Liquid Energy Pipeline Association v. Federal Energy Regulatory Commission and United States of America

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 25, 2023 Decided July 26, 2024
No. 22-1045
LIQUID ENERGY P IPELINE ASSOCIATION ,
P ETITIONER
v.
FEDERAL ENERGY R EGULATORY C OMMISSION AND UNITED
S TATES OF AMERICA,
R ESPONDENTS
ENERGY INFRASTRUCTURE C OUNCIL AND ENBRIDGE INC .,
INTERVENORS
Consolidated with 22-1103, 22-1104, 22-1105, 22-1110,
22-1257, 22-1258
On Petitions for Review of Orders
of the Federal Energy Regulatory Commission
Miguel A. Estrada argued the cause for Carrier Petitioners.
With him on the joint briefs were Amy L. Hoff, Elizabeth B.
Kohlhausen, Charles F. Caldwell, Matthew S. Rozen, Aaron
Smith, Daniel J. Poynor, Linda C. Bailey, Hyland Hunt, and

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Ruthanne M. Deutsch. William S. Scherman, Jason J.
Fleischer, and Steven M. Kramer, entered appearances.
Steven A. Adducci argued the cause for Shipper
Petitioners. With him on the briefs were Richard E. Powers,
Jr., Matthew D. Field, Gregory S. Wagner, and William G.
Bolgiano.
Matthew J. Glover, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With him on
the brief were Robert B. Nicholson and Robert J. Wiggers,
Attorneys, U.S. Department of Justice, and Matthew R.
Christiansen, General Counsel, and Robert H. Solomon,
Solicitor, Federal Energy Regulatory Commission.
Miguel A. Estrada, Matthew S. Rozen, and Aaron Smith
were on the brief for intervenor Liquid Energy Pipeline
Association in support of respondents. Jason J. Fleischer,
Steven M. Kramer, and William S. Scherman entered
appearances.
Richard E. Powers, Jr., Matthew D. Field, Steven A.
Adducci, Gregory S. Wagner, William G. Bolgiano, Elizabeth
A. Zembruski, Matthew T. Rick, and James Harrison Holt were
on the brief for Shipper-Intervenors in support of respondents.
Before: S RINIVASAN, Chief Judge, M ILLETT and W ILKINS ,
Circuit Judges.
Opinion for the Court filed by Chief Judge S RINIVASAN .
S RINIVASAN , Chief Judge: Every five years, the Federal
Energy Regulatory Commission reviews the methodology used
by oil pipelines to set their maximum annual rate increases.
That methodology is called the Index. In 2020, the

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Commission conducted its five-year review and set the Index
level for the next cycle. After that Index took effect, the
Commission modified it on rehearing. We vacate that order
because the Commission was obligated to—but did not—
adhere to notice-and-comment procedures when resetting the
Index on rehearing.
I.
A.
The Interstate Commerce Act (ICA) charges the Federal
Energy Regulatory Commission with ensuring that the rates
charged by interstate oil pipelines are “just and reasonable.” 49
U.S.C. App. § 1(5) (1988). In the Energy Policy Act of 1992,
Congress required the Commission to “establish[] a simplified
and generally applicable ratemaking methodology” for
producing just and reasonable rates. Pub. L. No. 102-486,
§ 1801, 106 Stat. 2776, 3010 (citing 49 U.S.C. App. § 1(5)
(1988)).
The Commission implements that congressional mandate
through the Index, a methodology for setting the maximum rate
increases pipelines may charge customers each year. Ass’n of
Oil Pipe Lines v. FERC (AOPL I), 83 F.3d 1424, 1429–31
(D.C. Cir. 1996). While pipelines are required to file their
initial rates with the Commission, “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.” Ass’n of Oil Pipe Lines v. FERC, 876 F.3d 336,
339 (D.C. Cir. 2017). The Index is “designed to enable
pipelines to recover costs by allowing pipelines to raise rates at
the same pace as they are predicted to experience cost
increases.” AOPL I, 83 F.3d at 1430.

