Williams Gas Processing-Gulf Coast Co. v. F.E.R.C.

• Decision Date: 19 December 2006
• Docket Number: No. 05-1342.,05-1342.
• Citation: 475 F.3d 319
• Parties: WILLIAMS GAS PROCESSING-GULF COAST COMPANY, L.P., et al., Petitioners v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent Producer Coalition, et al., Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

475 F.3d 319

WILLIAMS GAS PROCESSING-GULF COAST COMPANY, L.P., et al., Petitioners v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent Producer Coalition, et al., Intervenors.

No. 05-1342.

United States Court of Appeals, District of Columbia Circuit.

Argued November 20, 2006.

Decided December 19, 2006.

On Petition for Review of Orders of the Federal Energy Regulatory Commission.

James T. McManus argued the cause for petitioners. With him on the briefs were Joseph S. Koury, Mari M. Ramsey, and David A. Glenn.

Carol J. Banta, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. On the brief were John S. Moot, General Counsel, and Robert H. Solomon, Solicitor.

Thomas J. Eastment argued the cause for intervenors Dominion Exploration & Production, Inc., et al. With him on the brief were Adam J. White, James M. Costan, Charles J. McClees, Douglas W. Rasch, Bruce A. Connell, and Frederick T. Kolb.

Before: SENTELLE and TATEL, Circuit Judges, and EDWARDS, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge EDWARDS.

EDWARDS, Senior Circuit Judge.

Williams Gas Processing-Gulf Coast Co. ("WGP") and Transcontinental Gas Pipe Line Corp. ("Transco") petition for review of two Federal Energy Regulatory Commission ("FERC" or "the Commission") orders asserting jurisdiction over a natural gas pipeline off the coast of Louisiana. See Transcontinental Gas Pipe Line Corp., 111 F.E.R.C. ¶ 61,498 (2005) ("2005 Transco Rehearing Order"); Transcontinental Gas Pipe Line Corp., 111 F.E.R.C. ¶ 61,090 (2005) ("2005 Transco Jurisdictional Order"). Under the Natural Gas Act ("NGA" or "the Act"), 15 U.S.C. §§ 717-717z, FERC has jurisdiction over pipelines that "transport" natural gas, but not over those that "gather" it. But the Act does not define these terms, leaving FERC to create a test that will rationally and reliably distinguish between the two types of pipeline. FERC's efforts to properly classify Transco's pipeline are emblematic of its struggle to complete this task.

In 2001, FERC disclaimed jurisdiction over a 12.43 mile, 24-inch diameter pipeline in Transco's Central Louisiana system lying downstream of the pipeline facilities of Jupiter Energy Corp. ("Jupiter"). Transcontinental Gas Pipe Line Corp., 96 F.E.R.C. ¶ 61,246 (2001) ("2001 Transco Jurisdictional Order"), reh'g denied in relevant part, Transcontinental Gas Pipe Line Corp., 97 F.E.R.C. ¶ 61,298 (2001) ("2001 Transco Rehearing Order"). This court upheld FERC's 2001 orders as supported by substantial evidence and not arbitrary and capricious. Williams Gas Processing-Gulf Coast Co. v. FERC, 331 F.3d 1011 (D.C.Cir.2003) ("WGP-Transco I").

In 2003, in a separate proceeding initiated by Jupiter, FERC determined that an 8-inch Jupiter pipeline feeding into the 24-inch Transco lateral serves a transportation function. Jupiter Energy Corp., 103 F.E.R.C. ¶ 61,184 (2003), reh'g denied, Jupiter Energy Corp., 105 F.E.R.C. ¶ 61,243 (2003) ("2003 Jupiter Rehearing Order"). The consequence of this ruling was that a jurisdictional pipeline (Jupiter) flowed into a non-jurisdictional pipeline (Transco). On review, the Fifth Circuit vacated and remanded, holding that the Commission's decision was arbitrary and capricious because Jupiter's transportation pipeline sat upstream of a Transco gathering pipeline. Jupiter Energy Corp. v. FERC, 407 F.3d 346, 350-51 (5th Cir.2005) ("Jupiter Appeal"). The Fifth Circuit noted that FERC's Jupiter orders produced an "anomalous scenario," to wit: "A series of gathering pipelines (upstream . . .) feed[ing] into a transportation pipeline (Jupiter's 8-inch line), . . . in turn feed[ing] into a gathering pipeline (the Transco line)." Id. at 350. The court concluded that "this cannot be considered consistent." Id.

In 2004, before the Fifth Circuit's Jupiter Appeal decision had been handed down, FERC issued an order requiring WGP and Transco to show cause why the agency's 2001 Transco Jurisdictional Order should not be reversed as "anomalous" in light of the Jupiter orders. Transcontinental Gas Pipe Line Corp., 107 F.E.R.C. ¶ 61,122 (2004) ("Show Cause Order"). Shortly after the Fifth Circuit vacated the Jupiter orders, FERC reversed its prior determination and held that the Transco lateral directly downstream of the Jupiter facility serves a transportation function. 2005 Transco Jurisdictional Order, 111 F.E.R.C. ¶ 61,090.

