122 FERC ¶ 61,028 

UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

Before Commissioners: Joseph T. Kelliher, Chairman; 

 Suedeen G. Kelly, Marc Spitzer, 

 Philip D. Moeller, and Jon Wellinghoff. 

Revisions to the Blanket Certificate Regulations Docket No. RM06-7-003 

 and Clarification Regarding Rates 

ORDER DENYING REHEARING 

(Issued January 17, 2008) 

I. Introduction

1. On October 19, 2006, the Federal Energy Regulatory Commission (Commission) 

issued a Final Rule in Order No. 686,1

 which, in pertinent part, amended Part 157, 

Subpart F, of its regulations to expand the scope and scale of activities that may be 

undertaken pursuant to blanket certificate authority by (1) broadening the types of natural 

gas projects permitted under blanket certificate authority to include certain mainline, 

storage, liquefied natural gas (LNG), and synthetic gas pipeline facilities, and (2) 

increasing the blanket certificate project cost limits from $8,200,000 to $9,600,000 for 

automatic authorization projects and from $22,700,000 to $27,400,000 for prior notice 

projects.2

 The revised blanket certificate regulations are intended to allow interstate 

natural gas companies to employ the streamlined blanket certificate procedures for 

additional types of activities, thereby increasing efficiencies and decreasing the time and 

 1 Revisions to the Blanket Certificate Regulations and Clarification Regarding 

Rates, Order No. 686, 71 FR 63680 (October 31, 2006), FERC Stats. & Regs. ¶ 31,231 

(2006) (October 2006 Final Rule). This rulemaking proceeding was initiated in response 

to a petition submitted under 18 CFR 385.207(a) of the Commission’s regulations by the 

Interstate Natural Gas Association of America (INGAA) jointly with the Natural Gas 

Supply Association (NGSA). 

2

 These cost limits now stand at $9,900,000 for an automatic authorization project 

and $28,200,000 for a prior notice project. See Natural Gas Pipelines; Project Cost and 

Annual Limits, 72 FR 5614 (Feb. 7, 2007). 
Docket No. RM06-7-003 - 2 -

cost associated with the construction and maintenance of the nation’s natural gas 

infrastructure. On June 22 and September 20, 2007, the Commission issued orders in 

response to motions seeking rehearing and clarification of the October 2006 Final Rule.3

2. INGAA and Northern Natural Gas Company (Northern Natural) submitted 

separate motions for rehearing of the September 2007 Order on Rehearing. In that order, 

the Commission revised section 157.216 to enlarge the universe of facilities that might be 

abandoned pursuant to blanket certificate authority. INGAA and Northern Natural 

describe the September 2007 Order as narrowing the scope of blanket abandonment 

authority, and claim the Commission erred by not providing the public with notice and an 

opportunity to comment prior to revising section 157.216. In this order, for the reasons 

discussed below, we deny the requests for rehearing of the September 2007 Order. 

II. Background

3. In the October 2006 Final Rule, the Commission broadened the size and scope of 

projects that could be constructed (or acquired) and abandoned under blanket certificate 

authority to include, inter alia, certain mainline facilities. INGAA sought clarification 

with respect to abandonment of mainline facilities, asking whether blanket abandonment 

authority would apply only to mainline facilities put in place subsequent to the effective 

date of the Final Rule, or whether companies could also employ the expanded blanket 

certificate authority to abandon mainline facilities that had already been installed under 

case-specific Natural Gas Act (NGA) section 7 certificate authorization. 

 

4. In the June 2007 Order on Rehearing and Clarification, the Commission responded 

to INGAA by stating that facilities that were constructed under case-specific 

authorization, but that could now qualify for construction authorization under the current 

blanket certificate program, may be abandoned pursuant to the provisions of section 

157.216.4

 We explained that to qualify for blanket abandonment, a facility put in place 

pursuant to case-specific authorization (1) must be able to meet the criteria for 

construction under the current blanket program, and (2) must have met the blanket project 

cost cap in effect at the time the facility was constructed. While the June 2007 Order did 

 3 Order on Rehearing and Clarification, Order No. 686-A, 72 FR 37431 (July 10, 

2007), FERC Stats. & Regs. ¶ 31,249 (2007) (June 2007 Order) and Order on Rehearing, 

Order No. 686-B, 72 FR 54818 (Sept. 27, 2007), FERC Stats. & Regs. ¶ 31,255 (2007) 

(September 2007 Order). 

