783 F.3d 310
D.C. Cir.2015Background
- MoGas (formerly Missouri Interstate Gas) acquired the 5.6-mile Trans‑Mississippi Pipeline (TMP), converting it from oil to interstate natural‑gas service; the purchase price exceeded net‑book value, creating a $10,088,925 acquisition premium.
- In 2002 FERC certificated the TMP under NGA § 7, finding the project served the public interest by improving supply diversity, reliability, and competition for Missouri customers.
- This court in Missouri I vacated FERC’s prior rate treatment and remanded for application of the Commission’s “benefits exception” to its general bar on including acquisition premiums in a pipeline’s rate base.
- On remand an ALJ found the premium could not be included because MoGas had not proven construction costs significantly exceeded the purchase price.
- FERC reversed the ALJ, holding that where (1) a facility is put to a new use, (2) the buyer and seller are unaffiliated, and (3) the purchase price is less than the cost of constructing comparable facilities, the resulting cost differential constitutes sufficient, quantifiable benefits to ratepayers under its Longhorn test; FERC thus allowed inclusion of the acquisition premium.
- Petitioner challenged FERC’s orders, arguing the Commission misapplied precedent and failed to require proof of specific, dollar‑quantified benefits to Missouri consumers beyond a mere acquisition‑vs‑construction cost differential.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FERC permissibly included the TMP acquisition premium in initial rates under the benefits exception | The cost‑differential alone cannot satisfy the Longhorn/benefits test; FERC must identify specific, tangible dollar benefits to consumers and consider customer opposition | FERC’s precedents allow inclusion where facility is new‑use, parties are unaffiliated, and purchase price is less than construction cost; the cost difference quantifies benefits and FERC may rely on prior §7 findings | Court upheld FERC: precedent supports that a lower acquisition cost vs. new construction can satisfy the second prong and FERC reasonably relied on its §7 certification and record on benefits |
| Whether FERC departed from its own precedent or misread this court’s remand in Missouri I | Missouri argued the court in Missouri I required proof of specific dollar benefits in addition to a cost comparison | FERC argued Missouri I remanded to apply the benefits test; it did so consistently with prior agency decisions and the court must defer to the agency’s interpretation of its precedent | Court declined to reverse: FERC’s interpretation aligns with its precedent and the court affords deference to agency construction |
| Whether FERC was required to treat customer opposition as dispositive or to make additional findings of consumer benefit beyond the cost differential | Petitioner argued FERC must show actual consumers will benefit and consider customer opposition | FERC responded customer non‑support is not dispositive; its independent §7 findings already addressed consumer benefits and the cost differential maps into lower rate base/rates | Court held FERC permissibly relied on the earlier §7 findings and the cost differential as an identifiable benefit; collateral attack on the §7 certificate is barred |
| Whether the remand record satisfied the applicable standard of proof (clear and convincing/substantial evidence) | Petitioner contended the showing was speculative and the hypothetical construction cost is untested | FERC maintained the record (including an adjusted construction‑cost estimate) and evidentiary proceedings sufficed; the substantial‑evidence standard governs appellate review | Court found FERC’s factual findings supported by the record and reviewed under deferential substantial‑evidence standard; upheld the decision |
Key Cases Cited
- Missouri Pub. Serv. Comm’n v. FERC, 601 F.3d 581 (D.C. Cir. 2010) (remand directing FERC to apply benefits exception to acquisition premium)
- Rio Grande Pipeline Co. v. FERC, 178 F.3d 533 (D.C. Cir. 1999) (discussing new‑use conversion and benefits exception framework)
- Algonquin Gas Transmission Co. v. Fed. Power Comm’n, 534 F.2d 952 (D.C. Cir. 1976) (describing FERC’s public‑interest standard for initial rates under NGA §7)
- Atl. Ref. Co. v. Pub. Serv. Comm’n, 360 U.S. 378 (U.S. 1959) (framework for public‑interest review in rate settings)
- Exxon Mobil Corp. v. FERC, 315 F.3d 306 (D.C. Cir. 2003) (agency must explain departures from precedent)
- Midwest ISO Transmission Owners v. FERC, 373 F.3d 1361 (D.C. Cir. 2004) (deference to FERC on ratemaking)
- Columbia Gas Transmission Corp. v. FERC, 477 F.3d 739 (D.C. Cir. 2007) (deference to agency’s interpretation of its precedent)
- Wisconsin Pub. Power, Inc. v. FERC, 493 F.3d 239 (D.C. Cir. 2007) (agency’s path may be discerned even if wording is imprecise)
- Sea Island Broadcasting Corp. v. FCC, 627 F.2d 240 (D.C. Cir. 1980) (standard for appellate review of agency factfinding)