in limited
circumstances, pipelines may increase their rates pursuant to
three alternative methods. Id. § 342.4. Among these is a cost-
of-service option, which allows a pipeline to file for an
individualized rate based on its costs, as it would have under
the previous methodology, if the pipeline shows there is a
substantial divergence between the costs it experienced and the
rate resulting from the index. Id. § 342.4(a).
Order No. 561 also established the formula the
Commission would use to set the annual index. 58 Fed. Reg. at
58,757-60. The index formula is designed to “track[] the
historical changes in the actual costs of the product pipeline
industry.” Id. at 58,760. The Commission determined to use the
change in the Producer Price Index for Finished Goods (“PPI-
FG”), as published by the U.S. Department of Labor, Bureau
of Labor Statistics, as a baseline measure for inflation, adjusted
to account for “actual cost changes experienced by the [oil
pipeline] industry.” Id.; see also 18 C.F.R. § 342.3(d)(2).
In formulating its methodology, the Commission relied on
a proposal from Dr. Alfred Kahn, an industry commenter’s
expert. See Order No. 561-A, Revisions to Oil Pipeline
Regulations Pursuant to Energy Policy Act of 1992, 59 Fed.
Reg. 40,243, 40,245-46 (Aug. 8, 1994). Dr. Kahn calculated
the annual rates of change for operating expenses for each
pipeline based on accounting information obtained from part of
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the pipelines’ Form No. 6 annual regulatory filings. See id. at
40,247. He then omitted from his analysis the pipelines within
the upper and lower 25 percent of the cost spectrum in order to
exclude statistical outliers and incomplete or questionable data.
Id. Applying the Kahn Methodology, the Commission
considered the middle 50 percent of pipelines’ cost-change data
and adopted an initial index formula of PPI-FG minus 1.0
percent. See id.; Order No. 561, 58 Fed. Reg. at 58,760. The
Commission additionally determined that consistent
monitoring of the formula would be necessary to measure the
index’s continued capacity to accurately track cost changes in
the pipeline industry, and it committed to revisit the formula
every five years. See Order No. 561, 58 Fed. Reg. at 58,754.
On review, this court upheld the Commission’s index scheme
in its entirety. See AOPL I, 83 F.3d at 1433, 1445.
In 2000, the Commission engaged in its first review of the
index formula. After notice and comment, FERC elected to
maintain the PPI-FG minus 1.0 percent formula, but used a
different methodology than the one used in 1994. Five-Year
Review of Oil Pipeline Pricing Index, 93 FERC ¶ 61,266, at
61,851-52 (Dec. 14, 2000) [hereinafter 2000 Order]. On
review, this court held that the Commission had failed to
articulate and adequately justify its reasons for shifting its
methodology and remanded the case for further consideration
by the agency. See Ass’n of Oil Pipe Lines v. FERC (AOPL II),
281 F.3d 239, 240-41 (D.C. Cir. 2002). On remand, FERC
largely embraced the Kahn Methodology and adopted an index
of PPI-FG with no adjustment. Five-Year Review of Oil
Pipeline Pricing Index, 102 FERC ¶ 61,195, at 61,537, 61,539-
41 (Feb. 24, 2003) [hereinafter 2003 Order]. This court rejected
a challenge to the new order. See Flying J Inc. v. FERC, 363
F.3d 495, 500 (D.C. Cir. 2004).
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In subsequent index reviews, the Commission continued
to rely on the Kahn Methodology, but with some modifications.
