City of Farmington, N.M. v. F.E.R.C.

• Citation: 820 F.2d 1308
• Decision Date: 16 June 1987
• Docket Number: No. 85-1680,85-1680
• Parties: CITY OF FARMINGTON, NEW MEXICO, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Amoco Production Company, Amoco Gas Company, Intervenors.
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

Page 1308

820 F.2d 1308

261 U.S.App.D.C. 129

CITY OF FARMINGTON, NEW MEXICO, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent Amoco Production Company, Amoco Gas Company, Intervenors.

No. 85-1680.

United States Court of Appeals District of Columbia Circuit.

Argued Nov. 3, 1986.

Decided June 16, 1987.

Petition for Review of an Order of the Federal Energy Regulatory commission.

Charles F. Wheatley, Jr., with whom Philip B. Malter, Annapolis, Md., was on the brief, for petitioner.

Andrea Wolfman, Atty., F.E.R.C., with whom Jerome M. Feit, Sol., F.E.R.C., Washington, D.C., was on the brief, for respondent.

J. Paul Douglas, Washington, D.C., for intervenor, Amoco Gas Company. Brian J. Heisler entered an appearance for Amoco Gas Company.

Kevin M. Sweeney was on the brief for intervenor, Amoco Production Company.

Before WALD, Chief Judge, WILLIAMS, Circuit Judge, and WILL, ^* Senior District Judge.

Opinion for the Court filed by Circuit Judge WILLIAMS.

Opinion concurring in part and dissenting in part filed by Chief Judge WALD.

WILLIAMS, Circuit Judge:

The City of Farmington, New Mexico petitions for review of an order of the Federal Energy Regulatory Commission. Farmington contends that the Commission has jurisdiction, pursuant to Sec. 1(b) of the Natural Gas Act ("NGA"), 15 U.S.C. Sec. 717(b) (1982), over a sale to an end user (Farmington itself), merely because the gas has been commingled in the producer's gathering facilities with gas destined to be sold by the producer for resale in interstate commerce. If Farmington's theory were accepted, Farmington's supplier could not stop selling to Farmington, despite expiration of the sales contract, without securing Commission approval. We reject this claim.

Farmington further argues that a sale of gas from a local distribution company to a consumer is a "first sale" under Sec. 2(21) of the Natural Gas Policy Act of 1978 ("NGPA"), 15 U.S.C. Sec. 3301(21) (1982), when the gas was produced by the local distribution company's affiliate. Contrary to the Commission, we believe it to be a first sale, but remand to the Commission for consideration of the regulatory options available under Public Service Commission v. Mid-Louisiana Gas Co., 463 U.S. 319, 325-27, 343 n. 24, 103 S.Ct. 3024, 3028-29, 3037 n. 24, 77 L.Ed.2d 668 (1983).

I. BACKGROUND

From 1961 to 1981, under a 10-year contract that was later extended, Amoco Gas Company sold natural gas to the City of Farmington solely to fuel its electric generating facilities. To cover the Farmington contract, Amoco Gas contracted with its parent, Amoco Production Company, to purchase gas from the latter's Dakota Formation wells in New Mexico. Amoco Gas received the gas from Amoco Production's gathering system, dehydrated it, and then transported it a short distance to Farmington's pipeline.

For four of the 20 years covered by the Amoco Gas/Farmington contractual relationship (1968-1972), Amoco Production also sold some of the gas from the Dakota Formation wells to the El Paso Natural Gas Company, an interstate pipeline. Pursuant to an "Excess Gas Purchase Agreement," Amoco Production agreed to sell El Paso gas that was not needed for delivery to others or for lease operations. Amoco Production secured a certificate of public convenience and necessity from the Commission for the El Paso sales. The certificate specified that the sale to El Paso was a sale of excess gas. For purposes of this appeal, the parties stipulated that the gas sold to El Paso was produced from the same wells as, and was commingled in Amoco Production's gathering facilities with, the gas sold to Amoco Gas for Farmington.

