oral argument not yet scheduled in the united states...

ORAL ARGUMENT NOT YET SCHEDULED

IN THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

Case Nos. 18-1224, 18-1280, 18-1308, 18-1309, 18-1310, 18-1311, 18-1312 and 18-1313 (Consolidated)

ATLANTIC COAST PIPELINE, LLC, Petitioner,

v.

FEDERAL ENERGY REGULATORY COMMISSION,

Respondent.

ON PETITIONS FOR REVIEW OF ORDERS OF THE FEDERAL ENERGY REGULATORY COMMISSION

INITIAL BRIEF OF PETITIONER NORTH CAROLINA UTILITIES COMMISSION

Kathleen L. Mazure

Jason T. Gray Kenneth Holmboe Duncan & Allen

1730 Rhode Island Ave. NW Suite 700 Washington, DC 20036

(202) 289-8400 [email protected] [email protected] [email protected]

Attorneys for the North Carolina Utilities Commission

Dated: April 5, 2019

USCA Case #18-1224 Document #1781431 Filed: 04/05/2019 of 105

1

CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES

Pursuant to Circuit Rule 28(a)(1), Petitioner, the North Carolina Utilities

Commission, files this certificate regarding parties, rulings, and related cases.

A. Rulings Under Review The Federal Energy Regulatory Commission orders under the following

orders:

1. Atl. Coast Pipeline, LLC, Order Issuing Certificates, Docket Nos. CP15-554-000, CP15-554-001, CP15-555-000, and CP15-556-000, 161 FERC ¶ 61,042 (October 13, 2017); and

2. Atl. Coast Pipeline, LLC, Order on Rehearing, Docket Nos. CP15-554-

002, CP15-555-001, and CP15-556-001, 164 FERC ¶ 61,100 (August 10, 2018).

B. Parties and Intervenors

The Petitioner appearing in this Court is the North Carolina Utilities

Commission. The Respondent is the Federal Energy Regulatory Commission.

To counsel’s knowledge, the following additional parties have moved to

intervene in these consolidated proceedings:

Bold Alliance Bold Educational Fund Nancy Kassam-Adams Shahir Kassam-Adams Peter A. Agelasto, III, Individually and as chairman of Rockfish


2

Valley Foundation Judith Allen Eleanor M. Amidon Dawn Averitt Jill Averitt Richard Averitt Sandra Smith Averitt, Dr.

James R. Bolton

Constance Brennan

Joyce D. Burton

Carolyn L. Fischer

Bridget K. Hamre

Charles R. Hickox

Demian K. Jackson

Janice Jackson

Lisa Y. Lefferts

William Limpert

David Drake Makel

Carolyn Jane Maki

Wade Neely

Nelson County Creekside, LLC


3

Louis Ravina

Rockfish Valley Foundation

Rockfish Valley Investments

Victoria C. Sabin

Alice Rowe Scruby

Timothy Mark Scruby

Marilyn M. Shifflett

Sharon Summers

Chapin Wilson, Jr.

Wintergreen County Store Land Trust

Kenneth M. Wyner

Elizabeth G. Neely

Lora Baum

Victor Baum

Friends of Nelson

Wintergreen Property Owners Association, Inc.

Friends of Wintergreen, Inc.

Fairway Woods Homeowners Condominium Association

North Carolina Utilities Commission

Appalachian Voices


4

Chesapeake Climate Action Network

Sierra Club

Cowpasture River Preservation Association

Friends of Buckingham

Highlanders for Responsible Development

Shenandoah Valley Battlefields Foundation

Shenandoah Valley Network

Sound Rivers, Inc.

Virginia Wilderness Committee

Wild Virginia, Inc.

Winyah Rivers Foundation, Inc.

Chesapeake Bay Foundation, Inc.

Piedmont Environmental Council

Atlantic Coast Pipeline, LLC

Chesapeake Climate Action Network

Independent Oil & Gas Association of West Virginia, Inc.

Dominion Energy Transmission, Inc.


5

To counsel’s knowledge, the following parties appeared in the underlying

proceeding before the Federal Energy Regulatory Commission regarding Atlantic

Coast Pipeline, LLC, Docket No. CP15-554:

