Natural Gas Pipeline Companies Must Expense Costs to Monitor and Reduce Risks in High Population Areas

In Interstate Natural Gas Ass'n of American v. Federal Energy Regulatory Commission, --F.3d--, 2007 WL 2089743 (D.C. Cir. July 24, 2007), the Court of Appeals for the District of Columbia affirmed Federal Energy Regulatory Commission's accounting order, instructing natural gas pipeline companies to expense the cost of certain programs, including the cost of writing Integrity Management Programs ("IMPs"). 

49 U.S.C. 60109(c-d) requires each operator of natural gas pipelines to adopt and implement a written integrity management program to monitor and reduce the risks associated with pipeline segments located in areas of high population density.  The INGAA advocated capitalization of these costs, but FERC established definitive IMP accounting rules, requiring the pipeline companies to expense such costs and develop and maintain a record keeping system to document IMP implementation and actions. 

INGAA argued that FERC ignored its own regulations and departed from precedent without explanation.  FERC, however, had previously determined that baseline assessment costs should be expensed, as they would not increase or extend the life, capacity, safety, or efficiency of a pipeline beyond its original construction or state at the time of acquisition.  Finding FERC’s explanation for its accounting order reasonable and its responses to INGAA’s comments sufficient, the Court denied INGAA’s petition.