Antero Resources Corporation and Mu Marketing LLC v. Federal Energy Regulatory Commission

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued March 10, 2025 Decided September 30, 2025
No. 24-1076
ANTERO RESOURCES CORPORATION AND MU MARKETING
LLC,
PETITIONERS
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
NATIONAL FUEL GAS DISTRIBUTION CORPORATION AND
TENNESSEE GAS PIPELINE COMPANY, L.L.C.,
INTERVENORS
On Petition for Review of an Order of the
Federal Energy Regulatory Commission
Charlotte H. Taylor argued the cause for petitioners. With
her on the briefs was James E. Olson.
Angela X. Gao, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With her on the
brief were Matthew R. Christiansen, General Counsel, at the
time the brief was filed, and Robert H. Solomon, Solicitor.

-- 1 of 17 --

2
Paul Korman argued the cause for intervenors in support
of respondent. With him on the brief were Michael Diamond
and Christopher J. Barr.
Before: MILLETT and RAO, Circuit Judges, and ROGERS,
Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge RAO.
RAO, Circuit Judge: To secure additional pipeline capacity
for its natural gas, Antero Resources contracted with Tennessee
Gas Pipeline Company for an expansion project. In this
petition, Antero challenges the fuel rates it must pay to move
its gas through the post-expansion pipeline. Moving natural gas
through a pipeline is an energy intensive process, and the cost
increases exponentially as more gas flows through the system.
Under the tariff approved by the Federal Energy Regulatory
Commission, Antero is always treated as if its gas were the last,
and therefore marginally most expensive, to be shipped in the
pipeline. The other shippers are charged the average cost of all
non-Antero shipments. As a practical matter, this allocation has
resulted in Antero paying two to three times the fuel rate of
other shippers on the same pipeline.
We hold that FERC’s order approving this two-tier fuel
rate is arbitrary and capricious. The tariff requires Antero to
always pay the highest marginal fuel rate, irrespective of
whether the expansion capacity is being used. This results in
fuel rates for Antero that are substantially disconnected from
the actual costs of shipping Antero’s gas. The rates are not just
and reasonable because they violate cost causation, and the
Commission has failed to justify its departure from this
fundamental principle. We therefore grant Antero’s petition for
review and vacate the Commission’s order.

-- 2 of 17 --

3
I.
Tennessee Gas operates an 11,800-mile network of natural
gas pipelines spanning most of the eastern United States. One
of Tennessee Gas’s clients is Antero, an independent natural
gas producer in the Marcellus Shale, a rich gas field in the
Appalachian Basin. This petition concerns Antero’s challenge
to the fuel rates Tennessee Gas charges for transporting gas on
the Broad Run Pathway, a segment of its pipeline system.
A.
In the early 2010s, a surge in natural gas production in the
Marcellus created transportation bottlenecks. Antero wanted
guaranteed—or “firm”—pipeline capacity to ensure it could
reliably transport its gas to markets on the Gulf Coast, but
sufficient firm capacity was not available on existing pipelines.
To secure this capacity, Antero and Tennessee Gas agreed to
the Broad Run Expansion Project, which would add 200,000
dekatherms per day of new capacity. As the sole shipper for
whom the project was to be built, Antero executed a 15-year
precedent agreement for all the newly created firm capacity. In
exchange, Antero agreed to pay for the construction of the new
facilities as well as any applicable “tariff fuel and electric
power cost charges.”
The Project expanded capacity by adding new compressor
stations along the existing pipeline. Compressors create
pressure differentials that move natural gas through pipelines.
Powering these compressors requires substantial energy. The
relationship between the amount of gas transported through a
pipeline and the amount of fuel required to run the compressors
is exponential, not linear. As more gas is transported through a
fixed-diameter pipe, exponentially more energy—and thus
more fuel—is required to move successive units of gas.

