No Presumption of Rolled‑In Rates for Oversized § 2.55(b) Replacements; Fifth Circuit Endorses FERC’s “Manageable Line” NEPA Scope After Seven County

Introduction

This consolidated Fifth Circuit decision addresses how the Federal Energy Regulatory Commission (FERC) may (1) treat the rate consequences of prior compressor replacements when it later certificates a capacity expansion, and (2) scope environmental review under NEPA when the expansion follows § 2.55(b) “replacement” work at the same stations. The court also resolves threshold jurisdictional issues, affirming that a pipeline has standing and ripeness to seek review of a denial of a predetermination for rolled‑in rates even before final § 4 ratemaking occurs.

The case centers on Gas Transmission Northwest, LLC’s (GTN) “GTN Xpress” project. In 2021 GTN used Regulation § 2.55(b) to replace three 1970s-era compressor units with Solar Titan 130 units. Later that year, GTN sought a Natural Gas Act (NGA) § 7 certificate to remove horsepower restrictions and otherwise expand capacity at the same stations. FERC prepared an Environmental Impact Statement (EIS), certificated the expansion, but denied GTN’s request for a “predetermination” that future § 4 rates would receive rolled‑in treatment. The States of Washington and Oregon and environmental groups (Columbia Riverkeeper and Rogue Climate) challenged FERC’s approvals; GTN challenged the denial of the predetermination. The Judicial Panel on Multidistrict Litigation consolidated the challenges in the Fifth Circuit.

Judge Carl E. Stewart, writing for a unanimous panel, denies all petitions. The opinion approves FERC’s approach to (i) NGA § 7 “public convenience and necessity” determinations, (ii) using prior § 4 rate determinants to set initial § 7 rates (including depreciation), (iii) denying a rolled‑in-rate predetermination where § 2.55(b) replacements increased horsepower and expansion capacity is fully subscribed by new shippers, and (iv) scoping NEPA review to exclude previously authorized § 2.55(b) replacements as “connected actions.”

Summary of the Opinion

Standing and Ripeness: GTN had Article III standing and its petition was ripe. Financial harms from construction delays, renegotiation leverage, and ongoing stakes (including a $50 million reallocation cap in a settlement) were cognizable, causally linked to FERC’s orders, and redressable. The denial of a predetermination was final as to that issue and fit for judicial review.
No predetermination of rolled‑in rates: FERC reasonably denied rolled‑in predetermination. The court rejects a purported general presumption in favor of rolled‑in treatment for § 2.55(b) replacements, especially where (a) the replacements materially increased horsepower beyond in‑kind and (b) all incremental capacity is dedicated to expansion shippers by long‑term precedent agreements.
Certificate affirmed: FERC permissibly found “public convenience and necessity” based largely on unaffiliated, 30‑year precedent agreements that fully subscribed the expansion. The court approves FERC’s decision to defer granular cost allocation questions to § 4 proceedings and rejects collateral attacks on earlier § 2.55(b) approvals.
Initial § 7 rates: FERC reasonably used the pipeline’s last § 4 cost‑of‑service determinants (including depreciation) to “hold the line” pending full § 4/§ 5 ratemaking. Arguments to re‑set depreciation case‑by‑case (based on projected declining demand) failed.
NEPA: Applying the Supreme Court’s 2025 Seven County decision, the Fifth Circuit affords substantial deference. The EIS adequately treated the “no action” alternative as a baseline; FERC reasonably drew a “manageable line” excluding § 2.55(b) replacements from the connected action scope; and the EIS’s safety analysis—relying on DOT standards and mitigation—fell well within a “broad zone of reasonableness.”
Bottom line: All petitions for review (GTN, the States, and Riverkeeper) are denied; FERC’s orders are affirmed.

Analysis

Precedents Cited and Their Influence

NGA structure and rate law: PennEast Pipeline v. New Jersey confirms FERC’s § 7 certification authority. The court relies on the Certificate Policy Statement (88 FERC ¶ 61,227 and clarifications) and longstanding practice that initial § 7 rates “hold the line” until § 4/§ 5 proceedings (Atlantic Refining; Gulf South Pipeline; Missouri PSC). It underscores the difference between § 7 “public interest” and the §§ 4/5 “just and reasonable” standard.
Rolled‑in vs incremental rates; predetermination: Consolidated Edison, Brooklyn Union Gas, New York Electric & Gas, and FERC adjudications like Paiute Pipeline, Dominion Transmission, and ANR Pipeline frame the debate. The Fifth Circuit reads these decisions narrowly: no broad presumption that § 2.55(b) replacement costs get rolled in when oversized replacements later support expansion service.
NEPA deference and scope: The Supreme Court’s Seven County Infrastructure Coalition v. Eagle County (2025) is decisive. It emphasizes deference to agency choices within a “broad zone of reasonableness,” the primacy of the “proposed action,” and judicial respect for an agency’s “manageable line” on scope and connected actions (Public Citizen, Baltimore Gas & Electric, Robertson). The Fifth Circuit expressly applies this framework in upholding FERC’s EIS.
Standing and ripeness: The court cites Lujan, Spokeo, Clapper, and recent Fifth Circuit standing cases (Book People, Smatresk). For ripeness, it distinguishes cases requiring further record development (Energy Transfer Partners, Tennessee Valley Municipal Gas Ass’n, Brooklyn Union) and aligns with Midship Pipeline: a denial of predetermination is reviewable now when the issue is largely legal and discrete.

