United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued December 12, 2014 Decided April 7, 2015

No. 13-1278

MISSOURI PUBLIC SERVICE COMMISSION,

PETITIONER

v.

FEDERAL ENERGY REGULATORY COMMISSION,

RESPONDENT

MOGAS PIPELINE LLC,

INTERVENOR

On Petition for Review of Orders of the 

Federal Energy Regulatory Commission

Lera Shemwell argued the cause for petitioner. With her on

the briefs was Stephen C. Pearson. 

Carol J. Banta, Attorney, Federal Energy Regulatory

Commission, argued the cause for respondent. With her on the

brief were David L. Morenoff, General Counsel, and Robert H.

Solomon, Solicitor.

Paul Korman argued the cause for intervenor. With him on

the brief were Amy W. Beizer and Emily R. Pitlick.
2

Before: GARLAND, Chief Judge, andROGERS and MILLETT,

Circuit Judges.

Opinion for the Court filed by Circuit Judge Rogers.

Concurring opinion by Circuit Judge Millett.

ROGERS, Circuit Judge: This petition follows our remand

for application of the “benefits exception” to the general policy

of the Federal Energy Regulatory Commission against including

an acquisition premium in a pipeline’s rate base. Missouri Pub.

Serv. Comm’n v. FERC (“Missouri I”), 601 F.3d 581, 588 (D.C.

Cir. 2010). The Commission describes its benefits exception as

allowing an acquisition premium to be included in a pipeline’s

rate base when the purchase price is less than the cost of

constructing comparable facilities, the facility is converted to a

new use, and the transacting parties are unaffiliated. See

Missouri Interstate Gas, LLC (“Remand Order”), 142 F.E.R.C.

¶ 61,195, at ¶ 113 (2013). That is consistent with the

Commission’s precedent, see Longhorn Partners Pipeline, 73

F.E.R.C. ¶ 61,355, at 62,112 (1995), and with our own

characterization of that precedent, see Rio Grande Pipeline Co.

v. FERC, 178 F.3d 533, 536–37 (D.C. Cir. 1999). Although

petitioners would distinguish past decisions on their facts, the

court defers to the Commission’s interpretation of its own

precedents in the challenged orders. To the extent petitioner

raises a question whether the pipeline project benefits Missouri

customers in the first place, the Commission permissibly relied

on its 2002 Order certificating the Missouri Interstate Gas

facilities for interstate use. Accordingly, we deny the petition

for review.

I.

At issue is the acquisition premium associated with the
3

Trans-Mississippi Pipeline (“TMP”), a 5.6-mile stretch of

pipeline that connects Missouri with Illinois beneath the

Mississippi River. In 2002, pursuant to section 7 of the Natural

Gas Act (“NGA”), 15 U.S.C. § 717f, the Commission issued

Missouri Interstate Gas, LLC (which later merged to become

MoGas Pipeline, LLC (“MoGas”)) a certificate of public

convenience and necessity to undertake a project that included

using the TMP for natural gas service for the first time. The

Commission found it was in the public interest because the

project would “provide Missouri customers the opportunity to

diversify their gas supply options with the installation of minor

pipeline facilities and a minimal impact to the environment,”

Missouri Interstate Gas, LLC (“2002 Order”), 100 F.E.R.C.

¶ 61,312, at ¶ 2 (2002), and that in turn would improve

reliability and supply diversity and increase competition, see id.

¶¶ 15, 17–18. On remand from this court in Missouri I, the

Commission approved inclusion of the acquisition cost in

MoGas’s rate base because the TMP had been devoted to a new

use, transporting natural gas instead of oil, and the cost of new

construction would have been greater, see Remand Order ¶¶ 95,

110, and denied rehearing, Missouri Interstate Gas, LLC

(“Rehearing Order”), 144 F.E.R.C. ¶ 61,220 (2013). 

Petitioner does not challenge the Commission’s factual

findings on remand or its determination that the TMP was

converted to a new use. Instead, petitioner challenges the

Commission’s determination that the pipeline company had

shown that the acquisition of pipeline facilities provided specific

benefits in accordance with Commission precedent. Although

acknowledging that a lower acquisition cost can produce

benefits to customers in some cases, petitioner contends the

Commission failed to adhere to its precedent and to examine

whether there were actual quantifiable dollar benefits for

Missouri customers. 
4

A.

NGA § 7 requires that the Commission must issue a

certificate of public convenience and necessity before a new

interstate pipeline may begin to operate. See 15 U.S.C. 

