165 FERC ¶ 61,130

UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

Before Commissioners: Neil Chatterjee, Chairman;

 Cheryl A. LaFleur and Richard Glick.

Kern River Gas Transmission Company Docket Nos. RP19-55-000

RP19-76-000

ORDER APPROVING SETTLEMENT

(Issued November 15, 2018)

On October 11, 2018, in Docket No. RP19-76-000, Kern River Gas Transmission 

Company (Kern River) filed a Stipulation and Agreement of Settlement (Settlement) 

pursuant to Rules 207(a)(5) and 602 of the Commission’s regulations1 to implement a

Tax Reform Credit for shippers paying the maximum base tariff rate and shippers paying 

any one part rate that includes fixed costs. The Commission approves Kern River’s 

Settlement, as proposed. 

I. Background and Proposal 

On July 18, 2018, the Commission issued Order No. 849,

2 a final rule adopting 

procedures for determining which jurisdictional natural gas pipelines may be collecting 

unjust and unreasonable rates in light of (1) the income tax reductions provided by the 

Tax Cuts and Jobs Act

3 and (2) the Commission’s Revised Policy Statement4 and 

 1 18 C.F.R. § 385.207(a)(5) and § 385.602 (2018).

2 Interstate and Intrastate Natural Gas Pipelines; Rate Changes Relating to

Federal Income Tax Rate, Order No. 849, 83 Fed. Reg. 36,672 (July 30, 2018), FERC 

Stats. & Regs. ¶ 31,404 (2018) (cross-referenced at 164 FERC ¶ 61,031).

3 An Act to provide for reconciliation pursuant to titles II and V of the concurrent 

resolution on the budget for fiscal year 2018, Pub. L. No. 115-97, 131 Stat. 2054 (2017) 

(Tax Cuts and Jobs Act).

4 Inquiry Regarding the Commission’s Policy for Recovery of Income Tax Costs, 

Revised Policy Statement, 83 Fed. Reg. 12,362 (Mar. 21, 2018), FERC Stats & Regs. 

¶ 35,060 (2018), order on reh’g, 164 FERC ¶ 61,030 (2018). 
Docket Nos. RP19-55-000 and RP19-76-000 - 2 -

Opinion No. 511-C5 establishing a policy that master limited partnerships (MLPs) may 

not recover an income tax allowance in response to the decision of the United States 

Court of Appeals for the District of Columbia Circuit (D.C. Circuit) in United Airlines.

6

 

Order No. 849 required, pursuant to sections 10 and 14(a) of the Natural Gas Act (NGA), 

that all interstate natural gas companies with cost-based stated rates, that filed a 2017 

FERC Form No. 2 or 2-A, must file a FERC Form No. 501-G informational filing.7

 The 

FERC Form No. 501-G is designed to collect financial information to evaluate the impact 

of the Tax Cuts and Jobs Act and United Airlines Issuances on interstate natural gas 

pipelines’ revenue requirements. Using the data in the pipelines’ 2017 FERC Form 

Nos. 2 and 2-A, the form estimates (1) the percentage reduction in the pipeline’s cost of 

service resulting from the Tax Cuts and Jobs Act and the Revised Policy Statement and 

(2) the pipeline’s current Return on Equity (ROE) before and after the reduction in 

corporate income taxes and the elimination of income tax allowances for MLP pipelines. 

Order No. 849 also provided several options each interstate natural gas pipeline 

may choose from to address the changes to the pipeline’s revenue requirement as a result 

of the income tax reductions. These included (1) a limited NGA section 4 rate reduction 

filing (Option 1), (2) a commitment to file a general section 4 rate case or a prepackaged 

settlement in the near future (Option 2), (3) an explanation why no rate change is needed 

(Option 3), and (4) no action (Option 4).

On October 11, 2018, in Docket No. RP19-55-000, Kern River filed FERC Form 

No. 501-G consistent with the reporting requirements of Order No. 849. Kern River’s 

FERC Form No. 501-G shows that its indicated cost-of-service reduction is 8.9 percent, 

and that its Total Estimated Return on Equity would be 21.4 percent, after adjustment to 

reflect the Tax Cuts and Jobs Act and United Airlines Issuances. Kern River filed a 

statement explaining why a rate adjustment is not needed and several supporting exhibits. 

Kern River states that two adjustments are required for FERC Form No. 501-G to 

accurately reflect Kern River’s unique levelized rate structure, under which Kern River 

charges separate levelized rates for three different periods. First, the FERC Form No. 

501-G should reflect the Commission’s approval of a 100 percent equity capital structure

for Kern River’s Period Two contracts, rather than the 57 percent required in the form. 

