IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
SHELL OFFSHORE INC.;
SHELL DEEPWATER PRODUCTION INC.,
BRUCE BABBITT, SECRETARY OF THE DEPARTMENT
OF INTERIOR; BOB ARMSTRONG, ASSISTANT
SECRETARY, LAND & MINERALS MANAGEMENT,
DEPARTMENT OF THE INTERIOR;
WALT ROSENBUSCH, DIRECTOR, MINERALS
MANAGEMENT SERVICE, DEPARTMENT OF THE INTERIOR,
Appeals from the United States District Court
for the Western District of Louisiana
January 12, 2001
Before GARWOOD, HIGGINBOTHAM, and STEWART,
GARWOOD, Circuit Judge:
Plaintiff-appellant Shell Offshore, Inc.,
(Shell) sued the Department of the Interior (Interior) under the citizen
suit provisions of the Outer Continental Shelf Lands Act, 43 U.S.C. §§
1331 et seq. (§ 1349(b)) (OCSLA), the Administrative Procedure
Act, 5 U.S.C. § 551 et seq. (§ 704) (APA), and the Declaratory
Judgment Act, 28 U.S.C. §§ 2201, 2202, challenging Interior's
denial of Shell's request to use its Federal Energy Regulatory Commission
(FERC) tariff rate as the cost of transporting crude oil produced from
certain of Shell's offshore oil and gas leases for purposes of calculating
Shell's royalty payments due Interior. The district court granted Shell's
summary judgment motion in part, holding that Interior's decision denying
the use of the tariff rate was arbitrary and capricious, and was a new
substantive rule that required notice and comment under the APA, 5 U.S.C.
§ 553. We agree with the district court that Interior's decision was
in essence the application of a new substantive rule that required notice
and comment before implementation. We hold that Shell was entitled to use
the FERC tariff rate to calculate transportation costs for all of the oil
at issue in this case which it transported through the Auger pipeline,
and was therefore entitled to have its motion for summary judgment granted
in full. Accordingly, we affirm in part, reverse in part, and remand for
entry of appropriate judgment consistent herewith.
Facts and Proceedings Below
Shell is the lessee in numerous federal leases
for the production of crude oil and gas located offshore Louisiana within
the Auger Unit on the Outer Continental Shelf (OCS).(1)
These leases were issued by Interior through its sub-agency, the Minerals
Management Service (MMS), under the authority of the OCSLA, 43 U.S.C. §§
1331 et seq. This dispute involves Shell's royalty payments on crude
oil produced from offshore leases comprising Shell's Auger Unit. Under
the OCSLA and the terms of the leases, Shell is required to pay royalties
as a specified percentage of the "value of the production saved, removed,
or sold" from the lease. 43 U.S.C. § 1337(a)(1)(A). Interior is responsible
for administering leases on the OCS, and promulgates regulations governing
royalty collection and establishing the value of production on which lessees
Under the regulations in effect at the time,
Interior allowed lessees to deduct transportation costs from the value
on which they calculated royalty payments. Those regulations distinguished
between transportation costs incurred under "arms-length" agreements with
common carriers and "non-arms-length" transportation costs, such as when
a lessee transports the oil itself or via a pipeline owned by an affiliate
of the lessee. See 30 C.F.R. § 206.105(a)-(b).
Shell began producing from the Auger Unit
in April 1994. The Auger pipeline transports crude oil from the Auger Unit
to a series of other pipelines that begins on the OCS, crosses onshore
into Louisiana, and eventually reaches other states. The district court
found, and Interior does not dispute, that some portion----apparently
a substantial majority----of the oil produced in the
Auger Unit travels in a continuous stream to Illinois for refining. The
oil that reaches Illinois travels first through the Auger pipeline and
then, via several pipeline systems, to St. James, Louisiana, and from there
through the Capline/Capwood pipeline system to the Wood River refinery
in Illinois. The Auger pipeline is owned by a Shell affiliate. The parties
agree that the transport of Shell's oil through the Auger pipeline was
a non-arms-length transaction, and that therefore the calculation of Auger
pipeline transport costs Shell could permissibly deduct from its royalty
payments was governed by 30 C.F.R. § 206.105(b). Under section 206.105(b)(2),
lessees must demonstrate their actual costs of transport for deduction
from their royalty payments due Interior, and the regulation provides detailed
instructions for such calculations. Under section 206.105(b)(5), however,
lessees are granted an exception from the requirement of showing actual
costs of transport if the lessee has "a tariff for the transportation system
approved by the [FERC]." Id. Under this exception, the lessee can
use the FERC tariff rate to calculate their transportation cost deductions
from royalty payments if that tariff has been "approved by the [FERC]."