§ 717f(c)(1)(A); Missouri I, 601 F.3d at 583. A certificate may

issue only if “the proposed service, sale, operation, construction,

extension, or acquisition, to the extent authorized by the

certificate, is or will be required by the present or future public

convenience and necessity.” 15 U.S.C. § 717f(e). When the

Commission issues a certificate of public convenience and

necessity, it “sets initial rates governing the sale price of natural

gas transported in the pipeline,” Missouri I, 601 F.3d at 583, and

may “attach to the . . . certificate . . . such reasonable terms and

conditions as the public convenience and necessity may

require,” 15 U.S.C. § 717f(e). Under that authority, the

Commission “employs a ‘public interest’ standard to determine

the initial rates that a pipeline may charge for newly certificated

service.” Mo. Pub. Serv. Comm’n v. FERC, 337 F.3d 1066,

1068 (D.C. Cir. 2003) (citing Atl. Ref. Co. v. Pub. Serv.

Comm’n, 360 U.S. 378, 391 (1959)). Initial rates “offer a

temporary mechanism to protect the public interest until” the

Commission sets permanent rates pursuant to NGA § 4, 15

U.S.C. § 717c. Algonquin Gas Transmission Co. v. Fed. Power

Comm’n, 534 F.2d 952, 956 (D.C. Cir. 1976).

“Generally, when establishing the cost of service upon

which a pipeline’s regulated rates are based, [the Commission]

employs ‘original cost’ principles,” and “when a facility is

acquired by one regulated entity from another, [only] the seller’s

depreciated original cost is included in the cost-of-service

computations, even though the price paid by the purchaser may

exceed that amount.” Rio Grande, 178 F.3d at 536 (citing N.

Natural Gas Co., 35 F.E.R.C. ¶ 61,114, at 61,236 (1986)). The

cost above that amount (i.e., net-book value) is known as an

acquisition adjustment or premium and is disallowed, unless the
5

“benefits exception” applies. The general policy, as described

by the Federal Power Commission, was designed to prevent

facilities from being sold at artificially inflated prices in order to

increase rates, see United Gas Pipe Line Co., 25 F.P.C. 26, at 64

(1961), and since then has been described as designed to protect

customers from paying twice for depreciation, see, e.g., Cities

Serv. Gas Co., 4 F.E.R.C. ¶ 61,268, at 61,596 (1978). 

The Commission has established a two-part benefits

exception test, whereby a pipeline facility that has been

converted from one public use to another or placed in

jurisdictional service for the first time may include an

acquisition premium in its rate base if the pipeline can show by

clear and convincing evidence that its acquisition of the facilities

will provide “substantial, quantifiable benefits to ratepayers.” 

Longhorn, 73 F.E.R.C. at 62,112. One way these benefits can

be shown is by demonstrating that the proposed conversion

would “result in utilization of a currently-underutilized facility,

which could not be replicated for the price that [the pipeline

was] willing to pay.” Id. at 62,113. The new-use requirement

is consistent with the Commission’s general policy of exclusion

of acquisition premiums because customers will not be burdened

twice for the cost of depreciating facilities. See Cities, 4

F.E.R.C. at 61,596; see also Longhorn, 73 F.E.R.C. at 62,113;

Natural Gas Pipeline Co. of Am., 29 F.E.R.C. ¶ 61,073, at

61,150 (1984). 

B.

The background to the instant petition is set forth in

Missouri I, 601 F.3d at 583–85. On remand from this court, an

administrative law judge (“ALJ”) ruled, after an evidentiary

hearing, that the TMP’s acquisition cost could not be included

in MoGas’s rate base. Although finding the pipeline’s net-book

value was zero and thus the entire $10,088,925 purchase price

constituted an acquisition premium, and the pipeline was being
6

put to a new use, transporting natural gas rather than oil, the ALJ

concluded that the second prong of the benefits exception test

was not satisfied because the pipeline had “not met its burden to

prove that the cost to construct the TMP is considerably higher

than the pipeline’s purchase price.” Missouri Interstate Gas,

LLC (“ALJ Remand”), 137 F.E.R.C. ¶ 63,014, at ¶ 320 (2011).

