## Facts

- FERC regulates interstate natural-gas transportation and related market practices under the Natural Gas Act.
- Order No. 636 required interstate pipelines to unbundle sales from transportation, creating a system in which shippers could buy firm transportation capacity and, when unused, release that capacity to others in a secondary market.
- FERC historically imposed cost-based price ceilings (maximum tariff rates) on both (a) pipeline short-term sales of capacity and (b) shipper short-term releases of unused capacity.
- In an earlier decision, the D.C. Circuit upheld FERC’s two-year experiment lifting price ceilings on short-term shipper releases while keeping ceilings on pipeline short-term sales.
- In Order No. 712 and related orders, FERC permanently removed price ceilings for short-term shipper capacity releases but retained price ceilings for short-term pipeline capacity sales.
- FERC found the capacity-release market generally competitive, but concluded pipelines retained transportation market power and that ceilings on pipeline short-term sales remained necessary to protect customers and avoid incentives to withhold new construction.
- An industry association and several pipelines petitioned for review, arguing the asymmetric treatment was unlawful and inconsistent with the prior D.C. Circuit decision.

## Issues

1. Whether FERC acted arbitrarily, capriciously, or otherwise unlawfully under the Natural Gas Act and the APA by lifting price ceilings on short-term shipper capacity releases while retaining ceilings on short-term pipeline capacity sales.
2. Whether the challenged orders were inconsistent with, or foreclosed by, the D.C. Circuit’s earlier decision upholding the temporary lifting of ceilings for shipper releases while retaining ceilings for pipeline sales.

## Decision

- The D.C. Circuit denied the petitions for review and upheld Order No. 712 and related orders.
- The court held FERC reasonably distinguished between the secondary capacity-release market and the primary market for pipeline capacity sales.
- The court concluded FERC’s retention of price ceilings on pipeline short-term capacity sales was consistent with the prior D.C. Circuit decision and supported by FERC’s market-power findings.
- Applying APA review, the court found FERC provided a reasoned explanation grounded in record evidence and agency experience.

## Legal Principles

- Under the APA, an agency rulemaking will be upheld if the agency offers a reasoned explanation, considers important aspects of the problem, and does not act contrary to the evidence or statutory limits.
- FERC may apply different pricing rules to different market segments when record-supported findings show regulated entities are not similarly situated (e.g., differing competitive conditions and market power).
- FERC may remove cost-based price ceilings for short-term shipper capacity releases when it reasonably finds the secondary release market is generally competitive.
- FERC may retain cost-based price ceilings on short-term pipeline capacity sales when it reasonably finds pipelines retain market power and uncapped rates could harm customers or distort investment incentives.
- Prior judicial approval of a temporary policy (such as an experimental deregulatory period) can support later permanent action when the agency explains continuity and relies on accumulated experience and evidence.

## Conclusion

The court upheld FERC’s permanent removal of price ceilings for short-term shipper capacity releases and its continued ceilings for short-term pipeline capacity sales, holding that the asymmetry was reasonably explained by differing market conditions and consistent with prior precedent under arbitrary-and-capricious review.


Interstate Nat. Gas Ass’n of Am. v. FERC, 617 F.3d 504 (D.C. Cir. 2010)