4

 72 FR 37431 (July 10, 2007), FERC Stats. & Regs. ¶ 31,249, P 24 (2007). 
Docket No. RM06-7-003 - 3 -

not discuss the rationale for this cost constraint, it was intended to maintain a ceiling on 

the size of facilities subject to blanket abandonment authority.5

5. In linking the abandonment of an existing facility under the blanket certificate 

program to the blanket project cost cap in effect when the facility was constructed, we 

restricted such abandonments to facilities put in place when there was a cost cap, i.e., 

since implementation of the blanket program in 1982. INGAA questioned this constraint, 

seeking rehearing of the June 2007 Order to argue for making blanket certificate 

abandonment authority available for a facility regardless of when it was put in place, 

provided (1) the facility meets the criteria for construction under the current blanket 

program, and (2) the facility’s original cost does not exceed the currently effective 

blanket project cost cap. 

6. In the September 2007 Order, we adopted INGAA’s proposal to extend blanket 

abandonment authority to all existing facilities that could be constructed under the current 

blanket program. However, we did not adopt INGAA’s proposal to measure a facility’s 

original cost against the current blanket project cost cap, but instead required that the 

estimated cost to replicate an existing facility be compared to the current blanket project 

cost cap. We found no justification for comparing a facility’s original cost with the 

blanket program’s current cost cap, as this would overlook the impact of inflation and 

other factors, and as a result, permit the abandonment of facilities far larger than any that 

now could be constructed under the blanket program.

III. Requests for Rehearing

7. INGAA and Northern Natural claim that in directing companies to determine if a 

facility may be abandoned under section 157.216 by comparing the current blanket 

project cost cap to an estimate of the cost to replicate an existing facility today, rather 

than to the original cost to construct that facility, the Commission improperly amended its 

 5

 The Commission has described the blanket certificate program as being restricted 

to projects that will not result in unjustified increases in existing customers’ rates and that 

are modest in scale and routine in nature, i.e., projects that are sufficiently well 

understood so as to permit them to proceed with a lesser level of regulatory scrutiny. In 

expanding the blanket certificate program, we sought to retain this character in accord 

with INGAA’s and NGSA’s expectation that “an increase in the dollar limits will [not] 

cause blanket projects to be larger, in terms of the project foot print or right of way 

needed, than they would have been in [1982],” so that “any project which could have fit 

within the blanket dollar limits in [1982] would still fit within the limits if it were 

constructed today.” INGAA’s and NGSA’s joint Petition for Rulemaking, at 16 

(Nov. 11, 2005). 
Docket No. RM06-7-003 - 4 -

regulations in violation of the Administrative Procedure Act (APA) requirement to 

provide the public with notice and an opportunity to comment. INGAA and Northern 

Natural further assert that the Commission did not articulate the problem it sought to 

solve and provide a justification for its action, and thus did not engage in reasoned 

decision making. 

8. The Commission does not believe the September 2007 Order breeches any 

applicable rulemaking requirement. The public had notice and the opportunity to 

comment on the revisions to the blanket certificate program; indeed, it was in response to 

INGAA’s request for rehearing of our June 2007 Order that we allowed for the 

abandonment of facilities installed prior to 1982. 

9. The September 2007 Order’s revisions to sections 157.216(a)(2) and (b)(2) 

clarified which facilities qualify for abandonment under blanket certificate authority 

following the October 2006 Final Rule’s expansion of the blanket certificate provisions. 

Prior to the September 2007 Order, section 157.216(a)(2) permitted automatic 

abandonment for an “eligible facility that was installed pursuant to automatic authority 

under § 157.208(a), or that now qualifies for automatic authority under § 157.208(a), or a 

facility constructed under § 157.211 or § 157.213(a).” The September 2007 Order 

modified section 157.216(a)(2) to permit automatic abandonment for a “facility that did 

or could now qualify for automatic authorization as described in § 157.203(b).” 

Similarly, before the September 2007 Order, section 157.216(b)(2) permitted prior notice 

abandonment for a “facility which qualifies as an eligible facility, and which is not 

otherwise eligible for automatic abandonment under paragraph (a)(2) of this section or a 

facility constructed under § 157.210, § 157.212, or § 157.213(b).” The September 2007 

Order modified section 157.216(b)(2) to permit prior notice abandonment for a “facility 

that did or could now qualify for prior notice authorization as described in § 157.203(c).” 