The Commission reversed in part, finding the first prong of

the benefits exception test had not been challenged and that the

ALJ erred in concluding that the second prong was not satisfied,

because “the record demonstrates that the acquisition of these

facilities at more than their net book value results in substantial

benefits to ratepayers.” Remand Order ¶ 2. The ALJ erred in

requiring the difference between purchase price and construction

cost to be “exorbitant,” ALJ Remand ¶ 313, the Commission

explained, because nothing in Crossroads, 71 F.E.R.C. ¶ 61,076,

on which the ALJ relied, supported such a prerequisite and

instead only required that the benefits must be “commensurate

with the acquisition costs that exceed the depreciated original

costs.” Remand Order ¶ 111 (quoting Crossroads, 71 F.E.R.C.

at 61,262) (internal quotation marks omitted). The ALJ’s

reliance on KN Wattenberg Transmission Limited Liability Co.,

85 F.E.R.C. ¶ 61,204 (1998), was also misplaced because that

decision relied upon factors not present here, namely that the

buyer and seller were affiliates and ratepayers had already paid

for depreciation of the facility. Remand Order ¶ 112. 

To clarify, the Commission stated: “In conversion cases

involving non-affiliates, the Commission has consistently

allowed the full purchase price in [a] rate base when the record

supports a finding that the purchase price is less than the cost to

construct comparable facilities.” Id. ¶ 113. It cited its decisions

in Crossroads, 71 F.E.R.C. at 61,262–63; Natural, 29 F.E.R.C.

at 61,150; and Cities, 4 F.E.R.C. at 61,596. The Commission

elaborated on its rationale: “Allowing the full purchase price . . .
7

in rate base in these circumstances provides specific benefits to

. . . ratepayers because the approved recourse rates will be no

higher, if not somewhat lower, than if the pipeline built new

facilities.” Remand Order ¶ 113. Further, the Commission

noted,“[t]his ruling also provides jurisdictional companies

appropriate incentives to purchase and utilize existing facilities

in lieu of constructing new facilities, thereby avoiding

unnecessary construction and the attendant environmental

impacts.” Id. Having found that the second prong of the

benefits exception test was satisfied, the Commission stated it

had no need to consider additional specific dollar benefits

identified by MoGas once the TMP offered service, such as

“demand charge credits to shippers, access to flexible point

rights, and lower initial rates.” Id. ¶ 114. 

On rehearing, the Commission again rejected arguments

that its benefits exception “requires a finding of specific benefits

in addition to a finding that the costs of acquiring the existing

pipeline is less than cost of constructing comparable facilities”

and that it “can only make a finding of specific benefits if the

pipeline’s rate proposal is supported, or at least not opposed, by

customers.” See Rehearing Order ¶¶ 48, 50. The Commission

found no support for this requirement in Cities, Natural, or

Crossroads, and, in light of its own precedent, did not interpret

the description of the benefits exception in Missouri I, 601 F.3d

at 586, to require separate findings of both “‘specific dollar

benefits resulting directly from the sale’” and a purchase price

lower than the cost of new construction. Rehearing Order ¶ 48

(quoting Missouri I, 601 F.3d at 586). Furthermore, the

Commission noted that because the decision to issue a certificate

of public convenience and necessity to place the TMP facilities

into interstate service “already addressed the initial question as

to whether there are benefits to including the cost of the TMP

facilities in initial rates,” on remand it “appropriately applied the

Longhorn test to determine the exact level of costs of the TMP
8

facilities to include in rates by evaluating whether it would cost

more to construct new comparable facilities.” Id. ¶ 49. 

Additionally, in view of its “independent obligation under [NGA

§ 7, 15 U.S.C. § 717f(e)] to ensure that initial rates are in the

public interest,” id. ¶ 50, the Commission explained that

“[p]ermitting a single customer the right to veto the inclusion of

an acquisition . . . premium in rates, regardless of the pipeline’s

showing of specific benefits, is at odds with this statutory

requirement.” Id. So, disregarding the testimony of Ameren, a

MoGas customer, challenging MoGas’s claims of additional

specific dollar benefits was not inappropriate because the

difference in acquisition and construction costs satisfied the

second prong of the benefits exception test and there was no

need to consider other possible benefits. See id. ¶ 54. 

