NEPA’s “Manageable Line,” § 2.55(b) Replacements, and Rolled‑In Rate Predeterminations: The Fifth Circuit’s Framework in State of Washington v. FERC (GTN Xpress)

Introduction

In State of Washington v. Federal Energy Regulatory Commission, a consolidated review of multiple petitions arising from Gas Transmission Northwest, LLC’s (GTN) “GTN Xpress” project, the Fifth Circuit issued a sweeping opinion that touches nearly every stage of the federal pipeline approval and ratemaking process. The court resolved threshold jurisdictional disputes (standing and ripeness), affirmed FERC’s substantive Natural Gas Act determinations on certification and initial rates, and upheld FERC’s National Environmental Policy Act (NEPA) analysis against challenges brought by environmental groups and state attorneys general.

The case sits at the intersection of three regimes:

The Natural Gas Act (NGA), including the “certificate” process under § 7 for expansions and the later rate-setting under §§ 4 and 5;
NEPA’s procedural requirements for environmental review of major federal actions; and
FERC’s Regulation § 2.55(b), which “automatically” authorizes certain in-right-of-way replacements without fresh certificates or ordinary NEPA review.

The key questions were:

Can a pipeline proponent immediately seek judicial review when FERC denies a “predetermination” that would favor “rolled‑in” rates at a future § 4 ratemaking proceeding?
Did FERC properly certify the GTN Xpress expansion as in the public convenience and necessity under NGA § 7 and set “hold-the-line” initial rates?
Did FERC comply with NEPA by (a) handling the “no-action” alternative, (b) refusing to treat earlier § 2.55(b) compressor replacements as a “connected action,” and (c) addressing public health and safety risks?

The Fifth Circuit answered each question for FERC, denying all petitions. The opinion crystallizes a post–Seven County NEPA framework favoring agency line-drawing, clarifies the limited role of § 7 proceedings in rate questions, tightens the path to rolled‑in rate predeterminations when replacements are not in-kind, and underscores the importance of timely and properly directed challenges to § 2.55(b) approvals.

Summary of the Opinion

The court:

Held GTN had standing and its petition was ripe to challenge FERC’s denial of a predetermination that would have favored rolled‑in rate treatment in later § 4 proceedings. GTN showed concrete financial harms (transaction costs, delay, diminished leverage) caused by FERC’s orders, and the dispute presented a largely legal question not requiring further factual development.
Affirmed FERC’s § 7 certificate for the GTN Xpress expansion, holding that precedent agreements for the entire incremental capacity are substantial evidence of need; that § 7 certification can defer granular allocation issues to § 4; and that challengers cannot collaterally attack prior § 2.55(b) approvals in a § 7 case.
Upheld FERC’s denial of a predetermination for rolled‑in rates because the earlier § 2.55(b) replacements were not in-kind (they materially increased horsepower) and the incremental capacity was fully contracted by expansion shippers; cost-causation favored incremental treatment pending full § 4 adjudication.
Affirmed FERC’s use of the depreciation rate from GTN’s last § 4 case to set “hold-the-line” initial rates, rejecting calls for a bespoke depreciation analysis at the certification stage.
Rejected NEPA challenges, concluding that FERC:
- adequately treated the “no-action” alternative as the baseline and contrasted it with project impacts;
- reasonably drew a “manageable line” excluding earlier § 2.55(b) replacements as connected actions; and
- took a hard look at public health and safety risks, appropriately relying on Department of Transportation pipeline safety standards and project-specific mitigations.

All petitions were denied.