-- 3 of 17 --

4
Tennessee Gas recoups these energy expenses through
“fuel rates” paid by shippers. These rates are expressed as a
percentage of a shipper’s gas that is required to power the
compressors. Because the “fuel curve” is exponential, the
marginal cost of shipping gas increases as more gas enters the
pipeline. The “last” unit of gas to flow is always the most
energy intensive and therefore the most expensive to ship.
B.
Under the Natural Gas Act, a pipeline operator like
Tennessee Gas must secure a certificate of public convenience
and necessity from FERC before constructing new facilities.
Natural Gas Act, Pub. L. No. 75-688, § 7(c), 52 Stat. 821, 825
(1938) (codified as amended at 15 U.S.C. § 717f(c)). In its
2015 certificate application for the Expansion Project,
Tennessee Gas distinguished between construction costs and
operational costs. Antero is paying, and does not here
challenge, the charges proposed by Tennessee Gas to cover the
cost of building the new compressors. For the ongoing fuel
costs required to operate the new compressors, however,
Tennessee Gas initially proposed to “roll in” any fuel costs
from running the new compressors, spreading the expense
across all shippers on its system. Tennessee Gas explained that
the new compressors would be operated on an integrated basis
with existing facilities, which would allow Tennessee Gas “to
optimize fuel efficiency for all shippers.”
The Commission approved the construction of the Project
but rejected the proposal for rolled-in fuel rates. In a 1999
Policy Statement, the Commission had announced a shift away
from rolled-in rates, explaining that its primary goal was to
prevent existing customers from subsidizing the construction
costs of new projects. Certification of New Interstate Natural
Gas Pipeline Facilities, 88 FERC ¶ 61,227, 61,745–46 (Sept.

-- 4 of 17 --

5
15, 1999) (“1999 Policy Statement”), clarified, 90 FERC
¶ 61,128 (Feb. 9, 2000), further clarified, 92 FERC ¶ 61,094
(July 28, 2000). This “no-subsidy” policy was intended to
foster competition between pipelines and prevent the
“overbuilding of capacity” that can occur when rolled-in rates
“mask[] the real cost” of an expansion. 1999 Policy Statement,
88 FERC at 61,745. Applying that policy to Tennessee Gas’s
proposed fuel rates, FERC found that rolled-in rates could force
existing shippers to subsidize an expansion built for Antero’s
benefit. See Tennessee Gas Pipeline Co., LLC, 156 FERC
¶ 61,157, slip decision at ¶ 33 (Sept. 6, 2016). The Commission
therefore directed Tennessee Gas to propose incremental fuel
rates in future tariff filings to ensure operational costs
associated with the new capacity were assigned to Antero.
C.
In its initial 2018 tariff filing under Section 4 of the Natural
Gas Act, Tennessee Gas proposed a fuel curve for calculating
fuel rates that reflected the exponential nature of fuel costs.
J.A. 342 (depicting results of a 2020 study conducted by
Tennessee Gas, comparing the relationship between fuel

-- 5 of 17 --

6
consumption and throughput for pre-expansion and post-
expansion facilities). The curve proposed by Tennessee Gas
reflects how fuel costs rise exponentially based on the volume
of gas transported through the pipeline. See id.; J.A. 1185.
The tariff also proposed a two-tier system of fuel rates.
One rate applied to all shippers except Antero. These shippers
would pay a fuel rate based on the average cost, across the fuel
curve, of shipping their gas. The calculation of Antero’s fuel
rate, however, would begin at the point on the fuel curve where
the fuel rates for the other shippers ended, i.e., Antero would
pay the highest marginal rates for shipping its gas. In effect,
Antero’s gas would be treated as if it were always the last—
and therefore most marginally expensive—to move through the
pipeline. No party protested, and FERC accepted the tariff.
The consequences of this approach became apparent to
Antero only in 2020, when Tennessee Gas filed its annual
update to fuel rates.1 Based on the prior year’s data, Antero’s
pipeline usage had been less than initially projected, whereas
other shippers significantly increased their usage. Because
Antero was still treated as the “last” shipper on a now-busier
pipeline, its fuel rate increased sharply from 4.62 percent to
6.59 percent. The rate for every other shipper, meanwhile,
decreased from 2.71 percent to 2.44 percent. Antero protested
the new rates and requested a technical conference, but FERC
summarily rejected the protest. The Commission found the fuel
rates consistent with the two-tier rates in the uncontested 2018
1 Tennessee Gas did not propose to change Antero’s rate in 2019
because the Expansion Project was placed into service in late 2018
and there was insufficient data available to update the initial 2018
fuel rate estimates.