For example, in 2006, as it had in the 2003 Order, the
Commission considered data from pipelines with cumulative
per-barrel-mile cost changes in both the middle 50 percent and
middle 80 percent of all oil pipelines. See Order Establishing
Index for Oil Price Change Ceiling Levels, 114 FERC
¶ 61,293, at 62,038-40 (March 21, 2006) [hereinafter 2006
Order]; see also 2003 Order, 102 FERC at 61,540-41. In 2010,
however, the Commission returned to its original approach of
utilizing data within only the middle 50 percent. Order
Establishing Index for Oil Price Change Ceiling Levels, 133
FERC ¶ 61,228, at 62,254-57 (Dec. 16, 2010) [hereinafter 2010
Order]. In each review, the Commission calculated the
industry’s costs using accounting data from various parts of
pipelines’ Form No. 6 filings. See, e.g., 2006 Order, 114 FERC
at 62,034, 62,045; 2010 Order, 133 FERC at 62,254.
B. The 2015 Index Review
On June 30, 2015, the Commission issued a Notice of
Inquiry for its fourth periodic reexamination of the index
formula. Notice of Inquiry, Five-Year Review of the Oil
Pipeline Index, 80 Fed. Reg. 39,010 (July 8, 2015). It proposed
an index of PPI-FG plus between 2.0 percent and 2.4 percent
and requested comment. Id. at 39,010-11. The Commission
based the proposed adjustment on calculations made pursuant
to the Kahn Methodology, which it described as measuring
“changes in operating costs and capital costs on a per barrel-
mile basis using FERC Form No. 6 . . . data from the prior five-
year period . . . to establish the cumulative cost change for each
pipeline . . . cull[ed] [to] a data set consisting of pipelines with
cumulative per-barrel-mile cost changes in the middle 50
percent of all pipelines.” Id. at 39,011.
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AOPL submitted comments proposing an index level of
PPI-FG plus 2.45 percent. It too based its analysis on the Kahn
Methodology, but it used both the middle 50 percent and the
middle 80 percent of pipelines’ cost changes, calculated using
accounting data from the Form No. 6 filings. AOPL asserted
that FERC had erred in its proposal by using only the middle
50 percent of data rather than incorporating the middle 80
percent of data as well, thereby “eliminat[ing] valuable data
regarding pipeline cost changes and therefore fail[ing] to
provide the most robust data sample for determining the
index.” Initial Comments of AOPL at 3, reprinted in Joint
Appendix (“J.A.”) 14. AOPL’s expert, Dr. Ramsey D.
Shehadeh, Ph.D., determined that the middle 80 percent of data
did not include spurious outliers likely to bias the calculation,
and he concluded that because “absent errors in the data, using
more data points is generally better,” there was “no economic
justification” for excluding it. Shehadeh Declaration at 8-9,
J.A. 51-52.
Various shippers submitted comments proposing, inter
alia, that the Commission calculate the average change in costs
using data from a different part of the regulatory filings than it
had used in the past. See Joint Comments of Airlines for Am.,
Nat’l Propane Gas Ass’n, and Valero Marketing & Supply Co.
at 9-16, J.A. 126-33. These commenters argued that cost-of-
service data from Page 700, a newer part of the pipelines’
annual regulatory filings, provides a direct measure of changes
in pipelines’ per-barrel-mile costs, whereas the accounting data
used in the past had merely provided proxies. Id. AOPL
submitted additional comments opposing the shippers’
proposal. See Reply Comments of AOPL at 39-41, J.A. 399-
401.
Ultimately, the Commission adopted an index of PPI-FG
plus 1.23 percent to apply for the five-year period between
9
2016 and 2021. 2015 Order, 80 Fed. Reg. at 81,744. It rejected
AOPL’s proposal to include the middle 80 percent of pipeline
cost-change data in its analysis, but it adopted the shippers’
proposal to switch to using Page 700 cost-of-service data to
calculate cost changes for each individual pipeline. Id. at
81,744-46, 81,750-51. AOPL filed a petition for review in this
court, challenging the Commission’s failure to incorporate the
middle 80 percent data into its analysis and its use of the Page
700 filings as an input source. A group of shippers intervened
in support of the Commission.