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B.
The Commission reviews the Index every five years. In
June 2020, the Commission began the process for its next five-
year review by inviting comments on a new proposed Index.
Notice of Inquiry, Five-Year Review of the Oil Pipeline Index,
171 FERC ¶ 61,239 (June 18, 2020). A group of pipelines
(whom we will refer to as Carriers) and a group of pipeline
customers (whom we will refer to as Shippers) both submitted
comments. Carriers proposed changes that would give rise to
a higher Index (and so would allow for higher potential cost
increases) than the proposed Index, while Shippers sought the
opposite.
On December 17, 2020, the Commission issued an Initial
Order establishing an Index level higher than the proposed
Index. Order Establishing Index Level, Five-Year Review of
the Oil Pipeline Index, 173 FERC ¶ 61,245 (Dec. 17, 2020). In
calculating that Index, the Commission adopted Carriers’
proposals. The Commission published the Initial Order in the
Federal Register and made the Order effective on February 16,
2021. Five-Year Review of the Oil Pipeline Index, 86 Fed. Reg.
9448. The Index established by the Initial Order was slated to
become effective on July 1, 2021. Id.
Both Carriers and Shippers promptly sought rehearing of
the Initial Order. Carriers asked for minor changes to the data
source used in the Commission’s calculations. Shippers, by
contrast, substantively challenged the Commission’s decisions
in calculating the Initial Order’s Index level.
On February 18, 2021, the Commission’s Deputy
Secretary issued a tolling order on the rehearing requests to
prevent them from being deemed denied by operation of law.
See 18 C.F.R. § 385.713(f). Importantly for our purposes, the

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tolling order established that neither Carriers nor Shippers were
permitted to comment in each other’s rehearing proceedings.
On July 1, 2021, while the tolling order remained in place, the
Initial Order’s Index took effect as scheduled.
Subsequently, on January 20, 2022, the Commission
issued a Rehearing Order granting Shippers’ rehearing request.
Order on Rehearing, Five-Year Review of the Oil Pipeline
Index, 178 FERC ¶ 61,023. The Rehearing Order adopted
Shippers’ suggestions for recalculating the Index and set a new,
lower Index to be effective on March 1, 2022.
On February 22, 2022, Shippers requested rehearing or
clarification of the Rehearing Order. They sought assurance
that they could read the Rehearing Order to apply retroactively
to the Initial Order’s effective date, July 1, 2021. That would
enable Shippers to seek refunds of any charged rates exceeding
the Rehearing Order’s Index. On May 6, 2022, the
Commission denied Shippers’ request, confirming that the
Rehearing Order applied only prospectively.
II.
In their petitions for review, Carriers bring a variety of
challenges to the Commission’s Rehearing Order. We grant
the petitions based on one of the grounds Carriers assert: that
the Commission failed to comply with the Administrative
Procedure Act (APA) when it modified the Index in the
Rehearing Order without adhering to notice-and-comment
procedures. Because our ruling in favor of Carriers on that
ground affords them all the relief they seek—vacatur of the
Rehearing Order—we have no need to consider any of their
other challenges.

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A.
As a threshold matter, the Commission contends that
Carriers failed to exhaust their APA challenge before the
agency. A party challenging agency action generally must first
raise an issue before the agency to preserve it for judicial
review. Advocs. for Highway & Auto Safety v. Fed. Motor
Carrier Safety Admin., 429 F.3d 1136, 1150 (D.C. Cir. 2005).
Here, the Commission argues that Carriers forfeited their APA
notice-and-comment challenge by failing to assert it before the
agency. We disagree.
Carriers had no ability to raise their notice-and-comment
complaint before the agency granted Shippers’ rehearing
request in the Rehearing Order. Before any party sought
rehearing of the agency’s Initial Order, there of course would
have been no ripe challenge to the way in which the agency
would conduct any potential rehearing procedures: at that time,
Carriers had no reason to know whether any rehearing
procedures would in fact come to pass. And after Shippers
sought rehearing of the Initial Order, the agency, as noted,
prohibited Carriers from commenting in Shippers’ rehearing
proceeding. In those circumstances, Carriers had no occasion
to raise their notice-and-comment challenge to the rehearing
procedures before the Commission issued the Rehearing Order.
As we have explained, “courts have no authority to require
petitioners seeking judicial review of a final agency action to
further exhaust administrative procedures.” CSX Trans., Inc.
v. Surface Trans. Bd., 584 F.3d 1076, 1079 (D.C. Cir. 2009).
Carriers therefore were not required to raise their notice-and-
comment challenge to the Rehearing Order before the agency
in order to present it for judicial review.

