On January 11, 2012, FERC denied Bear Creek Storage Company, LLC’s (Bear Creek) request for rehearing of a November 17, 2011 order[1] in which FERC required Bear Creek to file, within 75 days, a cost and revenue study containing all of the schedules and statements required for a Natural Gas Act (NGA) section 4 rate proceeding as set forth in section 154.312 of FERC’s regulations.[2] FERC had initiated an investigation under NGA section 5 and had ordered the study to be based on the cost and revenue information for the most recent 12-month period available. This decision clarifies that all pipelines, regardless of size, must file a cost and revenue study in compliance with the requirements of section 154.312 in investigation cases conducted under section 5 of the NGA.

In the November 17 Order, FERC presented its preliminary findings that Bear Creek’s currently effective tariff rates may allow Bear Creek to recover revenue substantially in excess of its cost of service.[3] As a result, FERC initiated an investigation to review the justness and reasonableness of Bear Creek’s rates under NGA section 5 and ordered Bear Creek to file a section 154.312 cost and revenue study.

In its request for rehearing, Bear Creek contended that requiring it to submit a cost and revenue study, complete with all of the schedules and statements required under section 154.312, is inconsistent with FERC’s practice in conducting NGA section 5 investigations of small pipelines, as established in Indicated Shippers v. Sea Robin Pipeline Co.[4] and Natural Gas Pipeline Company of America (NGPL).[5]Specifically, Bear Creek asserted that as a small pipeline (one that is smaller than Sea Robin), it should be required to provide a section 154.313 cost and revenue study, which is applicable to minor rate changes, instead of the more demanding section 154.312 cost and revenue study, which is applicable to section 5 investigations of large pipelines.[6] As further support, Bear Creek looked to NGPL, in which FERC explained that its decision to permit Sea Robin to file under section 154.313 while requiring Natural to file under section 154.312 was related to the pipeline’s size and the nature of their operations.[7]

FERC stated that the more extensive schedules and statements required by section 154.312 are necessary to evaluate Bear Creek’s rates and to minimize the delays and burdens of discovery in the proceeding.[8] It clarified that since issuing an order in June 2006 in Public Service v. National Fuel,[9] it has “consistently required pipelines subject to section 5 investigations to file a section 154.312 cost and revenue study, regardless of their size or the complexity of their services.”[10] This provides parties with the benefit of having the schedules and statements required under section 154.312 at the outset of the proceeding. While FERC recognized that in NGPL, it suggested that it may be sufficient in a section 5 investigation to only require a relatively small pipeline to file a section 154.313 cost and revenue study, the potential for continued over-recovery of revenues by pipelines necessitates that section 5 investigations be conducted as efficiently and expeditiously as possible.[11]Additionally, it found that a section 154.313 cost and revenue study would not provide sufficient information to evaluate Bear Creek’s rates.[12]

Bear Creek also argued that FERC lacked the authority under NGA section 5 to direct it to submit a cost and revenue study with all the information required in a section 4 rate proceeding under section 154.312.[13] It contended that in doing so, FERC was effectively requiring Bear Creek to submit an NGA section 4 rate filing.[14] In response, FERC reminded Bear Creek that the November 17 Order provided that FERC was acting under NGA section 5 and expressly stated that “Bear Creek does not have an NGA section 4 burden in this section 5 proceeding.”[15] While FERC recognized that the information requested is the same information used to determine rates, it stated that requiring a pipeline to supply an informational filing does not improperly transform the section 5 proceeding into a section 4 proceeding.[16] To the contrary, FERC noted that the information is necessary in the NGA section 5 proceeding to properly allocate the burden of proof and to enable it to calculate just and reasonable rates for Bear Creek.[17]