-- 6 of 17 --

7
filing but encouraged Tennessee Gas to work with its shippers
to better anticipate demand and estimate fuel rates.
Tennessee Gas and Antero conducted joint studies over the
following year. These studies confirmed that the Expansion
Project’s new compressors largely generated system-wide fuel
savings or had no negative impact on costs. See J.A. 342
(reproduced supra). When the system operated below 80
percent of pre-expansion capacity, marginal fuel costs were
unaffected. See id. When the system operated between 80 and
100 percent of pre-expansion capacity, the new compressors
lowered the marginal fuel cost. See id. Only when the system
operated beyond 100 percent of pre-expansion capacity did use
of the new compressors result in marginal fuel costs above the
pre-expansion maximum. See id.
In its 2021 tariff filing—the subject of Antero’s present
challenge—Tennessee Gas incorporated these findings by
crediting Antero for some of the savings generated by the
expansion and by updating the shape of its fuel curve. See id.
The tariff, however, continued to assign Antero the last, most
expensive flow on the fuel curve. As a result, Antero’s fuel rate
rose to 7.62 percent, while the rate for all other shippers fell to
2.43 percent.
Antero again protested, arguing that Tennessee Gas’s two-
tier system of fuel rates was unduly discriminatory and not
“just and reasonable” under Section 4. In addition, Antero
proposed an alternative methodology under Section 5, which
would charge Antero an incremental surcharge only when
forecasted throughput exceeds pre-expansion capacity. An
administrative law judge upheld the rates under Section 4 and
dismissed Antero’s alternative proposed rates as moot. The
Commission affirmed that decision. Tennessee Gas Pipeline
Co., LLC, 186 FERC ¶ 61,069, slip decision (Jan. 26, 2024)

-- 7 of 17 --

8
(“2024 Order”). FERC reasoned that because Antero’s need for
firm service on the Broad Run Pathway was the “but for” cause
of the expansion, Antero should always be responsible for the
costs at the top of the fuel curve. Id. ¶ 58. It concluded that the
challenged fuel rates were “just and reasonable” because
Antero’s throughput “always places system fuel consumption
higher (to the right) on the fuel curve” and assigning Antero the
costs at the high end of the curve prevents other “system
shippers [from] subsidiz[ing] Antero’s fuel use.” Id. ¶¶ 58–59.
Antero’s request for rehearing was deemed denied by
operation of law, and this timely petition for review followed.
Tennessee Gas and the National Fuel Gas Distribution
Corporation intervened on behalf of the Commission. We have
jurisdiction under the Natural Gas Act’s judicial review
provision. See 15 U.S.C. § 717r(b).
II.
Under Section 4 of the Natural Gas Act, all rates charged
by a pipeline must be “just and reasonable.” 15 U.S.C.
§ 717c(a). For decades, we have recognized that a just and
reasonable rate must accord with the principle of “cost
causation,” meaning that rates charged to a given shipper must
generally reflect the costs of shipping its gas. Gulf South
Pipeline Co. v. FERC, 955 F.3d 1001, 1009 (D.C. Cir. 2020).
Properly designed rates should, therefore, “produce revenues
from each class of customers which match, as closely as
practicable, the costs to serve each class or individual
customer.” Id. (cleaned up). The Commission “may not single
out a party for the full cost of a project, or even most of it, when
the benefits of the project are diffuse.” Id. (cleaned up). “While
the Commission may rationally emphasize other, competing
policies and approve measures that do not best match cost
responsibility and causation, cost-causation principles are the

