Opinion ID: 484619
Heading Depth: 1
Heading Rank: 3

Heading: disallowance of tapco costs

Text: 31 During the gas shortages of the 1970s, Tenneco formed a subsidiary, Tenneco Atlantic Pipeline Company (TAPCO), to import liquified natural gas from Algeria to augment Tennessee's natural gas supply. When the Economic Regulatory Administration (ERA) denied TAPCO's import application, the project failed. In this general pipeline service rate application, Tennessee sought to amortize over five years the after-tax expenses incurred by both Tennessee and TAPCO in connection with the project, and to recover those expenses from jurisdictional ratepayers. The ALJ denied Tennessee's request, declaring it settled FERC policy to deny recoupment from ratepayers for funds spent on unsuccessful projects. The Commission affirmed, explaining that its opinion in Natural Gas Pipeline Co. of America, 27 FERC p 61,021, reh'g denied, 28 FERC p 61,020 (1984), aff'd, 765 F.2d 1155 (D.C.Cir.1985), cert. denied, --- U.S. ----, 106 S.Ct. 794, 88 L.Ed.2d 771 (1986), (hereinafter Natural I ), issued after the ALJ's decision, established that to recover costs of unsuccessful projects the applicant pipeline must demonstrate that it (rather than a corporate affiliate) was the source of the expended funds and that the project, if successful, would have benefitted the pipeline's customers. 14 Here, the costs of TAPCO were incurred by Tennessee's corporate affiliate, and not Tennessee itself. (The Commission explained in a footnote that although Tennessee may have expended some funds itself, its application did not segregate this amount from the full amount spent by Tennessee and TAPCO together). The Commission also concluded that Tennessee failed to demonstrate any benefit to its customers, since ERA's denial of TAPCO's import application was based on the premise that the project did not meet the needs of Tennessee's customers. 32 Tennessee raises numerous objections to this decision, most of which we considered and rejected in our review of Natural I, Natural Gas Pipeline Co. of America v. FERC, 765 F.2d 1155 (D.C.Cir.1985), cert. denied, --- U.S. ----, 106 S.Ct. 794, 88 L.Ed.2d 771 (1986), (hereinafter Natural II). 15 Tennessee's two primary objections are that the Commission's policy announced in Natural I is a departure from past Commission precedent, requiring a more thorough explanation, Columbia Gas Transmission Corp. v. FERC, 628 F.2d at 592-93, and that the Commission improperly ignored Tennessee's evidence showing this applied-for expense meets FERC's Natural I policy. We find neither objection persuasive. 33 As we observed in Natural II, the Commission had, prior to Natural I, a long history of disallowing recovery of expenses for failed natural gas projects either in a pipeline's rate base or as an amortized expense in its cost of service, Natural II, 765 F.2d at 1161-63, 1169. Petitioner cites instances where FERC allowed recovery of such expenses, suggesting this evidences a different Commission policy. But, as we have said, these instances are distinguishable from circumstances such as this, where the failed project involves exotic technologies that are unusually risky. Natural II at 1165. Thus, the Commission here did not suddenly take a hostile position toward failed project compensation requests. If anything, the Commission, by following its Natural I decision, tempered its longstanding hostility somewhat by offering Tennessee a test under which the cost of its unsuccessful project could be recovered. The Commission's decision to reject Tennessee's cost-recovery application, therefore, was not a deviation from precedent and required no special explanation. 34 The Commission's conclusion that Tennessee failed to meet the Natural I test was, we believe, supported by substantial evidence. Tennessee's evidence in support of its application consists merely of one page describing the pre-tax costs separately assumed by Tennessee and TAPCO and the after-tax costs assumed by Tennessee and TAPCO together--the amount Tennessee sought to amortize. The Commission reasonably refused to consider this as evidence of costs incurred by Tennessee alone because this document did not purport to itemize what after-tax expenses Tennessee alone assumed. As FERC's Natural I opinion holds, Tennessee may (at maximum) recover only its own expenses. Although Tennessee also contends the Commission erred by failing to reopen the record on this issue after its Natural I opinion in 1984, Tennessee apparently did not seek to reopen the record. It appears to us that Tennessee first sought FERC's permission to recover the total cost of the TAPCO project, in disregard of strong Commission precedent, and then, when the possibility of a more lenient test was announced in Natural I, chose to stand pat with the evidence it had already offered. The Commission's view that Tennessee failed to demonstrate its eligibility for recovery of the TAPCO expense was, we conclude, a reasonable decision based on substantial evidence.