Interior points to several recent FERC opinions,
commencing in 1992, that, it argues, cast FERC jurisdiction over pipelines
on the OCS into some doubt.(3) It is and
was FERC's practice to automatically accept all filed tariffs unless a
timely protest is filed. Prior to 1993, MMS (the sub-agency of Interior
responsible for administering the OCS leases) accepted tariffs that were
filed with FERC in determining whether a lessee qualified for an exception
under 30 C.F.R. § 206.105(b)(5). From 1988 until some point in 1993
or 1994,(4) MMS accepted as "approved by
FERC" most tariffs that were simply filed with FERC, and did not require
producers to petition FERC for a determination of jurisdiction. By 1994,
however, Interior was disallowing use of the tariff exception for OCS lessees
that it felt might no longer be within FERC jurisdiction.
Shell filed a tariff with FERC on March 2,
1994, which was unprotested, and was accepted and published by FERC on
April 1, 1994. In a letter dated July 7, 1994, Shell requested that the
MMS confirm that, in valuing Shell's Auger Unit crude oil production for
royalty purposes, Shell was entitled to deduct as transportation costs
the tariff rate accepted by FERC for the Auger pipeline. In an order dated
November 10, 1994, the MMS denied Shell's request, and Shell appealed the
order. Several administrative appeals followed, but in its final decision
on August 13, 1998, Interior stated that Shell's request was being denied
because Shell had failed to petition FERC and receive from FERC a determination
affirmatively stating that FERC possessed jurisdiction over the Auger pipeline.
Shell then filed the instant lawsuit. Thereafter,
on December 18, 1998, MMS sent a "Dear Payor" letter to Shell stating that
due to uncertainty concerning FERC's jurisdiction over pipelines on the
OCS, lessees must "petition FERC" and receive from FERC "a determination
affirmatively stating that it has jurisdiction" before MMS will allow the
lessee to use the FERC tariff to calculate transportation costs for the
purposes of royalty calculations. Similar letters were sent to other OCS
In the district court, Shell claimed that
its FERC tariff established the rate Shell could permissibly deduct from
its royalty payments for transporting oil through the Auger pipeline. Interior
argued that FERC's jurisdiction had not been clearly established and that
if FERC did not have jurisdiction, then FERC could not establish the appropriate
rate and "approve" the tariff within the meaning of § 206.105(b)(5).
Both Shell and Interior moved for summary
judgment in the district court. The district court denied Interior's motion
and partially granted Shell's motion. The district court found that there
was no rational connection between the FERC's decisions in Ultramar and
Oxy and Interior's decision to wholly deny Shell's request. See Shell Offshore,
Inc., v. Babbit, 61 F.Supp.2d 520, 528 (W.D. La. 1999). The court held
that Interior had failed to adequately consider the evidence of interstate
transportation of the oil submitted by Shell, and that Interior's decision
was therefore arbitrary and capricious. Id.
The district court also held that the notice
and comment provisions of the APA were applicable to Interior's change
in policy. The district court applied the test set out by this Court in
Phillips Petroleum Co. v. Johnson, 22 F.3d 616 (5th Cir. 1994)
that dictates when exemption from APA notice and comment is proper for
rules that govern "rules of agency organization, procedure, or practice."
Id. at 616. See also 5 U.S.C. § 553(b)(A). Despite its holding that
Interior's new policy required notice and comment under the APA, the district
court only partially granted Shell's summary judgment motion. The court
reasoned that "[t]ransporting the crude [oil] to a refinery in Louisiana
is not interstate and the holding in Ultramar is applicable to crude transported
from the OCS to Louisiana," and held that Shell's tariff was not applicable
to the portion of the Auger crude oil that did not leave Louisiana
Shell Offshore, 61 F.Supp.2d at 529. Both Shell and Interior timely appealed.
This case involves two basic issues. The first
is whether Interior's policy change-requiring OCS lessees to petition FERC
for an affirmation of jurisdiction-is a new "rule" that triggers the notice
and comment provisions of the APA. If Interior had, from the beginning,
interpreted their regulation as requiring an affirmation of FERC jurisdiction,
their interpretation of their own regulation would be entitled to substantial
deference. However, Interior changed their policy-they began to require
lessees (and required Shell in this case) to petition FERC for an affirmation
of jurisdiction whereas from 1988 to 1993 their established procedure was
to treat tariffs that were simply filed with the FERC as "approved" under
§ 206.105(b)(5). A party may not lawfully be adversely affected by
a rule promulgated in violation of the requirements of the APA. See 5 U.S.C.
