D.C. Circuit Addresses Agency’s Duty to Provide More Than a “Passing Reference to Relevant Factors,” as Well as the “Rule of Reason” Aspect of Tariffing and the Filed Rate Doctrine

Parties appealing agency orders often assert the agency failed to provide a reasoned explanation for its decision.  This is typically an uphill battle.  From time to time, however, courts reconfirm that the duty is real and an order based on generalities will not suffice.  The D.C. Circuit did just that recently on review of FERC decisions.  City and County of San Francisco v. FERC, Nos. 20-1084 & 20-1297 (D.C. Cir., Jan. 25, 2022).

San Francisco’s publicly owned utility, the San Francisco Public Utilities Commission, sells power to city residents.  In doing so, however, it relies on Pacific Gas & Electric’s distribution lines to reach the actual end-user customers.  For that, San Francisco prefers to buy “secondary” voltage service from PG&E (rather than “primary,” higher voltage service).  PG&E allows retail customers to receive secondary service if their demand is below 3,000 kW.  Starting in 2015, however, PG&E refused to interconnect to new locations for San Francisco’s customers at secondary voltage unless the total electricity demand was less than 75 kW (forcing San Francisco to buy the more expensive primary voltage service if it wanted to serve that location).  San Francisco filed a Complaint against PG&E with the Federal Energy Regulatory Commission.  FERC found for PG&E, accepting PG&E’s claim in its Answer to the Complaint that the denials of secondary service were based on “technical, safety, reliability, and operational reasons,” and that PG&E could use its discretion, based on such considerations, to decide what level of service was best for a given customer.

The D.C. Circuit found this explanation inadequate.  The court stated that a “passing reference to relevant factors” was not enough when FERC neither gave a “concrete[] descri[ption]” of the risks at issue nor probed the bases for PG&E’s claims.  Slip op. at 11.  The court also rejected FERC’s statement that PG&E needed “discretion” over matters involving safety and reliability, noting that the 75 kW cutoff was applied as a categorical rule, not a discretionary determination based on risks in a specific instance.  Id. at 11-12.  In addition, the court rejected FERC’s reliance in the idea that primary voltage interconnection is the “norm” for utility-to-utility interconnection, noting that FERC has not explained why deference to that norm would be appropriate in the particular situation at hand, where San Francisco’s geographical configuration differed from that of other utilities.  Id. at 12.

A separate issue was whether PG&E’s practice of requiring primary voltage service for new interconnection with demand above 75 kW violated its tariff because that cutoff is not stated in the tariff.  PG&E argued that the “rule of reason” excused it from having to specify the cutoff in the tariff, because under the rule of reason a utility’s tariff need only specify “those practices that affect rates and service significantly and that are realistically susceptible of specification, and that are not so generally understood in any contractual arrangement as to render recitation superfluous.”  Id. at 16, quoting City of Cleveland v. FERC, 773 F.2d 1368, 1376 (D.C. Cir. 1985).  The court rejected that argument, stating that the 75 kW cutoff is a “numerical threshold [and] the type of requirement that the ‘rule of reason’ requires be stated in the Tariff, as a numerical threshold is ‘realistically susceptible of specification.’”  Id. quoting Keyspan-Ravenswood, LLC v. FERC, 474 F.3d 804, 811 (D.C. Cir. 2007).  Because FERC’s order did not explain why the 75 kW threshold did not need to be in the filed tariff, even if, as FERC asserted, it is only a “guidepost” rather than a requirement, the court again found FERC had failed to adequately explain its decision.

Lessons.  While the decision also addresses other more technical issues, the holdings on an agency’s duty to explain are a good reminder to parties to provide agencies with the specifics necessary to support their actions when possible, so that the agency has specifics to back up a ruling in the party’s favor, and to agencies to fully explain the rationale behind decisions rather than rely on generalities.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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