United States: FERC Expounds Upon When A Natural Gas Pipeline May Add To The Record To Support Proposed Initial Rates For A Certificated Project

On May 19, 2016, FERC issued an Order on Voluntary Remand ("Remand Order") to Kinetica Deepwater Express, LLC, formerly TC Offshore LLC ("TC Offshore") in Docket No. CP11-544-004. At issue was the Commission's rejection of TC Offshore's proposed initial negative salvage rates. The Remand Order reaffirms FERC's prior holdings. First, FERC held that, by waiting until after issuance of its requested Certificate to submit data to support its proposed initial negative salvage rates, despite being confronted with protests challenging its proposed salvage rates as unsupported, TC Offshore missed its opportunity to respond to the protests by submitting more supporting material. Further, FERC held that once a Certificate has issued, a party must show good cause to receive permission to reopen the evidentiary record to support changing a rate accepted by the Commission in issuing the Certificate. For example, a party may show changed circumstances resulting from the development of more information, such as more completed contracts with shippers, actual versus estimated inflation rates or other costs – new information that changes the estimates or other information on which accepted rates were based. In the instant case, however, FERC determined that TC Offshore was not making a showing of new, better evidence or changed circumstances, but instead was seeking to submit data it possessed prior to issuance of the Certificate and for the purpose of relitigating an issue it lost in the Certificate proceeding. FERC also held that the avenue of seeking an "amended certificate" was foreclosed by the fact that the proposed in-service or effective commencement date of the existing certificated rates was too close, and provided no opportunity for effective review and challenges by interested parties to any proposed amended certificate. FERC upheld its earlier holdings that TC Offshore must use the existing negative salvage rates accepted in the Commission's Certificate Order and seek to change those rates in an NGA Section 4 proceeding.

On September 1, 2011, ANR Pipeline Company ("ANR") filed an application in Docket No. CP11-543-000, under NGA section 7(b), for authority to abandon by sale to its wholly-owned subsidiary, TC Offshore, all of its offshore pipeline facilities in the Gulf of Mexico, consisting of 600 miles of pipeline and seven offshore platforms, as well as certain onshore pipeline facilities in Louisiana and Texas. TC Offshore filed a companion certificate application in Docket No. CP11-544-000, under NGA section 7(c), for authority to acquire and operate the facilities. In the companion application, TC proposed initial rates that, among other things, reflected use of a negative salvage rate of 3.122 percent for gathering plant and 0.985 percent for transmission plant. (Negative salvage occurs when the cost of removing an asset after it reaches the end of its useful life exceeds the revenue that would be realized if the asset were sold. Both depreciation and negative salvage are amortized over the asset's useful life, and both are treated as annual operating expenses for ratemaking purposes). ANR's existing negative salvage rates were lower than TC Offshore's proposed ones – that is, ANR's were 0.23 percent for both gathering and transmission plant. Protests of the proposed negative salvage rates were filed by Apache Corporation and by Indicated Shippers, arguing that TC Offshore had not filed any cost data to support its proposed higher negative salvage rates, and had provided merely a sentence of text in support.

On June 12, 2012, the Commission issued an order approving ANR's abandonment, and issuing a certificate of public convenience and necessity to TC Offshore to acquire and operate the facilities. The Certificate Order required TC Offshore to use ANR's last-approved negative salvage rate of 0.23 percent, agreeing with the protesting parties that TC Offshore had not supported its proposed negative salvage figures.

On July 23, 2012, TC Offshore sought rehearing on several issues, including the rejection of its proposed negative salvage rates. TC Offshore argued that it had adequately supported its proposed initial negative salvage rates in its application or, alternatively, FERC should accept a newly submitted Negative Salvage Study accompanying TC Offshore's rehearing request.

On August 1, 2012, while its first rehearing request was pending before FERC, TC Offshore made a filing in Docket No. RP12-908-000. In this filing, TC Offshore proposed to commence service under the Certificate on October 1, 2012.

