864 F.3d 589
D.C. Cir.2015Background
- This case concerns FERC’s allowance (via its “benefits exception”) of including an acquisition premium in pipeline rates when an acquired facility is used for service instead of constructing a new pipeline.
- The Commission historically required clear-and-convincing evidence that an acquisition yields substantial, tangible, non‑speculative monetary benefits to ratepayers before permitting premiums.
- In this proceeding, the Commission approved inclusion of an acquisition premium for Missouri Interstate Gas, relying on prior certificate findings that the refurbished pipeline would improve reliability, supply diversity, and competition for Missouri customers.
- Petitioner challenged that approval, arguing the Commission had abandoned the strict actual-benefits test and effectively allowed premiums whenever the asset is put to new use and purchase price is below replacement cost.
- The court (concurring opinion) found the Commission’s explanation muddled but concluded the record (and binding prior findings not challenged by petitioner) supplied enough evidence that ratepayers would receive benefits and a lower rate base than if a new pipeline had been built.
- The concurrence emphasizes limits: the decision is a narrow, deferential affirmance and does not authorize automatic approval of premiums based solely on a “no worse than new” cost comparison or resolve potential subsidization concerns in other proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FERC lawfully allowed an acquisition premium under the benefits exception | FERC abandoned the clear‑and‑convincing, substantial‑benefit test and instead permits premiums whenever an asset is put to new use and is cheaper than new | FERC relied on prior certificate findings and evidence tying avoided construction costs to a lower rate base and thus lower rates for shippers | Court upheld FERC’s decision on this record as a tolerable application of the benefits exception, but stressed the ruling is narrow and review deferential |
| Whether a “no worse than new” cost comparison suffices as the requisite benefit | Such a standard would subvert the requirement of showing actual, substantial benefits | Commission says cost savings translate into a lower rate base and thus benefit ratepayers | Concurrence rejects approval of a blanket “no worse than new” rule; Commission must be explicit if it changes precedent |
| Whether record shows direct connection between avoided construction cost and lower shipper rates | Petitioners argue the connection is too attenuated and subsidization risk remains | FERC pointed to prior findings and rehearing analysis that rate base reduction will result in lower rates and addressed subsidization concerns in prior orders | Court finds (just barely) substantial evidence of the required connection on this record; leaves open future subsidization challenges |
| Standard of review for FERC factual findings | Petitioner urges strict enforcement of clear‑and‑convincing showing | FERC applied the clear‑and‑convincing standard in its orders | Court applies deferential substantial‑evidence review to findings made under the clear‑and‑convincing standard and affirms here |
Key Cases Cited
- Missouri Pub. Serv. Comm’n v. FERC, 601 F.3d 581 (D.C. Cir. 2010) (discusses heavy burden to show tangible, non‑speculative benefits)
- Rio Grande Pipeline Co. v. FERC, 178 F.3d 533 (D.C. Cir. 1999) (articulated ‘‘new use plus cheaper than new’’ formulation)
- Wisconsin Pub. Power, Inc. v. FERC, 493 F.3d 239 (D.C. Cir. 2007) (agency’s reasoning may be discerned despite imprecise wording)
- Sea Island Broadcasting Corp. v. FCC, 627 F.2d 240 (D.C. Cir. 1980) (standard that findings under a clear‑and‑convincing evidentiary rule are reviewed for substantial evidence)