UNITED STATES COURT OF APPEALS FOR THE D.C. CIRCUIT


TESORO AK PETRO CO

v.

FERC


99-1223a

D.C. Cir. 2000


*	*	*


Williams, Circuit Judge: The Trans Alaska Pipeline Sys- tem ("TAPS") is
a 48-inch diameter pipeline carrying crude  oil from Alaska's North
Slope approximately 800 miles south  to Valdez, Alaska. Each shipper
delivers its own crude oil to  the pipeline, in which the oils are
commingled; at the termi- nus the shipper takes delivery of a
proportional share of the  common stream. The crude oils delivered
initially differ from  each other in various characteristics that
affect market value.  Because of the commingling, a shipper will not
in all likeli- hood receive the same quality of oil at Valdez that it
delivered  to the pipeline. Without some adjustment, the ones deliver-
ing relatively higher-value crudes would unfairly lose, and the  ones
delivering lower-value crudes would unfairly gain. The 


parties here battle over the formula governing the adjust- ment, which
the Federal Energy Regulatory Commission  controls in the exercise of
its authority to regulate interstate  oil pipeline rates.1


Exxon Company, U.S.A.2 and Tesoro Alaska Petroleum  Company filed
complaints with the Federal Energy Regulato- ry Commission assailing
aspects of the prevailing formula.  Exxon challenges the formula
itself, a so-called "distillation"  methodology that the Commission
adopted in 1993 and later  modified in 1997; Tesoro contests the
specific valuation of  two "cuts" of petroleum, West Coast naphtha and
West Coast  vacuum gas oil ("VGO"). A rate order must be modified 
where "new evidence warrants the change." Tagg Bros. &  Moorhead v.
United States, 280 U.S. 420, 445 (1930). Both  Exxon and Tesoro appear
to have offered evidence that is  new in relation to what was before
the Commission in its  earlier determinations and sufficiently
compelling to require  reconsideration of the earlier resolution. We
therefore re- verse and remand the case for the Commission to
reconsider  the adoption of the distillation methodology and the
pricing of  West Coast naphtha and West Coast VGO, or to provide a 




__________

n 1 The authority was originally vested in the Interstate Com- merce
Commission, then transferred to the Federal Energy Regula- tory
Commission when it replaced the Federal Power Commission  in 1977. See
49 U.S.C. App. ss 1 et seq. (1988); see also 49 U.S.C.  s 60502 ("The
Federal Energy Regulatory Commission has the  duties and powers
related to the establishment of a rate or charge  for the
transportation of oil by pipeline or the valuation of that  pipeline
that were vested on October 1, 1977, in the Interstate  Commerce
Commission or an officer or component of the Interstate  Commerce
Commission.") (emphasis added). The Commission's  jurisdiction over
the rates for oil going through to Valdez is  uncontested. See Trans
Alaska Pipeline System, 23 FERC  p 61,352 at 61,762 (1983).


2 Exxon Company, U.S.A. was a division of Exxon Corporation.  Since
filing its appeal, Exxon Corporation has merged with Mobil 
Corporation to become Exxon Mobil Corporation.


* * *


In 1984 the Commission approved a settlement agreement  establishing a
"Quality Bank" to make the required adjust- ments between shippers.
See Trans Alaska Pipeline Sys- tem, 29 FERC p 61,123 (1984).3 The
Quality Bank initially  used a so-called "gravity" method. As the term
gravity is  used here, it is a measure of density established by the 
American Petroleum Institute ("API"). In contrast to "spe- cific
gravity", a higher API gravity represents a less dense  crude oil or
petroleum product. See Exxon Co., U.S.A. v.  FERC, 182 F.3d 30, 35 n.1
(D.C. Cir. 1999). Because crude  oil was generally more valuable to
the extent that it was  "higher"-gravity, i.e., lighter, the Quality
Bank initially valued  crude oils according to their gravity.


