789 F.3d 184
D.C. Cir.2015Background
- Kern River Gas Transmission owns an interstate pipeline from Wyoming to Utah, Nevada, and California; Shippers use Kern River’s pipeline.
- Kern River sought review of seven FERC rate orders issued during its rate proceedings under the Natural Gas Act.
- FERC approved an optional certificate and a three-period rate structure, including a levelized cost-of-service during Period One.
- Under the certificate, Kern River would retire debt in Period One and operate with 100% equity in Periods Two and Three, with potential ROE reconsideration in the future.
- Kern River expanded capacity, rolling expansion costs into the original system, creating six groups of customers paying Period One rates.
- The court deferentially reviews FERC ratemaking decisions and denies the petitions for review.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper effective date for Period One rates | Kern River argues the date should be November 18, 2010. | FERC fixed the rates as of December 17, 2009 under the statutory framework. | Correct; dates fixed in 2009 were proper. |
| Reopening Period One evidentiary record for a cost-of-service adjustment | Kern River sought to reopen for a Period One adjustment. | FERC ruled Period One issues final; no reopenings for Period One. | Affirmed; no reopening of Period One evidence. |
| Lowering Kern River's ROE for Period Two | Shippers contend 100% equity reduces financial risk, warranting a lower ROE. | FERC reasonably treated transition risks and maintained median ROE in Period Two. | Denied; no reduction in ROE for Period Two. |
| Composite equity and separate period structures | Kern River argues for separate period equity treatment in Period Two. | FERC used a composite equity concept to reflect investor perception during transition. | Affirmed; composite equity view was reasonable. |
| Consistency with precedent | Kern River claims FERC departed from precedent by not adjusting ROE further. | FERC reasonably distinguished prior cases given Kern River’s unique optional certificate context. | Affirmed; no improper departure from precedent. |
Key Cases Cited
- Electrical District No. 1 v. FERC, 774 F.2d 490 (D.C. Cir. 1985) (rate fixing requires numerical specification, but not when formula-based)
- Transwestern Pipeline Co. v. FERC, 897 F.2d 570 (D.C. Cir. 1990) (rates may be set subject to adjustments; formula/rule acceptable)
- Public Service Co. of New Hampshire v. FERC, 600 F.2d 944 (D.C. Cir. 1979) (rates may be governed by tariff formulas)
- City of Anaheim v. FERC, 558 F.3d 521 (D.C. Cir. 2009) (agency need not recapitulate every reasoning when rationale is sound)
- Boroughs of Ellwood City v. FERC, 731 F.2d 959 (D.C. Cir. 1984) (agency discretion in reviewing initial decisions)
- Canadian Assoc. of Petroleum Producers v. FERC, 308 F.3d 11 (D.C. Cir. 2002) (market risk framing in rate proceedings)
- Missouri Pub. Serv. Comm’n v. FERC, 215 F.3d 1 (D.C. Cir. 2000) (financial risk and ROE considerations in ratemaking)