Pamela Farnham

Ernest Reed

Virginia Cross

Misty Boos

Marion Kanour

Christine Stinson

Nancy & Shahir Kassam-Adams

Kenneth Norwood

Kyle Lawrence

Caroline Bray

Suzanne Keller

Melissa Luce

Charlotte Rea

James Bolton

William Fenton

Mark Johnson

Thomas Eick

Michael Tabony

Laura Cross

Melissa Duquette


6

Jack Wilson

Carlos Arostegui

R. Craig Cooper

Dimitriyka Holmes

Marilyn Shifflett

Toni Ranieri

Marcia Gibbons

Joanna Salidis

Kate Wofford

Craig Vanderhoef

Hannah Beaman

David Roach

Cheryl Borgman

Lisa Tully

Prem Anjali

John Geary

Travis Geary

Christopher Crum

John Domena

Lawrence Luessen

Neil Gleberman

Kathleen Kelly

Sandee Gammon


7

Joanne White

Martha Szczur

Harry Eschenroader

Aurelia Lewis

Randolph Carroll

Diana Henderson

Darlene Spears

Kenneth Webster

Neil Gleberman

Faye Cooper

James Urquhart

Doris Marsh

Amanda Smith

Lawton Smith

Richard Souder

Patricia Kinser

Jill Reed

Victoria Sabin

Jonna Clarkson

Marie Flowers

Jill Averitt

Christina Courtenay

Kerrie Manthey


8

Gail Troy

Lee Diehl

Ronald Blake

Adrian Jones

Heidi Berthoud

Dan Lysy

John Laury

Peggy Quarles

David Makel

Martha Makel

Dan Lysy

Paula Alexander

Digna Gantt

Robert Day

Beverly Rayman

Anne Buteau

Dennis Bryant

Bruce Sutton

Samantha Embrey

Kathy Versluys

Trudy Hale

Jane Raup

John Minear


9

Michael Manthey

Peter Agelasto

Beth Musick

Richard Averitt

Lisa Lefferts

Elanor Amidon

Alda Curtis

Benjamin Brackett

Sara Agelasto

Philip Gordon

Deanna Lyerly

Christina Wulf

Vanessa McMullen

Nancy Crone

Tom Trykowski

Virginia Davis

Trew Bennett

Beverly McQuary

Robert Whitescarver

Gloria Diggs

James Garner

Janelle Carroll

Richard Brooks


10

Cindy Palmer

Brenda Nycum

William Barr

James Raup

Ellen Quade

Paul Leverone

Amelia Williams

Jonathan Norwood

Gavin McClung

Leslie Benz

Heidi Cochran

Elizabeth Tabony

David Holub

Tara Eckenroad

Ronald Fandetti

Joel Bennett

David Collins

Lucas Blanchard

Louis Ravina

David Sandrowitz

Yvette Ravina

Jeffrey Winn

Alen Engle


11

Susan Norton

Susan Garcia

Jane Morriss

Eleanor Labiosa

Fred Powell

Pamela Gibson

Jorge Garcia

Diana Woodall

Robert Pritchard

James Campbell

Vicki Wheaton

Ivy Melero Johnson

Eric Madren

Albert Morriss

Andrea Wasiewski

Warren Ross

Julia Araya

Daniel Lamay

Susan Baker

Carell Cassey

Timothy Keefer

Erin Carter

David Schwiesow


12

Reese Bull

C. Nelson Hoy

Michael Cook

Jennifer Constine

Peter Winik

Dianna Sicilia

Susanna Williams

Jean McConkey

Erin Johnson

Laurie Sandow

Nancy Avery

Faith Bryant

Heidi Reed

James Kindig

Lawrence Stopper

Richard Averitt

Kristina Adler

John Withers

William Thomson

Eric Lawson

Allen Ray Johnson

Laura Neale

Kenneth Wyner


13

Lorne Stockman

Dhyani Simonini

Louanne Fatora

Sandra Averitt

James Klemic

Sherry Robinson

Deborah Kushner

Lisa Madren

John Chaffee

Janice Jackson

Carolyn Maki

Lakshmi Fjord

Laura Greenleaf

Virginia Dawnswir

Catherine McNeal

Charles Hickox

Melanie Cramer

Carter Douglass

William McClain

W. Joseph Vogel

Peter Osborne

Jane Twitmyer

Constance Brennan


14

Russell Headley

James Wright

Demian Jackson

Joyce Burton

Carrie Dorsey

Maria Puente-Duany

J. Fulmer

Nancy Wood

David Gleberman

William Monroe

Eva Clarke

Patricia Pile

Chris Asmann

George Pipkin

Barbara Strauss

Nancy Baillie

Erin Shehane

David Sligh

Ruth Hall

Patricia Helterbran

Lynne Williams

David Cole

Jennifer Lewis


15

Andrew Friedberg

Thomas Lawless

Eugene Mills

William Baker

Louisa Averitt

Sally Hostetler

Michelle Van Doren

Erin Trzell

Alexa Boker

William Moore

Carl Van Doren

Cynthia Coy

Charles Wineberg

Michael Craig

Asha Greer

Joseph Madison

Karen Osborne

Sarah Ray

Carolyn Fischer

Elizabeth Leverone

Janet Lychock

Mark Graver

Lena Davis


16

Pamela Mckeithen

Robert Robinson

Lennice Werth

John McKeithen

Donna Hadden

Anna Samuels

Dane Webster

Swami Dayananda

K. Hanuman

Leslie Cook

Linda Heuer

Sarah Cross

Louise Wood

Maureen Gray

Samantha Gray

Douglas/Yvonne Harris

Sandra Schluadecker

Jonathan Ansell

David Cross

Rosalie Kerr

Bonnie Powell

Timothy Scruby

Alice Scruby


17

Jessica Troop

Dawn Averitt

William Goodwin

Sharon Summers

Graham Wiatt

Rebecca Trafton

Kathy Versluys

Martha Szczur

Tim Morse

Chris Wolfertz

Chris Prosise

Charles Burke

Fred Adkins

Anne Bryan

Linda Martin

Bert Carlson

Robert Moody

Ann Warner

Ross Waller

Marian Quinlan

Jeannette Robinson

Richard Watkins

Jean Howell


18

Tomas Epling

Lorentz Hodges

Harold King

Richard Brooks

Judy Allen

James McLean

Sally Adkins

James English

John Cowden

Joyce Alexander

Wade Neely

Bonnie Ralston

John Leyzorek

Ricki Carruth

Sarah Irwin

Mary Hodges

Ellen Ford

William Limpert

John Carruth

Mindy Brooks

Amanda McGuire

Scott Miller

Maron Ewald


19

Mary Forbes

Dempsie Hevener

William Limpert

Nancy Miller

Jackie Tan

Ronald Carpenter

Marjorie Hevener

Terry Jackson

Diana Green

Elfrieda McDaniel

Anthony Malanka

Karen Kelly

James Peterson

Maura McLaughlin

Carol Allen

Gil Willis

Stephanie Macgill

William Alexander

James Rice

Ann Williams

Mary Willis

William Smithdeal

Eileen Smithdeal


20

Tom Shipley

George Bell

Jeanne Bell

Philip Deemer

Edward Laikin

Beverley Vernon

Eric Clegg

Sharon Frazier

Aaron Cumashot

Graham Bell

Douglas Leslie

Michael Frazier

Judith Clark

Janet Starr

Daron Dean

Joseph Murray

Billy Crum

Elizabeth Dean

Laura Smith-Hos

Lisa Dean

Frank Reichel

Leslie King

Paul Benson


21

April Moncrief

Barry Marshall

Amy Scott

Gil Willis

Julie Weaver

George Phillips

Teresa Ling

Paul Filmer

Carson Ralston

William Limpert

Thomas Epling

Else Lauterbach

K Carpenter

William Moore

Helen Kimble

Russell Holt

Roberta Koontz

David Cowden

Brett Jones

Ann Mellen

Alain San Giorgio

K Hanuman

Charles Goodwin


22

Thomas Callahan

Colin Winter

Gordon Lipscombe

Morgan Lanier

Roberta Koontz

Sara Might

Richard Averitt

Paul Leverone

Mary Hoffman

Homer Bauserman

Hunter Gallimore

Kerrie Manthey

Tyler Paul

Energy Sure

Malcom Cameron

Aaron Kemmerer


County of Augusta

Dividing Waters Farm

The Wilderness

Dominion Pipeline Monitoring Coalition

Dominion Transmission, Inc.

Duke Energy Carolinas, LLC


23

Duke Energy Progress, LLC

Fayetteville Public Works Commission

Fenton Family Holdings, LLC

Fenton Inn, LLC

Heather Louie Finch

Jane Flowers Finch

Lamm Pearl Finch

Wade Raymond Finch

First Energy Service Company

Free Nelson

Friends of Buckingham

Friends of Nelson

Friends of Shenandoah Mountain

Friends of the Central Shenandoah

Friends of the Middle River

Friends of Water WV

Friends of Wintergreen, Inc.

Garden Ridge Camp, LLC

Greenville Utilities Commission

Hatchery Run Homeowners Association, Inc.

Headwaters Defense

Heartwood

Highland County Cave Survey


24


Hop Gas, Inc.

Horizons Village

Clark A. Chinn

Georgianna Reid

IOGA of West Virginia

Jackson River Preservation Association Inc.

James River Association

Laborers International Union of NA

Monroe Institute

Natural Resources Defense Council

NC Warn

Nelson County Board of Supervisors

Nelson Hilltop, LLC

New Jersey Natural Gas Co.

NJR Energy Services Co.

North Carolina Electric Membership Corp.

North Carolina Farm Bureau Federation


Ohio Valley Environmental Coalition

Peoples Gas WV LLC

Peoples Natural Gas Company LLC

Peoples TWP LLC


25

Piedmont Natural Gas Company, Inc.

Potomac Appalachian Trial Club – Southern Shenandoah Valley Chapter

Preservation Virginia

Public Service Company of North Carolina, Inc.

ROC Hard Partners, LLC

Rockfish Valley Foundation

Rockfish Valley Investments, LLC

Shenandoah Riverkeeper

Shenandoah Valley Battlefields Foundation


Slatyfork Farm Owners

Southern Environmental Law Center

Sunset Mountain Enterprises, Inc.

The Fairway Woods Homeowners Condominium Association

Trout Unlimited, Inc.

Valley Conservation Council, Inc.

Virginia Chamber of Commerce

Virginia Natural Gas, Inc.

Virginia Outdoors Foundation

Virginia Polytechnic Institute & State

Virginia Power Services Energy Corp, Inc.

Virginia Tech



26

Washington Gas Light Company

Waterkeepers Chesapeake

West Virginia Oil and Natural Gas Association

West Virginia State Building and Construction Trades Council – AFL-CIO

White’s Wayside

Wild Virginia

Wintergreen Pacific, LLC

Wintergreen Property Owners Association Inc.

Winyah Rivers Foundation, Inc.

To counsel’s knowledge, the following parties appeared in the underlying

proceeding before the Federal Energy Regulatory Commission regarding Dominion

Transmission, Inc., Docket No. CP15-555:

Ernest Reed

Eleanor Amidon

William McClain

Debra Borowiec

Barbara Sims

Charlotte Rea

Christina Woods

Judith Mohr

Tyler Paul

James Rice

Edward Laikin


27

Richard Averitt

Allegheny Defense Project

Appalachian Mountain Advocates


Piedmont Natural Gas Company, Inc.

Atmos Energy Corp.

Atmos Energy Marketing LLC

Blue Ridge Environmental Defense League

Cabot Oil and Gas Corporation

Chesapeake Bay Foundation, Inc.

City of Richman, VA

City of Rocky Mount, NC

Clean Air Council

Dominion Transmission Inc.

Duke Energy Carolinas, LLC

Duke Energy Progress, LLC

Exelon Corporation

Fenton Inn, LLC

FirstEnergy Service Co.

Friends of Nelson

Greenville Utilities Commission

Headwaters Defense

Heartwood


28


Hope Gas, Inc.

IOGA of West Virginia

Natural Resources Defense Council

NC WARN

New Jersey Natural Gas Co.

NJR Energy Services Co.

North Carolina Electric Membership Corp.


Ohio Valley Environmental Coalition

Peoples Gas WV LLC

Peoples Natural Gas Company LLC

Peoples TWP LLC

Public Service Company of North Carolina, Inc.

Shenandoah Battlefields Foundation


South Carolina Office of Regulatory Staff

Southern Environmental Law Center

Trout Unlimited, Inc.

UGI Distribution Companies

Virginia Natural Gas, Inc.

Virginia Power Services Energy Corp, Inc.



29

Washington Gas Light Co.

West Virginia oil and Natural Gas Association

West Virginia State Building and Construction Trades Council- AFL-CIO

Wild Virginia

C. Related Cases Case Nos. 18-1018, et al. before this Court, raised the same substantive issues

that the North Carolina Utilities Commission is raising with respect to Dominion

Transmission, Inc. Case Nos. 17-1721 and 18-1128 both address the policy allowing

new-entrant pipelines to develop recourse rates using a 14% return on equity, which

NCUC raises herein concerning Atlantic Coast Pipeline, LLC.