Starting in 1987, the amount of natural gas liquids  ("NGLs") in the
stream increased, changing the picture--or  at least the perception.
Two factors contributed to this  increase. First, natural gas
operations expanded in Prudhoe  Bay, resulting in sharply increased
deliveries of NGLs at the  head of the pipeline. OXY USA, Inc. v.
FERC, 64 F.3d 679,  691 (D.C. Cir. 1995); see also Exxon Co., U.S.A.
v. Amerada  Hess Pipeline Corp., 87 FERC p 61,133 at 61,521 (1999) 
("Exxon Decision"). Second, expansion of one refinery and 
construction of another along the route led to an increase in  removal
of valuable mid-weight petroleum products from the  stream, apparently
leaving a higher proportion of the lighter  NGLs in the petroleum at
the end of the pipeline. OXY, 64  F.3d at 691; see also 57 FERC p
63,010, at 65,053 (1991).  NGLs have a much higher API gravity
relative to other  petroleum components, but critics of the gravity
method  argue that NGLs reduce rather than raise the value of the 


Responding to the resulting complaints under s 13(2) of  the Interstate
Commerce Act, the Commission in 1989 started  to investigate the
gravity method. It found that the method  was no longer just and
reasonable and, in approving a con-




__________

n 3 Unless stated otherwise, all citations to FERC orders have  the
title "Trans Alaska Pipeline System".


tested settlement in 1993, adopted the distillation method.  See 65
FERC p 61,277 (1993) ("Distillation Decision"), order  on reh'g, 66
FERC p 61,188 (1994), further order on reh'g, 67  FERC p 61,175
(1994). This latest method recognizes eight  "cuts" of petroleum
products (propane, isobutane, normal  butane, natural gasoline,
naphtha, distillate, VGO and resid)  in each stream entering TAPS,
ranked by their boiling points.  The cuts are individually priced.
Each shipper's delivery is  categorized under this system and valued
in accordance with  the volume-weighted price of its component cuts.
Because  Alaskan North Slope ("ANS") oil is sold in both the Gulf 
Coast and West Coast markets, each cut is assigned Gulf  Coast and
West Coast prices. Distillation Decision, 65  FERC at 62,290.


For some cuts there were acceptable indicators of market  value from
the Oil Price Information Service ("OPIS") or  Platt's Oilgram. No
such markers were available, however,  for distillate, VGO or resid,
or for West Coast naphtha. For  these cuts the settlement proposed to
use prices for kindred  products, adjusted for differences between
them and the  actual cuts. The Commission rejected this approach,
saying  that for a system to be non-discriminatory it must use 
"market prices, uncomplicated by subjective adjustments."  Id. at
62,289. As part of this "No Adjustment Policy," the  Commission
rejected the proposed use of adjusted West  Coast prices to value the
West Coast naphtha cut and instead  set a Gulf Coast price for the
cut. On rehearing, it also  ordered the use of Gulf Coast prices for
West Coast deliveries  of VGO. Tesoro Alaska Petroleum Co. v. Amerada
Hess  Pipeline Corp., 87 FERC p 61,132 at 61,514 (1999) ("Tesoro 
Decision"). In OXY we affirmed the switch from the gravity  to the
distillation method but remanded to the Commission its  refusal to
adjust the reference prices for the distillate and  resid cuts. 64
F.3d at 701. In due course the Commission  approved a nine-party
settlement on these issues, providing  for some redefinition of cuts
and for use (for several of the  cuts) of petroleum product prices
adjusted to reflect process- ing costs. See 81 FERC p 61,319, at


review, we rejected the revised valuation of the resid cut and  again
remanded. Exxon, 182 F.3d at 42.


In 1996, while the OXY remand was under way, Exxon filed  a complaint
against seven TAPS owners pursuant to ss 9,  13(1) and 15(1) of the
Interstate Commerce Act, 49 U.S.C.  App. ss 9, 13(1), 15(1)
(1988)--leading to the present case.  Upholding an ALJ decision, the
Commission dismissed the  complaint, holding that Exxon had failed to
produce evidence  of changed circumstances to justify re-examination
of the  1993 adoption of the distillation method. Exxon Decision, 87 
FERC at 61,527-30.