On September 28, 2012, FERC issued an order on rehearing (First Rehearing Order). The Commission denied rehearing on the issue of TC Offshore's proposed higher negative salvage rates. FERC noted that TC Offshore had provided a mere one sentence explanation of these rates in Exhibit P to its original certificate application. The First Rehearing Order did not evaluate the Negative Salvage Study attached to TC Offshore's first rehearing request, but did state that the denial of rehearing was without prejudice to TC Offshore requesting to change – i.e., increase – its negative salvage rates pursuant to an NGA section 4 filing after service had commenced.

On November 1, 2012, TC Offshore commenced service on the facilities acquired from ANR. One day before, on October 31, 2012, TC Offshore filed another rehearing request, again seeking rehearing regarding its proposed negative salvage rates.

On June 7, 2013, the Commission issued an order addressing this issue and other rehearing requests relating to its Certificate Order (the "Second Rehearing Request"). On the negative salvage rates issue, the Commission reaffirmed prior holdings stating that once a pipeline company has commenced service under a certificate order, its initial rates cannot be amended in an NGA section 7 proceeding. Thus, because TC Offshore had commenced service on November 1, 2012, the request for an amendment to the Certificate Order was moot.

On August 6, 2013, TC Offshore petitioned the D.C. Circuit for review of the Commission's rejection of its proposed negative salvage rates. On January 29, 2014, the D.C. Circuit granted the Commission's unopposed motion for voluntary remand of the case. On May 19, 2016, FERC issued the present Remand Order reviewed here.

First, on remand FERC affirmed its initial holding that TC Offshore failed adequately to support its proposed negative salvage rates in its application, and further affirmed that, given this, FERC appropriately directed TC Offshore to continue to use ANR's last approved negative salvage rates. In reaching this conclusion, FERC noted that a certificate applicant bears the burden of supporting the costs it proposes to recover through its rates. While initial rate proposals are evaluated under the "public interest standard" of NGA section 7, and other rate proposals under the "just and reasonable standard" of NGA section 4, "the Commission, nevertheless, generally applies the same ratemaking policies to initial rates that it would apply in an NGA section 4 rate proceeding." "As a practical and procedural matter, the difference between the approval of NGA section 7 initial rates and the setting of rates in subsequent NGA section 4 proceedings is that initial rates are based on estimates of costs and revenues, whereas in a[n] NGA section 4 rate proceeding the rates are based on actual operating history and actual costs." The Commission noted that in its application TC Offshore had provided merely the following sentence to support the proposed negative salvage rates: "TC Offshore proposes recovery of plant decommissioning costs through negative salvage rates, which were calculated using the same . . . [Production to Reserve] factors used for depreciation." FERC held that, while this sentence reveals the period of time over which TC Offshore proposes to collect negative salvage costs/rates, it "failed to provide any account or explanation of [TC Offshore's] analysis of the negative salvage costs associated with the pipeline facilities." In response to protests that its proposed negative salvage rates were unsupported, TC Offshore had stated that it anticipates significantly higher salvage costs than those reflected in the existing ANR rates. FERC held that TC Offshore had failed to support its proposed new requested negative salvage rates, and its justification failed to satisfy section 7's public interest standard. While normally this could have resulted in a negative salvage rate of zero for an applicant, the Commission relied on various policies and precedents to permit TC Offshore to use the last approved negative salvage rate applicable to the facilities TC Offshore was acquiring.

FERC next turned to its refusal to consider the Negative Salvage Study accompanying TC Offshore's first rehearing request. TC Offshore argued that FERC should have considered the Negative Salvage Study on the alternative grounds that (1) it was a supplement to TC Offshore's certificate application, or (2) it was an amendment to TC Offshore's certificate.