The Commission further concluded that the attempt to

distinguish its precedents on other grounds was unpersuasive for

the following reasons: The fact that there were existing

customers on the merged pipeline, unlike in Crossroads, did not

make inapposite its decision in Crossroads that specific benefits

had been shown because the Commission had addressed

customers’ subsidization concerns in designing MoGas’s initial

rates. Id. ¶ 51. Likewise, it was a misreading of Natural to

suggest the pipeline proposed to provide service on newly

acquired facilities for free; in that case, “the costs of the

facilities, including the acquisition adjustment, were borne by

the new shippers” taking service. Id. ¶ 52. So too, United Gas

and Kansas Pipeline were not at odds with the Commission’s

decision on the TMP acquisition premium because the denials

of rate base treatment for acquisition adjustments in those cases

were based on different records. See id. ¶ 53. In Kansas

Pipeline Co., 81 F.E.R.C. ¶ 61,005 (1997), the State’s inclusion

of the acquisition premiums in state-regulated rates was

insufficient to demonstrate specific dollar benefits resulting

from the sale. In United Gas, “there was no showing that any
9

rate reductions had any relationship to the payment of amounts

in excess of the original cost.” Rehearing Order ¶ 53. By

contrast, the Commission observed, MoGas had demonstrated

specific dollar benefits because the purchase price of the TMP

facilities was less than the cost of constructing comparable

facilities. See id. It further observed, upon acknowledging its

statement in Enbridge Pipelines (KPC), 109 F.E.R.C. ¶ 61,042

(2004), that proving substantial benefits under Longhorn is a

heavy burden, that case did not involve a pipeline converted to

a new use and that its precedents such as Cities, Natural, and

Crossroads showed that its strong policy against inclusion of

acquisition adjustments in rate base “‘is not inflexible.’” 

Rehearing Order ¶ 57 (quoting Cities, 4 F.E.R.C. at 61,596). 

II.

Petitioner challenges the Remand and Rehearing Orders on

two grounds. First, it contends that, under Commission

precedent, “whether the purchaser has demonstrated specific

dollar benefits resulting directly from the sale” cannot be

satisfied simply by demonstrating that “the purchase price of the

asset at issue is less than the cost of constructing a comparable

facility.” Petr.’s Br. 18 (internal quotation marks omitted). 

Second, it contends the Commission was required to examine

whether there were actual benefits to consumers beyond the

lower purchase price and it failed to do so, in part by failing to

address whether consumers opposed the acquisition. 

The court reviews the Commission’s decisions under the

deferential arbitrary and capricious standard of the

Administrative Procedure Act, and its role “is limited to assuring

that the Commission’s decisionmaking is reasoned, principled,

and based upon the record.” Rio Grande, 178 F.3d at 541

(internal quotation marks omitted). When ratemaking is

involved, the court is “particularly deferential to the
10

Commission’s expertise.” Midwest ISO Transmission Owners

v. FERC, 373 F.3d 1361, 1368 (D.C. Cir. 2004) (internal

quotation marks omitted). Further, deference is due to the

Commission’s interpretation of its own precedent. See

Columbia Gas Transmission Corp. v. FERC, 477 F.3d 739, 743

(D.C. Cir. 2007). The court, however, “must reverse a decision

that departs from established precedent without a reasoned

explanation.” Exxon Mobil Corp. v. FERC, 315 F.3d 306, 309

(D.C. Cir. 2003) (citing ANR Pipeline Co. v. FERC, 71 F.3d

897, 901 (D.C. Cir. 1995)). We find no basis to do so here.

A.

Commission precedent amply supports the challenged

orders. The precedent cited by the Commission allows inclusion

of an acquisition premium in a pipeline’s rate base under the

benefits exception where there has been arms-length bargaining

so long as there is a new use and the cost of acquisition is less

than the cost of construction. Following an evidentiary hearing

on remand, the Commission found that applying the benefits

exception to the TMP project ensured that “the approved

recourse rates will be no higher, if not somewhat lower, than if

the pipeline built new facilities.” Remand Order ¶ 113. This

was because the acquisition cost was $1.4 million less than new

construction. Id. Counsel for the Commission noted that if

there is a finding that the public convenience and necessity

requires that a new pipeline is being put into service one way or

another, then the question is whether it will come into existence

through new-use acquisition or new construction, and whichever

course of action is selected, the cost will be passed along to

ratepayers. See Oral Arg. Rec. 40:18-40:22; 21:50-22:36 (Dec.

12, 2014). The choice of a lesser acquisition cost benefits

consumers, cf. Enbridge Energy Co., Inc., 110 F.E.R.C.

¶ 61,211, at 61,796 (2005), and the cost difference with new

construction costs quantifies the benefits. 
11

In Cities, 4 F.E.R.C. ¶ 61,268, the Commission had

determined that “the public convenience and necessity requires

Cities Service’s pipeline,” id. at 61,595, and permitted inclusion

of the full purchase price of a new pipeline in the rate base, id.

at 61,596, explaining that although it “generally has a strong

policy against” including acquisition premiums in rate base,

“that policy is not inflexible,” id. “Where the transfer at a price

above book value benefits consumers, it is sometimes

appropriate to permit the entire purchase price to go into the rate

base.” Id. There, the depreciated book value was approximately

$3 million, while the purchase price was $18.5 million, and

construction of a new pipeline would have cost over $40

million. Id. The Commission noted that it was “also significant

that the pipeline ha[d] not been devoted to gas utility service”

and thus “gas consumers w[ould] not be burdened twice for the

costs of depreciating the facilities.” Id. The Commission’s

analysis was limited to those two factors: new use and a

purchase price less than the cost of new construction.