II. Analysis
A. Standard of Review
We review AOPL’s challenge to the 2015 Order under the
APA’s familiar “arbitrary and capricious” standard. See 5
U.S.C. § 706(2)(A); Wis. Pub. Power Inc. v. FERC, 493 F.3d
239, 256 (D.C. Cir. 2007). Under that standard, the court must
ensure that the agency has “examine[d] the relevant data and
articulate[d] a satisfactory explanation for its action including
a ‘rational connection between the facts found and the choice
made.’” Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto.
Ins. Co., 463 U.S. 29, 43 (1983) (quoting Burlington Truck
Lines, Inc. v. United States, 371 U.S. 156, 168 (1962)). Where
an agency’s action marks a change in position, the agency must
“display awareness that it is changing position, . . . [and] show
that there are good reasons for the new policy.” FCC v. Fox
Television Stations, Inc., 556 U.S. 502, 515 (2009). But the
agency need not demonstrate “that the reasons for the new
policy are better than the reasons for the old one; it suffices that
the new policy is permissible . . . , that there are good reasons
for it, and that the agency believes it to be better.” Id. “Because
the subject of [the court’s] scrutiny is . . . ratemaking—and thus
an agency decision involving complex industry analyses and
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difficult policy choices—the court will be particularly
deferential to the Commission’s expertise.” AOPL I, 83 F.3d at
1431.
B. Statistical Data Trimming
We begin with AOPL’s principal contention: that FERC’s
reliance solely on the middle 50 percent of pipelines’ cost-
change data and failure to incorporate the middle 80 percent of
pipelines’ data was arbitrary and capricious for want of a
reasoned explanation. Pointing to the Commission’s
consideration of both the middle 50 percent and middle 80
percent of data in its first and second index reviews, AOPL
asserts that the Commission departed from its past practice
without reasoned decisionmaking. In particular, AOPL argues
that the explanation the Commission provided impermissibly
disregarded its prior determination that use of both data sets
sufficiently ensures that the index is not adversely affected by
statistical outliers, as well as its prior conclusion that using a
data set that covered more barrel-miles was superior when that
data was available. Additionally, AOPL contends that the
Commission’s explanation for excluding the middle 80 percent
data was invalid because it was driven at least in part by what
AOPL characterizes as an impermissible “results-oriented”
goal of lowering the index.
We have little difficulty in finding that the Commission
adequately and reasonably justified its decision not to consider
the middle 80 percent of pipelines’ cost-change data. FERC’s
Order explains that “the middle 50 percent, more effectively
than the middle 80 percent, excludes pipelines with anomalous
cost changes while avoiding the complexity and distorting
effects of subjective, manual data trimming methodologies.”
2015 Order, 80 Fed. Reg. at 81,750 P. 42. The Commission
noted, as it had in its 2010 index review, that this decision
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“returned the Commission’s policy to the application of the
Kahn Methodology in Order No. 561, which based its
calculation of the index on the middle 50 percent alone.” Id. at
P. 42 n.80 (citing 2010 Order, 133 FERC at 62,261-62 PP. 60-
63). It further explained:
Although the middle 80 percent was used in the
2000 and 2005 reviews, the Commission made
this change without providing a rationale for the
change or explaining the departure from
previous practice. Once the issue was presented
to the Commission in the 2010 Index Review,
the Commission determined that the middle 50
percent alone provided a more appropriate
means for trimming the data sample.
Id. (citing 2010 Order, 133 FERC at 62,261-62 P. 61).
Nothing in any of the Commission’s past index review
orders bound the agency to use the middle 80 percent of
pipelines’ cost-change data in any later proceeding. In its 2003
Order, the Commission stated only that the middle 80 percent
data supported the same result reached using the middle 50
percent of data. 102 FERC at 61,540. In its 2006 Order, the
Commission stated that “[t]rimming is done to remove
statistical outliers, or spurious data points that could bias the
mean of the sample in either direction.” 114 FERC at 62,038.