Second, prior period adjustments must be made to the FERC Form No. 2 data to reflect 

Kern River’s Period Two recontracting. On January 27, 2017, the Commission approved 

 5 SFPP, L.P., Opinion No. 511-C, 162 FERC ¶ 61,228, at P 9 (2018).

6 United Airlines, Inc. v. FERC, 827 F.3d 122 (D.C. Cir. 2016). For purposes of 

this order, the Revised Policy Statement, United Airlines, and Opinion No. 511-C will 

collectively be referred to as “United Airlines Issuances.”

7 The One-time Report on Rate Effect of the Tax Cuts and Jobs Act may be

referred to interchangeably as “One-time Report” or “FERC Form No. 501-G.”
Docket Nos. RP19-55-000 and RP19-76-000 - 3 -

the Alternate Period Two settlement to establish an alternative set of reduced rates for 

eligible shippers, to improve the likelihood of recontracting expiring capacity. 

Additionally, the settlement extended the depreciation period. Kern River states that 

these adjustments to FERC Form No. 501-G result in a 12.9 percent ROE, not 21.4

percent.8

 Kern River also states that the calendar year financial data used in the FERC 

Form No. 501-G does not reflect changes in its circumstances after December 31, 2017. 

In particular, Kern River states that on April 30, 2018, customers relinquished long-term 

contracts representing about 23 percent of its design capacity, and Kern River has only 

been able to remarket the capacity through short-term volumetric, index-based contracts.

On October 11, 2018, Kern River also filed the Settlement in Docket No. RP19-

76-000, in response to Order No. 849. In the Settlement package Kern River submitted 

pro forma tariff records, an adjusted FERC Form No. 501-G to show the effect of the Tax 

Reform Credit provided for in the Settlement, and a matrix showing the maximum base 

tariff rate and the computation for each shipper group. The Tax Reform Credit provides 

an 11 percent reduction in the rate for shippers paying the maximum base tariff rate, or 

any one-part rate that includes fixed costs. The Settlement provides that, immediately 

after an order approving the Settlement becomes final,

9 Kern River will file actual tariff 

records consistent with the pro forma tariff records included in the Settlement to be

effective on the date of the initial order approving the Settlement. This rate reduction 

would remain in effect until a “triggering event” occurs, meaning either (1) the federal 

corporate income tax rate is raised above 21 percent, in which case the proposed tax 

reform credit will be reduced on a pro rata basis by the increase above 21 percent as a 

percentage of the initial corporate income tax reduction of 14 percent from 35 percent to 

21 percent, or (2) the Commission initiates an NGA section 5 proceeding against Kern 

River. 

The Settlement provides that the Tax Reform Credit will be provided to releasing 

shippers in temporary capacity release transactions, but not to the replacement shippers. 

The Settlement also provides that in Kern River’s next NGA section 4 rate case the 

maximum base tariff rate in effect before the Tax Reform Credit will establish the refund 

floor.

Pursuant to the revised FERC Form No. 501-G, the Settlement will result in an 

indicated cost-of-service reduction of 11 percent and an estimated ROE of 9.9 percent. 

Kern River requests approval of the Settlement expeditiously in order to allow its 

shippers the benefit of the rate credit as soon as possible.

 8 See Exhibit 2 of the filing in RP19-55-000, p. 3, column G.

9 If no request for rehearing is filed, this date will be 30 days after the issuance of 

the initial order approving the Settlement.
Docket Nos. RP19-55-000 and RP19-76-000 - 4 -

II. Notice of Filing, Interventions, and Protests

Public notice of both of Kern River’s filings was issued on October 15, 2018. 

Interventions and protests were due as provided in section 154.210 of the Commission's 

regulations.10 Pursuant to Rule 214,11 all timely motions to intervene and any unopposed 

motions to intervene filed out-of-time before the issuance date of this order are granted. 

Granting late intervention at this stage of the proceeding will not disrupt this proceeding 

or place additional burdens on existing parties. On October 23, 2018, in Docket 

No. RP19-55-000, the Indicated Shippers12 filed comments and Nevada Power Company 

(NPC) filed a conditional protest. On October 25, 2018, Kern River filed an answer to 

the Indicated Shippers and NPC. On October 23, 2018, in Docket No. RP18-76-000, the 

Indicated Shippers13 and Southwest Gas Corporation (Southwest Gas) filed comments in 

support of the Settlement, and Concord Energy LLC (Concord) and Mieco, Inc. (Mieco) 

filed motions to intervene reserving the right to file comments or protest at a later date. 

On October 25, 2018, Kern River filed reply comments to the Indicated Shippers, 

Southwest Gas, Concord and Mieco.