10. Rather than itemize the facilities described in sections 157.202(2)(1), .210, .211, 

.212, and .213, the September 2007 Order gathered these facilities into two abandonment 

categories – automatic and prior notice – and clarified that if a facility once did, or could 

now, qualify for blanket construction or acquisition authorization, the facility qualifies 

for blanket abandonment authorization under section 157.216. The September 2007 

Order specified in sections 157.216(c)(1) and (d)(1) that to determine whether a facility 

that was not constructed or acquired under blanket authorization may be abandoned under 

blanket authority, a company must estimate the current cost to replicate the facility.6

 The 

September 2007 Order’s revisions to section 157.216 granted INGAA’s request for 

rehearing of our June 2007 Order to extend blanket certificate abandonment authority to 

 6

 Section 157.216(c)(1) addresses automatic abandonment requirements; section 

157.216(d)(1) addresses prior notice abandonment requirements. 
Docket No. RM06-7-003 - 5 -

facilities constructed before 1982; the September 2007 Order did not otherwise alter the 

types of facilities subject to blanket certificate abandonment authority. 

11. INGAA and Northern Natural fault the Commission for not providing a sufficient 

justification for requiring companies to compare the current cost cap to an estimate of the 

current cost to replicate an existing facility. The nature of the blanket program serves as 

our justification. The blanket program applies a streamlined set of regulations to a 

restricted set of facilities and services. We have found we can reduce our regulatory 

oversight, yet ensure the public interest is protected, provided the blanket program only 

applies to activities that are routine, well understood, limited in size, and that will not 

significantly impact rates.7

 INGAA’s and Northern Natural’s proposal to rely on a 

facility’s original cost would effectively lift the lid on the size of projects subject to 

blanket abandonment authorization, since the original cost remains fixed as the project 

cost cap ratchets up. Thus, over time, companies could abandon increasingly more 

significant portions of their systems, particularly with respect to their older facilities, such 

as mainline installed in the 1930s. If we were to permit the scale of blanket abandonment 

projects to grow with each annual adjustment to the blanket project cost limit, we could 

no longer be confident that blanket abandonments would continue to be consistent with 

the public convenience and necessity criteria of NGA section 7(b). Accordingly, we 

employ replacement cost as a means to measure those activities that will not result in 

unacceptable operational, economic, and environmental impacts. Facilities that cannot 

meet this cost constraint are appropriately considered individually in a case-specific 

section 7(b) proceeding.8

 

 7 See note 5. In addition, the conclusion of our 1981 Environmental Assessment 

that the blanket program will result in no significant environmental impacts is premised 

on the expectation that there be certain restrictions on the size and type of projects that 

can be undertaken pursuant to blanket certificate authorization. To expand the universe 

of projects subject to blanket certificate abandonment authority as proposed by INGAA 

and Northern Natural may require additional environmental review. 

8

 While INGAA and Northern Natural contend that case-specific abandonments 

would needlessly consume companies’ and the Commission’s time and resources, we 

find that case-specific abandonment proceedings are warranted where issues may arise – 

e.g., operational, environmental, rate, or competitive impacts – that cannot be fully 

reviewed in a blanket abandonment proceeding. We note that where no such issues are 

present, yet a particular abandonment is subject to case-specific approval solely as a 

consequence of a facility’s cost, case-specific abandonment approval is typically granted 

expeditiously. 
Docket No. RM06-7-003 - 6 -

12. INGAA and Northern Natural argue that requiring a company to employ an 

estimated current cost to construct is inconsistent with the approach we took in making 

revisions to the blanket certificate program in Order No. 603 in 1999 to provide for 

blanket abandonment of receipt points.9

 INGAA requested a clarification of Order No. 