It noted that both sets of commenters in that proceeding had
“constructed the trimmed data sets of the middle 50 percent and
middle 80 percent,” id., and that by doing the same, it had
“ensur[ed] that the index [was] not driven by statistical
outliers,” id. at 62,043. Contrary to AOPL’s contention,
deciding that consideration of both data sets had sufficiently
avoided statistical outliers in 2006 did not preclude the
Commission from determining, in 2010 and 2015, that relying
12
exclusively on the middle 50 percent data set did so more
effectively. See Nat’l Cable & Telecomms. Ass’n v. FCC, 567
F.3d 659, 667 (D.C. Cir. 2009) (“[A]n agency is free to change
its mind so long as it supplies ‘a reasoned analysis.’” (quoting
State Farm, 463 U.S. at 57)).
Petitioner asserts that FERC’s statement from the 2010
index review that “it is preferable to apply the larger data set
when the additional data is available using the current Kahn
Methodology” precluded the Commission from excluding the
middle 80 percent of pipelines’ data when that data is available
and accurate. See Order Denying Request for Rehearing, 135
FERC ¶ 61,172, at 62,023 P. 41 (May 23, 2011). But the quoted
passage addressed FERC’s approach to selecting the pool of
pipelines whose costs should be measured at all – not the
portion of the resulting data to trim before calculating the
normal industry change in costs. See id. at P. 41 & n.38. In fact,
the Commission rejected the precise principle that AOPL
asserts should be gleaned from that passage in the 2010 index
review itself. See 2010 Order, 133 FERC at 62,261-62 PP. 57,
61 (noting AOPL’s comment that the middle 80 percent is
preferable because it “would be more inclusive and represent a
larger number of pipelines” but concluding that “[t]he middle
50 percent more appropriately adjusts the index levels for
‘normal’ cost changes”).
In its 2015 Order, the Commission again expressly
“reject[ed] AOPL’s argument that the middle 80 percent should
be used merely because it contains more barrel-miles.” 80 Fed.
Reg. at 81,751 P. 44. It noted that “[t]he Kahn Methodology
aims to capture the central tendency of the data set so that the
index is not distorted by outlying costs,” and that “[p]ipelines
in the middle 80 percent, as opposed to the middle 50 percent,
are more likely to have outlying cost changes which could
result from idiosyncratic factors particular to that pipeline.” Id.
13
AOPL offers no convincing rebuttal to FERC’s decision. The
simple point here is that neither legal nor policy considerations
precluded FERC from relying solely on the middle 50 percent
of the pipelines’ cost-change data.
Furthermore, AOPL’s contention that the Commission
deviated from past practice without reasoned explanation is
belied by the regulatory record. FERC neither disregarded its
prior policy decisions nor failed to come to grips with existing
precedent. The Commission plainly acknowledged both here
and in its 2010 Order that it had considered the middle 80
percent of pipelines’ data in the first and second index reviews.
In 2010, however, the agency announced its considered
judgment that using the middle 50 percent was the superior
approach and it explained the basis for its decision. 133 FERC
at 62,255, 62,261-62. The Commission’s 2015 Order
accurately characterized and reaffirmed that conclusion. 80
Fed. Reg. at 81,750 P. 42-44. AOPL’s suggestion that FERC
cannot rely on the explanation set forth in the 2010 Order
because it was not affirmed by this court is simply mistaken.
See Oral Arg. Recording at 32:01-34:40. That no party
appealed the 2010 Order is irrelevant; the Commission is
entitled to rely on the precedent it established there, especially
when it is clear that the agency acted within legal bounds and
with good reasons.
