Narrative Opinion Summary
The case involves Northern Border Pipeline Company and Natural Gas Pipeline Company of America seeking judicial review of FERC orders concerning the accounting treatment of a gas pipeline facility purchase. Northern Border purchased a pipeline from Natural for approximately $78 million, reflecting its construction cost, and received FERC approval for the transaction. However, Northern Border did not account for accumulated depreciation as required by FERC’s Uniform System of Accounts, leading to an overstatement of its ratebase by about $3 million. FERC mandated a refund to customers for the overcharges. Northern Border challenged FERC’s orders, arguing compliance with accounting rules and claiming consumer benefits under the United test, which allows for excess purchase price recovery if benefits are demonstrated. FERC deferred this determination to a future Section 4 rate proceeding, emphasizing procedural adherence and allowing customer input. The court upheld FERC’s decision, affirming the agency’s discretion in procedural matters and its policy of addressing United test determinations within ratemaking proceedings rather than accounting proceedings.
Legal Issues Addressed
Compliance with FERC Accounting Proceduressubscribe to see similar legal issues
Application: Northern Border's failure to record accumulated depreciation separately violated FERC’s accounting rules, leading to an overstatement of ratebase and resulting in customer overcharges.
Reasoning: FERC’s rules required the transfer of accumulated depreciation to a separate account, which Northern Border failed to do, leading to a violation of accounting procedures.
FERC's Ratemaking Policies and the United Testsubscribe to see similar legal issues
Application: Northern Border must demonstrate compliance with the United test in a rate proceeding under Section 4 of the Natural Gas Act to recover the excess purchase price over depreciated original cost.
Reasoning: FERC maintains that Northern Border must demonstrate compliance with the United test in a rate proceeding under Section 4 of the Natural Gas Act, not in a Section 8 accounting proceeding.
Original Cost Accounting under Uniform System of Accountssubscribe to see similar legal issues
Application: Northern Border Pipeline Company was required to record the depreciated original cost of a purchased facility, which is the cost minus accumulated depreciation, as per FERC regulations.
Reasoning: Original cost accounting is a fundamental principle of the Uniform System, asserting that a purchaser inherits the previous owner's claims to a return on the capital devoted to public service.
Procedural Discretion of Regulatory Agenciessubscribe to see similar legal issues
Application: FERC's decision to defer the United test until a rate proceeding allows consumer input, adhering to its policy of addressing such determinations in ratemaking proceedings.
Reasoning: The handling of related procedural issues falls within agency discretion, as established in Mobil Oil Exploration.