-- 8 of 17 --

9
default, and we have approved the Commission’s departure
from traditional cost-causation principles in only limited
circumstances.” Id. (cleaned up).
We review FERC’s rate setting under the Administrative
Procedure Act and will set aside orders if they are “arbitrary,
capricious, an abuse of discretion, or otherwise not in
accordance with law.” 5 U.S.C. § 706(2)(A). While Congress
has conferred substantial discretion on FERC in the context of
rate setting, given the important private and public rights at
stake, our review requires the agency to offer reasonable
explanations for the rates it sets and to “articulate[] … a
rational connection between the facts found and the choice
made.” FERC v. Elec. Power Supply Ass’n, 577 U.S. 260, 292
(2016) (cleaned up). “If we are to hold that a given rate is
reasonable just because the Commission has said it was
reasonable, review becomes a costly, time-consuming pageant
of no practical value to anyone.” Gulf South Pipeline, 955 F.3d
at 1013 (quoting Fed. Power Comm’n v. Hope, 320 U.S. 591,
645 (1944) (Jackson, J., dissenting)).
With respect to Antero, the rate FERC approved is
fundamentally disconnected from the costs Antero imposes on
the pipeline system, and FERC provided no reasoned basis for
departing from cost causation. The Commission’s order is
therefore arbitrary and capricious.
A.
The tariff’s treatment of Antero is at odds with the
principle of cost causation. Instead of assigning costs based on
Antero’s use of the pipeline system, Tennessee Gas’s tariff
perpetually treats Antero’s gas as the last, most energy-
intensive gas to move through the pipeline. This approach
violates cost causation because the higher shipping rates

-- 9 of 17 --

10
assigned to Antero cannot be justified by its status as the
expansion shipper.
The operational reality of the Broad Run Pathway
demonstrates why the rate applied to Antero is unreasonable.
The expansion facilities commissioned by Antero added
compressor capacity along the Pathway, but the Pathway
remains an integrated pipeline system where all gas is
commingled and transported through a single network. The
new compressors operate with existing compressors to
optimize the shipment of fuel through the Pathway. The
amount of fuel required to power the Pathway’s compressors is
a function of the total volume of gas flowing through the
system. As the total volume increases, the system requires
exponentially more fuel, which is why the marginal cost for
transporting gas increases exponentially as more gas flows
through the system. The Tennessee Gas fuel curve reflects this
relationship between total volume and marginal fuel costs.
The problem Antero identifies is not with the fuel curve,
but with its perpetual placement on the uppermost part of that
curve. Antero’s gas is always treated as the last, most expensive
gas to move through the pipeline, and it is thus charged the
highest marginal fuel rate. By contrast, all other shippers pay
an average fuel rate based on the total volume of (non-Antero)
gas in the pipeline. Because of the exponential nature of fuel
costs, the practical reality of this two-tier allocation is that
Antero pays a fuel rate substantially higher than the other
shippers on the system. In 2020, for instance, Antero paid 6.59
percent compared to 2.44 percent for all other shippers; and in
2021, Antero paid 7.62 percent compared to 2.43 percent for
other shippers.
The two-tier system, which requires Antero to always pay
the highest marginal rate, is entirely divorced from the costs

-- 10 of 17 --

11
that Antero imposes on the Pathway. Because every shipper’s
gas contributes to the total volume of gas being transported,
every shipper is responsible for causing an increase in marginal
cost. Cf. Se. Mich. Gas Co. v. FERC, 133 F.3d 34, 41 (D.C. Cir.
1998) (explaining that when “every shipper is economically
marginal, the costs of increased demand may equitably be
attributed to every user, regardless when it first contracted with
the pipeline”). Although the expansion facilities were
prompted by Antero’s needs, the marginal cost of shipping gas
through the system is impacted not just by Antero but by the
volume of gas shipped by many other shippers. All shippers
contribute to the marginal costs, and therefore there is no
justification for always assigning the highest marginal costs to
Antero while providing an average cost to all other shippers.
FERC contends that Antero, as the “but for” cause of the
Expansion Project, must be responsible for the full scope of
costs the Project “make[s] possible,” including increased fuel
requirements when the system utilizes the new compressors.
2024 Order ¶ 58 (cleaned up); see J.A. 585, 954, 1014. The
Commission maintains that, in light of these fuel requirements,
it is reasonable for Antero to always pay the highest marginal
fuel costs.
The Commission’s rationale perhaps could justify
charging Antero the highest marginal fuel cost when use of the
post-expansion capacity actually increases fuel costs above the
pre-expansion maximum. The Commission, however, provides
no reason why Antero is always assigned the highest marginal
fuel costs even when the Broad Run Pathway is operating
below pre-expansion capacity and the new compressors either
do not affect fuel costs or result in cost savings. As the
Commission’s Trial Staff acknowledged, throughput on the
Pathway has typically remained below the system’s pre-
expansion capacity. J.A. 980 n.14 (“Tennessee … is operating

