On March 27, 2020, the United States Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”) denied a petition for review filed by Baltimore Gas and Electric Company (“BG&E) arguing, among other things, that FERC’s application of its long-standing tax normalization policy to BG&E was arbitrary and capricious. The D.C. Circuit ultimately held that FERC reasonably explained its decision; however, the majority opinion also concluded that FERC cannot avoid its obligation to provide a reasoned explanation of contrary treatment of “similarly situated” parties merely because (i) prior orders were issued pursuant to delegated authority, or (ii) the prior orders were unopposed.   

To survive an arbitrary and capricious review, FERC bears the burden to provide some reasonable justification for any adverse treatment of similarly situated parties.  In its majority opinion, the D.C. Circuit found that BG&E made a threshold showing that similarly situated utilities had received more favorable treatment by FERC. In response, FERC argued that the prior actions cited by BG&E were not binding precedent because they were issued by staff exercising delegated authority and did not address the merits of any issues squarely presented.

FERC regulations delegate to certain staff members the authority to accept or reject uncontested filings that comply with all applicable statutory requirements, rules, regulation and orders.  The majority opinion in BG&E concluded that FERC’s decision to delegate certain decisions to staff does not erase the requirements of reasoned decision-making under the Administrative Procedure Act. The Court held that because FERC staff can only exercise authority delegated to them by the Commission, staff decisions are decisions of the Commission until superseded by subsequent agency action. The Court declined to distinguish binding orders signed by staff from those signed by the Commission for purposes of arbitrary and capricious review, explaining that FERC “cannot lend its authority to staff and then disclaim responsibility for the actions they take.” Simply put, “[i]t is not enough for FERC to say, ‘the staff did it.’”

FERC had also argued to the court that it was not required to distinguish between its prior orders because the issue challenged by BG&E was not “squarely presented” or “necessarily resolved” in such orders because the orders were uncontested and did not provide a reasoned analysis of any issues. The majority found these arguments to “ring hollow,” explaining that they were already rejected in substantially similar form only two years ago in ANR Storage v. FERC, 904 F.3d 1020 (D.C. Cir. 2018) where the Court held “in no uncertain terms” that distinguishing prior orders in similar cases on the basis of such orders being “unreasoned” or “unopposed” fails to satisfy the requirements of reasoned decisionmaking.

Senior Circuit Judge Williams wrote a dissenting opinion explaining that he would hold that FERC was under no obligation to distinguish its prior orders. Specifically, relying on the Court’s opinion in San Diego Gas & Electric Company v. FERC, 913 F.3d 127 (D.C. Cir. 2019), Judge Williams explained that FERC’s duty to distinguish the orders cited by BG&E should turn on whether the pertinent issues were “squarely presented and necessarily resolved by the agency” in those past cases. According to Judge Williams, questions which “merely lurk in the record” and are not brought to the attention of the ruling body or directly ruled upon, should not be considered as having been decided so as to constitute precedent.

A copy of the order is available here.