City of Clarksville v. Fed. Energy Regulatory Comm'n

• Decision Date: 24 April 2018
• Docket Number: No. 16-1244,16-1244
• Citation: 888 F.3d 477
• Parties: CITY OF CLARKSVILLE, TENNESSEE, Petitioner v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent Todd County, Kentucky, Intervenor
• Court: U.S. Court of Appeals — District of Columbia Circuit

888 F.3d 477

CITY OF CLARKSVILLE, TENNESSEE, Petitioner

v. FEDERAL ENERGY REGULATORY COMMISSION, RespondentTodd County, Kentucky, Intervenor

No. 16-1244

United States Court of Appeals, District of Columbia Circuit.

Argued November 14, 2017

Decided April 24, 2018

Jeffrey K. Janicke, Washington, DC, argued the cause for petitioner. With him on the briefs were James R. Choukas–Bradley and Joshua L. Menter, Washington, DC.

John P. Gregg and Randolph Elliott were on the brief for amicus curiae American Public Gas Association and American Public Power Association in support of petitioner. Delia D. Patterson entered an appearance.

Beth G. Pacella, Deputy Solicitor, Federal Energy Regulatory Commission, argued the cause for respondent. On the brief were Robert H. Solomon, Solicitor, and Ross R. Fulton, Attorney.

Jennifer N. Waters, Washington, DC, was on the brief for intervenor Todd County, Kentucky in support of respondent.

Before: Griffith and Wilkins, Circuit Judges, and Randolph, Senior Circuit Judge.

Wilkins, Circuit Judge:

We consider a Petition for Review challenging the Federal Energy Regulatory Commission's assertion of Natural Gas Act jurisdiction over the transportation and sale of natural gas for resale from the City of Clarksville, Tennessee to the City of Guthrie, Kentucky. See Order Granting Service Area Determinations, City of Clarksville, Tennessee , 146 FERC ¶ 61,074 (2014) ; Order Denying Reh'g, City of Clarksville, Tennessee , 155 FERC ¶ 61,184 (2016). Clarksville challenges the Commission's exercise of jurisdiction as contrary to the plain language of the Natural Gas Act ("NGA"), 15 U.S.C. §§ 717 – 717z, and contrary to longstanding FERC precedent.

For the reasons explained below, we grant the Petition for Review and vacate FERC's Order Granting Service Area Determinations and Order Denying Rehearing to the extent they are inconsistent with this opinion.

I.

Congress enacted the Natural Gas Act, ch. 556, 52 Stat. 821 (1938) (codified as amended at 15 U.S.C. §§ 717 – 717z ), with the principal aim of "encourag[ing] the orderly development of plentiful supplies of ... natural gas at reasonable prices," NAACP v. Fed. Power Comm'n , 425 U.S. 662, 669–70, 96 S.Ct. 1806, 48 L.Ed.2d 284 (1976), and "protect[ing] consumers against exploitation at the hands of natural gas companies," Fed. Power Comm'n v. Hope Nat. Gas Co. , 320 U.S. 591, 610, 64 S.Ct. 281, 88 L.Ed. 333 (1944). Along with those main objectives, there are also several " ‘subsidiary purposes’... includ[ing] ‘conservation, environmental, and antitrust’ issues." Pub. Utils. Comm'n of Cal. v. FERC , 900 F.2d 269, 281 (D.C. Cir. 1990) (quoting NAACP , 425 U.S. at 670 & n.6, 96 S.Ct. 1806 ).

The Act vests FERC with broad authority to regulate the transportation and sale of natural gas in interstate commerce. 15 U.S.C. § 717c ; see also Schneidewind v. ANR Pipeline Co. , 485 U.S. 293, 300, 108 S.Ct. 1145, 99 L.Ed.2d 316 (1988) ("The NGA long has been recognized as a comprehensive scheme of federal regulation of all wholesales of natural gas in interstate commerce." (citations and internal quotation marks omitted) ). To achieve this objective, Congress equipped the Commission with a variety of regulatory tools, one of which captures the focus of this Court's review.

Under Section 7(c) of the Act, a natural gas company must obtain a certificate of public convenience and necessity from FERC prior to "undertak[ing] the construction or extension" of any natural gas facility for the transportation of natural gas in interstate commerce. 15 U.S.C. § 717f(c)(1)(A). The Act defines a "natural-gas company" as a "person engaged in the transportation of natural gas in interstate commerce, or the sale in interstate commerce of such gas for resale." Id. § 717a(6). A "person" "includes an individual or corporation." Id. § 717a(1). The Act specifies that a corporation "shall not include municipalities," which are defined as "cit[ies], count[ies], or other political subdivision[s] or agenc[ies] of a State." Id. § 717a(2)-(3).

Section 7(f)(1) permits FERC to make a service area determination, by which it can authorize an entity primarily engaged in the local sale or distribution of natural gas but subject to the Commission's jurisdiction because its facilities cross state lines, to construct, enlarge, or extend its facilities to meet market demand without prior FERC approval. 15 U.S.C. § 717f(f)(1) ; Intermountain Mun. Gas Agency & Questar Gas Co. , 97 FERC ¶ 61,359, ¶ 62,660 (2001) ; Ken–Gas of Tenn., Inc. , 45 FERC ¶ 61,110, ¶ 61,346 (1988).