Dated: April 5, 2019 Respectfully submitted,

/s/ Kathleen L. Mazure Kathleen L. Mazure Jason T. Gray Kenneth Holmboe Duncan & Allen 1730 Rhode Island Ave. NW Suite 700 Washington, DC 20036 (202) 289-8400 [email protected] [email protected] [email protected] (202) 289-8400 (Telephone) (202) 289-8450 (Facsimile) Attorneys for the North Carolina Utilities Commission


1

RULE 26.1 CORPORATE DISCLOSURE STATEMENT FOR CASE NOS. 18-1018, 18-1019, and 18-1020

Pursuant to Rule 26.1 of the Federal Rules of Appellate Procedure and Rule

26.1 of the Circuit Rules for the United States Court of Appeals for the District of

Columbia Circuit, the North Carolina Utilities Commission (“NCUC”) states that it

is a regulatory body organized and existing under the laws of the State of North

Carolina. N.C. GEN. STAT. § 62, et seq. (2017). As a political subdivision of the

State of North Carolina, the NCUC is not a non-governmental corporate entity

subject to the requirements of Rule 26.1 of the Federal Rules of Appellate Procedure

and Rule 26.1 of the Rules of this Court.


/s/ Kathleen L. Mazure Kathleen L. Mazure Jason T. Gray Kenneth Holmboe Duncan & Allen 1730 Rhode Island Ave. NW Suite 700 Washington, DC 20036 (202) 289-8400 [email protected] [email protected] [email protected] (202) 289-8400 (Telephone) (202) 289-8450 (Facsimile) Attorneys for the North Carolina Utilities Commission


i

TABLE OF CONTENTS

TABLE OF AUTHORITIES ................................................................................ ii

GLOSSARY OF ABBREVIATED TERMS ..................................................... vii

JURISDICTIONAL STATEMENT ..................................................................... 1

STATUTES AND REGULATIONS .................................................................... 6

STATEMENT OF ISSUES ................................................................................... 6

STATEMENT OF THE CASE AND STATEMENT OF THE FACTS .......... 7

STATEMENT OF RULINGS PRESENTED FOR REVIEW ........................ 11

SUMMARY OF THE ARGUMENT ................................................................. 11

STANDING ........................................................................................................... 12

ARGUMENT ........................................................................................................ 15

A. The Challenged Orders Failed to Consider or Apply FERC’s Consumer-Protection Policies. ....................................................... 16

B. The Record is Devoid of Any Evidence Demonstrating that a 13.7% Pre-Tax Return or 14% ROE Reflect Current Capital Market Conditions. ......................................................................... 21

C. FERC’s “Hold the Line” Rationale is Flawed. ............................. 24

CONCLUSION ..................................................................................................... 26

CERTIFICATE OF COMPLIANCE

STATUTORY ADDENDUM

CERTIFICATE OF SERVICE


ii

TABLE OF AUTHORITIES

COURT CASES ANR Pipeline Co. v. FERC, 771 F.2d 507 (D.C. Cir. 1985) ............................................................................ 15 *ANR Pipeline Co. v. FERC, 71 F.3d 897 (D.C. Cir. 1995) ........................................................................ 16, 21 *Atl. Ref. Co. v. Pub. Serv. Comm’n of N.Y., 360 U.S. 378 (1959) ................................................................................ 16, 17, 26 *Bluefield Waterworks & Improvement Co. v. Pub. Serv. Comm’n of W. Va, 262 U.S. 679 (1923) ................................................ 8, 18 Burlington Truck Lines, Inc. v. United States, 371 U.S. 156 (1962) ............................................................................................ 16 Cal. Gas Producers Ass’n v. FPC, 421 F.2d 422 (9th Cir. 1970) .................................................................... 7, 16, 26 Canadian Ass’n of Petroleum Producers v. FERC, 254 F.3d 289 (D.C. Cir. 2001) ............................................................................ 20 City of Tacoma v. FERC, 331 F.3d 106 (D.C. Cir. 2003) .............................................................................. 5 Ciba-Geigy Corp. v. EPA, 801 F.2d 430 (D.C. Cir. 1986) .............................................................................. 5 Emera Maine,

854 F.3d 9 (D.C. Cir. 2017) .......................................................................... 22, 24 Elec. Power Supply Ass’n v. FERC, 136 S. Ct. 760 (2016) .................................................................................... 22, 24 Cases principally relied on are marked with an asterisk (*).


iii

FPC v. Hope Natural Gas Co., 320 U.S. 591 (1944) ........................................................................................ 8, 18 Great Lakes Gas Transmission Ltd. P’ship v. FERC, 984 F.2d 426 (D.C. Cir. 1993) ............................................................................ 17 Lujan v. Defs. of Wildlife, 504 U.S. 555 (1992) ............................................................................................ 12 *Mo. Pub. Serv. Comm’n v. FERC, 337 F.3d 1066 (D.C. Cir. 2003) ...................................................................... …26 *Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) .............................................................................................. 16 *Nat’l Mining Ass’n v. McCarthy, 758 F.3d 243 (D.C. Cir. 2014) ............................................................................ 24 *Pac. Gas & Elec. Co. v. FPC, 506 F.2d 33 (D.C. Cir. 1974) .............................................................................. 24 *PPL Wallingford v. FERC, 419 F.3d 1194 (D.C. Cir. 2005) .................................................................... 16, 20 Pub. Sys. v. FERC, 606 F.2d 973 (D.C. Cir. 1979) ........................................................................ 7, 16 S.C. Pub. Serv. Auth. v. FERC, 762 F.3d 41 (D.C. Cir. 2014) .............................................................................. 15 Sacramento Mun. Util. Dist. v. FERC, 616 F.3d 520 (D.C. Cir. 2010) ............................................................................ 15 TNA Merch. Projects, Inc. v. FERC, 616 F.3d 588 (D.C. Cir. 2010) ............................................................................ 15 Williams Gas Processing-Gulf Coast Co., L.P. v. FERC, 475 F.3d 319 (D.C. Cir. 2006) ............................................................................ 16


iv

ADMINISTRATIVE DECISIONS Atl. Coast Pipeline, LLC,

161 FERC ¶ 61,042 (2017) ........................ 1, 2, 3, 8, 9, 11, 13, 14, 15, 19, 20, 24 Atl. Coast Pipeline, LLC,

164 FERC ¶ 61,100 (2018) .................................... 1, 5, 10, 11, 15, 19, 20, 22, 25 Alternatives to Traditional Cost-of-Service Ratemaking for Natural Gas Pipelines, 70 FERC ¶ 61,139 (1995) ....................................... 17 *Alternatives to Traditional Cost-of-Service Ratemaking for Natural

Gas Pipelines, Regulation of Negotiated Transportation Services, 74 FERC ¶ 61,076 (1996), order on clarification, 74 FERC ¶ 61,194 (1996), reh’g denied, 75 FERC ¶ 61,024 (1996), petitions for review denied sub nom. Burlington Res. Oil & Gas Co. v. FERC, 172 F.3d 918

(D.C. Cir. 1998) ..............................................................................2, 7, 14, 17, 18 Interstate and Intrastate Natural Gas Pipeline, Rate Changes Relating to Federal Income Tax Rate, 162 FERC ¶ 61,226 (2018) ................................................................................. 26 N. Natural Gas Co., 105 FERC ¶ 61,299 (2003) ................................................................................. 18 Natural Gas Pipeline Co. of America, 101 FERC ¶ 61,125 (2002) ................................................................................. 18 *Natural Gas Pipeline Negotiated Rate Policies and Practices; Modification of Negotiated Rate Policy, 104 FERC ¶ 61,134 (2003), order on reh’g and clarification, 114 FERC ¶ 61,042 (2006), dismissing reh’g and denying clarification, 114 FERC ¶ 61,304 (2006) ........................................... 2, 7 Portland Natural Gas Transmission Sys., Opinion No. 510-A, 142 FERC ¶ 61,198 (2013) order on request for rehearing and refund report, Opinion No. 510-B, 150 FERC ¶ 61,106 (2015) ................. 18


v

Transcon. Gas Pipe Line Co., LLC, 156 FERC ¶ 61,022 (2016) ................................................................................. 20 WestGas InterState Inc., 59 FERC ¶ 61,029 (1992) ................................................................................... 26 FEDERAL STATUTES 5 U.S.C. § 706 .......................................................................................................... 15 15 U.S.C. § 717a(6) ................................................................................................... 1 15 U.S.C. § 717a(8) ................................................................................................. 13 15 U.S.C. § 717c .................................................................................................. 7, 16 15 U.S.C. § 717f(c) .......................................................................................... 1, 8, 16 15 U.S.C. § 717n(e) ................................................................................................. 13 15 U.S.C. § 717r(a) .................................................................................................... 3 15 U.S.C. § 717r(b) .................................................................................................... 6 STATE STATUTES N.C. GEN. STAT. § 62-2 ............................................................................................ 13 N.C. GEN. STAT. § 62-32 .......................................................................................... 13 N.C. GEN. STAT. § 62-36.01 ..................................................................................... 13 N.C. GEN. STAT. § 62-48 .......................................................................................... 13 N.C. GEN. STAT. § 62-133.4 ..................................................................................... 13


vi

REGULATIONS 18 C.F.R. § 385.207 .................................................................................................... 3 18 C.F.R. § 385.214(a)(2) ......................................................................................... 13 18 C.F.R. § 385.713 .................................................................................................... 3


vii

GLOSSARY OF ABBREVIATED TERMS

Abbreviation Full Term ACP Application The Application that Atlantic Coast Pipeline,

LLC, filed under Section 7 of the Natural Gas Act on September 18, 2015 in Docket No. CP15-554 before the Federal Energy Regulatory Commission seeking a certificate to construct and operate a new pipeline.