Analysis

Precedents Cited and How They Shaped the Decision

NGA framework and FERC’s Certificate Policy Statement (1999): The court relied on long-standing principles that § 7 certification addresses whether a project serves the public convenience and necessity, often demonstrated by precedent agreements, while reserving full rate design questions for later § 4/§ 5 proceedings. Initial rates under § 7 are “to hold the line” until full ratemaking.
Rolled‑in vs. incremental rates: The court drew from D.C. Circuit and FERC precedent (e.g., Consolidated Edison; Brooklyn Union; Gulf South) to explain that expansion costs are generally incremental unless rolled‑in treatment will not substantially affect existing customers—sometimes supported by a “predetermination” at § 7 that becomes a rebuttable presumption in § 4.
Cost-causation principle: The opinion invoked the principle that costs should be allocated to those who cause and benefit from them. Because the expansion capacity was fully subscribed by expansion shippers and the replacements increased horsepower beyond in-kind levels, cost-causation did not support a predetermination favoring rolled‑in rates.
NEPA deference after Seven County: The Supreme Court’s 2025 decision emphasized broad agency discretion in scoping, alternatives, and the depth of analysis. The Fifth Circuit repeatedly invoked Seven County’s “broad zone of reasonableness” and “manageable line” framing to validate FERC’s NEPA choices, including rejecting “but-for” causation to expand the scope of connected actions.
Segmentation and connected actions: Earlier D.C. Circuit formulations (e.g., Food & Water Watch) are reframed through Seven County’s caution against courts second-guessing reasonable agency line-drawing. FERC’s categorical treatment of § 2.55(b) replacements—already authorized and in the same footprint—carried the day.
Standing and ripeness: The court distinguished prior ripeness decisions that involved unresolved factual records or orders establishing hearings. Here, FERC’s denial of a predetermination turned on undisputed facts, and GTN showed concrete, immediate hardship.

Legal Reasoning

1) Standing and Ripeness: Immediate Review of Predetermination Denials

The court credited GTN’s concrete injuries—heightened transaction costs, construction delay (monetized at approximately $1.3 million per month), reduced bargaining leverage, and competitiveness harms—as cognizable injuries caused by FERC’s denial of a predetermination. These were not self-inflicted in the Clapper sense; FERC’s orders created a Hobson’s choice: absorb risk or halt the project. Redressability was satisfied because a favorable ruling would lessen GTN’s burdens in the forthcoming § 4 case.

On ripeness, the court found the issues fit for review because FERC’s denial rested on two undisputed predicates: (i) the project involved removing horsepower restrictions and (ii) part of the replacement horsepower would support the expansion. With no need for further factual development, and with concrete hardship already occurring, the petition was ripe.

2) NGA § 7 Certification: Public Convenience and Necessity

FERC permissibly relied on long-term precedent agreements covering the entire incremental capacity as “important, and sometimes sufficient” evidence of market need (especially with unaffiliated shippers). The States’ counter-evidence did not require FERC to “look beyond” those agreements absent credible contrary evidence under FERC’s policy.

Importantly, the court emphasized the division of labor between § 7 and § 4:

At § 7, FERC may defer granular cost allocation and pricing debates to § 4, because initial rates “hold the line.”
Questions about whether existing customers might subsidize expansion or how to allocate replacement costs are more appropriately addressed with a full record in a § 4 rate case.

The court also rejected collateral attacks on § 2.55(b) authorizations within a § 7 certificate proceeding. If a party contests whether a replacement truly qualified for § 2.55(b), the proper avenue is a timely, direct challenge or complaint proceeding—not backdoor litigation during a later § 7 review.

3) Predetermination for Rolled‑In Rates: Narrowed When Replacements Are Not In‑Kind

GTN argued that FERC generally presumes rolled‑in treatment for § 2.55(b) replacements, and therefore unfairly denied a predetermination. The court rejected this characterization. The precedents GTN cited either involved in-kind replacements or involved dividing replacement capacity between existing and expansion customers—unlike here, where:

The Solar Titan 130 replacements materially increased horsepower (roughly 6,000 hp above the 1970s units), so they were not in-kind; and
The incremental capacity was fully allocated to expansion shippers via 30-year precedent agreements, with no share reserved to existing shippers.