FERC regulations issued pursuant to Section 7 provide for the automatic issuance of any necessary certificate authority for a non-interstate pipeline to make sales for resale in interstate commerce without being subject to other NGA filing or reporting regulations. 18 C.F.R. § 284.402. A separate regulation allows the Commission to issue a blanket certificate permitting an otherwise local distribution entity to transport natural gas that is subject to FERC's jurisdiction under the NGA. Id. § 284.224; see Intermountain Mun. Gas Agency v. FERC , 326 F.3d 1281, 1283 n.4 (D.C. Cir. 2003).

II.

The City of Clarksville, Tennessee ("Clarksville") is a municipality that operates natural gas facilities providing natural gas services to customers in both Tennessee and Kentucky. Clarksville owns and operates a natural gas distribution system that serves a "significant geographic area" in Montgomery County, as well as smaller, discrete areas in Cheatham and Robertson Counties, all in Tennessee. In addition, Clarksville operates distribution facilities that service the U.S. Army base at Fort Campbell—partly located in Kentucky—and provides gas service to 16 commercial customers through the "Kentucky Service Line" pipeline. The "Kentucky Service Line" pipeline extends from Clarksville's municipal system in Montgomery County 2,400 feet into Christian County, Kentucky.

On June 26, 2013, Clarksville filed an application with FERC, requesting a Natural Gas Act Section 7(f) service area determination covering its services to Fort Campbell and the Kentucky Service Line. Clarksville also requested a waiver of reporting, accounting, and other regulatory requirements that are primarily applicable to FERC-jurisdictional natural gas companies. In an order issued February 7, 2014, FERC granted these requests.

During the proceeding, the Commission learned that Clarksville has a service agreement with the City of Guthrie, Kentucky ("Guthrie"). Under that contract, Clarksville transports natural gas to a meter and regulating station 20 feet south of the Tennessee/Kentucky border, where Guthrie receives the gas into a pipeline that crosses into Kentucky. Though Clarksville did not know for certain, it assumed that Guthrie sells the gas to retail customers in Kentucky. Having learned about the agreement between Clarksville and Guthrie, FERC stated—in a footnote in its order granting the requested service area determination—that the sales to Guthrie were covered under a blanket marketing certificate already granted by 18 C.F.R. § 284.402. FERC also declared that should Clarksville desire to transport natural gas in interstate commerce in the same manner as an intrastate pipeline may under section 311 of the Natural Gas Policy Act ("NGPA"), 15 U.S.C. § 3371, it would be required to obtain a different certificate under 18 C.F.R. § 284.224. 146 FERC ¶ 61,074, at 61,311 n.15.

Clarksville sought rehearing of FERC's determinations regarding its agreement with Guthrie, arguing that it did not require authorization under Section 7 of the NGA to transport and sell gas to Guthrie for resale and consumption in Kentucky because Clarksville is a municipality as defined by the NGA. Relying on prior FERC orders, Clarksville argued that FERC lacked jurisdiction over these transactions because the NGA excludes municipalities from the ambit of FERC's jurisdiction. Although FERC acknowledged the precedent upon which Clarksville relied, FERC explained that it had "reconsider[ed]" this precedent. 155 FERC ¶ 61,184 at P. 11. Specifically, FERC explained that its prior "interpretation of the municipal exemption created by operation" of the NGA was "overly expansive, at least to the extent it would allow municipal gas utilities to avoid NGA jurisdiction over the transportation and sale of gas for consumption in other states , because such an interpretation would create a regulatory gap." Id. (emphasis in original). The Commission reasoned that this regulatory gap would contravene the purpose of the NGA, which was "intended to fill the regulatory gap left by a series of Supreme Court decisions that interpreted the dormant Commerce Clause to preclude state regulation of interstate transportation and of wholesale gas sales." Id. at P. 15 (citation omitted). FERC largely relied on its decision in Intermountain Municipal Gas Agency , 97 FERC ¶ 61,359 (2001), reh'g denied , 98 FERC ¶ 61,216 (2002), aff'd , 326 F.3d at 1286 (denying petition for review on separate grounds), where FERC found that it has jurisdiction over a municipally-owned pipeline that crosses state lines. 155 FERC ¶ 61,184 at P. 19.

In addition to finding that it has jurisdiction over Clarksville's sales and transportation of natural gas to Guthrie, FERC recognized "that Clarksville has been providing service for Guthrie for some time and that the current arrangement provides necessary gas supplies for Guthrie's local distribution system in Kentucky." Id. at P. 20. In light of that, FERC found that the "public convenience and necessity" required it to issue Clarksville a "case-specific certificate of limited jurisdiction to authorize [Clarksville's] existing transportation service for Guthrie without affecting its otherwise non-jurisdictional activities and facilities." Id. Thus, Clarksville could continue to transact with Guthrie under the terms of the existing contract.

III.

A.

Before addressing the merits, we must first determine...