Alternative Rates Policy Statement

Alternatives to Traditional Cost-of-Service Ratemaking for Natural Gas Pipelines, Regulation of Negotiated Transportation Services, 74 FERC ¶ 61,076 (1996), order on clarification, 74 FERC ¶ 61,194 (1996), reh’g denied, 75 FERC ¶ 61,024 (1996), petitions for review denied sub nom. Burlington Res. Oil & Gas Co. v. FERC, 172 F.3d 918 (D.C. Cir. 1998).

CATCO Atl. Ref. Co. v. Public Serv. Comm’n of N.Y., 360 U.S. 378 (1959).

Certificate Order Atlantic Coast Pipeline, LLC, 161 FERC ¶ 61,042 (2017).

DCF discounted cash flow DTI Application The Application that Dominion Transmission

Inc. filed under Section 7 of the Natural Gas Act on September 18, 2015 in Docket No. CP15-555 before the Federal Energy Regulatory Commission seeking a certificate to construct and operate the Supply Header Project

FERC Respondent, Federal Energy Regulatory Commission

JA Joint Appendix NCUC Petitioner, North Carolina Utilities Commission


viii

Abbreviation Full Term Negotiated Rate Policy Statement

Natural Gas Pipeline Negotiated Rate Policies and Practices; Modification of Negotiated Rate Policy, 104 FERC ¶ 61,134 (2003), order on reh’g and clarification, 114 FERC ¶ 61,042 (2006), dismissing reh’g and denying clarification, 114 FERC ¶ 61,304 (2006).

NGA Natural Gas Act NCUC’s CP15-554 Protest The North Carolina Utilities Commission’s

Comments in Support of Project and Protest of Proposed Recourse Rates, submitted on October 23, 2015 in Docket No. CP15-554

NCUC’s CP15-555 Protest The North Carolina Utilities Commission’s Notice of Intervention, Comments in Support of Project and Protest of Proposed Recourse Rates, submitted on October 23, 2015 in Docket No. CP15-555

NCUC’s CP15-554 Rehearing The North Carolina Utilities Commission’s request for rehearing, submitted on November 13, 2017 in Docket No. CP15-554.

NCUC’s CP15-555 Rehearing The North Carolina Utilities Commission’s request for rehearing, submitted on November 13, 2017 in Docket No. CP15-555.

p. Citation to “page(s)” in FERC Orders P Citation to “Paragraph(s)” in FERC Orders Piedmont Piedmont Natural Gas Company, Inc. PSNC Public Service Company of North Carolina, Inc. R. Citation Referring to the Certified Index of the

Record Filed in Case No. 18-1224 Recourse rate Rates designed on a cost-of-service, as opposed

to negotiated, basis and set forth in a pipeline’s tariff

Rehearing Order Atlantic Coast Pipeline, LLC, 164 FERC ¶ 61,100 (2018).


1

JURISDICTIONAL STATEMENT

Petitioner in Case No. 18-1280, North Carolina Utilities Commission

(“NCUC”) challenges orders of Respondent, Federal Energy Regulatory

Commission’s (“FERC”), issuing certificates for new interstate natural gas pipeline

facilities:

Atl. Coast Pipeline, LLC, 161 FERC ¶ 61,042 (2017) (“Certificate Order”).1

Atl. Coast Pipeline, LLC, 164 FERC ¶ 61,100 (2018) (“Rehearing

Order”).2

NGA Section 7(c) requires FERC to determine whether certificate proposals

are required by the public convenience and necessity.3 Atlantic Coast Pipeline, LLC

(“ACP”) and Dominion Transmission, Inc. (“DTI”) are natural gas pipeline

companies under NGA Section 2(6).4 On September 18, 2015, DTI filed an

application for its Supply Header Project to provide service from supply areas on

DTI’s system to ACP (“DTI Application”).5 The DTI Application was assigned

Docket No. CP15-555. That same day, ACP filed an application to construct new

1 R.13700; [JA ____]. 2 R.14312; [JA ____]. 3 15 U.S.C. § 717f(c)(1)(A). 4 15 U.S.C. § 717a(6). 5 R.3535, DTI Application, at 1; [JA ____].


2

facilities in West Virginia, Virginia, and North Carolina (“ACP Application”).6 The

ACP Application was assigned Docket No. CP15-554. ACP/DTI proposed to

provide service under “negotiated” rates.7 ACP will use its and the DTI capacity to

serve two North Carolina utilities that NCUC regulates, Piedmont Natural Gas

Company, Inc. (“Piedmont”) and Public Service Company of North Carolina, Inc.,

(“PSNC”).8 Therefore, NCUC’s constituents, i.e., North Carolina ratepayers, will

pay a portion the costs of ACP’s/DTI’s projects.

NCUC filed separate, timely Notices of Intervention in both proceedings9 and

separate comments supporting ACP’s/DTI’s respective projects but protesting their

proposed recourse rates.10 NCUC argued that the agreed-upon negotiated rates are

tainted because FERC failed to apply its policies11 that require pipelines to offer valid

6 R.3532, ACP Application, at 1-2; [JA ____-____]. 7 Id., 25; R.3535, DTI Application, at 16; [JA ____; ____]. 8 R.3942, Piedmont Comments, at 3-4; R.4204, PSNC Comments, at 5-6; R.13700, Certificate Order, at PP 7, 9; [JA ____; ____; ____]. 9 R.3694; R.4182 [JA ____; ____]. 10 R.4181; R.4182 [JA ____; ____]. 11 Alternatives to Traditional Cost-of-Service Ratemaking for Natural Gas Pipelines, Regulation of Negotiated Transportation Services, 74 FERC ¶ 61,076 (1996), order on clarification, 74 FERC ¶ 61,194, reh’g denied, 75 FERC ¶ 61,024, petitions for review denied sub nom. Burlington Res. Oil & Gas Co. v. FERC, 172 F.3d 918 (D.C. Cir. 1998) (“Alternative Rates Policy Statement”); Natural Gas Pipeline Negotiated Rate Policies and Practices; Modification of Negotiated Rate Policy, 104 FERC ¶ 61,134 (2003), order on reh’g and clarification, 114 FERC ¶


3

recourse rates during rate negotiations to prevent pipelines from exercising market

power when negotiating rates in 2015.12 Instead, DTI calculated recourse rates using

its last-stated pre-tax return of 13.70%, established in 199713 and ACP calculated

recourse rates using a 14% return-on-equity (“ROE”).14 NCUC concluded

ACP’s/DTI’s recourse rates could not serve as the requisite check on pipeline market

power because they were overstated and unsupported.15 Over NCUC’s objections,

FERC’s Certificate Order granted ACP’s/DTI’s applications.16

NCUC submitted separate, timely rehearing requests under NGA Section

19(a)17 and FERC Rules 207 and 713.18 Concerning DTI, NCUC argued:

It was error, and not the product of reasoned decision-making, for [FERC] to allow DTI to establish recourse rates that do not take into account the significant changes in the financial markets that have

61,042 (2006), dismissing reh’g and denying clarification, 114 FERC ¶ 61,304 (“Negotiated Rate Policy Statement”). 12 R.4181, NCUC’s CP15-554 Protest, at 3-4; R.4182, NCUC’s CP15-555 Protest, at 4-5; [JA ____-____; ____-____]. 13 R.4182, NCUC’s CP15-555 Protest, at 5-8 (discussing R.3535, DTI Application, at 17, Exhibit P); [JA ____-____]. 14 R.4181, NCUC’s CP15-554 Protest, at 4-7 (discussing R.3532, ACP Application, at 30, Exhibit P); [JA ____-____]. 15 R.4181, NCUC’s CP15-554 Protest, at 3-7; R.4182, NCUC’s CP15-555 Protest, at 4-8; [JA ____-____; ____-____]. 16 R.13700, Certificate Order, at PP 101-04, 110-11; [JA ____-____, ____-____]. 17 15 U.S.C. § 717r(a). 18 18 C.F.R. §§ 385.207, 385.713.