Additionally, the Commission addressed the specifics of
the 2015 record. See 2015 Order, 80 Fed. Reg. at 81,751 P. 44
nn.83 & 85. It recognized in its 2015 Order the distinctions
between the 2010 and 2015 data sets, and it explained its
rationale for continuing to exclude the middle 80 percent of
data from its calculations despite those distinctions. For
example, FERC acknowledged that the middle 50 percent data
set covered a greater percentage of industry barrel-miles in
2010 than in did in 2015, but it concluded that “this is not a
14
sufficient basis to risk including more outlying data.” See id. at
P. 44 n.85. It explained that the 2015 statistically trimmed data
set “includes more than 50 percent of industry barrel-miles,”
and that much of the difference between this set and the 2010
data set was due to the fact that a single pipeline, Enbridge
Lakehead, fell within the middle 50 percent in 2010, but not in
2015. Id. FERC was under no obligation to maintain the same
barrel-mile coverage for each index review.
Finally, contrary to AOPL’s assertion, the Commission’s
explanation does not reveal that it had an irrational purpose of
lowering the index level. As support for its theory that FERC’s
refusal to utilize the middle 80 percent data was impermissibly
“results-oriented,” AOPL points to a portion of the
Commission’s explanation in which it noted that “using the
middle 80 percent would skew the index upward based upon
. . . outlying cost increases” which would “not be offset by
similarly outlying cost decreases.” Id. at 81,750-51 P. 43. But
the Commission explained that its concern about outlying cost
increases was based upon the negative effect they would have
on the formula’s ability to achieve its “objective of . . .
reflect[ing] normal industry-wide cost changes.” Id. Thus, the
agency was concerned that the outlying data would result in an
inaccurate – not merely undesirable – measurement of normal
cost changes. AOPL provides no reason to question that
conclusion, and neither this court’s decision in AOPL II nor any
of the other cases AOPL cites prevents the Commission from
relying on this rationale.
The Commission provided the required reasoned
explanation for its decision to exclude the middle 80 percent of
pipelines from its analysis. We reject AOPL’s assertion to the
contrary.
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C. Data Input Source
AOPL also contends that FERC departed from its
precedent without a reasoned explanation by calculating the
index using Page 700 cost-of-service data instead of using the
accounting data from other parts of Form No. 6, as it had in the
past. AOPL acknowledges that the Commission recognized
this departure and provided an explanation for its decision, but
it rejects that explanation as insufficient for two reasons. First,
AOPL disagrees with the Commission’s determination that the
switch will be beneficial. Second, it claims the Commission
failed to acknowledge that its decision represents a shift in the
very thing that the index and the Kahn Methodology are
designed to measure and thus necessarily failed to provide an
acceptable justification to support that new aim. We disagree.
On the record before us, it is clear that FERC adequately
and reasonably explained its rationale for utilizing the cost-of-
service data from Page 700. In its Order, the Commission
identified four benefits of switching to the Page 700 data. In
particular, the Commission carefully explained that: (1) Using
Page 700 data will better suit the index’s aim of reflecting
changes to recoverable costs. (2) The data will eliminate the
need to use proxies to measure capital costs and income tax
costs. (3) The data will eliminate the need to use an “operating
ratio” estimate, which unrealistically assumes that pipelines
incur no capital costs in years in which the operating expenses
exceed revenues. FERC concluded that eliminating the
operating ratio estimate would lead to more accurate results.
(4) And the Page 700 data relates exclusively to interstate
pipelines and therefore the measurement will no longer
commingle interstate and intrastate costs. See 2015 Order, 80
Fed. Reg. at 81,746 PP. 12-16. AOPL has not persuasively
refuted FERC’s justifications.
16
The Commission also adequately responded to AOPL’s
objections to using Page 700 data. For example, AOPL argued
that, because Page 700 requires pipelines to make assumptions
and allocations, the methodology of which might differ among
pipelines or change over time, the change measure might be
inaccurate. See Reply Comments of AOPL at 44, J.A. 404. The
Commission explained that assumptions and allocations would
be required under any measurement approach, and it
determined that the assumptions should reflect established
ratemaking practices and thus should be consistent enough to
accurately calculate the index. See 2015 Order, 80 Fed. Reg. at
81,746-47 P. 18. AOPL also argued that the return-on-equity
element of Page 700 can be highly variable due to changing
capital conditions. See Reply Comments of AOPL at 41, J.A.