§ 552(a)(1). Interior's new policy was never submitted for notice
and comment. If Interior's change in policy is a new substantive rule for
APA purposes the rule is invalid.
The second issue need be reached only if Interior's
policy change was not a new rule for APA purposes. If the change was not
such a rule, then Interior's decision must still satisfy the APA standard
of not being arbitrary and capricious. See Acadian Gas Pipeline Sys.
v. FERC, 878 F.2d 865 (5th Cir. 1989).(5)
If Interior's new policy was a "rule" for APA purposes, we need not reach
the arbitrary and capricious issue.
This Court reviews the district court's grant
of summary judgment de novo. Hernandez v. Reno, 91 F.3d 776,
779 (5th Cir. 1996). Summary judgment is appropriate if the
record shows "that there is no genuine issue as to any material fact and
the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P.
56(c). In reviewing the underlying agency decision denying Shell's request,
the general standard under the APA is whether the agency's final decision
was "arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with law." 5 U.S.C. §706(2)(A);
League, Inc., v. Marsh, 715 F.2d 897, 904 (5th Cir. 1983).
Determining whether Interior's policy change was a "rule" for APA purposes
is purely a matter of construction of the APA and we review this issue
novo. Phillips, 22 F.3d at 619 ("'[T]he label that the particular
agency puts on upon its given exercise of administrative power is not,
for our purposes, conclusive; rather, it is what the agency does in fact.'
We review this legal issue de novo.") (citations omitted) (quoting
Express, Inc., v. United States, 607 F.2d 695, 700 (5th
Cir. 1979)). Interior is not charged with administering the APA;
its conclusions of law regarding whether its policy change is a "rule"
for APA purposes are not given deference and are also reviewed
See Institute for Technology Development v. Brown, 63 F.3d 445,
450 (5th Cir. 1995).
The Rulemaking Requirements of the APA
Interior argues that the district court erred
when it ruled that Interior's new policy was a legislative rule subject
to the notice and comment requirements of the APA. Interior claims, initially,
that the decision in this case was an "adjudication" and was therefore
exempt from the rulemaking requirements of 5 U.S.C. § 553. In the
alternative, Interior argues that even if the new policy is a "rule" it
is an interpretive rule rather than a substantive one, and is thus exempt
from the APA's notice and comment requirements under 5 U.S.C. § 553(d)(2).
The APA defines a "rule" as "an agency statement
of general or particular applicability and future effect designed to implement,
interpret, or prescribe law or policy or describing the organization, procedure,
or practice requirements of an agency and includes ... practices bearing
on any of the foregoing." 5 U.S.C. § 551(4). Rulemaking is the "agency
process for formulating, amending, or repealing a rule." Id. at
§ 551(5). In contrast, the APA defines an "adjudication" as "an agency
process for the formulation of an order," and defines "order" as "the whole
or part of a final disposition ... of an agency in a matter other than
rule making but including licencing." Id. at § 551(6), (7).
There is no notice and comment requirement for an agency adjudication.
at § 554. Similarly exempted from the notice and comment requirements
are "interpretive rules." Id. at § 553(d)(2).
Interior argues that this case merely involves
an "adjudication" exempt from the rulemaking requirements of the APA, and,
in the alternative, that the new rule is merely "interpretive." Shell's
response to the first part of Interior's argument is that the decision
in the adjudication in this case was wholly predicated upon a new requirement
that is, in effect, a new "substantive" rule. We conclude that Shell's
argument is the more persuasive. It is clear from Interior's internal memoranda
and correspondence with Shell that Interior's denial of Shell's request
was the result of a departure from Interior's previous practice of treating
as approved all filed FERC tariffs. It is similarly clear that Interior's
new policy was the basis for the adjudication rather than the facts of
the particular adjudication causing Interior to modify or re-interpret
its rule. Interior did not apply a general regulation to the specific facts
of Shell's case. Rather, it established a new policy and then applied that
new policy to several OCS producers, including Shell. If Shell had submitted
its tariff early in 1992 instead of 1994, Interior would have accepted
Shell's tariff as "approved by FERC" and Shell would not have been required
to petition FERC--there would have been no adjudication prior to 1994.
The adjudication resulted because Interior changed its policy, and the
district court did not err in reaching the policy change that controlled
the adjudicative process.