Against that backdrop, cost-causation supported incremental treatment at least pending full § 4 adjudication. FERC’s refusal to grant a predetermination (a presumption in favor of rolled‑in treatment at § 4) was therefore reasonable. If GTN can later justify rolling replacement costs into base rates (e.g., by proving the excess horsepower is truly needed for existing service), it can do so in the § 4 case—without a thumb on the scale.

4) Initial Rates and Depreciation: “Hold-the-Line” Methodology

FERC followed its well-settled policy of setting initial § 7 rates using the pipeline’s most recent § 4 cost-of-service determinants (including depreciation), even when established by a “black box” settlement. The court endorsed this approach as reasonable and expedient, given the limited role of § 7 rates. The States’ argument for bespoke depreciation (based on predicted declines in gas demand over a 47-year horizon) sounded in § 4 ratemaking rather than § 7 certification and was rejected.

5) NEPA: Alternatives, Connected Actions, and Safety

Post–Seven County, the court repeatedly emphasized “substantial deference” and a “broad zone of reasonableness” for agency NEPA judgments. It upheld FERC on three fronts:

No-action alternative: FERC’s EIS set the baseline by describing current conditions and contrasting them with project impacts. Although brief, that discussion sufficed, and the EIS elsewhere consistently mapped resource-by-resource effects against the status quo.
Connected actions and segmentation: FERC reasonably drew a “manageable line” excluding earlier § 2.55(b) compressor replacements from the expansion EIS. Those replacements were separately authorized, confined to previously approved sites and workspaces, and fell within a programmatic policy that generally treats § 2.55(b) replacements as already environmentally reviewed. Seven County cautions against using but-for causation to expand NEPA scope; the court applied that caution here.
Public health and safety: FERC took a hard look by discussing incremental risk and mitigation, relying on DOT’s pipeline safety standards and the remote siting of compressor stations. NEPA requires consultation but leaves the extent of interagency engagement to the lead agency’s discretion. FERC’s approach met that bar.

Impact

NEPA Practice After Seven County: Agency Line-Drawing Strengthened

This decision operationalizes the Supreme Court’s Seven County guidance within the FERC context. Key practical consequences:

Scoped Reviews Are Sticky: Agencies that articulate a coherent, “manageable line” for the “proposed action” will face substantial judicial deference, even where opponents marshal plausible arguments for broader “connected action” analysis.
§ 2.55(b) Replacements Are Hard to Pull In: By reaffirming the environmental treatment of § 2.55(b) replacements—already within existing rights-of-way, with prior footprints—the court signals that opponents must timely challenge § 2.55(b) authorizations directly, not later via segmentation claims in § 7 cases.
“No-Action” Baselines Can Be Concise: So long as the EIS meaningfully contrasts the baseline with project effects, courts will not micromanage narrative length or structure.
Safety Analysis Can Rely on Sectoral Regulators: Citing and incorporating DOT safety standards and requiring compliance remain acceptable NEPA strategies, particularly where project-specific features mitigate risk.

Pipeline Economics and Ratemaking Strategy

Predeterminations Are Narrower: The opinion draws an implicit line: rolled‑in “predeterminations” will be difficult where replacements are not in-kind and incremental capacity is fully assigned to expansion shippers. Pipelines seeking rate certainty should structure replacements (and records) to demonstrate in-kind characteristics or clear existing-shipper need for the added capabilities.
§ 7 Is Not § 4: Certification remains focused on need and basic rate “hold-the-line” parameters; complex cost allocations and depreciation battles belong in § 4/§ 5. Parties should calibrate their litigation strategies accordingly.
Precedent Agreements Carry Heavy Weight: Long-term, unaffiliated precedent agreements for all incremental capacity remain powerful evidence of need. Opponents must present credible, contrary evidence that undercuts their probative value to force broader inquiry.

Procedural Lessons: Timeliness and Venue

Lottery by Default: The JPML consolidation turned on the timeliness of petitions under 28 U.S.C. § 2112(a). Parties should file promptly to avoid losing venue or consolidation advantages.
Don’t Collaterally Attack § 2.55(b): Challenges to replacement authorizations must be brought through the proper channels at the proper time; trying to leverage § 7 certification to revisit § 2.55(b) approvals is a non-starter.