With regard to Kern River’s FERC Form No. 501-G filing in Docket No. RP19-

55-000, the Indicated Shippers and NPC urge the Commission to accept as soon as 

possible the Tax Reform Credit Settlement filed by Kern River. Otherwise, the Indicated 

Shippers disagree with Kern River’s assertion that a rate adjustment is not needed, and 

NPC states its limited protest is a protective measure to preserve its right to protest the 

FERC Form No. 501-G filing if the Commission does not accept the Settlement. In its 

answer, Kern River refers to the conditional protests as a hedge against the Commission’s

failing to approve the Settlement and states that, if the Commission approves the 

Settlement, it may dispense with further consideration of the conditional protest.

With regard to Kern River’s Settlement in Docket No. RP19-76-000, the Indicated 

Shippers and Southwest Gas urge the Commission to approve the Settlement as 

expeditiously as possible so that shippers may begin receiving the benefit as soon as 

possible. In its reply comments, Kern River asserts that the Commission should not 

disturb the delicate balance that Kern River and its shippers have crafted in this 

 10 18 C.F.R. § 154.210 (2018).

11 18 C.F.R. § 385.214 (2018).

12 In this proceeding, the Indicated Shippers are Aera Energy, LLC, Anadarko 

Energy Services Company, Chevron U.S.A. Inc., ConocoPhillips Company, Shell Energy 

North America (US), L.P., Southwest Gas Corporation, and XTO Energy Inc.

13 In this proceeding, the Indicated Shippers are Aera Energy, LLC, Anadarko 

Energy Services Company, Chevron U.S.A. Inc., ConocoPhillips Company, Shell Energy 

North America (US), L.P., and XTO Energy Inc.
Docket Nos. RP19-55-000 and RP19-76-000 - 5 -

uncontested Settlement, and urges the Commission to approve the Settlement, stating that 

the sooner the Commission acts, the earlier its customers will be able to benefit. 

III. Discussion

The Commission finds that the Settlement is fair and reasonable and in the public 

interest. The Settlement is either uncontested or supported by shippers and provides an 

11 percent reduction in the rate for shippers paying the maximum base tariff rate, or any 

one-part rate that includes fixed costs. Accordingly, the Commission approves the 

Settlement.

Article XIII(D) of the Settlement provides that the standard for review of changes 

to the Settlement by Kern River or a party to the Settlement shall be the “public interest” 

standard of review.

14 Article XIII(D) continues, stating, “The standard of review for any 

change to this Stipulation proposed by a nonparty to the Stipulation, a Contesting Party or 

the Commission acting sua sponte, shall be the most stringent standard permitted by 

law.” Because the Settlement provides that the standard of review for modifications to 

the Settlement is “the most stringent standard permitted by law,” the Commission 

clarifies the framework that would apply if the Commission were required to determine 

the standard of review in a later challenge to the Settlement by a third party or by the 

Commission acting sua sponte. 

The Mobile-Sierra “public interest” presumption applies to an agreement only if 

the agreement has certain characteristics that justify the presumption. In ruling on 

whether the characteristics necessary to justify a Mobile-Sierra presumption are present, 

the Commission must determine whether the agreement at issue embodies either 

(1) individualized rates, terms, or conditions that apply only to sophisticated parties who 

negotiated them freely at arm’s length or (2) rates, terms, or conditions that are generally 

applicable or that arose in circumstances that do not provide the assurance of justness and 

reasonableness associated with arm's-length negotiations. Unlike the latter, the former 

constitute contract rates, terms, or conditions that necessarily qualify for a Mobile-Sierra

presumption. In New England Power Generators Ass’n, Inc. v. FERC, however, the D.C. 

Circuit determined that the Commission is legally authorized to impose a more rigorous 

application of the statutory “just and reasonable” standard of review on future changes to 

agreements that fall within the second category described above.

15

 14 United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U.S. 332 (1956)

and Federal Power Commission v. Sierra Pacific Power Co., 350 U.S. 348 (1956)

(Mobile-Sierra).

15 New England Power Generators Ass’n, Inc. v. FERC, 707 F.3d 364, 370-371 

(D.C. Cir. 2013).
Docket Nos. RP19-55-000 and RP19-76-000 - 6 -

The Commission orders:

(A) Kern River’s Settlement filed in Docket No. RP19-76-000 is approved, as 

discussed in the body of this order.

(B) Kern River must file actual tariff records consistent with the terms of the 

Settlement.

By the Commission. Commissioner McIntyre is not voting on this order.

( S E A L )

Nathaniel J. Davis, Sr.,

Deputy Secretary.