401. FERC responded that this was not a reason to refrain from
using the data, as the index is designed to capture changing
capital costs, including financing costs. See 2015 Order, 80
Fed. Reg. at 81,746 P. 17. AOPL’s arguments that these
responses were insufficient invite this court to replace the
Commission’s technical and policy judgments with its own.
We must decline. See State Farm, 463 U.S. at 43; Am. Radio
Relay League, Inc. v. FCC, 524 F.3d 227, 233 (D.C. Cir. 2008).
Furthermore, there is nothing in the record to support
AOPL’s assertion that the Commission’s shift to using Page
700 data reveals a sub silentio shift in its measurement
objective. AOPL asserts that the old methodology was meant
to support an index based on actual costs that is an alternative
to the cost-of-service methodology used prior to the Energy
Policy Act, while the new approach measures changes in cost
recoverable under a cost-of-service approach. But the index
has always served and continues to serve as an alternative to
the individualized cost-of-service-based ratemaking
procedures that were used prior to the Energy Policy Act. See
Order No. 561, 58 Fed. Reg. at 58,758.
17
Moreover, neither Order No. 561 nor the subsequent index
review orders indicate that the index was intended to measure
something distinct from the costs measured under its cost-of-
service methodology. Rather, the Commission has consistently
treated the index as a measure of normal industry-wide cost-of-
service changes and it continued to do so in the challenged
order. Compare id. (“[T]he indexing system utilizes average,
economy-wide costs rather than pipeline-specific costs to
establish rate ceilings.”), and Order No. 561-A, 59 Fed. Reg. at
40,245 (“The indexing methodology adopted . . . is
fundamentally based on costs . . . [and] most closely
approximates the actual cost changes experienced by the oil
pipeline industry.”), with 2015 Order, 80 Fed. Reg. at 81,746
P. 13 (“[T]he index is meant to reflect changes to recoverable
pipeline costs, and, thus, the calculation of the index should use
data that is consistent with the Commission’s cost-of-service
methodology.”).
Indeed, since it first established the index, the Commission
has lamented that it did not have access to a reliable measure
of industry-wide total cost-of-service data upon which to base
its calculations. See Order 561-A, 59 Fed. Reg. at 40,246-47
(stating that “Form No. 6 does not contain the information
necessary to compute a trended original cost (TOC) rate base
or a starting rate base as allowed for in Order No. 154-B” and
that “all agree that the measure of the capital cost component
[using Form No. 6 data] of the cost of service is highly
unsatisfactory”); Revision to Form No. 6, 77 Fed. Reg. 59,739,
59,741 P. 19 (Oct. 1, 2012) (recognizing that past Page 700
filings were unreliable and amending Page 700 instructions).
Now that Page 700 makes that data available, and the
Commission has concluded that the data is reliable, see 2015
Order, 80 Fed. Reg. at 81,745-46 PP. 10-12 & n.24, it was
entirely reasonable for the agency to use it in the 2015 Order.
18
III. Conclusion
To reiterate, an “agency must show that there are good
reasons for [new policies]. But it need not demonstrate to a
court’s satisfaction that the reasons for the new polic[ies] are
better than the reasons for the old one[s]; it suffices that the
new polic[ies are] permissible under the statute, that there are
good reasons for [them], and that the agency believes [the
disputed policies] to be better, which the conscious change of
course adequately indicates.” Fox Television Stations, Inc., 556
U.S. at 515. FERC easily satisfied this standard in this case.
The Commission carefully addressed the issues, acknowledged
its departure from prior decisions, provided extensive
explanation for its technical and policy choices, considered the
principal alternatives, and responded to Petitioner’s arguments.
Nothing more was required. We therefore deny the petition for
review.
So ordered.