A differential similar to that in the instant case sufficed in

Natural, 29 F.E.R.C. ¶ 61,073, where the acquisition cost was $1

million lower than new construction costs. The Commission

had found in Natural the pipeline would be in the public interest

and thereafter allowed the acquisition premium attributable to

the interstate portion of the new pipeline — $20 million, which

was greater than the $6 million depreciated original cost, but

less than the $21 million estimated cost of constructing a

comparable pipeline — to be included in the rate base. Id. at

61,150. The Commission noted that costs associated with the

purchased pipeline would be borne only by customers who

chose to use the new segment. It further explained that “gas

customers would not be burdened twice for the cost of

depreciating the facilities since the facilities had not previously

been devoted to gas utility service.” Id. (citing Cities, 4

F.E.R.C. ¶ 61,268). 
12

In Crossroads, 71 F.E.R.C. ¶ 61,076, too, the Commission

had found the pipeline, which was being put to a new use by

providing natural gas in Indiana and Ohio instead of oil, was

“required by the public convenience and necessity,” id. at

61,261, and so allowed the $16 million acquisition cost to be

included in the initial rate base of the pipeline. The $16 million

acquisition cost and associated costs of $6.4 million for

conversion and extension were “considerably less than the costs

associated with constructing a new 201-mile, 20-inch diameter

pipeline.” Id. at 61,262. Hence, the Commission determined

that “ratepayers will receive commensurate benefits from the

acquisition of the oil pipeline.” Id.

Other precedent cited by the Commission on brief is to the

same effect, indicating that the cost differential itself provides

a commensurate benefit that is sufficient to satisfy the second

prong of the benefits exception test. For example, in Longhorn,

the Commission had concluded that the second prong of the test

was met because “[t]he conversion will result in utilization of a

currently-underutilized facility, which could not be replicated

for the price that [the buyer] is willing to pay.” 73 F.E.R.C. at

62,113. As it also noted in Cities and Natural, the Commission

observed that “shippers who have paid for the crude oil line . . .

are quite different from those shippers who would be charged

for the use of the converted [natural gas] line.” Id. Likewise, in

KN Interstate Gas Transmission Co., 79 F.E.R.C. ¶ 61,268, at

62,151 (1997), the Commission explained the second prong of

the benefits exception test required only that “rate payers will

realize benefits commensurate with the acquisition costs that

exceed the depreciated original costs.” There, the “estimated

cost of $159.2 million to complete the . . . project [wa]s

considerably below the estimated $320 million cost to construct

a comparable new pipeline.” Id.

To the extent petitioner attempts to distinguish the cases
13

cited by the Commission in the challenged orders on the grounds

that the pipelines’ rates in Crossroads, Cities, and Natural were

either negotiated or unopposed, or both, and so there must have

been benefits for customers, see Petr.’s Br. 33–38, the

Commission responded, correctly: “There is no language in the

Commission orders in [those decisions] that suggests that

customer support or a lack of customer opposition was an

essential factor in the Commission’s findings in those

proceedings,” Rehearing Order ¶ 50. The Commission pointed

out that relying on non-opposition, as petitioner suggested,

would have been “at odds with” its “independent obligation . . .

to ensure that initial rates are in the public interest.” Id.; see

also Mo. Pub. Serv. Comm’n, 337 F.3d at 1076. Moreover,

evidence of Missouri customer opposition was considered in the

2002 Order, and, the Commission noted, that order was never

challenged. Rehearing Order ¶¶ 49, 54. 

Petitioner’s reliance on United Gas, 25 F.P.C. 26, as

requiring that a pipeline must show benefits to consumers

beyond a construction-acquisition cost differential, is misplaced. 

In observing that acquisition costs “may or they may not be

includible in the rate base, depending on whether it can be

established . . . that consumer benefits flowed to the rate payers

to the extent of the” premium, 25 F.P.C. at 50, the Federal

Power Commission referred to rate reductions as one example

of such benefits. Building on United Gas, Commission

precedent has since explained why the requisite showing of

customer benefits can be satisfied with evidence of an

acquisition cost being lower than that of new construction. See,

e.g., Longhorn, 73 F.E.R.C. at 62,112–13. As discussed,

because the ratepayers for a project that has received a

certificate of public convenience and necessity will pay rates

based on the rate base associated either with the costs of

acquisition or costs of new construction, acquiring a pipeline

segment at a price cheaper than the cost of constructing a
14

comparable alternative can reasonably be expected to lead to

benefits in the form of rate reductions. Other Commission

decisions describing the benefits exception that are relied on by

petitioner indicate no change in the Commission’s approach. 