4

occurred since DTI’s last rate case established a stated pre-tax return, which DTI used to calculate recourse rates in this case. That finding is inconsistent with (1) [FERC’s] obligations under the NGA; (2) FERC’s acknowledgment that the predicate for allowing a pipeline to charge a negotiated rate is that capacity is available at the recourse rate; and (3) [FERC] precedent recognizing the importance of using current market conditions to develop capital costs.19

Concerning ACP, NCUC argued:

1) It was error, and not the product of reasoned decision-making, for [FERC] to approve ACP’s proposed recourse rates, which used an unsupported and overstated 14 percent ROE. [FERC’s] analysis improperly relied on prior cases where FERC allowed a 14 percent ROE for new entrant pipelines, without providing any analysis of a proper ROE for ACP based on the facts of this case. FERC’s acceptance of the 14 percent ROE is inconsistent with (1) [FERC’s] obligations under the NGA; (2) court and [FERC] precedent recognizing the importance of using current market conditions to develop capital costs; and (3) any ROE approved for any pipeline after proper analysis in the past several years.

2) It was error, and not the product of reasoned decision-making, for [FERC] to allow ACP to enter into negotiated rate agreements without ensuring at the time those negotiated rates were entered into that the market power of the pipeline was checked via recourse rates that are not overstated. The failure to ensure that the negotiated rates were not tainted by the exercise of market power by the pipeline is inconsistent with (1) [FERC’s] obligations under the NGA; (2) FERC’s acknowledgment that the predicate for allowing a pipeline to charge a negotiated rate is that capacity is available at an appropriate recourse rate; and (3) court and [FERC] precedent recognizing the importance of using current market conditions to develop capital costs. [FERC’s] proposed remedy—to address rate of return and other cost of service elements after ACP files a cost and revenue study after three years of service, ignores the excessive ROE granted to ACP in the instant

19 R.13765, NCUC’s CP15-555 Rehearing, at 3-4; [JA ____-____].


5

proceeding that therefore fails to provide the needed check on ACP’s market power during the time period when ACP and its shippers agreed to negotiated rates.20

FERC rejected NCUC’s ACP rehearing request.21 Other than a blanket

dismissal in Order Paragraph (A), FERC did not explicitly address NCUC’s DTI

rehearing request. To conserve resources and promote administrative efficiency and

comity, NCUC sought expedited reconsideration so FERC could address NCUC’s

DTI rehearing request before the deadline for petitions for review.22 FERC never

acted on NCUC’s motion.

FERC’s orders issued certificates to construct facilities in North Carolina and

relied on negotiated-rate contracts with North Carolina utilities to find need, the

costs of which will be recovered from North Carolina ratepayers. Therefore, those

orders “firmly establish [FERC’s] position on the issues under review” and

“represent a ‘definitive [position that] has a direct and immediate . . . effect on the

day-to-day business of the parties challenging the action,’ manifesting that the orders

are sufficiently final for judicial review.”23 NCUC timely petitioned this Court to

20 R.13766, NCUC’s CP15-554 Rehearing, at 3; [JA ____] (footnotes omitted). 21 R.14312, Rehearing Order, at PP 64-74; [JA ____-____]. 22 See Docket No. CP15-555, NCUC’s Motion for Expedited Reconsideration; [JA ____]. 23 City of Tacoma v. FERC, 331 F.3d 106, 113 (D.C. Cir. 2003) (quoting Ciba-Geigy Corp. v. EPA, 801 F.2d 430, 436 (D.C. Cir. 1986)).


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review FERC’s orders per NGA Section 19(b).24 Jurisdiction is established by NGA

Section 19(b), Rule 15(a) of the Federal Rules of Appellate Procedure, and Circuit

Rule 15, as FERC’s orders constitute final judgments disposing of NCUC’s claims

and rendering NCUC aggrieved.

STATUTES AND REGULATIONS

Pertinent statutes and regulations are in the attached addendum.

STATEMENT OF ISSUES

1. Whether FERC acted arbitrarily and capriciously by failing to respond to

NCUC’s arguments on rehearing regarding DTI.

2. Whether FERC erred, failed to engage in reasoned decision-making, failed

to fulfill its consumer-protection obligations under the NGA, failed to

apply its own Alternative Rates Policy Statement and Negotiated Rate

Policy Statement—which require valid recourse rates be available to

shippers to serve as a check against the potential exercise of pipeline

market power at the time shippers are entering into negotiated rate

contracts for transportation service—or failed to explain its departure from

precedent, by relying on the existence of negotiated rate agreements to

make a determination of need under NGA Section 7 for the construction

of facilities in North Carolina, and relied on negotiated-rate contracts with

24 15 U.S.C. § 717r(b).


7

North Carolina utilities to find need, the costs of which will be recovered

from North Carolina ratepayers, despite the fact that DTI calculated its

recourse rates using an outmoded, stale, and excessive return and ACP

calculated its recourse rates using a return that was “derived from another

case and another pipeline.”25

STATEMENT OF THE CASE AND STATEMENT OF THE FACTS

This appeal involves FERC policies that should work in concert and be

considered to fulfill the NGA’s consumer-protection mandate.26 One set of

policies—FERC’s Alternative Rates and Negotiated Rates Policy Statements—

permits pipelines to negotiate individualized rates that are not based on FERC’s

traditional approach of basing rates on the pipeline’s the cost-of-service.27 Those

policies require pipelines to make cost-of-service (i.e., recourse) rates available to

shippers negotiating rates to prevent pipelines from exercising market power during

negotiations.28 Another policy requires pipelines’ returns—i.e., the authorized

25 Sierra Club v. FERC, 867 F.3d 1357, 1378 (D.C. Cir. 2017). 26 See Cal. Gas Producers Ass’n v. FPC, 421 F.2d 422, 428 (9th Cir. 1970) (FERC’s “primary duty under the Natural Gas Act is the protection of the consumer”); see also Pub. Sys. v. FERC, 606 F.2d 973, 979 n.27 (D.C. Cir. 1979) (citing 15 U.S.C. § 717c(a), (b)). 27 Alternative Rates Policy Statement, at p. 61,240. 28 Id., at pp. 61,240-41; see also Negotiated Rate Policy Statement, at P 4.


8

profit pipelines may earn on investment—to be based on current capital market

conditions.29

In NGA Section 7(c) proceedings, FERC determines whether to issue

certificates of public convenience and necessity for new interstate pipeline

facilities.30 To promote expediency, FERC allows existing pipelines to calculate

recourse rates using their last-stated return,31 and new-entrant pipelines to calculate

recourse rates using a 14% ROE and 50/50 capital structure.32 The consumer

protections embedded in the Alternative Rates and Negotiated Rate Policy

Statements, and the requirement that returns reflect current capital market

conditions, must be considered, and should trump, the expediency-based policies.

Below, ACP/DTI sought certificates to construct new pipeline facilities.33 All

services ACP/DTI contracted to provide over the new facilities are under negotiated

rates,34 which should have triggered FERC’s Alternative Rates and Negotiated Rates

29 FPC v. Hope Natural Gas Co., 320 U.S. 591, 603 (1944); Bluefield Waterworks & Improvement Co. v. Pub. Serv. Comm’n of W. Va, 262 U.S. 679, 692-93 (1923). 30 15 U.S.C. § 717f(c). 31 R.13700, Certificate Order, at P 110 n.163; [JA ____]. 32 Id., at P 102; [JA ____]. 33 R.3535, DTI Application, at 1; R.3532, ACP Application, at 1-2; [JA ____; ____-____]. 34 R.3535, DTI Application, at 16-17; R.3532, ACP Application, at 25, 31; [JA ____-____; ____].


9

Policy Statements. Rather than demonstrate compliance or show the proposed

returns used to calculate recourse rates reflected current capital market conditions,

DTI only followed the last-stated return policy35 and ACP only followed the policy

allowing new-entrant pipelines to calculate recourse rates using a 14% ROE.36

NCUC protested, arguing application of those policies below produced

excessive and unsupported recourse rates contrary to the Alternative Rates and

Negotiated Rate Policy Statements.37

FERC’s Certificate Order rejected NCUC’s protests.38 For DTI, FERC held

application of its last-stated return policy “is an appropriate exercise of its

discretion” because DTI’s initial rates “will ‘hold the line’ until just and reasonable

rates are adjudicated under section 4 or 5 of the NGA.”39 FERC found ACP’s

proposed 14% ROE “reasonably reflect[s]” current policy for new-entrant

pipelines.40 Without explanation, FERC ignored NCUC’s arguments concerning the

Alternative Rates and Negotiated Rate Policy Statements.

35 R.3535, DTI Application, Exhibit P at 4; [JA ____]. 36 R.3532, ACP Application, at 30; [JA ____]. 37 R.4182, NCUC’s CP15-555 Protest, at 5-7; R.4181, NCUC’s CP15-554 Protest, at 5-7; [JA ____-____; ____-____]. 38 R.13700, Certificate Order, at PP 97-104, 107-111 [JA ____-____, ____-____]. 39 Id., at P 111; [JA ____]. 40 Id., at P 104; [JA ____].