On June 28, 2005, FERC issued two decisions. First, in the case on remand from the Fifth Circuit, the Commission affirmed its jurisdictional determination in the Jupiter orders. Jupiter Energy Corp., 111 F.E.R.C. ¶ 61,497 (2005). Second, FERC denied the request for rehearing of its 2005 Transco Jurisdictional Order, on the grounds that the disputed 2001 orders were issued "on the basis of incomplete information," and "no gas is collected along the length of Transco's downstream line." 2005 Transco Rehearing Order, 111 F.E.R.C. ¶ 61,498. The Jupiter orders are now pending review before the Fifth Circuit and the challenges to the Commission's 2005 Transco Jurisdictional Order and 2005 Transco Rehearing Order are at the heart of the petition for review in this case.

WGP and Transco's principal argument is that it was unlawful for FERC to reconsider its prior conclusion regarding Transco's pipeline segment lying downstream of the pipeline facilities of Jupiter. Petitioners argue, in particular, that "[t]he Commission's lone finding and premise . . . that the subject pipeline facility is not a `gathering' facility solely because, purportedly, no gas was collected along that pipeline . . . is contrary to the facts of record." Petitioners' Reply Br. at 2. Petitioners also contend that, because "the Commission . . . previously decided these same facilities to be gathering in final, court-affirmed orders, the Commission is barred from re-deciding these same issues." Id.

WGP and Transco are right in their observation that "[t]his is a classic case of an agency, both in its orders under review and its brief to this Court, failing to demonstrate that it has engaged in reasoned decisionmaking." Id. They are wrong, however, in suggesting that FERC was without authority to reconsider its 2001 Transco Jurisdictional Order. Indeed, petitioners' counsel conceded at oral argument that it is within FERC's authority to make jurisdictional determinations that rest on the premises that (1) there is one point on any given route where gathering stops and transportation begins, and (2) a transportation pipeline cannot feed into a gathering pipeline. See Recording of Oral Argument at 12:06. These two points were highlighted by the Fifth Circuit in the Jupiter Appeal decision. 407 F.3d at 350-51. If these two principles apply, then FERC might be justified in finding that both the Jupiter and Transco lines are jurisdictional facilities. The problem here is that the agency's rationale underlying the disputed 2005 Transco Jurisdictional Order and 2005 Transco Rehearing Order only hints at these principles.

In its briefs to this court, FERC argues that it revisited its 2001 Transco Jurisdictional Order to eliminate a "fundamental inconsistency" in its case law. Respondent's Br. at 3, 13. The Commission could have stated as much in its 2005 orders and justified the policy shift, for an agency is free to change course in a regulatory regime provided that it offers a reasoned explanation for so doing and is not otherwise constrained by statutory limitations. We are forced to vacate the 2005 orders, however, because in those decisions, FERC neither explained its action as consistent with precedent nor justified it as a reasoned and permissible shift in policy. Although these orders ultimately may prove to be justified on the merits, they are presently wanting for lack of reasoned decisionmaking.

I. BACKGROUND

The Natural Gas Act grants FERC the power to regulate "the transportation [or `transmission'] of natural gas in interstate commerce" but not "the production or gathering of natural gas." 15 U.S.C. § 717(b). Until fairly recently, companies sold gas under rates that encompassed both gathering and transportation services. Lomak Petroleum, Inc. v. FERC, 206 F.3d 1193, 1195 n. 2 (D.C.Cir.2000). However, "in the wake of major regulatory changes in the natural gas industry," including the unbundling of gathering and transportation services, Conoco Inc. v. FERC, 90 F.3d 536, 539-41 (D.C.Cir.1996), companies primarily engaged in transporting gas "no longer need[] to operate" gathering facilities, Lomak, 206 F.3d at 1195. As a result, many natural gas transporters have sought to separate their transportation and gathering facilities, through transfer (otherwise known as "spindown") of the latter to gathering affiliates. See WGP-Transco I, 331 F.3d at 1015.

Because the NGA does not define gathering and transportation, FERC is responsible for drawing the "not always clear" line between the two. See ExxonMobil Gas Mktg. Co. v. FERC, 297 F.3d 1071, 1076-77 (D.C.Cir.2002) (quoting Conoco, 90 F.3d at 542). Gathering facilities are generally understood to be pipelines that collect gas from wells (where gas originates) and deliver it into pipelines which will transport it in interstate commerce. Id. at 1076; Conoco, 90 F.3d at 539 n. 2. However, since on any given route between the wells (upstream) and the final destination (downstream), various pipeline segments may be owned by different companies, it is no mean feat for the agency to determine which segments serve a gathering function and which do not. Faced with this reality and inundated with requests for jurisdictional clarification, see Gas Pipeline Facilities & Servs. on the Outer Cont'l Shelf, 74 F.E.R.C. ¶ 61,222, at 61,751-52 (1996), FERC has had trouble finding its footing. See ExxonMobil, 297 F.3d at 1087 ("FERC has been struggling with the reclassification of facilities . . . ."); Shell Gas Pipeline Co., 74 F.E.R.C. ¶ 61,277, at 61,895 (1996) ("[T]he...