Tesoro participated in the proceedings before the ALJ on  Exxon's
complaint, raising issues that the ALJ ultimately  identified as
different from Exxon's. The ALJ's order of  dismissal mooted Tesoro's
arguments but noted that Tesoro  was free to file its own complaint.
Exxon Co., U.S.A. v.  Amerada Hess Pipeline Corp., 83 FERC p 63,011,
at 65,102 &  n.90 (1998). It did so in August 1998, attacking the
valuation  of the naphtha and VGO cuts. The Commission dismissed 
this, also on a finding of no changed circumstances. Tesoro  Decision,
87 FERC at 61,517-20.


Petitioners argue that because their complaints were dis- posed of by
Motion for Summary Disposition, our review is de  novo. That would be
true if we were reviewing a district  court's equivalent action. But
these dismissals implicate the  Commission's expertise and
policy-making authority, compel- ling deference. Motor Vehicle
Manufacturers Ass'n of the  United States v. State Farm Mutual Auto.
Ins. Co., 463 U.S.  29, 43 (1983). The requisite deference does not,
however,  mean passive acceptance of irrational or unexplained
decision  making. Id.; see also Louisiana Public Service Comm'n v. 
FERC, 184 F.3d 892, 895 (D.C. Cir. 1999). Here we find the 
Commission's answers to the evidence unconvincing.


* * *


In Tagg Bros. & Moorhead v. United States, 280 U.S. 420  (1930), the
Supreme Court held that a "rate order is not res  judicata." Id. at
445. Specifically, where a party presents 


"new evidence [that] warrants the change," the regulatory  agency has
the power and duty "to institute new proceed- ings." Id. Just as a
plaintiff may allege a new cause of  action for every time a
conspiracy in restraint of trade  operates against him, see Stanton v.
District of Columbia  Court of Appeals, 127 F.3d 72, 78 (D.C. Cir.
1997), so each  new shipment by a carrier gives rise to a new cause of
action,  as to which a previous adverse determination is not res 
judicata, Interoceanica Corp. v. Sound Pilots, Inc., 107 F.3d  86, 91
(2d Cir. 1997); Hawaiian Telephone Co. v. Public  Utilities Comm'n of
Hawaii, 827 F.2d 1264, 1274 (9th Cir.  1987). Issue preclusion might
nonetheless be applicable, but  Tagg Bros. suggests that any such
application is quite weak.


The Commission acknowledges the authority of Tagg Bros.,  but reframes
Justice Brandeis's formula--allowing re-opening  for "new
evidence"--into one requiring evidence of "changed  circumstances." It
is unclear if any such limit may be  imposed. In OXY itself we
observed, "[t]he fact that a rate  was once found reasonable does not
preclude a finding of  unreasonableness in a subsequent proceeding."
64 F.3d at  690 (internal quotation omitted). See also Texas Eastern 
Transmission Corp. v. FERC, 893 F.2d 767, 774 (5th Cir.  1990). In
OXY, as we noted, there were changed circum- stances--the increased
proportion of NGLs in the common  stream, and in Texas Eastern there
was an issue that the  prior determination had not confronted (the
consistency of  minimum commodity bills with cost allocation based on
the  modified fixed variable approach), 893 F.2d at 774. In rate 
cases that look toward the setting of a future rate (as this  does,
having been brought under s 13(1) of the Interstate  Commerce Act),
unacceptable competitive distortions could  occur if one shipper were
perpetually locked into a rate less  advantageous than the one enjoyed
by a competitor. The  Supreme Court has emphasized this concern in the


[A] subsequent modification of the significant facts or a  change or
development in the controlling legal principles  may make that
[judicial] determination obsolete or erro-


neous, at least for future purposes. If such a determina- tion is then
perpetuated each succeeding year as to the  taxpayer involved in the
original litigation, he is accorded  a tax treatment different from
that given to other tax- payers of the same class.