Legal Reasoning

1) Threshold Jurisdiction

Standing. GTN demonstrated concrete financial injuries (increased transaction costs, construction delays with lost revenues approximately $1.3 million/month, diminished bargaining position). The court rejects the argument that these were self‑inflicted reactions to uncertain future § 4 outcomes, emphasizing that FERC’s denial presented GTN with a “Hobson’s choice” between risky construction and delay. Causation and redressability are satisfied because reversing the denial would remove litigation risk and costs associated with pursuing rolled‑in treatment at § 4. The court permits GTN to support standing with post‑petition affidavits filed in response to motions to dismiss.

Ripeness. The denial of a predetermination is sufficiently final as to that question and presents a mostly legal dispute that requires no further factual development; unlike an “order establishing hearing,” no remand to an ALJ for factfinding is necessary. The court notes GTN’s continuing $50 million economic stake (under a settlement cap) as ongoing hardship. By contrast, the States and Riverkeeper’s petitions were also ripe because the certificate order was final and inflicted immediate effects.

2) Predetermination of Rolled‑In Rates

GTN argued that FERC’s precedent establishes a presumption for rolled‑in treatment of § 2.55(b) replacement costs, and FERC erred by denying a predetermination here. The Fifth Circuit disagrees:

No broad presumption: The decisions GTN cites (e.g., Paiute Pipeline, Dominion Transmission, ANR Pipeline) either involved in‑kind replacements or divided capacity between existing and expansion customers, neither of which applies. Here the Solar Titan replacements increased horsepower by ~6,000 compared to the retired units, and all incremental capacity is committed to expansion shippers.
Cost‑causation and benefits: The court accepts FERC’s view that rolling into existing rates the costs of a materially oversized replacement—where the excess horsepower supports only expansion shippers—would contravene FERC’s cost‑causation principle. GTN’s argument that removing software limits alone cannot justify incremental pricing did not carry the day because the oversized replacement materially expanded available horsepower.
Venue for allocation: Whether and how to allocate replacement costs between existing and expansion shippers is for the § 4 rate case, not resolved via a § 7 predetermination that would place a “thumb on the scale.” FERC reasonably declined to grant the presumption, leaving GTN to prove rolled‑in treatment later.

3) Certificate of Public Convenience and Necessity

Applying the Certificate Policy Statement, FERC found GTN’s expansion in the public convenience and necessity chiefly because unaffiliated expansion shippers executed 30‑year precedent agreements fully subscribing the added capacity. The Fifth Circuit endorses:

Precedent agreements as substantial evidence: FERC can treat such contracts as “important, and sometimes sufficient” proof of need and need not “look beyond” them absent credible contrary evidence.
Deferral of granular economics: The court rejects the States’ demand that § 7 resolve whether excluding replacement costs from expansion rates will subsidize the expansion or burden future consumers after the 30‑year terms. § 7 rates are temporary; § 4/§ 5 are the proper forum for those detailed determinations.
No collateral attack on § 2.55(b): The validity of the earlier compressor replacements was not before the Commission in the § 7 docket. Challenges to § 2.55(b) approvals must be made directly, not via the later certificate proceeding.

4) Initial § 7 Rates and Depreciation

FERC used GTN’s most recent § 4 cost‑of‑service determinants, including the prior depreciation rate (even if set via a “black box” settlement), to set initial § 7 rates. The court affirms:

“Hold‑the‑line” paradigm: Initial § 7 rates are intentionally conservative placeholders to protect consumers until “just and reasonable” rates are fully adjudicated; thus, case‑by‑case depreciation re‑studies are unnecessary and risk undue delay.
Exceptions inapplicable: The cases where FERC departed from the policy generally involved “purpose‑built” projects with customer bases that made prior § 4 determinants inapt. Not so here.

5) NEPA

(a) No‑action alternative. FERC’s EIS discussed that without the project, the project’s environmental effects would not occur, and then analyzed the baseline state of each resource and the project’s incremental effects. Under Seven County, that level of discussion falls well within the agency’s discretion.

(b) Connected actions. FERC reasonably excluded the § 2.55(b) replacements from the EIS scope. Relying on its long‑standing approach and Seven County’s “manageable line” framework, FERC treated replacements (already authorized, limited to existing workspaces, and typically minor) as a separate, independent project from the expansion. Even if the projects are interrelated in time or function, Seven County cautions against collapsing them where the agency draws a reasonable line.