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B.
Because the ICA does not provide its own procedural
rules, we assume the APA’s procedural requirements apply.
See Carlson v. Postal Regul. Comm’n, 938 F.3d 337, 348 (D.C.
Cir. 2019); see also Asphalt Roofing Mfrs. Ass’n v. ICC, 567
F.2d 994, 1002 n.5 (D.C. Cir. 1977). The Commission does
not dispute the applicability of the APA. We also assume for
present purposes that the Commission’s authority under the
ICA to rehear its orders, see 49 U.S.C. App. § 17(6)–(7)
(1988), encompassed its rehearing of the Index level
established in the Initial Order. The question is whether the
Commission could conduct that rehearing and change the
effective Index level without abiding by the APA’s notice-and-
comment requirements.
“To foster public participation and facilitate reasoned
decisionmaking, ‘the Administrative Procedure Act requires
agencies to afford notice of a proposed rulemaking and an
opportunity for public comment prior to a rule’s promulgation,
amendment, modification, or repeal.’” Humane Soc’y v.
USDA, 41 F.4th 564, 568 (D.C. Cir. 2022) (quoting Am. Hosp.
Ass’n v. Bowen, 834 F.2d 1027, 1044 (D.C. Cir. 1987)).
Consequently, “once an agency makes a rule—that is, once it
makes a statement prescribing law with future effect—the APA
requires the agency to provide notice and an opportunity for
comment before repealing [or amending] it.” Id. at 569.
Here, the Commission abided by the APA’s notice-and-
comment requirements when, in the Initial Order, it first
promulgated the Index for the 2021–2025 five-year cycle. 86
Fed. Reg. at 9449. The agency, then, was obligated to “use the
same procedures” to amend the Index. Perez v. Mortg. Bankers
Ass’n, 575 U.S. 92, 101 (2015). But when the Commission
altered the Index by granting Shippers’ rehearing request in the

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Rehearing Order, it did so without adhering to notice-and-
comment procedures.
The Commission does not suggest that its adjustment of
the Index in the Rehearing Order fits within an exemption to
the APA’s notice-and-comment requirements. For instance, an
interpretive rule generally need not undergo notice-and-
comment procedures. Shalala v. Guernsey Mem’l Hosp., 514
U.S. 87, 99 (1995). See also AOPL I, 83 F.3d at 1432; AT&T
Corp. v. FCC, 113 F.3d 225, 229 (D.C. Cir. 1997). The
Rehearing Order, however, substantively altered the Index
from the level prescribed in the Initial Order. The Commission
does not contend otherwise. And “[w]hereas a clarification
may be embodied in an interpretive rule that is exempt from
notice and comment requirements, new rules that work
substantive changes in prior regulations are subject to the
APA’s procedures.” Sprint Corp. v. FCC, 315 F.3d 369, 374
(D.C. Cir. 2003) (internal citations omitted).
The Commission’s central argument is that it afforded
notice-and-comment procedures when first establishing the
Index in the Initial Order, and that the Index proceeding
remained ongoing through the completion of any agency
rehearing proceedings. As a result, the Commission submits,
there was no need to provide another round of notice-and-
comment procedures while the same proceeding remained
open. In the Commission’s view, in other words, the alteration
of the Index in the Rehearing Order was not a new proceeding
requiring a new round of notice-and-comment procedures, but
instead was a continuation of a preexisting proceeding for
which notice-and-comment procedures had already been
afforded.
The Commission’s theory proves too much. Under the
Commission’s approach, it could grant rehearing of an