Commissioner of Internal Revenue v. Sunnen, 333 U.S. 591,  599 (1948).
Accordingly, we have upheld the denial of issue  preclusion where the
Commission had initially rejected a  requested rate on grounds of
difficulties in tracing costs of  service, but in a later proceeding
the utility offered a solution.  Second Taxing Dist. of Norwalk v.
FERC, 683 F.2d 477, 484  (D.C. Cir. 1982). The new solution was
perhaps a changed  circumstance, but it was one under the control of
the utility  and thus seems somewhat akin to new evidence. In any 
event, because the outcome of our decision here does not turn  on the
distinction between evidence of changed circumstances  and evidence
that is merely new, we need not decide whether  there is any reason to
retreat from the language of Justice  Brandeis.


Exxon provided the testimony of Dr. Pavlovic, an economic  consultant,
who tested the accuracy of the modified distilla- tion methodology for
34 crude oils in the California crude oil  market from 1993 to 1996.
Pavlovic used regression analysis  to compare the relative values of
the cuts produced by the  distillation method with actual market
prices. He claimed his  tests showed that the distillation method
"substantially over- values low-value, heavier petroleum and
substantially under- values high-value, lighter petroleum." Joint
Appendix  ("J.A.") at 430. He also testified that this bias
"increase[d]  dramatically in 1994 and remain[ed] large thereafter."
Id. at  451. A perfect pricing method would produce a coefficient of 
1.0 in a regression of the method's relative values on those of  the
benchmark market. Whereas the coefficient--also called  a bias
measure--was indeed just over 1.0 for 1993 (1.07), it  jumped in 1994
to 1.65 and remained around 1.6 for the next  two years. Id. at 495.
Pavlovic argued that he could reject,  at a statistically significant


measure was 1.0 in 1994-1996.4 Id. at 453.


Pavlovic's testimony appears to constitute not only new  evidence but
changed circumstances as well. It shows that,  for reasons not yet
conclusively determined, the degree of  bias resulting from the use of
the distillation method rose  from imperceptible to severe after 1993.
The Commission's  answer--that it "consistently has refused to base
its decisions  on how the TAPS Quality Bank should operate based on 
regression analyses of West Coast or world crude values,"  Exxon
Decision, 87 FERC at 61,528--baffles us. The Com- mission cannot be
saying that regression analysis, good  enough to be a valuable tool
for everyone else interested in  quantitative analysis, is never good
enough for the Commis- sion.


The Intervenors offer an explanation that may be part of  what the
Commission in fact had in mind: "Dr. Pavlovic's  analysis was like
testing a methodology designed to value  Alaskan apples by applying
that methodology to a crate of  California oranges." Intervenors' (BP
Exploration (Alaska),  Inc. et al.) Br. at 13 ("Intervenors' Br.").
This glib use of the  old apples-oranges metaphor overlooks the
problem confront- ing the Commission: There simply are no market
prices for  the Alaskan crude oils delivered into TAPS. If there were,
 there would be little or no issue about inferring their relative 
values. To the extent that the California crudes are similar  to the
Alaskan crudes, Pavlovic's technique seems to test the  accuracy of
the distillation method. Compare J.A. at 440-43.


Exxon also provided the testimony of Mr. Moore, an engi- neer, and Dr.
Hausman, an applied economist. Moore  stressed that the gravity of ANS
crude oil (consisting of the  streams that enter at the start of the
pipeline at Pumping  Station #1 and the return stream from refineries
along its  path) had increased from about 28ø API in 1992 to about 30ø
 API in 1996. Id. at 323. In the face of the theory that 




__________

n 4 The parties appear to agree that here the reference point is 
November 30, 1993, the day on which the Commission ruled that  the
distillation method was just and reasonable. See Exxon Deci- sion, 87
FERC at 61,526.


gravity increases due to NGL blending had undermined the  gravity
formula, Moore tracks the seemingly close positive  relationship
between the fraction of NGLs and gravity of this  crude oil, and,
critically, between the gravity and price of  ANS crude (measured
against West Texas Intermediate, a  "marker crude" used as a reference
for valuing other crudes).  Id. at 323, 419, 421.