Interior also argues that their new policy
should be considered an "interpretive" rule, and should therefore be exempt
from the notice and comment requirements of the APA. In Brown Express
Inc. v. United States, 607 F.2d 695 (5th Cir. 1979), we
repeated with approval the District of Columbia Circuit's distinction between
interpretive and substantive rules: "'Generally speaking, it seems to be
established that 'regulations,' 'substantive rules,' or 'legislative rules'
are those which create law; whereas interpretive rules are statements as
to what the administrative officer thinks the statute or regulation means.'"
at 700. (quoting Gibson Wine Co. v. Snyder, 194 F.2d 329, 331 (D.C.
Cir. 1952)). Legislative or substantive rules are those which "affect individual
rights and obligations." See Chrysler Corp. v. Brown, 99 S.Ct. 1705,
1718 (1979) (citations omitted). We now review some of our prior cases
on this topic.
In Phillips Petroleum Co. v. Babbit,
22 F.3d 616 (5th Cir. 1994), MMS issued an unpublished internal
agency paper that changed the procedure for determining oil and gas royalties.
The original regulation directed MMS to consider a variety of factors in
valuing offshore production, including the highest prices for such production
in the area, the price paid by the lessee, posted prices, regulated prices,
and other factors. Id. at 618. MMS's new policy under the agency
paper was to focus only on the "spot price" instead of the enumerated factors
in the regulation. Unlike the present case, MMS admitted in Phillips
that the procedure paper was a new "rule." Just as Interior asserts now,
Phillips MMS asserted that the paper merely interpreted
the existing regulation and was therefore a clarification of existing regulations
rather than a substantive modification. We held that the procedure paper
was not an "interpretive rule" and was subject to the notice and comment
requirements of the APA. Phillips, 22 F.3d at 621. However,
unlike the present case, in Phillips the procedure paper directly
contradicted the text of the regulation at issue.
In Davidson v. Glickman, 196 F.3d 996
(5th Cir. 1999), we held that a provision of a Farm Services
Agency (FSA) handbook was a substantive rule that required notice and comment
under the APA. The provision prohibited revision of acreage reports if
the producer would benefit from the revision. The regulation in question
did not mention this condition on revision of acreage reports. We held
that the provision was indeed a legislative (or substantive) rule that
required notice and comment under the APA, and invalidated the application
of the handbook provision. Id. at 999.
In the present case, the new "rule" that Shell
asserts violates the APA is not a change from a written policy statement
or regulation. Rather, it is an alteration of an existing practice. From
1988 through 1993, Interior treated all filed tariffs as approved by the
FERC; now it requires lessees in Shell's position to (as stated in the
"Dear Payor" letter, see note 4 supra) "petition FERC" and receive
from FERC "a determination affirmatively stating that it has jurisdiction
over the pipelines in question". This case is somewhat different from Glickman
Phillips in that the new interpretation of "approved by FERC"
does not directly and expressly contradict the regulation itself. Instead,
it contradicts Interior's prior consistent interpretation of the regulation.
A further complication is that each of Interior's interpretations of §
206.105(b)(5)----the new interpretation as well as
the old----may perhaps, independently, qualify as
an "interpretive rule" that is exempt from notice and comment under the
APA, in that each interprets an arguably ambiguous regulation.(6)
Assuming that each of Interior's interpretations of their regulation are
valid interpretive rules, a significant issue remains: can Interior switch
from one consistently long followed permissible interpretation to a new
one without providing an opportunity for notice and comment?
In a line of recent cases, the D.C. Circuit
has addressed this very issue. In Alaska Professional Hunters Ass'n
v. FAA, 177 F.3d 1030 (D.C. Cir. 1999), a regional office of the FAA
had for many years been advising Alaskan hunting and fishing guides that
they were exempt from FAA regulations governing commercial pilots.(7)
At some point in the early 1990's, the FAA discovered that their regional
office had been telling the Alaskan guide pilots that they were exempt,
and in 1998 the FAA published a "Notice to Operators" which announced that
Alaskan guides who transport customers by aircraft were no longer considered
exempt from the FAA's safety regulations. 63 Fed. Reg. 4 (1998). The court
ruled that the FAA's action required notice and comment, and that the new
interpretation of their regulation was invalid without it. Alaska,
177 F.3d at 1036. The court, relying on Paralyzed Veterans of America
v. D.C. Arena, 117 F.3d 579 (D.C. Cir. 1997), stated: "When an agency
has given its regulation a definitive interpretation, and later significantly
revises that interpretation, the agency has in effect amended its rule,
something it may not accomplish without notice and comment." Alaska,
177 F.3d at 1034. We agree with the reasoning of the D.C. Circuit; the
APA requires an agency to provide an opportunity for notice and comment
before substantially altering a well established regulatory interpretation.