10

NCUC filed separate, timely rehearing requests.41 Concerning DTI, NCUC

acknowledged FERC’s last-stated return policy but highlighted FERC’s obligation

to justify application of its policies.42 NCUC also explained FERC ignored NCUC’s

arguments concerning the Alternative Rates and Negotiated Rate Policy Statements

and the requirement to base returns on current market conditions,43 and the flaws in

FERC’s “hold the line” rationale.44 FERC’s Rehearing Order denied NCUC’s

arguments without acknowledging or addressing them.45

Concerning ACP, NCUC argued FERC erred, and failed to engage in

reasoned decision-making, by uncritically applying its 14% ROE policy without

applying, or even considering, its other relevant policies.46 FERC’s Rehearing Order

acknowledged those arguments but rejected them without analysis.47

The afore-mentioned actions are arbitrary and capricious.

41 R.13765, NCUC’s CP15-555 Rehearing; R.13766, NCUC’s CP15-554 Rehearing; [JA ____; ____]. 42 R.13765, NCUC’s CP15-555 Rehearing, at 9; [JA ____]. 43 Id., at 7-12; [JA ____-____]. 44 Id., at 13-14; [JA ____-____]. 45 R.14312, Rehearing Order, at Ordering Paragraph (A); [JA ____]. 46 R.13766, NCUC’s CP15-554 Rehearing, at 3-16 (citations omitted); [JA ____-____]. 47 R.14312, Rehearing Order, at PP 66-73; [JA ____-____].


11

STATEMENT OF RULINGS PRESENTED FOR REVIEW

NCUC challenges FERC’s:

blanket denial of NCUC’s DTI rehearing request without acknowledging or addressing NCUC’s arguments;48

reliance on negotiated rate contracts with North Carolina utilities, the costs of which will be recovered from North Carolina ratepayers, to issue certificates to ACP/DTI for new facilities, including those to be constructed in North Carolina, without ensuring rate negotiations underlying those contracts were not tainted by pipeline market power;

sole reliance on its last-stated return policy to approve DTI’s recourse rates;49

“hold the line” rationale;50 and

sole reliance on its new-entrant ROE policy to approve ACP’s proposal to calculate recourse rates using a 14% ROE.51

SUMMARY OF THE ARGUMENT

The challenged orders: (1) failed to respond meaningfully to NCUC’s

arguments regarding DTI; (2) relied on negotiated rate contracts with North Carolina

utilities, the costs of which will be recovered from North Carolina ratepayers, to

issue certificates to ACP/DTI for new facilities, including those to be constructed in

North Carolina, without ensuring rate negotiations underlying those contracts were

48 Id., at Ordering Paragraph (A); [JA ____]. 49 R.13700, Certificate Order, at P 111; [JA ____]. 50 Id., at PP 101, 103, 111; R.14312, Rehearing Order, at P 73; [JA ____, ____, ____; ____]. 51 R.13700, Certificate Order, at PP 101-04; R.14312, Rehearing Order, at P 66; [JA ____-____; ____].


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not tainted by pipeline market power as required by FERC’s Alternative Rates and

Negotiated Rate Policy Statements; (3) failed to explain its departure from

precedent; (4) failed to require ACP/DTI to provide substantial evidence to support

applying FERC’s last-stated return and 14% ROE policies; (5) accepted recourse

rates based on ACP’s 14% ROE and DTI’s 13.7% pre-tax return without analyzing

ACP’s/DTI’s market risks or current capital market conditions; and (6) offered a

flawed “hold the line” solution.

STANDING

Article III standing requires a party to demonstrate an injury-in-fact, or “an

invasion of a legally protected interest which is (a) concrete and particularized . . .

and (b) ‘actual or imminent,’ not ‘conjectural’ or ‘hypothetical[.]’”52 “[T]here must

be a causal connection between the injury and the conduct complained of—the injury

has to be ‘fairly. . . trace[able] to the challenged action of the defendant, and not . . .

the result [of] the independent action of some third party not before the court.’”53

Finally, “it must be ‘likely,’ as opposed to merely ‘speculative,’ that the injury will

be ‘redressed by a favorable decision.’”54 NCUC meets these requirements.

52 Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992) (internal citations omitted). 53 Id., at 560-61 (internal citations omitted). 54 Id., at 561 (internal citations omitted).


13

The NGA55 and FERC’s regulations56 recognize NCUC’s right to participate

as a “party” in FERC proceedings. NCUC’s timely notices of intervention were

granted.57

NCUC has a legally protected interest in the issues on appeal.58 Organized

and existing under North Carolina state law,59 NCUC’s purpose includes regulating

the sale and transportation of natural gas within North Carolina.60 Its sphere of

interest includes rates paid by North Carolina public utilities for interstate natural

gas service because those costs are passed onto North Carolina consumers.61 Some

of the pipeline facilities ACP proposed below would be constructed in North

Carolina.62 ACP will serve Piedmont and PSNC, which serve customers in North

Carolina and are regulated by the NCUC.63 DTI’s Supply Header Project would

55 15 U.S.C. § 717n(e). 56 18 C.F.R. § 385.214(a)(2). 57 R.3694; R.4182; R.13700, Certificate Order, at P 19; [JA ____; ____; ____]. 58 N.C. GEN. STAT. § 62-48(a) (authorizing NCUC “to initiate or appear in . . . proceedings before federal . . . courts”). 59 N.C. GEN. STAT. § 62, et seq. 60 N.C. GEN. STAT. §§ 62-2, 62-32. NCUC is a “State commission” under the NGA. 15 U.S.C. § 717a(8). 61 N.C. GEN. STAT. §§ 62-32, 62-36.01, 62-133.4. 62 R.13700, Certificate Order, at P 1; [JA ____]. 63 Id., at P 6; R.3532, ACP Application, Exhibit I; [JA ____; ____].


14

provide service from supply areas for delivery to ACP.64 ACP will use the DTI

capacity as an integrated part of the service it will provide in North Carolina.65 Thus,

the ACP/DTI capacity will serve, and the costs will be recovered from, North

Carolina ratepayers.

The challenged orders produce actual, concrete harm to NCUC’s interests in

rates paid by North Carolina customers. FERC’s Alternative Rates Policy Statement

relies on the availability of recourse rates to prevent the exercise of pipeline market

power by assuring that customers can revert cost-of-service recourse rates if, during

negotiations, “the pipeline unilaterally demands excessive prices or withholds

service.”66 “If the recourse service remains stagnant, in time, the recourse service

will become outmoded and cease to be a viable alternative to negotiated service.

Since the purpose of the recourse service is to act as a check against pipeline

market power, such a result is impermissible.”67 Even when all service is

provided under negotiated rates, FERC’s policy requires recourse rates be properly

designed to provide the necessary check on pipeline market power during

negotiations. There can be no legitimate doubt that NCUC’s interests were directly

64 R.13700, Certificate Order, at P 2; [JA ____]. 65 R.3532, ACP Application, at 8; [JA ____]. 66 Alternative Rates Policy Statement, at p. 61,240. 67 Id. (emphasis added).


15

harmed when FERC certificated facilities in North Carolina and service to North

Carolina ratepayers through Piedmont and PSNC, without ensuring that recourse

rates checked pipeline market power during the negotiations.68 Accordingly, a

causal connection exists because the injury-in-fact is clearly traceable to the

challenged orders.69

A favorable decision here—i.e., remanding to FERC with direction to ensure

negotiated rates were not tainted by pipeline market power—will redress NCUC’s

harm.

ARGUMENT

FERC’s orders cannot be arbitrary or capricious, reflect an abuse of discretion,

be contrary to law, or be unsupported by substantial evidence.70 FERC has

affirmative obligations to “examine the relevant data and articulate a satisfactory

explanation for its actions, including a ‘rational connection between the facts found

68 R.13700, Certificate Order, P 55; R.14312, Rehearing Order, at P 41; [JA ____; ____]. 69 FERC’s determinations fix legal relationships affecting rates paid by North Carolina customers, which is sufficient to establish standing under this Court’s ruling in ANR Pipeline Company v. FERC, 771 F.2d 507, 516 (D.C. Cir. 1985). 70 5 U.S.C. § 706(2)(A); see also S.C. Pub. Serv. Auth. v. FERC, 762 F.3d 41, 54 (D.C. Cir. 2014); Sacramento Mun. Util. Dist. v. FERC, 616 F.3d 520, 528 (D.C. Cir. 2010); TNA Merch. Projects, Inc. v. FERC, 616 F.3d 588, 591 (D.C. Cir. 2010).


16

and the choice made,’”71 respond to facially-legitimate objections,72 and explain

departures from precedent.73 The challenged orders fail under this standard of

review.