Exxon invokes the testimony of Moore not only to suggest  that the
premise of the 1993 abandonment of gravity was  mistaken, but also to
explain why one should expect occur- rence of the sort of distortions
that Pavlovic seemingly  showed in the distillation method. Although
there is an  obvious link between crude oil values and petroleum
product  prices, they do not move in lockstep. The same event may 
drive the prices of the two in different directions. If a  refinery
shuts down because of equipment problems, for  instance, it is likely
to raise the market price of the refined  petroleum product, but may
reduce demand for crude oil and  lower its price. See id. at 342.


Hausman testified that regression results on price and  gravity data
from 1988 to 1997 showed that gravity was a  significantly positive
predictor of the price of ANS crude. Id.  at 511-13. This evidence
seems to show a positive correlation  between (1) NGL blending, (2)
gravity, and (3) value. Peti- tioners rely on the Moore and Hausman
testimony to suggest  that the distillation method seriously
undervalues the NGL  contribution to the TAPS stream. Aspects of
Hausman's  testimony might pose questions about the line between evi-
dence that is "new" and evidence of changed circumstances.  After all,
Hausman claims that his regression results apply to  the entire period
of his data--from 1988 to 1997--indicating  that the pre-1993 data
also show the positive effect of gravity  on ANS value. Overall,
however, it certainly confirms the  implication of the Pavlovic and
Moore testimony that the  distillation method is seriously flawed.


To dismiss the testimony of Moore and Hausman, the  Commission's
decision invoked our deference in OXY to the  ALJ's conclusion that
"the current straightline gravity basis 


for valuing crude oil does not assign an accurate value for  NGLs," and
our statement, "It follows from this conclusion  that shippers
delivering oil with a high NGL content were  either being
overcompensated or undercompensated under  the gravity
methodology...." 64 F.3d at 691 (cited by the  Commission, Exxon
Decision, 87 FERC at 61,528). But  these remarks were plainly not
intended to suggest indiffer- ence to the impact of NGL contributions
to the value of the  common stream. Quite the reverse: We were
endorsing the  ALJ's point that "the issue was not whether the gravity
 methodology accurately valued NGLs per se, but whether it  placed a
proper value on petroleum whose gravity had been  increased as a
result of the injection of substantial quantities  of NGLs." 64 F.3d
at 691. That issue is precisely what  Exxon's testimony speaks to,
seemingly calling into question  the Commission's 1993


* * *


Tesoro challenges the current pricing of the naphtha and  VGO cuts
based on Gulf Coast market prices under the  modified distillation
method. Tesoro wants the Quality Bank  to value West Coast naphtha
using a formula based on West  Coast gasoline prices and West Coast
VGO using OPIS's  quoted price for West Coast high sulfur VGO.


Tesoro argues that the Commission's use of the published  Gulf Coast
price, rather than a formula based on West Coast  gasoline prices,
significantly undervalues West Coast naph- tha.5 Its claim is based on
three propositions. First, Tesoro  presents evidence, and the
Intervenors acknowledge, that  Gulf Coast deliveries of ANS crude
"have declined consider- ably from the somewhat less than 20% level
that existed in  1993." Intervenors' Br. at 25; see also Distillation
Decision,  65 FERC at 62,290. The nearly complete disappearance of 




__________

n 5 Naphtha is used to make gasoline. Because there are consid- erable
trades on the Gulf Coast, there is a quoted price for Gulf  Coast
naphtha. On the West Coast, however, refineries over- whelmingly use
their own naphtha rather than buying it. See J.A.  at 940-41.


Gulf Coast ANS sales suggests that the Commission's current  reliance
is more dubious now than in 1993.