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established rate methodology years after it took effect and
became enforceable, and indeed could do so dozens of times in
succession, without ever needing to afford notice to the public
and an opportunity to submit comments about the desirability
of altering (and repeatedly realtering) the prevailing
methodology. There is no basis for allowing that kind of
broadscale evasion of the APA’s notice-and-comment
procedural requirements.
In particular, there is no omnibus “rehearing exception” to
the APA’s notice-and-comment requirements. See Clean Air
Council v. Pruitt, 862 F.3d 1, 8–9 (D.C. Cir. 2017); Consumer
Energy Council of Am. v. FERC, 673 F.2d 425, 445 n.71 (D.C.
Cir. 1982). As we have explained in the closely related context
of Commission rules under the Natural Gas Policy Act,
“Congress did not intend . . . to permit the Commission to use
the occasion of a petition for rehearing to make any substantive
change whatsoever in a rule, without providing some notice
and comment.” Consumer Energy, 673 F.2d at 446 n.71. A
contrary conclusion “would effectively eviscerate the
procedural protections provided by the APA.” Id. So too here.
Outside the context of agency rehearing proceedings like
those at issue here, we have held that once an agency’s rule is
“‘valid’ against the public at large,” the APA generally requires
the agency to afford notice-and-comment procedures before
amending the rule. Humane Soc’y, 41 F.4th at 570. This case
does not require definitive resolution of exactly “when a rule
passes this regulatory point of no return,” id. at 568, when an
agency adjusts a rule in an exercise of its rehearing authority.
The conferral of rehearing powers suggests some congressional
desire for agency flexibility in administrative process, cf. Int’l
Harvester Co. v. Ruckelshaus, 478 F.2d 615, 632 & n.51 (D.C.
Cir. 1973), and this case does not require us to prescribe an
across-the-board answer to when an agency must provide

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notice-and-comment procedures in exercising its rehearing
authority.
Instead, we can resolve this case on the particular facts
before us. Specifically, the Index set by the Initial Order at
least became sufficiently final to require that any amendment
undergo notice-and-comment procedures once the Index’s
effective date of July 1, 2021, arrived. At that point, the Initial
Order necessarily “carrie[d] legal consequences,” Humane
Soc’y, 41 F.4th at 570, of a kind requiring adherence to APA
procedures in connection with any substantive modification: as
of the July 1, 2021, effective date, Carriers became legally
obligated to charge rates within the ceiling set by the Initial
Order’s Index and could have been subject to enforcement
proceedings for failing to comply. In January 2022, after
Carriers had been bound to comply with the Initial Order’s
Index for several months, the Commission modified the Index
in the Rehearing Order. Amending the Index at that point
required the Commission to provide notice in the Federal
Register of the changes it planned to make and seek comments
from “interested persons.” 5 U.S.C. §§ 551(5), 553(b)-(c); see
Perez, 575 U.S. at 101. The Commission did not do so.
The Commission notes that we have declined to review
rules undergoing rehearing because they were not final as to
the parties, which, to the Commission, supports the idea that
rehearing proceedings are an extension of an ongoing
rulemaking process rather than the initiation of a new process.
But the cases cited by the Commission concerned exhaustion
and finality with respect to judicial review. In that context,
when the parties sought reconsideration, they rendered the
rules nonfinal as to themselves. See City of New Orleans v.
SEC, 137 F.3d 638, 639 (D.C. Cir. 1998); Bellsouth Corp. v.
FCC, 17 F.3d 1487, 1489–90 (D.C. Cir. 1994). But whether
an agency action is final as to a particular party for purposes of

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seeking judicial review is a distinct question from whether an
agency action is final for purposes of triggering the APA’s
procedural requirements. Here, the Commission needed to
adhere to those requirements when it modified the Index in the
Rehearing Order.
In sum, the Commission failed to comply with the APA by
issuing the Rehearing Order after the Initial Order’s Index had
become effective without affording notice of the proposed
modification and an opportunity for comment. We thus grant
Carriers’ petitions for review, vacate the Rehearing Order, and
order the Commission to reinstate the Initial Order.
That resolution also disposes of Shippers’ petitions for
review. Shippers argue that the Commission should have made
the Index modifications in the Rehearing Order retroactive.
But because our grant of Carriers’ petitions entails vacatur of
the Rehearing Order, Shippers’ challenge to the Commission’s
treatment of that order as prospective is moot.
* * * * *
For the foregoing reasons, we grant Carriers’ petitions for
review and vacate the Rehearing Order for failure to abide by
the APA’s procedural requirements. We dismiss Shippers’
petitions for review as moot.
So ordered.

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