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Petro Star Inc. v. Federal Energy Regulatory Comm'n

ELR Citation: 46 ELR 20144
Nos. 15-1009, (D.C. Cir., 08/30/2016)

The D.C. Circuit granted a refining company's petition challenging FERC's methodology for determining payments to oil companies that use the Trans Alaska Pipeline System to transport oil in a commingled stream. Absent monetary adjustments to compensate for the difference in quality between inputs and outputs, companies depositing relatively higher-value crude oil into the pipeline would unfairly suffer a financial loss, while those depositing lower-value crudes would secure a financial windfall. FERC therefore assigns each company's crude oil a value based on the quality of its components or "cuts" under a mechanism known as the "Quality Bank." A refining company claimed this mechanism undervalues the formula used to value one of those cuts in an unjust and unreasonable manner, but FERC disagreed and declined to change the valuation formula. In so doing, however, FERC failed to respond meaningfully to evidence presented by the company, thereby rendering its decision arbitrary and capricious. The company's purported failure to provide its own viable methodology does not provide an independent ground for FERC's decision. The court therefore remanded the matter for FERC to reconsider its methodology or to provide a more reasoned explanation for its approach.