On June 16, 2015, the U.S. Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”) denied a consolidated Petition for Review of several of Kern River Gas Transmission Company’s (“Kern River”) FERC-approved transportation rates.  In doing so, the D.C. Circuit held that FERC acted reasonably in setting the rates, responded meaningfully to rate objections, and articulated a rational explanation of its decisions.

When Kern River originally received its approval from FERC to construct its 1,700-mile interstate pipeline, it also received approval to charge transportation rates over three separate periods of time.  Eventually, Kern River expanded its customer base to six different groups under the various rate periods.  Additionally, upon the completion of Kern River’s 2004 rate case, FERC set a new effective date for one of the rate periods and denied requests to adjust Kern River’s return on equity (“ROE”).  As a result of these various developments and FERC approvals, Kern River and its customers both filed Petitions for Review at the D.C. Circuit.

In its Petition for Review, Kern River argued that FERC erred when setting the effective date for the first period because the rates were indeterminable at the time FERC made its decision.  Additionally, Kern River alleged that FERC acted arbitrarily and capriciously when FERC did not provide a meaningful response to Kern River’s objections regarding its cost-of-service.  Meanwhile, various customers of Kern River argued that FERC failed to engage in reasoned decision making because FERC failed to address certain arguments, and departed from FERC precedent, with regard to Kern River’s ROE.

The D.C. Circuit rejected all arguments and denied the consolidated Petition for Review.  In responding to Kern River’s arguments, the D.C. Circuit stated that FERC acted correctly and reasonably when it set a new effective date and refused to consider the cost-of-service adjustment.  Specifically, the D.C. Circuit stated that “[i]n light of the great deference we give FERC in rate decisions, FERC’s order setting the effective date…was not arbitrary, capricious, or otherwise not in accordance with the law.”

In response to the customers’ arguments, the D.C. Circuit stated that FERC did not fail to address certain arguments made by the customers, but rather reasonably explained why the customers’ arguments lacked merit.  In addition, the D.C. Circuit stated that FERC did not depart from FERC precedent without a reasonable explanation; instead, the D.C. Circuit explained that FERC reasonably explained why the precedent cited by the customers was not persuasive in this particular context.

A copy of the D.C. Circuit’s opinion is available here.