A. The Challenged Orders Failed to Consider or Apply FERC’s Consumer-Protection Policies.

The NGA is a consumer-protection statute.74 The Supreme Court explained

the NGA:

afford[s] consumers a complete, permanent and effective bond of protection from excessive rates and charges. The heart of the [NGA] is found in those provisions requiring initially that any ‘proposed service, sale, operation, construction, extension, or acquisition . . . will be required by the present or future public convenience and necessity . . . and that all rates and charges ‘made, demanded, or received’ shall be ‘just and reasonable’ . . . .75

71 See Motor Vehicle Mfrs. Ass’n of United States, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) (quoting Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 168 (1962)). FERC must “articulate[] a rational explanation for its action.” Williams Gas Processing-Gulf Coast Co., L.P. v. FERC, 475 F.3d 319, 326 (D.C. Cir. 2006) (citation omitted). 72 PPL Wallingford, LLC v. FERC, 419 F.3d 1194, 1198 (D.C. Cir. 2005) (quotations omitted). 73 ANR Pipeline Co. v. FERC, 71 F.3d 897, 901 (D.C. Cir. 1995). 74 See Cal. Gas Producers Ass’n, 421 F.2d at 428 (FERC’s “primary duty under the [NGA] is the protection of the consumer”); see also Pub. Sys., 606 F.2d at 979 n.27 (citing 15 U.S.C. § 717c(a), (b)). 75 Atl. Ref. Co. v. Pub. Serv. Comm’n of N.Y., 360 U.S. 378, 388 (1959) (citing 15 U.S.C. § 717f(c), (e)) (emphasis added). The orders below refer to Atlantic Refining as “CATCO.” NCUC maintains that reference to avoid confusion.


17

Indeed, this Court has affirmed “[t]he NGA’s certification provisions form the ‘heart

of the Act’ and are the means by which [FERC] effectuates the purposes of the Act,

‘to underwrite just and reasonable rates to the consumers of natural gas and to afford

consumers a complete, permanent and effective bond of protection from excessive

rates and charges.’”76

FERC traditionally establishes rates based on the cost of providing service,

i.e., cost-of-service ratemaking.77 Cost-of-service ratemaking establishes the

“recourse” rates, which are the maximum and minimum rates pipelines may charge

for open access transportation service.78 As an alternative, FERC permits pipelines

to negotiate individualized rates with shippers.79 Because they are not constrained

by maximum and minimum rates in pipelines’ tariffs, negotiated rates can expose

shippers to improper exercises of pipeline market power. FERC protects shippers

from that risk by requiring pipelines to “permit shippers to opt for use of the

traditional cost-of-service ‘recourse rates’ in the pipeline’s tariffs, instead of

76 Great Lakes Gas Transmission Ltd. P’ship v. FERC, 984 F.2d 426, 431-32 (D.C. Cir. 1993) (quoting CATCO, 360 U.S. at 388). 77 See Alternatives to Traditional Cost of Service Ratemaking for Natural Gas Pipelines, Request for Comments, 70 FERC ¶ 61,139, at p. 61,393 (1995). 78 Alternative Rates Policy Statement, at p. 61,241. 79 Id., at pp. 61,240-41.


18

requiring them to negotiate rates for any particular service.”80 The availability of

recourse rates prevents pipelines from exercising market power by assuring the

customer can revert to the just and reasonable tariff rate if the pipeline unilaterally

demands excessive prices or withholds service.81 FERC is “particularly concerned”

with maintaining the recourse rates’ integrity.82

[T]he recourse service must remain a viable alternative to negotiated service. Otherwise, if the service remains stagnant, in time, the recourse service will become outmoded and cease to be a viable alternative to negotiated service. Since the purpose of the recourse service is to act as a check against pipeline market power, such a result is impermissible.83

Supreme Court precedent and FERC practice requires public utilities’ ROEs

to be based on current capital market conditions.84 Basing returns underlying

recourse rates on current capital market conditions avoids stagnant and outmoded

recourse rates and protects the integrity of recourse rates.

80 N. Natural Gas Co., 105 FERC ¶ 61,299, P 3 (2003); see also Natural Gas Pipeline Co. of America, 101 FERC ¶ 61,125, P 39 (2002) (invalidating an open season for new capacity where the pipeline solicited negotiated rate bids without offering shippers recourse rates). 81 Alternative Rates Policy Statement, at pp. 61,240-41. 82 Id., at p. 61,240. 83 Id. (emphases added). 84 Hope, 320 U.S. at 603; Bluefield, 262 U.S. at 692-93; Portland Natural Gas Transmission Sys., Opinion No. 510-A, 142 FERC ¶ 61,198, P 233 (2013), order on request for rehearing and refund report, Opinion No. 510-B, 150 FERC ¶ 61,106 (2015).


19

Capital costs are the major cost component for new pipelines.85 For existing

pipelines, FERC “policy is to require that a pipeline’s cost-based recourse rates for

incrementally-priced expansion capacity be designed using the rate of return from

its most recent general rate case approved by [FERC] under section 4 of the NGA in

which a specified rate of return was used to calculate the rates.”86 FERC allows

new-entrant pipelines to calculate recourse rates using a 14% ROE.87 This appeal is

not a direct challenge to those policies. Rather, it challenges FERC’s application of

those policies below because FERC uncritically exalted them above its consumer-

protection obligations and policies to the detriment of ratepayers in North Carolina

that are responsible for the costs passed through by Piedmont and PSNC.

Highlighting FERC’s consumer-protection obligations and policies, NCUC’s

protests demonstrated the returns ACP/DTI used to calculate their respective

recourse rates were overstated. Unless FERC applied its Alternative Rates and

Negotiated Rate Policy Statements and determined ACP’s/DTI’s recourse served as

the requisite check on pipeline market power when ACP/DTI were negotiating

precedent agreements, there is simply no basis to assume pipeline market power did

85 R.3532, ACP Application, Statement P at 3; R.3535, DTI Application Statement P at 3; [JA ____; ____]. 86 R.13700, Certificate Order, at P 110; [JA ____]. 87 Id., at P 102, R.14312, Rehearing Order, at P 66; [JA ____; ____].


20

not taint ACP’s/DTI’s negotiated rates.88 Thus, more analysis was required to ensure

that North Carolina ratepayers would not be responsible for excessive rates passed

through by Piedmont and PSNC.

Contrary to its obligation to respond meaningfully to NCUC’s arguments,89

FERC’s Certificate Order ignored NCUC’s arguments to the detriment of North

Carolina ratepayers. NCUC reiterated its arguments on rehearing, noting FERC’s

obligation to respond meaningfully.90 Rather than address the merits of this

fundamental consumer-protection issue,91 FERC’s Rehearing Order simply

acknowledged NCUC’s arguments regarding ACP,92 ignored them all together

concerning DTI, and rejected them.93 Failing to respond meaningfully to NCUC’s

arguments is patently arbitrary and capricious.

88 R.4181, NCUC’s CP15-554 Protest, at 3-4; R.4182, NCUC’s CP15-555 Protest, at 4-5; R.13765, [JA ____-____; ____-____]. 89 See, e.g., PPL Wallingford, 419 F.3d at 1198 (quotations omitted). 90 R.13765, NCUC’s CP15-555 Rehearing, at 8 (citing Canadian Ass’n of Petroleum Producers, 254 F.3d 289, 299 (D.C. Cir. 2001); R.13766, NCUC’s CP15-554 Rehearing, at 7 (citing same); [JA ____; ____]. 91 Elsewhere, FERC agreed “the predicate for permitting a pipeline to charge a negotiated rate is that capacity is available at the recourse rate.” See, e.g., Transcontinental Gas Pipe Line Co., LLC, 156 FERC ¶ 61,092, P 26 (2016). 92 R.14312, Rehearing Order, at P 65; [JA ____]. 93 Id., Ordering Paragraph (A); [JA ____].


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While FERC can depart from its Alternative Rates and Negotiated Rate Policy

Statements if it provides a reasoned basis for such departure,94 it offered no reasoned

explanation below. FERC did not even acknowledge the departure despite NCUC’s

pleas for FERC to protect ratepayers from excessive rates. Thus, FERC’s orders are

arbitrary and capricious.

B. The Record is Devoid of Any Evidence Demonstrating that a 13.7% Pre-Tax Return or 14% ROE Reflect Current Capital Market Conditions.

No party maintained that ACP’s 14% ROE or DTI’s 13.7% pre-tax return

reflect current capital market conditions, or submitted evidence rebutting the

NCUC’s demonstration95 the proposed returns are outdated and overstated. Rather,

the sole support for DTI’s 13.7% pre-tax return was a footnote identifying DTI’s

1997 rate case as that figure’s source.96 The sole support for ACP’s proposed 14%

ROE was: (1) the statement that “[t]he proposed rate of return reflects the risk

inherent in a new, major project venture like the ACP and is consistent with returns

authorized for other new pipeline companies;” and (2) a single footnote citing cases

94 ANR Pipeline, 71 F.3d at 901. 95 See R.4182, NCUC’s CP15-555 Protest, at 7; R.4181, NCUC’s CP15-554 Protest, at 7 (citing recent FERC orders establishing returns on equity between 10.55%-11.55% (for median returns) and 11.59% (for a very-risky pipeline at the top of the range of reasonableness)); [JA ____; ____]. 96 R.3535, DTI Application, Exhibit P at 4 n.2; [JA ____].