(c) Public safety. The EIS acknowledged safety risks and mitigation and relied on Department of Transportation pipeline safety standards and the remote siting of stations. Although NEPA requires consultation with agencies of special expertise, Seven County leaves the extent of consultation to agency discretion. FERC’s reliance on DOT standards and required compliance sufficed.

Impact

Pipelines and developers:
- Do not assume that § 2.55(b) replacement costs will be presumptively rolled into base rates if the replacements materially increase horsepower and later support an expansion. Oversizing replacement units invites incremental allocation to expansion shippers.
- Predetermination requests will face heightened scrutiny where “excess” replacement capacity is fully subscribed by new expansion customers. Plan for § 4 litigation risk and consider contractual protections (e.g., settlement caps like GTN’s $50 million indemnity).
- Initial § 7 rates will continue to anchor to prior § 4 determinants, including depreciation, absent special circumstances. Efforts to re‑set depreciation based on macro‑demand forecasts are likely deferred to § 4/§ 5.
States and environmental petitioners:
- Seven County significantly narrows NEPA scope and intensity challenges. Courts will defer to “manageable line” scoping that excludes previously authorized § 2.55(b) replacements and accept concise no‑action baselines.
- To challenge replacement approvals, file timely, direct petitions regarding the § 2.55(b) actions; collateral attacks in later § 7 proceedings will be rejected.
- Safety‑risk challenges must engage with DOT standards and project‑specific mitigation to overcome the deference now entrenched by Seven County.
Shippers:
- Expansion shippers should anticipate incremental pricing when incremental capacity is dedicated to them, especially if supported by oversized replacements. Existing shippers may still bear routine replacement costs when replacements are truly in‑kind.
- Precedent agreements with unaffiliated parties remain powerful evidence of market need; their presence can be outcome‑determinative at § 7.
FERC and administrative law:
- The decision validates FERC’s practice of deferring granular cost allocation to § 4 and using prior § 4 determinants to set initial § 7 rates.
- On NEPA, the court ratifies FERC’s longstanding treatment of § 2.55(b) replacements as categorically distinct for scoping purposes. The opinion embraces Seven County’s “broad zone of reasonableness” across alternatives, scope, and safety analyses.

Complex Concepts, Simplified

Rolled‑in vs incremental rates: Rolled‑in allocates project costs across all customers in base rates; incremental charges only the new (expansion) customers who uniquely benefit. FERC generally prefers incremental pricing for expansions to avoid subsidization by existing customers.
Predetermination of rolled‑in treatment: A rebuttable presumption (not a final rate) granted at § 7 that, in the later § 4 proceeding, rolled‑in pricing will apply. It is available only if the expansion’s rate effect on existing customers is “not substantial.”
§ 2.55(b) replacements: Automatic authorization for in‑right‑of‑way replacements of deteriorated or obsolete facilities, with no reduction in service and substantially equivalent design capacity. Typically treated as maintenance and often excluded from fresh environmental review.
Open season: A window where existing customers can relinquish capacity rather than see an expansion built; part of FERC’s test for market need and non‑subsidization.
Cost‑of‑service determinants: Components (return, depreciation, O&M, etc.) from the last § 4 rate case that FERC uses to set initial § 7 rates. These are placeholders, pending full adjudication.
EIS “no‑action alternative”: A required baseline assessment of environmental conditions and likely impacts if the project does not proceed; it need not be a deep analysis when the agency otherwise analyzes baseline and incremental impacts resource by resource.
NEPA “connected actions” and the “manageable line”: Agencies define the scope of the “proposed action.” Even interrelated activities need not be combined if the agency reasonably treats them as separate projects; courts defer to a reasonable, manageable line.
“Hold‑the‑line” initial § 7 rates: Temporary rates to protect the public interest until §§ 4/5 proceedings determine “just and reasonable” rates with full record development.

Conclusion

Gas Transmission NW v. FERC cements two important points in federal energy and environmental law. First, on rates: there is no blanket presumption that § 2.55(b) replacement costs will be rolled into base rates when replacements materially increase horsepower and later support capacity expansions. FERC can deny a predetermination and leave the allocation fight for § 4, especially where expansion shippers exclusively benefit from the added horsepower. Initial § 7 rates may continue to rely on the last § 4 cost‑of‑service determinants, including depreciation, to “hold the line.”

Second, on NEPA: following the Supreme Court’s recent Seven County decision, the Fifth Circuit affords substantial deference to FERC’s scoping, alternatives, and safety analyses. Treating prior § 2.55(b) replacements as outside the EIS’s connected‑action scope, employing a concise no‑action baseline, and relying on DOT safety standards all fall within a “broad zone of reasonableness.”

The ruling offers practical guidance for developers, shippers, and challengers alike: build records around unaffiliated precedent agreements to demonstrate need; expect NEPA deference to reasonable scoping choices; plan for § 4 rate litigation on cost allocation; and timely challenge § 2.55(b) approvals directly if replacement work is the real target. As a precedent, the case harmonizes NGA ratemaking principles with the Supreme Court’s refined NEPA framework, while clarifying when and how parties can obtain judicial review of FERC’s interim determinations.