EP Operating Co. v. F.E.R.C.
| Decision Date | 27 June 1989 |
| Docket Number | No. 88-4525,88-4525 |
| Citation | 876 F.2d 46 |
| Parties | EP OPERATING COMPANY, Hi Production Company, Inc., Opubco Resources, Inc., Penrod Energy Company, Hunt Petroleum Corporation, Petro-Hunt Corporation, Prosper Energy Corporation, and Placid Oil Company, Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent. |
| Court | U.S. Court of Appeals — Fifth Circuit |
William F. Demarest, Jr., Holland & Hart, Washington, D.C., for EP Operating Co.
M. Douglas Adkins, Gardere & Wynne, Dallas, Tex., for HI Production Co., Inc.
James L. Armour, Locke, Purnell, Rain & Harrell, Dallas, Tex., for Opubco Resources, Inc.
Andrew McCulloch, Dallas, Tex., for Hunt Petroleum Co.
Frank P. Saponaro, Jr., Morgan, Lewis & Bockius, Washington, D.C., for Penrod Energy Co., Petro-Hunt Corp., Prosper Energy Corp., and Placid Oil Co.
Robert Wolfe, Jerome Feit, Sol. FERC, Joanne Levegue, Washington, D.C., for F.E.R.C.
Petition for Review of Orders of the Federal Energy Regulatory Commission.
Before CLARK, Chief Judge, BROWN and JOHNSON, Circuit Judges.
In December, 1987, Placid Oil Company, on behalf of itself and other operators, petitioned the Federal Energy Regulatory Commission for a declaratory order that no certificate of public convenience and necessity was required for the construction and operation of a proposed natural gas pipeline known as the Green Canyon Line. EP Operating Company subsequently intervened in the proceeding. According to the operators, this line would be a gathering facility exempted from Commission jurisdiction by section 1(b) of the Natural Gas Act. The Commission determined, however, that the line would be a transportation facility subject to the Commission's jurisdiction under section 7(c) of the NGA. Because the record establishes that the primary function of the Green Canyon Line is production and gathering, we reverse the Commission's decision. The line is exempt from Commission regulation, and no certificate of public convenience and necessity need be obtained for its operation.
EP Operating Company and the other joint petitioners hold a number of leases in the Green Canyon and Ewing Bank areas of the federal Outer Continental Shelf (OCS). These areas are located approximately 80 miles offshore from Louisiana, at depths of 1,500 feet or more. Placid Oil's Penrod 72 floating rig is located at Green Canyon Block 29, in 1,640 feet of water. The floating rig is equipped with both drilling facilities and limited separation and dehydration facilities. It is anticipated that ultimately natural gas production from up to 24 subsea template and satellite wells will feed into the separation and dehydration facilities at the floating rig.
Only the most rudimentary separation and dehydration operations, sufficient to allow the gas to be transported through a pipeline, are conducted at the site of the floating rig. The production is separated into a primarily gaseous-phase stream (which includes natural gas, water vapor, and liquefiable hydrocarbons) and a primarily liquid-phase stream (consisting of crude oil, saltwater, and suspended or dissolved gaseous hydrocarbons). The primarily gaseous-phase stream is partially dehydrated solely for the purpose of preventing the formation of water-hydrocarbon hydrates that would hinder the flow of the stream through a pipeline.
The gaseous-phase stream is then transported through a 16-inch line (the Green Canyon Line) to a fixed production platform at Ship Shoal Block 207, located in shallow water (105 feet) 51 miles closer to shore. A parallel 14-inch line was also constructed which, it was contemplated, would carry the liquid-phase stream of salt water and crude oil. However, the 16-inch line is currently being operated as a dual- phase line carrying the full well stream of liquefiable hydrocarbons, natural gas, water vapor, condensate, crude oil, and salt water. The Green Canyon Line has a maximum operating pressure of 2,160 pounds per square inch, which is the wellhead pressure. No compression is performed on the floating rig. Maximum capacity is 200 million cubic feet per day (MMCFD). Gas production from the Green Canyon Block is projected to peak at 140 MMCFD, so the line has a planned excess capacity that may be used to transport other gas. Placid constructed approximately 43 miles of the line without Commission authorization. On April 6, 1989, the Commission issue a permanet certificate authorizing Placid to construct the final eight miles and to operate the Green Canyon Line. No sanctions were invoked against Placid.
The fixed platform at Block 207 bears full production processing equipment, and it is there that the additional processing necessary to achieve pipeline quality standards occurs. The gas is then delivered into the ANR pipeline, which transports it to an onshore delivery point. Only the 51-mile, 16-inch pipeline connecting the floating rig to the fixed platform is at issue in this case. EP maintains that although the diameter and length of the line are greater than typical gathering lines, its primary function is an integral part of the production and gathering process.
Section 1(b) of the Natural Gas Act specifically exempts the production and gathering of natural gas from Commission jurisdiction. In determining whether this statutory exemption applies, the Commission must make a factual determination whether a company's primary function consists of the interstate transportation of gas or some other activity. Ben Bolt Gathering Co., 26 F.P.C. 825, 827 (1961), aff'd, 323 F.2d 610 (5th Cir.1963). This "primary function test" involves a case-by-case consideration of all the facts and circumstances of the particular case rather than the application of any overarching bright line standards. However, certain relevant considerations have been identified, including:
1) the diameter and length of the facility;
2) the location of compressors and processing plants;
3) extension of the facility beyond the central point in the field;
4) location of wells along all or part of the facility; and
5) the geographical configuration of the system.
Farmland Industries, Inc., 23 F.E.R.C. p 61,063, 61,143 (1983). The Commission also asserts a sixth factor: the operating pressure of the line. In its declaratory order, the Commission found that the Green Canyon Line satisfied five of the six interstate transportation criteria.
An agency action may be set aside only if it is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. Sec. 706(2)(A). Although this standard of review is highly deferential, a precondition to judicial deference is that the agency's interpretation be consistent with those rendered by the agency in other cases. The agency must provide a reasoned explanation for its departure from established precedent. The primary function test has been applied in a number of contexts, but two are particularly analogous to the present controversy. In Shell Gas Pipeline Co., 36 F.E.R.C. p 61,317 (1986) (Shell I ) and Shell Gas Pipeline Co., 41 F.E.R.C. p 61,032 (1987) (Shell II ), the Commission held that a...
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