United States: FERC Authorizes Construction Of Northwest Pipeline's "Kalama Lateral Project," Finds EPA's Criticisms Of FERC Staff's Environmental Assessment Unpersuasive, But Rejects The Rates Proposed For Transportation Service On The Lateral

On April 11, 2016, FERC issued a certificate order authorizing Northwest Pipeline, LLC ("Northwest"), a Williams pipeline company, to construct a lateral to connect Northwest's system to a proposed methanol plant that will be owned by Northwest Innovation Works ("NWIW") in Cowlitz County, Washington. The April 11 Order, however, rejects the rates proposed for transportation service on the lateral. The Order finds that the proposed maximum recourse rates were derived using a "day-one rate base" for the return calculation, which practice FERC has previously prohibited, requiring, instead, the use of a first-year average rate base. The April 11 Order also rejects Northwest's proposed allocation of its existing A&G costs to the incremental rates for service on the proposed lateral. The Commission holds that it "does not reallocate costs underlying existing rates in a proceeding under section 7 of the NGA," and that Northwest must wait for its next general section 4 rate case to seek such reallocation of existing costs. The Order also holds that the proposed incremental interruptible transportation rate for the lateral was improperly designed.

Northwest filed an application under Natural Gas Act ("NGA") section 7(c) on October 27, 2014, in Docket No. CP15-8-000, seeking authorization to construct a 24-inch, 3.1 mile lateral pipeline, accompanying meter station and appurtenant facilities costing, in total, $22,756,705 with a capacity of 320,000 dekatherms (Dth) per day. The lateral would connect Northwest's system to NWIW's proposed methanol plant. The methanol plant will produce methanol from natural gas for shipment to Asia, where the methanol will be used to produce olefins. Olefins are used to manufacture common household items, such as plastics, paints, nylon carpet, particle board, cell phone cases, and pharmaceuticals, among other items.

On December 10, 2015, FERC's Office of Energy Projects issued a letter request for further information from Northwest, which provided in relevant part: "Northwest states in its October 27, 2014 application that a precedent agreement would be executed upon ...(NWIW) making its final decision to construct the Methanol Plant. Please provide a copy of the precedent agreement between Northwest and NWIW for service on the Kalama Lateral to NWIW's proposed Methanol Plant." On March 30, 2016, Northwest executed a precedent agreement with NWIW for 320,000 Dth per day of firm transportation service for a term of 25 years. On the same day, Northwest filed the precedent agreement with the Commission.

FERC's April 11 Order authorizes construction of the lateral. It holds that, because Northwest proposes to charge a cost-based incremental recourse rate for service on the lateral, the project will not be subsidized by existing customers. Further, FERC finds that the project will not adversely affect service to Northwest's existing customers, and there will be no adverse effect on other existing pipelines in the region because the proposed pipeline is not intended to replace service on other pipelines. In addition, no pipeline company or their captive customers protested Northwest's proposal. FERC further finds that Northwest has minimized the project's impact on landowners by developing a route that incorporated extensive landowner input. Given the benefits associated with providing 320,000 Dth per day of firm natural gas transportation to NWIW's contemplated Methanol Plant and the lack of adverse effects on existing customers, other pipelines and their captive customers, landowners and surrounding communities, FERC holds that the public convenience and necessity require approval of Northwest's project subject to the further conditions set out in the order.

Northwest proposed initial maximum recourse reservation rates for firm transportation service of $0.03969 per Dth per day with a volumetric charge of zero. Northwest used "a day-one rate base" for its return calculation. A "day-one rate base" is computed on the total investment in pipeline facilities on the day the pipeline becomes operational without regard to, or in recognition of, depreciation that will be accrued while the rates are in effect. The April 11 Order states that the Commission has "consistently denied the use of a day-one rate base for initial rates and required instead the use of a first-year average rate base." The April 11 Order therefore directs Northwest to file revised rates reflecting use of a first-year average rate base when Northwest makes its compliance filing.

The April 11 Order also rejects Northwest's proposed allocation of existing A&G costs to the incremental rates for service on the proposed lateral. The Order notes: "The Commission does not reallocate costs underlying existing rates in a proceeding under section 7 of the NGA." The Order directs Northwest to remove the A&G costs allocated to the project's cost of service in its compliance filing, noting that this holding is without prejudice to Northwest reallocating existing costs in its next NGA section 4 general rate case.

The Order finds that in designing the incremental interruptible rate proposed for the lateral, Northwest did not credit interruptible revenues or, alternatively, allocate costs and volumes to the proposed interruptible service. The Order notes that "[w]hen establishing initial rates, the Commission requires that a pipeline either provide for the crediting of all interruptible revenues, net of variable costs, to shippers paying maximum rates or that the pipeline allocate volumes and costs to its interruptible service." The Order directs Northwest, in its compliance filing, "to either allocate costs and volumes to its interruptible service ... or revise its tariff to provide for 100 percent crediting of interruptible revenues, net of variable costs, to maximum rate firm and interruptible customers."

The April 11 Order finds that Northwest proposes a negotiated rate with NWIW but did not include in its application a negotiated rate agreement for the Commission to review. The Order requires Northwest to file either its negotiated rate agreement, or tariff records containing the essential terms of such agreement, in keeping with FERC's Alternative Rate Policy Statement and its negotiated rate policies. The Order approves Northwest's fuel proposal to charge a zero lost-and-unaccounted-for ("LAUF") fuel reimbursement factor, and develop an LAUF allocation method after the lateral is placed into service and data from actual operations becomes available.

The U.S. Environmental Protection Agency ("EPA") raised several challenges to the adequacy of the Environmental Assessment ("EA") performed by FERC staff with respect to the Kalama Lateral Project. Among other criticisms, the EPA alleged that the EA failed to follow the guidance issued by the White House's Council on Environmental Quality for considering greenhouse gas emissions and the effects of climate change in NEPA reviews. The April 11 Order finds the EPA criticisms to be misplaced or unpersuasive for the various reasons set out in the Order.

A copy of the order is available here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions