Notice & Comment

D.C. Circuit Review – Reviewed: Depancaking the Week’s Decisions

Another big week at the D.C. Circuit. The court issued 10 opinions, as the judges clear their dockets before the clerks turn over for the year.  Five out of those 10 opinions involve administrative law, so we’ll focus there.  The others deal with when a company is a bona fide partnership for tax purposes; a collateral challenge to a sentence from a court-martial claiming that the court-martial lacked jurisdiction; a criminal appeal; a late notice of appeal; and jurisdiction over interlocutory appeals from decisions of out-of-circuit district courts.

First up on the admin docket is Finnbin, LLC v. Consumer Product Safety Commission, which involves whether the CPSC has statutory authority to promulgate a mandatory safety standard governing all previously unregulated infant sleep products.  The statutory language at issue states:

After using that authority to set standards for five kinds of infant sleep products, CPSC promulgated a rule that would impose a mandatory standard to encompass all infant sleep products not already covered by a CPSC standard.  The rule would require the products to have a firm stand, an elevated sleeping surface, and minimum strength and stability standards.  Finnbin, which sells “baby boxes” (cardboard boxes with a small mattress at the bottom) challenged the rule, arguing that CPSC’s authority to promulgate “more stringent” standards means that it can promulgate rules that will impose stricter requirements on already-regulated products, but does not give it the power to extend the scope of standards to cover additional products.  The D.C. Circuit rejected that argument. In an opinion by Judge Katsas, the court concluded that it is “natural” to speak of stringency as including increased scope.  The court also relied on another statutory provision, which directs CPSC to promulgate safety standards for additional categories of products until it “has promulgated standards for all such product categories.”  15 U.S.C. 2056a(b)(2).  That directive is not limited to products for which voluntary standards already exist, suggesting that CPSC’s authority is not so limited. 

In a move that I’m sure will be repeated in many future cases, Finnbin also attempted to make use of the major-questions doctrine, arguing that the court should be skeptical of CPSC’s “claim to have discover[ed] in a long-extant statute an unheralded major power.”  The Court quickly rejected that argument, concluding that any “initial skepticism cannot withstand the express statutory command to regulate all categories of durable infant or toddler products.”  I predict we’re going to see similar arguments when an agency uses its power in a way that could be characterized as “novel,” and I imagine those arguments will be rejected in most cases as easily as the D.C. Circuit did here, reserving the major-questions doctrine for a narrow class of “you-know-it-when-you-see-it” cases.  The panel went on to reject Finnbin’s other statutory arguments, as well as its claim that the rule is arbitrary and capricious. 

Next up is National Treasury Employees Union v. FLRA, which deals with an interpretation of the Federal Service Labor Management Relations Statute.  That statute permits an agency head to review a collective bargaining agreement for 30 days after it is “executed.”  Once an agreement goes into effect, the agency may not enforce regulations that conflict with the terms of that agreement if the agreement is “in effect” before the regulations issue.  But when an agreement expires, all regulations issued since its effective date become enforceable.  The question in this case is what happens to the enforceability of regulations when an agreement has a “continuance clause.”  Such a clause allows either party to extend the duration of an expiring agreement until a successor is in place.  The FLRA concluded that when there is a continuance, an agency head may review the continued agreement and regulations that went into effect after the agreement can be enforced.  In another opinion by Judge Katsas, the D.C. Circuit disagreed. 

As for agency review, the court concluded that a continuance clause manifests an “intent to be bound by the terms of their original agreement pending further negotiations,” so there is not a new agreement that is thereby “executed.” Finding the term unambiguous, the court declined to defer to the FLRA’s interpretation.  Similarly, the court held that the same agreement was “in effect” throughout, so the agency cannot enforce inconsistent regulations adopted after its execution. 

The three remaining admin law cases were FERC decisions, applying the familiar arbitrary and capricious review.  As is often the case, FERC came out on top in most respects, with a notable exception in Kentucky Municipal Energy v. FERC

That case involved a merger of two electrical grid operators in Kentucky.  FERC required the merged company to join a new regional electrical grid organization that would allow customers to buy power from generators across the region without having to pay multiple grid operators redundant fees to transmit electricity.  The imposition of redundant fees is charmingly known as “rate pancaking,” because the fees are stacked on top of one another.  Eventually, the FERC granted the utility’s request to leave the organization, on the condition that it would continue to “depancake” rates.  Several years later, the utility asked FERC to end its “depancaking” responsibilities, too.  The customers objected, but FERC largely approved the request, noting that sufficient competition in electricity sales existed to provide competition, even without depancaking.  The D.C. Circuit upheld most of FERC’s reasoning and analysis, but concluded that the agency acted arbitrarily and capriciously in failing to consider the significant effect that duplicative charges would have on customer rates, independent of competition concerns.  The court went out of its way to consider and reject other challenges to the transition from pancaking to depancaking, so the agency will be able to reach the same result if it decides to do so after considering customer rates. 

The other two cases are more straightforward wins for FERC. 

Wabash Valley Power Association v. FERC considers “how to determine the reasonableness of rates for the sale of electricity from an energy cooperative to its member utilities.”  The Federal Power Act allows utilities to set rates unilaterally by filing those rates with the Commission, or bilaterally through contracts that are also filed with the Commission.  The Act requires all rates to be “just and reasonable,” and FERC can suspend a rate’s operation to determine whether it meets that criteria.  FERC’s review of unilateral and bilateral rates differs.  When a rate is set by bilateral contract, FERC “must presume that the rate set out in a freely negotiated wholesale-energy contract” is just and reasonable.  That presumption may be overcome only if FERC concludes that the contract “seriously harms the public interest.”  In this case, the Wabash cooperative executed two contracts to govern the sale of power to its members.  Those contracts require the members to pay a Formulary Rate that Wabash can revise to produce revenues sufficient to meet Wabash’s costs.  Despite the fact that the rate is unilaterally imposed, the contracts state that any changes in the rates will be subject to the presumption of justness and reasonableness.  FERC rejected that maneuvering and concluded that the Formulary Rate is not really a bilateral rate and therefore is not subject to the presumption, despite the contractual language stating otherwise.  Wabash petitioned for review, and the D.C. Circuit upheld FERC’s decision. 

Finally, in Delaware Riverkeeper Network v. FERC, the court addressed challenges to FERC’s environmental assessment of the acquisition, extension, and operation of a pipeline system in Pennsylvania and Delaware, and concluded that the agency did not act arbitrarily and capriciously.  The opinion recognizes limits on what FERC is required to consider—only impacts that are reasonably foreseeable, and only scientifically accepted analyses.

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