Second, the Commission has changed its outlook on the use  of
"adjusted" market prices. In OXY we held that the  Commission's "No
Adjustment Policy," which used market  prices instead of formulas,
lacked an adequate foundation  with respect to the distillate and
resid cuts. 64 F.3d at 694  (holding that the Commission "cannot,
consistent with the  requirement of reasoned decisionmaking, value
some cuts  precisely and others haphazardly"). On remand, the Com-
mission seems to have abandoned its No Adjustment Policy,  adopting
adjusted prices for several cuts. See 81 FERC at  62,460-65. The
Commission tries to distinguish its treatment  of distillate and resid
by suggesting that its No Adjustment  Policy could be trumped only
when there is no reliable  published price for a cut in either market.
See Respondents'  Br. at 56. But our decision in OXY does not rely on
this  distinction. See 64 F.3d at 693. In fact, we made clear in  OXY
that our concern was that the Commission use uniform  methods, id. at
694, a principle that would be breached if the  availability of an
adequate non-adjusted benchmark for the  Gulf Coast prevented the use
of an adjusted benchmark for  the West Coast. See also Exxon, 182 F.3d
at 38 ("[W]e did  not remand because the old method was inaccurate,
but  because it was unfairly nonuniform.").


Despite the Commission's claims to the contrary, its deci- sion to use
the Gulf Coast price for West Coast deliveries of  naphtha appears to
have been based at least in part on the  now abandoned No Adjustment
Policy. Indeed even its brief  invokes the benefits of making no
adjustments. See Respon- dents' Br. at 13. And the Intervenors admit
that the Com- mission declined to adopt a formula based on West Coast 
gasoline prices for naphtha because it did not want to assume  "the
risk that the formulas the parties proposed would be  manipulated in
some fashion to favor one party over another."  Intervenors' Br. at
26. Even on a narrow view of OXY's  impact on the No Adjustment
Policy, the changes in the Gulf  Coast naphtha market improve the
trade-off for using an 


adjusted price rather than one from the dwindling Gulf Coast  market.


Third, Tesoro presents evidence that appears to show a  large disparity
between the Commission's valuation and the  true value of West Coast
naphtha. According to Mr. Stancil,  an engineer and energy consultant,
the quoted Gulf Coast  naphtha price in December 1996 ($26.38 per
barrel) underval- ued West Coast deliveries by $2.71 per barrel.6 This
alleged  disparity dwarfs the ones that required remand in OXY. See 
81 FERC at 62,462 (revising valuation of light distillate by  $0.005
per gallon, or $0.21 per barrel, after OXY remand).


These three propositions may well be answerable by the  Commission. But
without an adequate Commission response,  they at the least establish
a prima facie case that new  evidence warrants re-examination of how
West Coast naphtha  should be valued.


Tesoro also challenges the valuation of the VGO cut. In its  original
decision on the distillation method, the Commission  found that
illiquidity in the West Coast market required it to  use Gulf Coast
prices for West Coast VGO. 67 FERC at  61,531. Tesoro suggests that
because the Commission later  found the West Coast NGL market, which
is allegedly less  liquid than the West Coast VGO market, to be
sufficiently  liquid to be used for NGL cuts, the Commission should
also  use West Coast VGO prices for West Coast VGO.


The Commission provides two responses. The first is  plainly
inadequate. The Commission says that it considered  Tesoro's evidence
in 1998 in evaluating--and rejecting--a  proposal to change the
valuation of West Coast VGO because  of a change in how Gulf Coast VGO
prices were being  reported. 82 FERC p 61,343 (1998). See also Tesoro
Deci- sion, 87 FERC at 61,519 (citing the 1998 decision). But when 
Tesoro sought review of the resulting order in this court, the 
Commission moved--successfully--for dismissal of the peti- tion for
review on the ground that the order was non-final. 




__________

n 6 Using adjusted gasoline prices, Stancil claims that West Coast 
naphtha is worth $29.09 per barrel. See J.A. at 1001.