See, e.g., Enbridge Pipelines (Southern Lights) LLC, 121

F.E.R.C. ¶ 61,310 (2007); Enbridge Energy, 110 F.E.R.C.

¶ 61,211; Questar S. Trails Pipeline Co., 89 F.E.R.C. ¶ 61,050

(1999).

Petitioner maintains, however, that there are instances

where the Commission has identified benefits beyond a cost

differential (e.g., offering access to a new or under-utilized

supply), or highlighted factual circumstances not present in the

instant case (such as a pipeline’s reliance on a negotiated rate

instead of a cost of service rate), or relied upon benefits that the

Commission did not mention. See Petr.’s Br. 21, 25–31. As to

types of benefits, the court in Missouri I, 601 F.3d at 586, listed

four elements it found in Commission decisions. Quoting

Kansas Pipeline for the proposition that one factor is “whether

‘the purchaser has demonstrated specific dollar benefits

resulting directly from the sale,’” Missouri I, 601 F.3d at 586

(quoting Kansas Pipeline, 81 F.E.R.C. at 61,018), the court

characterized this as the “key” element, id. at 588. In

petitioner’s view, the challenged orders are inconsistent with the

court’s statement of the test. But nothing the court said

purported to change the test adopted by the Commission. The

issue before the court in Missouri I was whether the

Commission improperly included the alleged acquisition

premium in MoGas’s initial rates while deferring resolution of

the issue to a future NGA § 4 rate proceeding. See id. at 585. 

Concluding that it had, the court noted that the Commission “did

not directly evaluate the . . . premium according to any of the

elements of the benefits exception test,” id. at 586 (emphasis

added), vacated the Commission’s order with respect to the

alleged acquisitions premium issue, and remanded that issue to
15

the Commission for resolution, see id. at 588. The court thus

had no occasion to consider the evidentiary content of the

second prong of the Longhorn test. Previously, in Rio Grande,

178 F.3d at 542, where the Commission had adopted a per se

prohibition when the seller acquires an equity position in the

purchaser that the court concluded was unsupportable, the court

noted because it was clear Rio Grande had put the pipeline to a

new use, see id., a remand was called for to allow the

Commission to address the second prong, see id. at 543; nothing

in Missouri I purported to question that understanding of the

Commission’s test.

The Commission’s analysis of its precedent in the

challenged orders, to which we defer, refutes petitioner’s

suggestion that the Commission has departed from the Longhorn

test and the determination that evidence of a difference between

acquisition and construction costs generally may suffice to

satisfy the second prong of the test. Other Commission

decisions relied upon by petitioner to show the Commission has

departed from its precedent are inapposite. For instance, in

Enbridge Pipelines (KPC), 102 F.E.R.C. ¶ 61,310, at 62,022–23

(2003), and KN Wattenberg, 85 F.E.R.C. at 61,853–54, no new

pipeline use was involved. See Remand Order ¶ 112. 

B.

Petitioner also contends that a cost differential cannot

suffice under the second prong of the benefits exception test

absent a determination that the consumers being served will

actually benefit. See Petr.’s Br. 38. Even assuming, as

petitioner maintains, that the Commission was required to

identify benefits for consumers from the TMP project other than

a cost of acquisition lower than the hypothetical cost of

construction, the Commission did so, appropriately relying in

part on benefits that it had identified in 2002 when it certified

the TMP project pursuant to NGA § 7.
16

Again, the clearest benefit resulting from the lower

acquisition cost of the TMP project is the likelihood that it will

lower costs passed along to ratepayers in using a pipeline whose

construction the Commission determined was required by the

public convenience and necessity. See Remand Order ¶ 113. 

In addition, the Commission noted its findings in the 2002

Order that the TMP project would benefit customers by

promoting reliability through providing new sources of supply

and fostering competition. See Rehearing Order ¶ 49 & n.86. 

