A three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit has found that FERC acted reasonably when setting rates on Kern River Gas Transmission Co.'s pipeline, and it denied petitions by the company and shippers that had sought review of orders the agency issued during rate proceedings.

"We conclude that the Commission complied with the Natural Gas Act and our precedents," the justices said in an opinion issued Tuesday. "The Commission responded meaningfully to petitioner's objections and articulated a rational explanation for its decisions under the particularly deferential standard of review we apply to ratemaking decisions."

The case has its roots in a general rate case filed by Kern River in 2004 and disputes over the calculation of Period One and Period Two rates (see Daily GPIAug. 31, 2011Aug. 19, 2011Nov. 23, 2004June 2, 2004). The Federal Energy Regulatory Commission’s initial approval of the pipeline allowed Kern River to charge separate rates for three different periods:

  • Period One, the 15-year term of original contracts;
  • Period Two, from the expiration of Period One contracts until the end of the pipeline's 25-year depreciation life; and
  • Period Three, following the end of the depreciation life.

The Berkshire Hathaway Energy subsidiary and its shippers presented the court with several arguments that they said proved FERC's orders in the rate case were arbitrary, capricious, an abuse of discretion and not in accordance with the law. However,  "none have merit," the judges said.

The company argued that FERC's decision to fix prospective Period One rates as of Dec. 17, 2009, was "contrary to the plain language of the Natural Gas Act and controlling precedent," and that the regulators failed to respond meaningfully to its objections.

Also denied by the panel were shipper arguments that FERC failed to engage in reasoned decision making in the case after it failed to address financial risks, relied on irrational composite capital structure, assumed increased business risk would offset decreased financial risk, and failed to follow its own precedent, which requires a reduction in the return on equity.

Kern River is a 1,717-mile pipeline able deliver up to 2.17 Bcf/d from the gas fields of Wyoming to Bakersfield, CA. The line delivers gas into Utah, Nevada and California.