-- 11 of 17 --

12
below capacity…. Based on 2020 operational data, the general
system shippers’ actual throughput has been approximately
equal to 73.1 percent of pre-expansion capacity levels, which
is significantly below pre-expansion peak day conditions.”).
When the system is operating below pre-expansion capacity,
the expansion facilities do not generate any additional costs and
at times even generate cost savings.
Under the tariff approved by FERC, regardless of whether
the expansion capacity is being used, Antero pays the highest
marginal fuel costs. The consequences of this are dramatic as a
practical matter. The 2021 tariff, which incorporates some fuel
savings for Antero, continues to reflect a substantial disparity
between Antero’s use of the pipeline and the costs it must bear.
For instance, the tariff projects that when Antero is responsible
for six percent of the gas shipped through the Pathway, it will
be required to pay eight percent of total fuel costs.2 Antero must
pay the highest marginal rates, despite the fact that data from
2021 shows average utilization of the Pathway was less than 75
percent of pre-expansion capacity. That is well below the point
at which the expansion facilities impose additional fuel costs.
See J.A. 342 (reproduced supra).
The fuel rates Antero is required to pay are wholly
disconnected from the actual costs of its use of the pipeline.
And except in the very rare circumstance when the Pathway is
operating at near-maximum capacity and the expansion
facilities increase marginal energy consumption, Antero’s rates
2 This projection accounts for the new “fuel savings adjustment
factor,” which was added by Tennessee Gas to credit Antero for the
greater efficiency resulting from the Expansion Project and which
lowers Antero’s share of total fuel costs. Antero thus continues to
pay much more than its share of total fuel costs even after the
adjustment, whereas other shippers continue to pay less than their
share of fuel costs because of the Antero subsidy.

-- 12 of 17 --

13
do not reflect the new compressors’ largely flat or positive
impact on fuel costs. The fact that Antero was the “but for”
cause of the expansion facilities cannot justify charging it the
highest marginal fuel rate even when the expansion facilities
do not increase costs. The rate approved by the Commission
fails the fundamental requirement of cost causation, which is
that a customer should pay rates that “match, as closely as
practicable, the costs to serve” the customer. Gulf South
Pipeline, 955 F.3d at 1009 (cleaned up).
B.
Having concluded the rates depart from the principle of
cost causation, we turn to the Commission’s next argument that
this departure is nonetheless justified. Departures from cost-
causation principles are acceptable “in only limited
circumstances,” and the Commission must provide a reasoned
explanation that warrants an exception. See Gulf South
Pipeline, 955 F.3d at 1009 (cleaned up). FERC and Tennessee
Gas offer three reasons they claim justify always assigning
Antero the highest marginal fuel rate: (1) the Commission’s
anti-subsidy policy; (2) the need to protect the reliance interests
of existing shippers; and (3) Antero’s choice to contract for
firm service. None of these arguments support the substantial
departure from cost causation that results from placing Antero
perpetually at the top marginal fuel rate.
First, FERC’s reliance on its anti-subsidy policy is
misplaced. The Commission contends that without the two-tier
fuel rates, existing shippers would subsidize Antero’s shipping
costs. 2024 Order ¶ 59. This argument, however, misapplies
the Commission’s 1999 Policy Statement. To begin with, that
Policy Statement was focused primarily on preventing the
subsidization of construction costs for new facilities to avoid
distorting pipeline competition and creating incentives to

-- 13 of 17 --

14
overbuild. See 1999 Policy Statement, 88 FERC at 61,745–47.
Those concerns are not present here, because Antero is already
paying for the construction of the expansion facilities through
a separate fee, and there is no unused capacity for which
existing shippers must pay.
To be sure, we have recognized that FERC’s anti-subsidy
policy can in some circumstances be extended to cover the
operational costs of expansion projects. See Transcontinental
Gas Pipe Line Corp. v. FERC, 518 F.3d 916, 919 (D.C. Cir.
2008). Transcontinental, however, involved a more precisely
calibrated fuel rate that required expansion shippers to pay the
same base rate as all other shippers plus a surcharge for
additional power costs “attributable to the proposed
expansion.” Id. at 921 (cleaned up). Because the surcharge was
directly attributable to the expansion capacity, it did not violate
the principle of cost causation. See id. at 919–21. The surcharge
in Transcontinental bears no resemblance to the two-tier fuel
rates here, which always assign Antero the highest marginal
fuel costs, irrespective of whether the expansion facilities are
generating additional costs. FERC’s anti-subsidy policy
suggests that when expansion capacity increases costs, those
responsible for the expansion should pay those costs. But the
anti-subsidy policy does not justify the Commission’s decision
to single out Antero for higher charges when expansion
capacity is unused and the fuel curve has been lowered. On this
record, the Commission’s departure from cost causation cannot
be justified by the anti-subsidy policy.
Second, the Commission maintains that the tariff’s rate
structure is tailored to protect the reliance interests of existing
shippers. See 2024 Order ¶ 49. Again relying on the 1999
Policy Statement, the Commission claims the two-tier fuel
rates are designed to protect existing shippers from rate
increases resulting from expansions built to serve other