For instance, the Commission found that certain parts of

Missouri had limited access to certain supply areas and the TMP

project would increase competition and offer new sources of gas

supply and transportation to Missouri consumers served by the

interstate pipeline that would interconnect with the TMP. See

id. (citing 2002 Order ¶ 18). Contrary to the implication of

petitioner’s argument, then, this is not a case in which the

Commission certified the TMP project based principally on outof-state benefits and approved an acquisition premium in the

pipeline’s rate base to be paid by non-beneficiary in-state

ratepayers; the court consequently has no occasion to consider

how a petition in those circumstances would be resolved.

Petitioner’s critique that the benefits exception test lacks

teeth because “the estimate [of construction cost] is a

hypothetical alternative” that “will never be put to the test,”

Petr.’s Br. 52, is belied by the record. Petitioner challenged the

hypothetical construction cost, prompting the ALJ to reduce it

by $2.4 million, see ALJ Remand ¶ 314; Remand Order ¶ 110;

Rehearing Order ¶ 55. Intervenor notes, moreover, that

petitioner also had the opportunity to present other challenges to

the pipeline’s evidence, such as cross-examining MoGas’s

expert, but did not. See Intervenor MoGas Pipeline LLC Br.

28–29. 

Finally, in its reply brief petitioner suggests that when
17

determining whether an acquisition premium can be included in

a pipeline’s rate base, the Commission ought not be permitted to

rely on the findings made when certifying the project pursuant

to NGA § 7, lest the two questions collapse into one. See Reply

Br. 18–19. Even assuming this argument is properly before the

court, see Holland v. Bibeau Const. Co., 774 F.3d 8, 14 (D.C.

Cir. 2014), nothing in this court’s remand order in Missouri I so

limited the Commission, and the record in the instant case shows

that the fact some benefits may be analogous does not render the

two determinations legally indistinguishable. Of course, insofar

as petitioner seeks to suggest there was no benefit to Missouri

consumers from the TMP project in the first place, that

challenge would be an impermissible collateral attack on the

2002 Order. See Pac. Gas & Elec. Co. v. FERC, 533 F.3d 820,

824–25 (D.C. Cir. 2008). 

Accordingly, we deny the petition for review.
MILLETT, Circuit Judge, concurring: In my view, the 

Commission’s decision barely ekes past our deferential

review. The near-fatal flaw is that the Commission persists in

a bafflegab articulation of its rule for including acquisition

premiums in rates. On the one hand, the Commission has said

repeatedly that the prohibition on the inclusion of acquisition

premiums in rates is broad and emphatic, with the benefits

exception being narrow and sparingly applied. To walk that

narrow path, a pipeline must “show[] by clear and convincing 

evidence that the acquisition results in substantial benefits to

ratepayers.” Longhorn Partners Pipeline, 82 FERC ¶ 61,146, 

61,542 (1998); see also, e.g., Public Service Co. of New

Mexico, 142 FERC ¶ 61,168 P 25 (2013) (requiring “tangible

and nonspeculative” “specific dollar benefits” that “are

clearly related [to] and solely the result of the acquisitions”) 

(internal quotation marks omitted); Missouri Pub. Service

Comm’n v. FERC, 601 F.3d 581, 586 (D.C. Cir. 2010) 

(“‘heavy’ burden” to show “benefits to consumers that are

‘tangible, non-speculative, and quantifiable in monetary

terms’”) (quoting Kansas Pipeline Co., 81 FERC ¶ 61,005, 

61,018 (1997)). 

On the other hand, aspects of the Commission’s decision

in this and some past cases seem to welcome automatically

the inclusion of acquisition premiums in rates any time the 

pipeline shows that “(1) the acquired facility is being put to

new use, and (2) the purchase price is less than the cost of 

constructing a comparable facility.” Enbridge Pipelines (S.

Lights) LLC, 121 FERC ¶ 61,310 P 38 (2007) (quoting Rio

Grande Pipeline Co. v. FERC, 178 F.3d 533, 536-537 (D.C.

Cir. 1999)). Beyond any findings underlying a certificate of 

public convenience and necessity, the Commission seems to

indicate that no showing of actual desire or demand by 

customers for the refurbished service need be made, or even

that a new pipeline would actually have been built. 
2 

Whither that prior insistence on clear and convincing 

evidence of actual, substantial and direct benefits to

ratepayers? 

Here the Commission says the benefit is that the rates

“will be no higher, if not somewhat lower, than if the pipeline 

built new facilities.” Missouri Interstate Gas, LLC (“Remand 

Order”), 142 FERC ¶ 61,195 P 113 (2013). That is not the 

same as an actual, substantial benefit at all. And if that

articulation actually captured the Commission’s position, 

what began as a clear requirement that a substantial 

affirmative benefit be shown would have transmogrified into

a “no harm, no foul” rule, without an explanatory word being

uttered by the Commission. 