We turn now to Interior's new interpretation of § 206.105(b)(5).
In 1988, Interior utilized a regulatory practice
based on § 206.105(b)(5) that it apparently felt adequately governed
OCS lessees' non-arms-length transportation deductions from royalty payments:
it accepted as "approved" all tariffs filed with FERC. When FERC declined
jurisdiction over some OCS pipelines under certain conditions, Interior
adapted their regulatory practices to include an additional procedural
step-OCS lessees in Shell's position were denied use of their FERC tariff
for royalty calculations unless they petitioned FERC and received from
FERC a determination affirmatively stating that FERC had jurisdiction.
Even though Interior never set forth its interpretation of section 206.105(b)(5)'s
"approved by FERC" in a written statement, it was undeniably its long established
and consistently followed practice to accept tariffs filed with FERC as
"approved" for purposes of section 206.105(b)(5).(8)
An agency that, as a practical matter, has enacted a new substantive rule
cannot evade the notice and comment requirements of the APA by avoiding
written statements or other "official" interpretations of a given regulation.
If a new agency policy represents a significant departure from long established
and consistent practice that substantially affects the regulated industry,
the new policy is a new substantive rule and the agency is obliged, under
the APA, to submit the change for notice and comment. If Interior wishes
to change its established practices and procedures in a manner that so
significantly affects OCS lessees, it must give them notice and an opportunity
to comment on the proposed change.(9) Interior's
new practice may be a reasonable change in its oversight practices and
procedures, but it places a new and substantial requirement on many OCS
lessees, was a significant departure from long established and consistent
past practice, and should have been submitted for notice and comment before
adoption. Interior's new interpretation of "approved by [FERC]" in section
206.105(b)(5) accordingly meets the requirements for a new legislative
rule under the APA.
Under the APA, "a person may not in any manner
be required to resort to, or be adversely affected by, a matter required
to be published in the Federal Register and not so published". 5 U.S.C.
§ 552(a)(1). Since Shell cannot lawfully be affected by this new requirement,
until Interior properly promulgates a new regulation it cannot require
more of Shell than filing their tariff with FERC. Shell was thus entitled
to use their FERC filed tariff to calculate transport costs for all oil
produced in the Auger Unit and sent through the Auger pipeline. The district
court should have granted Shell's summary judgment motion in full. Because
Interior's new policy was a "rule" that required notice and comment under
the APA, we need not reach the issue of whether Interior's action in this
case was arbitrary and capricious.
Interior's new policy is a substantive rule
for purposes of the APA, and Interior was required to submit their new
rule for notice and comment. The district court's holding that Interior's
new rule is invalid under the the APA is affirmed. Prior to Interior's
policy change, Shell's FERC tariff would have been routinely accepted by
Interior for all oil flowing through the Auger pipeline. Since no party
can be adversely affected by an agency rule that should have been but was
not submitted for notice and comment, Shell is entitled to use their FERC
tariff in lieu of showing actual costs for all of the oil at issue in this
case which they transported through the Auger pipeline, not just the oil
that eventually crossed unrefined into another state. The district court
should have granted Shell's motion for summary judgment in full. Accordingly,
the judgment of the district court is AFFIRMED in part, REVERSED in part,
1. A "unit" is an area
containing leases located on the OCS.
2. 30 C.F.R. § 206.105(b)(5)
"(5) A lessee may apply to the MMS for
an exception from the requirement that it compute actual costs in accordance
with paragraphs (b)(1) through (b)(4) of this section. The MMS will grant
the exception only if the lessee has a tariff for the transportation system
approved by the Federal Energy Regulatory Commission (FERC) (for both Federal
and Indian leases) or a State regulatory agency (for Federal leases). The
MMS shall deny the exception request if it determines that the tariff is
excessive as compared to arm's length transportation charges by pipelines,
owned by the lessee or others, providing similar transportation services
in that area. If there are no arm's length transportation charges, MMS
shall deny the exception request if: (i) No FERC or State regulatory agency
cost analysis exists and the FERC or State regulatory agency, as applicable,
has declined to investigate pursuant to MMS timely objections upon filing;
and (ii) the tariff significantly exceeds the lessee's actual costs for
transportation as determined under this section."