FERC rejected TC Offshore's argument that FERC should have considered the Negative Salvage Study as a late-filed supplement to its application for a certificate. The Commission relied on its "long-standing policy of not accepting additional evidence at the rehearing stage of a proceeding, absent a compelling showing of good cause." FERC found that TC Offshore did not explain or justify why the Negative Salvage Study should be admitted after the issuance of a dispositive order. In this regard, TC Offshore's rehearing request stated that the Study had been prepared in August 2011, and revised in December 2011, yet did not explain why the Study could not have been filed with FERC before the Certificate Order issued on June 21, 2012. FERC further held that accepting such evidence at the rehearing stage would disrupt the administrative process, and that, "[a]s a general matter, it is inappropriate for an applicant to file a study supporting initial rates after a certificate has been issued, and even more so when the material could have been submitted earlier. This particularly holds true where the adequacy of the support . . . had so clearly been called into question by other parties to the proceeding. We will not encourage applicants to adopt a 'wait-and-see' approach to providing evidence of costs in support of proposed initial rates." Accordingly, FERC rejected "the efforts . . . to introduce supplemental evidence at the rehearing stage of the proceeding."

FERC also rejected TC Offshore's alternative argument that FERC should have considered the Negative Salvage Study "as a section 7 certificate amendment." The Remand Order notes: "The Commission has recognized our ability to change initial rates in a section 7 proceeding by amending a certificate and indeed has often amended certificates to allow pipelines to adjust initial rates prior to newly authorized facilities being placed into service." (Emphasis added). "However, we are under no obligation to do so in the absence of an adequate justification. The Commission has generally found it appropriate to exercise such discretion in instances where the initially-authorized rates are being revised to account for updated estimates and actual construction costs incurred." (Citations omitted). The present case, however, was "not a case where the company is seeking to revise the previously-authorized initial rates to reflect increases in construction costs, revised capital structure, actual prices from contracts, and/or inflation." Rather, having failed to support it initial rates prior to issuance of its certificate, the applicant "is seeking another venue to raise the same issue." In these circumstances, "the Commission is justified in declining to exercise its discretion to process TC Offshore's late-filed study as an application to amend its certificate."

The Commission further noted that even in cases where it is appropriate to amend a certificate to reflect "intervening change[s]" falling between certificate issuance and commencement of service, the timing of the amendment request's filing can impact whether the request can be considered and acted upon by the Commission. FERC noted that in a prior proceeding it had held that an application to amend a certificate filed 41 days prior to the anticipated service commencement date would have, if FERC had not been able to act especially expeditiously, left the applicant with the choice of delaying its service commencement date or accepting rejection of its amendment. In another prior proceeding, the Commission had refused to resolve issues raised in a section 7 certificate amendment because the issues could not be resolved based on the data submitted by the applicant prior to the requested in-service date. Here, the Commission held that while TC Offshore had filed its Negative Salvage Study on July 23, 2012, it also filed on August 1, 2012 its proposal to commence service on October 1, 2012. As of the date of the First Rehearing Order denying rehearing on the salvage rates issue, "TC Offshore had filed nothing indicating that it intended to postpone commencement of service beyond October 1, 2012, to allow sufficient time for the Commission to consider its amendment request." The appropriateness of the proposed, increased negative salvage rates was a contested issue, and "there was insufficient time to develop an adequate record on TC Offshore's newly-filed study and reach a reasoned resolution . . . before the date the company stated it intended to go into service."

Further, the Remand Order holds that TC Offshore's submission, "as a proposed [certificate] amendment . . . was deficient on its face." It did not constitute "a separate and complete certificate amendment application, including exhibits, in full compliance with" Commission regulations and precedent.

In conclusion, on the request to consider the Study as "a certificate amendment," FERC concludes that "exercising our discretion to consider TC Offshore's late-filed study as an amendment to its certificate application is unjustified and contrary to the public interest." The Remand Order concludes: "The Commission hereby responds to the issue remanded to it by the D.C. Circuit, as set forth in the body of this order."

The Kinetica Remand Order can be found here.

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