-- 14 of 17 --

15
shippers. But the two-tier rates are not tailored to that limited
and specific purpose. Until use of the Pathway rises above the
pre-expansion capacity, existing shippers are subject to similar
(or lower) marginal fuel rates as before the expansion. The
Commission’s rationale might support charging Antero the
highest marginal fuel rates when use of the expansion capacity
imposes higher fuel costs.3 But the reliance interest rationale
cannot support singling out Antero when use of the Pathway
remains within the pre-expansion capacity. A shipper who is
paying rates “lower than the rates to which they should have
known they were exposed … cannot show detrimental
reliance.” Washington Water Power Co. v. FERC, 201 F.3d
497, 503 (D.C. Cir. 2000). The Commission has failed to
explain why existing shippers would have any reliance interest
when use of the Pathway is within the pre-expansion capacity.
In fact, the reliance interest rationale collapses entirely
when applied to new shippers. Those who began service after
the Expansion Project was completed in 2018 have no pre-
expansion expectations to protect; the expanded system is the
only one they have ever known. Nonetheless, the two-tier fuel
rates treat Antero as the “last” shipper in perpetuity, even
relative to shippers who may join the system years later. This
grants later-arriving shippers a subsidy at Antero’s expense, a
result the reliance rationale cannot possibly justify. Whether or
not new shippers have joined, the possibility of new shippers
(which FERC does not dispute) further lays bare why the tariff
is unjust and unreasonable in its perpetual assignment of the
highest marginal costs to Antero. Contrary to the
Commission’s suggestion, Antero preserved this argument in
its petition for rehearing.
3 In its Section 5 proposal, Antero acknowledged that such rates
might be reasonable, but we have no occasion in this case to decide
whether such an approach would be consistent with cost causation.

-- 15 of 17 --

16
Finally, the Commission’s argument that Antero must
always pay higher fuel rates because it chose firm service,
rather than interruptible service, has no purchase. The cost of
transporting a unit of gas is a function of pipeline dynamics,
not the contractual designation of the service. In this context,
the type of service cannot justify the Commission’s substantial
departure from cost causation.
* * *
The Natural Gas Act’s requirement of “just and
reasonable” rates is a mandate for rational ratemaking that
comports with the principle of cost causation. The Commission
departed from that principle by approving two-tier rates that
perpetually assign Antero the highest marginal fuel rate. The
two-tier rates are disconnected from the costs Antero imposes
on Tennessee Gas’s pipeline, and they fail to reflect the reality
that the expansion facilities for which Antero is responsible
often benefit other shippers by reducing system-wide fuel
costs. Because the Commission fails to justify its departure
from cost causation, the order is arbitrary and capricious and
must be set aside.
On remand, the Commission must determine whether to
direct Tennessee Gas to file a new tariff under Section 4 or to
exercise the Commission’s authority under Section 5 to set a
just and reasonable rate. Because Tennessee Gas’s two-tier fuel
rates are not just and reasonable, as Section 4 requires, the
Commission may consider Antero’s Section 5 proposal for
calculating fuel rates. Whether the Commission proceeds
through Section 4 or Section 5, it must fulfill its obligation to
establish a just and reasonable rate that complies with the cost-
causation principle.

-- 16 of 17 --

17
For the foregoing reasons, we grant Antero’s petition for
review, vacate the Commission’s order, and remand for further
proceedings consistent with this opinion.
So ordered.

-- 17 of 17 --