It is undisputed that in this case neither
of the conditions stated in clauses (i) and (ii) of the last sentence of
§ 206.105(b)(5) is applicable and also that MMS never made the determination
referred to in the next to last sentence of § 206.105(b)(5).
The relevant regulations have now been
formally changed (effective June 1, 2000), in part to address the exact
issues that are in dispute in this case. See 62 Fed. Reg. 3742, 3746 (Jan.
24, 1997). Under the current regulations, lessees may still deduct non-arms-length
transportation costs, but they cannot rely on FERC tariff rates as a substitute
for demonstrating the actual costs of transport. Compare 30 C.F.R. §
206.105(1999) with 30 C.F.R. § 206.111 (as amended March 15, 2000,
effective June 1, 2000; 65 Fed. Reg. 14022, 14031, 14088 et seq., March
15, 2000). References to Interior's regulations in this opinion refer to
the rules in effect at the time of suit unless otherwise noted.
This case does not involve oil produced on
or after June 1, 2000.
3. The decisions were Oxy
Pipeline, Inc., 61 FERC 61,051 (1992), and Bonito Pipeline Co.,
61 FERC 61,050 (1992). Later in the adjudicative process, Interior also
relied on Ultramar, Inc., v. Gaviota Terminal Co., 80 FERC 61,201
4. On November 10, 1994,
MMS denied Shell's request to use the FERC tariff on the grounds that because
of the FERC's decision in
Oxy Pipeline, Inc., 61 FERC 61,051 (1992),
FERC had no jurisdiction over OCS pipelines and therefore could not "approve"
Shell's tariff. Interior's "Dear Payor" letter of December 18, 1998, sent
generally to OCS lessee oil royalty payors (including Shell), states that
"[b]eginning with production in January, 1993," MMS "began to deny requests
for approving FERC tariffs in lieu of actual costs for non-arm's-length
OCS oil transportation allowances."
5. In that case, we stated:
"Where an agency has acted arbitrarily or capriciously, a reviewing court
is bound to set aside the agency action. Where an agency fails to distinguish
past practice, its actions may indicate that lack of reasoned articulation
and responsibility that vitiates the deference the reviewing court would
otherwise show." Acadian, 878 F.2d at 868 (citations omitted).
6. Agencies need not provide
notice and comment for every meaningful policy decision. Interpretations
of ambiguous or unclear regulations by agencies may be exempt from the
APA's notice and comment requirements. See 5 U.S.C. § 553(b)(A),
Phillips, 22 F.3d at 619, Brown Express v. United States, 607
F.2d 695, 700 (5th Cir. 1979). We express no opinion as to whether
either of Interior's interpretations of § 206.105(b)(5) are valid
7. The regulations in question
were 14 C.F.R. §§ 121.1(a)(5), (d), and 135.1(a)(2) (1965), which
applied to "commercial operator[s]," who were defined as persons operating
aircraft "for compensation or hire". Id. At the time of the Alaska
case, those regulations continued to apply to "commercial operator[s],"
who were still defined as persons who, "for compensation or hire," carry
people or property by aircraft. See 14 C.F.R. §§ 1.1,
119.1(a)(1), 121.1(a), 135.1(a)(1) (1999).
8. Interior accepted the
FERC tariffs for at least five years, from 1988 until 1993, when, according
to its December 1998 "Dear Payor" letter, Interior "began to deny
requests for approving FERC tariffs in lieu of actual costs for non-arm's-length
transportation allowances." (emphasis added). Interior argues that since
this letter is not part of the administrative record, it should not have
been considered by the district court. As Interior correctly points out,
it is well established that reviewing courts generally should, in evaluating
agency action, avoid considering evidence that was not before the agency
when it issued its final decision. See Louisiana v. Verity, 853
F.2d 311, 327 n.8 (5th Cir. 1988), Camp v. Pitts, 93
S.Ct. 1241, 1244 (1973). Agency actions should generally be reviewed in
light of the evidence before the agency at the time, and not with the benefit
of hindsight. But the "Dear Payor" letter is not evidence that could or
should have been used by the agency to formulate policy. Instead, it is
evidence of agency policy. The district court did not err in considering
9. As we observed above
(see note 2, supra), effective June 1, 2000, Interior has formally
changed the regulations governing royalty calculations. Under the new regulations,
no lessee can use an FERC tariff to calculate its transportation costs.
Instead, lessees using affiliated pipelines must now show their actual
transportation costs. See 30 C.F.R. § 206.111 (as amended March
15, 2000, effective June 1, 2000).