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from 2010 to 2014 to 2015, none of which demonstrates a 14% ROE reflects current

market conditions or complies with FERC’s Alternative Rates and Negotiated Rate

Policy Statements.97

FERC’s uncritical prior applications of its last-stated return and 14% ROE

policies do not demonstrate that the proposed recourse rates are supported by

substantial evidence. The “substantial evidence” standard requires more than mere

citation to instances where FERC accepted recourse rates generally without

discussion. North Carolina ratepayers deserve more.

NCUC’s request for rehearing of the ACP rulings was explicit that FERC’s

mere explanation “it had done so ‘in the past’” does not establish the necessary

rational connection between the record evidence and FERC’s decision.98 Rather

than address that precedent, FERC reiterated all it need do is apply the same 14%

ROE it has provided other new-entrant pipelines. It is somewhat mystifying that

FERC cites to Sierra Club as affirming its conclusion “in relevant part”99 that bare

97 R.4181 NCUC’s CP15-554 Protest, at 5 n.15-16 (citing R.3532, ACP Application, at 30 n.24 (demonstrating that the cases relied on by ACP to support its 14% ROE did not rely on substantial evidence, but rather were a daisy chain of cases citing prior cases applying the 14% ROE)); [JA ____; ____]. 98 R.13766, NCUC’S CP15-554 Rehearing, at 9 (citing Emera Maine, 854 F.3d 9, 27-29 (D.C. Cir. 2017) (citing Elec. Power Supply Ass’n v. FERC, 136 S. Ct. 760, 782 (2016)); [JA ____]. 99 R.14312, Rehearing Order, at P 66 n.166; [JA ____].


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citation to precedent supported its application of a 14% ROE. Sierra Club

undermines FERC’s position. The Court:

confess[ed] to being skeptical that a bare citation to precedent, derived from another case and another pipeline, qualifies as the requisite ‘substantial evidence.’ See NCUC [v. FERC] 42 F.3d. at 664 (citing Maine Pub. Serv. Co. v. FERC, 964 F.2d 5, 9 (D.C. Cir. 1992), for the proposition that ‘FERC’s use of a particular percentage in a ratemaking calculation was not adequately justified by citation of a prior use of the same percentage without further reasoning or explanation’).100

That skepticism should be applied here to find FERC’s reliance on previous cases

using a 14% ROE for new entrants (which was derived from another case and

another pipeline) lacks the requisite “substantial evidence” necessary to affirm its

findings.

Regarding DTI, following FERC’s last-stated return policy, without regard to

whether the pre-tax return reflects current market conditions, fails to constitute

substantial evidence that would permit an analysis of the majority of the cost-of-

service underlying its proposed recourse rates. The totality of the support for DTI’s

13.70% pre-tax return is the footnote identifying Docket No. RP97-406 as that

figure’s source.101 Since the record lacks any current analysis of DTI’s risk or

market conditions, FERC’s acceptance of DTI’s pre-tax return from 1998, because

100 Sierra Club, 867 F.3d at 1378. 101 R.3535, DTI Application, Exhibit P at 4 n.2; [JA ____].


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“it had done so ‘in the past,’” does not establish the necessary rational connection

between the record evidence and FERC’s decision.102

FERC must justify its policy each time it is applied, and analyze “whether the

adjudicated facts conform to the rule and whether the rule should be waived or

applied in [the] particular instance.”103 Because the challenged orders do not meet

that obligation, FERC’s acceptance of DTI’s return cannot stand. To protect North

Carolina ratepayers from excessive costs being passed through by Piedmont and

PSNC, the Court should remand the challenged orders.

C. FERC’s “Hold the Line” Rationale is Flawed.

Contending Section 7 review is less rigorous than review under Section 4,

FERC’s Certificate Order held that conducting DCF analyses in individual

certificate cases would not be “the most effective or efficient way for determining

the appropriate [returns on equity] for proposed pipeline expansions.”104 FERC

explained it would difficult to complete a section 4-type analysis of return in section

7 cases in a timely manner, unnecessarily delaying proposed projects with time

102 Emera Maine, 854 F.3d at 27-29; Elec. Power Supply Ass’n, 136 S. Ct. at 782. 103 Pac. Gas & Elec. Co. v. FPC, 506 F.2d 33, 38 (D.C. Cir. 1974); see also Nat’l Mining Ass’n v. McCarthy, 758 F.3d 243, 253 (D.C. Cir. 2014) (quoting Pac. Gas & Elec. Co., 506 F.2d at 38). 104 R.13700, Certificate Order, at P 111; [JA ____].


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sensitive in-service schedules.105 Citing the 1959 CATCO decision, FERC claims to

have discretion in NGA section 7 proceedings to approve initial rates that will “hold

the line” until just and reasonable rates are adjudicated under NGA Sections 4 or

5.106 NCUC sought rehearing of FERC’s findings, explaining that addressing

recourse rates in a future rate case does nothing to ensure the recourse rates provided

the requisite check on the pipeline’s market power when the pipeline entered into

the negotiated rate agreements.107 FERC’s Rehearing Order reiterated its “hold the

line” justification.108 These findings are fundamentally flawed.

Negotiated rates did not exist in 1959. CATCO could not have addressed

instances where, as here, pipelines propose service under negotiated rates, or

whether recourse rates satisfy the Alternative Rates and Negotiated Rate Policy

Statements. FERC’s argument —that it would be too difficult or time consuming to

ensure appropriate recourse rates in section 7 proceedings—abdicates FERC’s

105 Id. 106 Id., at PP 101 n.148, 111; [JA ____, ____]. 107 R.13766, NCUC’s CP15-554 Rehearing, at 2-4, 12-16; R.13765, NCUC’s CP15-555 Rehearing, at 4, 7-8, 11, 13-14; [JA ____, ____; ____, ____-____, ____, ____-____]. 108 R.14312, Rehearing Order, at P 73; [JA ____].


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obligation to protect consumers from excessive rates,109 an obligation that CATCO

emphasizes.110

FERC has a duty under Section 7 to protect consumers.111 To fulfill that duty

and ensure that Piedmont and PSNC to not pass excessive costs onto North Carolina

ratepayers, FERC could have followed the practice used in other instances and

looked to DCF analyses to inform its rate of return findings.112 Or, FERC could use

means other than a full DCF analysis to protect ratepayers from excessive returns.113

It cannot do nothing, which, unfortunately for customers of Piedmont and PSNC, is

exactly what FERC did below. This result is arbitrary and capricious and not the

result of reasoned decision-making.

CONCLUSION

Wherefore, the North Carolina Utilities Commission respectfully asks the

Court to remand the challenged orders and direct the Federal Energy Regulatory

Commission to ensure negotiated rates were not tainted by pipeline market power.

109 See, e.g., Cal. Gas Producers Ass’n, 421 F.2d at 428. 110 CATCO, 360 U.S. at 388. 111 Mo. Pub. Serv. Comm’n v. FERC, 337 F.3d 1066, 1070 (D.C. Cir. 2003). 112 See, e.g., WestGas InterState Inc., 59 FERC ¶ 61,029, at p. 61,065 (1992) (considering a DCF analysis to find pipeline’s requested 15% ROE should be reduced to 12.50% in section 7 proceeding). 113 See Interstate and Intrastate Natural Gas Pipeline, Rate Changes Relating to Federal Income Tax Rate, 162 FERC ¶ 61,226, at P 34 (2018) (requiring use of a 10.5% ROE for cost and revenue studies).


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/s/ Kathleen L. Mazure Kathleen L. Mazure Jason T. Gray Kenneth Holmboe Duncan & Allen 1730 Rhode Island Ave. NW Suite 700 Washington, DC 20036 (202) 289-8400 [email protected] [email protected] [email protected]

Attorneys for the



CERTIFICATE OF COMPLIANCE Per the Court’s March 5, 2019 order, I certify that this brief complies with the

type-volume limitation of Fed. R. App. P. 32(a)(7)(B) because its textual portions,

including headings, footnotes, and quotations contain 5,810 of the 21,800 words

allotted to Petitioners other than Atlantic Coast Pipeline, LLC, as counted by the

“Word Count” feature of Microsoft Word 2010, the program with which this brief

was prepared. This word count excludes: (1) the cover page; (2) certificates; (3) the

corporate disclosure statement; (4) the table of contents; (5) the table of authorities;

(6) the glossary of abbreviated terms; (7) the signature block; (8) the statutory

addendum; and (9) the certificate of service.


/s/ Kathleen L. Mazure Kathleen L. Mazure Duncan & Allen 1730 Rhode Island Ave. NW Suite 700 Washington, DC 20036 (202) 289-8400


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