Complex Concepts Simplified

Section 7 vs. Section 4 vs. Section 5 (NGA):
- § 7: Pipeline needs a certificate to construct/expand. FERC also sets temporary “initial” rates to hold the line until full ratemaking.
- § 4: Pipeline proposes permanent rates; bears the burden to prove they are just and reasonable.
- § 5: FERC can change existing rates if it proves current rates are unjust/unreasonable and the proposed alternative is just/reasonable.
Rolled‑In vs. Incremental Rates:
- Rolled‑in: Spread expansion costs across all customers’ base rates.
- Incremental: Charge expansion shippers for expansion costs, leaving existing customers’ rates unchanged.
Predetermination: At § 7, a pipeline can ask FERC to signal that rolled‑in treatment will presumptively apply at § 4. It’s not binding but shifts the starting point. The court upheld FERC’s denial of that presumption here.
§ 2.55(b) Replacements: Automatic authorization (subject to conditions) to replace deteriorated or obsolete facilities in-place, typically without fresh NEPA review, because earlier certificates covered the right-of-way and workspace. Qualify only if the replacement does not reduce service, stays within the same footprint, and uses prior workspace.
Precedent Agreements: Long-term, binding contracts by shippers for the expansion capacity. FERC treats them as strong evidence of market need—often sufficient absent credible contrary evidence.
Cost-Causation: Allocate costs to those who cause and benefit from them. If expansion shippers take all incremental capacity, and replacements are not in-kind, cost-causation cuts against rolling those costs onto existing customers without a factual showing.
“Black Box” Settlements and Depreciation: Parties can agree to a global rate outcome without itemizing components. For § 7 initial rates, FERC typically uses the most recent § 4 determinants—often including a depreciation rate implied or specified by a black box settlement—to avoid delay.
NEPA’s “Manageable Line”: Agencies define the scope of the “proposed action” and reasonably decide which related activities are “connected actions.” Courts defer to reasonable lines, especially post–Seven County, and do not use “but-for” logic to expand scope.
No-Action Alternative: NEPA requires considering the scenario in which the project is not undertaken. It serves as a baseline comparison; agencies need not write a lengthy chapter if the EIS meaningfully contrasts impacts against the status quo.
Standing and Ripeness: A petitioner must show concrete, particularized injury caused by the agency and likely redressable. For ripeness, courts look to whether the issues are legal and the hardship is real and immediate. Here, FERC’s denial had immediate commercial consequences that did not await a § 4 order.

Conclusion

State of Washington v. FERC is a comprehensive roadmap for modern pipeline litigation. On the NGA side, it reinforces the division of labor between certification and ratemaking, underscores the evidentiary heft of precedent agreements, and narrows the path to rolled‑in rate predeterminations—particularly where replacements are not in-kind and incremental capacity is fully contracted by expansion shippers. On the NEPA side, it faithfully applies Seven County’s deference, validating FERC’s scoping choices and manageable lines, its concise “no-action” baseline, and its reliance on DOT safety standards and project locational features.

For project developers, the case encourages clear structuring of replacement and expansion work, careful documentation of in-kind characteristics when seeking rolled‑in treatment, early and robust precedent agreements, and attention to § 2.55(b) compliance and timing. For states and environmental advocates, it counsels timely, targeted challenges to § 2.55(b) actions, the need to present credible contrary evidence to diminish the probative force of precedent agreements, and a recognition that NEPA scoping will be sustained if the agency articulates a coherent, manageable line.

Ultimately, the opinion cements a pragmatic, deferential approach to NEPA and confirms a disciplined, staged approach to NGA ratemaking—one that prioritizes market evidence at certification and reserves the heavy lifting on cost allocation and depreciation for full § 4 proceedings.