Petitioners' Br. at App. A. Agencies may not use shell games  to elude
review. See AT&T Co. v. Federal Communications  Commission, 978 F.2d
727, 731-32 (D.C. Cir. 1992).


Second, the Commission argues that in its decision to use  the West
Coast NGL market another factor was in play-- differences between the
coasts' petrochemical industries and  consequently their demand for
NGLs--that is apparently  inapplicable to VGO. That much is true. In
approving a  switch to reliance on the West Coast market for West
Coast  NGLs in 1998, it reasoned that the higher demand for NGLs  on
the Gulf Coast made it a less reliable standard for West  Coast NGLs
than the West Coast market, despite the latter's  illiquidity. 81 FERC
at 62,466. But Tesoro's argument is  more subtle. It is that the
switch to reliance on the illiquid  West Coast NGL prices reflects a
liberalization in the Com- mission's liquidity standards.


To this the Commission's reply is that it has no "generic  standards
for liquidity." Respondents' Br. at 57. Thus the  1998 decision on
NGLs could not have reflected a change in  such standards. But the
answer is illogical. Clearly the  Commission regards illiquidity as a
factor weighing against  the use of a possible benchmark. When it
changed its  position in 1998 to allow use of the illiquid West Coast
market  it invoked disparities between the Gulf and West Coast 
markets, but it never asserted that there has been a change  in those
disparities. Accordingly, Tesoro's inference that the  NGL change
reflects a reduced Commission anxiety about  illiquidity is hardly
unfair. Of course it may be that for VGO  the Commission might
reasonably find the balance to tilt  more strongly in favor of Gulf
Coast prices, so that Tesoro's  claim will ultimately lose. But Tesoro
has shown enough to  get its foot in the door, entitling it to an
attempt to persuade  the Commission to make a different trade-off on


* * *


Whether or not Exxon's ultimate goal is to resurrect the  gravity
method in some form (a matter the parties dispute),  its evidence at
least suggests changed circumstances regard-


ing the reasonableness of the distillation methodology. Teso- ro has
also supported its prima facie case about the valuation  of the
naphtha and VGO cuts. The Commission's failure to  respond
meaningfully to the evidence renders its decisions  arbitrary and
capricious. Unless an agency answers objec- tions that on their face
appear legitimate, its decision can  hardly be said to be reasoned.
International Harvester Co.  v. Ruckelshaus, 478 F.2d 615, 648 (D.C.
Cir. 1973); see also  City of Vernon v. FERC, 845 F.2d 1042, 1048


* * *


Exxon in a footnote arguably challenges the Commission's  observation
that "changes in the quality bank would be on a  prospective basis,
and no damages awarded." Exxon Deci- sion, 87 FERC at 61,524 n.28
(cited in Petitioners' Br. at 10- 11 n.8). The issue appears
premature, as there has yet been  no finding that the prevailing
methodology is not just and  reasonable. Presumably the availability
of damages turns in  the first instance on the applicable statutory
language. See,  e.g., 49 U.S.C. App. s 15(1)(1988) ("Whenever, after
full  hearing, upon a complaint made as provided in section 13 [of 
the Interstate Commerce Act] ... the Commission shall be of  opinion
that any ... rate ... is or will be unjust or unreason- able ..., the
Commission is authorized and empowered to  determine and prescribe
what will be the just and reasonable  ... rate ... to be thereafter
followed...."). See also 49  U.S.C. App. s 13(2) (1988) (withholding
authority to make  "orders for the payment of money" under this
section); 49  U.S.C. App. s 15(7) (1988) (providing for Commission
suspen- sion of carrier-filed rate schedules pending hearing, and for 
refunds when the rate issues are resolved); cf. OXY, 64 F.3d  at
698-700. But see Exxon, 182 F.3d at 49-50. Because the  claim is


* * *


The absence of a reasoned Commission explanation re- quires us to
reverse and remand the case for further proceed- ings.


So ordered.