Also seemingly overlooked by the Commission is the 

simple proposition that cheaper is not always better. In this

case, the ratepayers got a refurbished, 50-year-old pipeline 

paired with the feeble assurance that the cost to them will be 

“no higher” than it would be for a brand new pipeline. But

not many people would embrace as a “substantial benefit” a 

recycled, 50-year-old hand-me-down for which they were

charged the same price as (or “no higher” than) brand new.

What saves the Commission is that, as the court’s opinion 

notes, see Slip Op. at 10, 15-16, a careful reading of the 

agency decision shows some actual benefit to ratepayers. 

While the Commission did not repeat its analysis in detail

here, it did expressly rely on its earlier findings in issuing a 

certificate of public convenience and necessity that the 

proposed service would provide a number of benefits

specifically to Missouri customers. Those benefits include 

improving the reliability and diversity of natural gas supply in

the State and increasing competition. See Missouri Interstate

Gas, LLC (“Rehearing Order”), 144 FERC ¶ 61,220 P 49 & 
3 

n.86 (2013); Missouri Interstate Gas, LLC, 100 FERC

¶ 61,312 PP 14–18 (2002). Importantly, petitioner never 

sought review of those prior findings, so both petitioner and

this court are bound by them. 

In addition, the record (just barely) documents the 

connection the Commission made between the avoided 

construction costs and anticipated lower rates for pipeline 

customers. See Wisconsin Pub. Power, Inc. v. FERC, 493 

F.3d 239, 273 (D.C. Cir. 2007) (“Although FERC’s wording 

may have been less than precise on this point, the agency’s 

path may reasonably be discerned[.]”). As the Commission

noted on rehearing, that cost differential will translate into a 

rate base that is lower than it would have been had a 

comparable pipeline been constructed, and it is that rate base

that will serve as the foundation for the rates charged. 

Rehearing Order at P 55 n.93 (2013).1

To the extent there could be any question regarding the 

directness with which that reduction in the rate base would 

translate into lower prices for shippers, it would stem from

distinct subsidization concerns that could arise if the 

Commission permitted the pipeline to charge customers a rate

not linked directly to use of the new segment without 

measures in place to mitigate this risk. That scenario would 

distinguish this case from Natural Gas Pipeline Co. of 

America, 29 FERC ¶ 61,073 (1984), where the Commission

 

1

 While the Commission’s precedent requires that the substantial

benefit be established by “clear and convincing evidence,” this

court’s review remains deferential. Because the Commission 

correctly identified the applicable “clear and convincing” standard,

see Rehearing Order at P 35; Remand Order at P 44, this court

reviews any findings of fact made pursuant to that standard only for

substantial evidence. See Sea Island Broadcasting Corp. of South 

Carolina v. FCC, 627 F.2d 240, 244 (D.C. Cir. 1980). 
4 

specifically noted that charging rates for a newly acquired

pipeline segment on an incremental basis ensured that the

company, and not its customers, “b[ore] the risk of project 

failure or insufficient throughput.” See id. at 61,151. 

Here, however, the Commission addressed concerns

regarding potential subsidization specifically in its 2007 

rehearing decision approving the merger that created MoGas

Pipeline, LLC. See Missouri Interstate Gas, LLC, 122 FERC

¶ 61,136 PP 67–75 (2007). No meaningful challenge to the 

rate design aspect of the Commission’s decision or its

implications for the benefits exception has been pressed here. 

As a result, the court’s opinion decides only that

permitting the inclusion of an acquisition premium in the rates

on this record in a Section 7 proceeding, 15 U.S.C. § 717f, 

was a tolerable application of the Commission’s benefits

exception. This decision says nothing about whether a future

premium would or would not be sustainable if the 

subsidization argument were pressed and the measures the 

Commission took to address that risk were found wanting. 

Nor do we address whether future rates can be challenged on 

that ground in a Section 4 rate-setting proceeding, 15 U.S.C. 

§ 717c. 

More fundamentally, nothing in our decision today 

should be held as authorizing the Commission, going forward,

to approve the inclusion of acquisition premiums based solely 

on a determination that rates for the refurbished pipeline will

be “no worse than” if a new, modern pipeline had been built. 

If the Commission wishes to spell the demise of the strict

actual-benefits test of past precedent and replace it with a 

wooden “new use plus marginally cheaper than new” rule, it

must be up front about what it is doing and grapple directly

with the question whether the statutory and regulatory 
5 

framework and past precedent permit such a regulatory 

metamorphosis.