603 to ensure that all receipt points may be abandoned automatically, whereas Indicated 

Shippers (in addition to arguing against allowing automatic abandonment for any receipt 

point) requested we specify that automatic abandonment authorization would only apply 

to receipt points that did or could qualify for automatic construction authorization. In 

Order No. 603-A, we explained that if a receipt point did not originally qualify for 

automatic construction authorization under section 157.208(a), then it could not qualify 

for automatic blanket abandonment authorization under section 157.216(a) and would 

have to be abandoned under the prior notice provisions of section 157.216(b). We stated 

automatic abandonment would apply to receipt point facilities that meet the automatic 

construction requirements, which include the cost cap requirement, whereas “[r]eceipt 

facilities that were constructed under the prior notice requirements or whose original cost 

exceed the level of automatic construction are not eligible for automatic abandonment.”10 

INGAA and Northern Natural take this reference to “original cost” as establishing a 

Commission policy in conflict with our decision in this proceeding to employ 

replacement cost. We do not place the same weight on this reference to original cost.11

 

13. We do not view our direction to compare an existing facility’s current construction 

cost to the current cost cap as changing “a long-standing regulation” that “pipelines have 

been relying on since Order No. 603-A.”12 The reference to original cost in Order No. 

603-A specifically addressed comments regarding the abandonment of receipt point 

facilities. A similar reference to original cost was never made in the context of other 

 9 Revisions of Existing Regulations Under Part 157 and Related Sections of the 

Commission's Regulations Under the Natural Gas Act, Order No. 603, 64 FR 26,571 

(May 14, 1999), FERC Stats. & Regs. ¶ 31,073 (April 29, 1999), order on reh’g, Order 

No. 603-A, 64 FR 54,522 (Oct. 7, 1999), FERC Stats. & Regs. ¶ 31,081 (Sept. 29, 1999),

order on reh’g, Order No. 603-B, 65 FR 11,462 (March 3, 2000), FERC Stats. & Regs. 

¶ 31,094 (2000). 

10 Order 603-A, at 30,936 (1999). 

11 We do not interpret this reference, as Northern Natural does, as authorizing 

companies “to utilize the gross plant (original cost) of the facility to determine what 

facilities could be abandoned pursuant to the automatic blanket regulations.” Northern 

Natural’s Request for Rehearing, at 9 (Oct., 22, 2007). 

12 Id., at 7. 
Docket No. RM06-7-003 - 7 -

facilities; with respect to other facilities, we have not relied upon original cost as a matter 

of policy and there is no reference to original cost in our regulations. To the extent there 

was ever any ambiguity regarding the prior section 157.216 regulations’ description of a 

facility that “qualifies for automatic authority” or “qualifies as an eligible facility” for 

prior notice abandonment authority, it was clarified by our September 2007 Order. 

 

14. INGAA and Northern Natural are concerned that the Commission may challenge a 

company’s estimate of the current cost to replicate an existing facility. We do not expect 

this to become a contentious matter. Companies have proved themselves capable of 

predicting, with reasonable accuracy, the final costs of prospective projects in gauging 

whether a project will meet the cost cap for blanket certificate construction authorization. 

The Commission is similarly capable of determining whether a proposed project’s 

projected cost is plausible. In view of this, we do not expect there will be any significant 

disparity between what a company calculates it would cost to replicate an existing facility 

and what the Commission views as an acceptable cost estimate.13 We acknowledge that 

there are inherent ambiguities in any estimate; nevertheless, where an estimate reflects a 

reasonable approximation of current construction costs, or where the basis for calculating 

a facility’s estimated cost is otherwise documented, we are unlikely to find cause to 

second guess a company’s cost estimate. 

15. For the reasons discussed herein, we find the September 2007 Order set forth a 

sufficient rationale for the actions taken and that the public was provided with adequate 

notice of, and an opportunity to comment on, the issues that were addressed in that order. 

Accordingly, we deny INGAA’s and Northern Natural’s requests for rehearing. 

 13 An estimate of the cost to replicate an existing facility is to include, as specified 

in section 157.202(b)(8), “the total actual cost of constructing the jurisdictional portions 

of a project.” We expect this total actual cost to reflect project costs such as those 

identified by INGAA and NGSA associated with “[g]reater public outreach, greater 

agency involvement and more complex permitting processes, greater environmental 

remediation requirements, use of technologically advanced construction equipment, and 

often the time required for construction;” such costs were reflected in our October 2006 

Final Rule’s adjustment to the blanket project cost caps. See INGAA’s and NGSA’s joint 

Petition for Rulemaking, at 16 (Nov. 11, 2005).
Docket No. RM06-7-003 - 8 -

The Commission orders: 

 INGAA’s and Northern Natural’s requests for rehearing are denied, for the reasons 

discussed herein. 

By the Commission. 

( S E A L ) 

Kimberly D. Bose, 

 Secretary.