In 1981, on the expiration of a 10-year renewal of the Amoco Gas/Farmington contract (plus a few days' extension by letter agreement), Amoco Gas ceased deliveries as a result of a pricing dispute. Farmington filed suit in the United States District Court for the District of New Mexico, see City of Farmington v. Amoco Gas Co., 568 F.Supp. 1265 (D.N.M.1983), aff'd, 777 F.2d 554 (10th Cir.1985), alleging that Amoco Gas had overcharged Farmington and that it improperly abandoned service without the approval of the Commission as the NGA required. See NGA Sec. 7(b), 15 U.S.C. Sec. 717f(b) (1982). The district court issued a preliminary injunction, effective from January to April 1982, ordering Amoco Gas to resume deliveries to Farmington. See 568 F.Supp. at 1274. Over a year after dissolution of the injunction, the district court dismissed Farmington's NGA claim without prejudice to Farmington's right to present it to the Commission.

Farmington repaired to the Commission, asking it to order gas service resumed until such time as the Commission might authorize abandonment and to find that the gas sold under the preliminary injunction impermissibly exceeded the first-sale price ceilings of the NGPA.

The Commission rejected both of Farmington's assertions, City of Farmington v. Amoco Gas Co., 31 F.E.R.C. p 61,290 (1985), and denied Farmington's petition for rehearing, Order Denying Rehearing, No. GP84-20-001 (FERC Aug. 21, 1985). Farmington petitioned for review on both grounds. ¹

II. NGA JURISDICTION

If Amoco Gas's sales to Farmington were within the Commission's jurisdiction, its termination of sales when the contract expired would require Commission abandonment approval. See NGA Sec. 7(b), 15 U.S.C. Sec. 717f(b) (1982). ² Those sales would be jurisdictional under Sec. 1(b) of the NGA only if they involved "the transportation of natural gas in interstate commerce ... [or] the sale in interstate commerce of natural gas for resale...." 15 U.S.C. Sec. 717 f(b).

Farmington makes no claim that the transportation of its gas was in interstate commerce. And regardless of any connection with interstate commerce, the sale from Amoco Gas to Farmington was clearly not for resale: it was exclusively for use by Farmington in the generation of electricity. On its face, therefore, the transaction appears unequivocally nonjurisdictional. Farmington's assertion to the contrary seems to depend on two links. First, it invokes California v. Lo-Vaca Gathering Co., 379 U.S. 366, 85 S.Ct. 486, 13 L.Ed.2d 357 (1965), for the proposition that the sales of gas from Amoco Production to Amoco Gas were jurisdictional because that gas was commingled in Amoco Production's gathering facility with gas that was sold to El Paso for resale in interstate commerce. Second, the sale from Amoco Gas to Farmington was jurisdictional because it followed a jurisdictional sale.

In speaking of Farmington's theory, we use the word "seems" advisedly. So far as the second link is concerned, Farmington never really articulates a theory, despite vigorous challenge by the Commission and intervenor. We address the second link first, because its unsoundness is most clear.

In Panhandle Eastern Pipe Line Co. v. Public Service Commission, 332 U.S. 507, 68 S.Ct. 190, 92 L.Ed. 128 (1947), the Supreme Court upheld the power of states to regulate sales by an interstate pipeline to industrial end users, and in so doing made clear that Congress meant exactly what it said in distinguishing in the NGA between sales for resale, on the one hand, and sales for use by the purchaser, on the other:

The omission of any reference to ... direct sales for consumptive use, in the affirmative declaration of coverage was not inadvertent. It was deliberate. For Congress made sure its intent could not be mistaken by adding the explicit prohibition that the Act "shall not apply to any other ... sale...." ... Those words plainly mean that ... [d]irect sales for consumptive use of whatever sort were excluded.

The line of the statute was thus clear and complete. It cut sharply and cleanly between sales for resale and direct sales for consumptive uses. No exceptions were made in either category for particular uses, quantities or otherwise.

Id. at 516-17, 68 S.Ct. at 195 (emphasis by Court). The Court went on to note that the line conformed to the one that it had previously drawn between permissible and impermissible reaches of state power against attacks under the negative implications of the commerce clause. U.S. CONST., art. I, Sec. 8, cl. 3. See 332 U.S. at 517-18 n. 12, 68 S.Ct. at 195-96 n. 12. On the permitted side of the line were interstate sales to consumers, see Pennsylvania Gas Co. v. Public Service Commission, 252 U.S. 23, 40 S.Ct. 279, 64 L.Ed. 434 (1920); on the forbidden side were interstate sales for resale, see Public Utilities Commission v. Attleboro Steam & Electric Co., 273 U.S. 83, 47 S.Ct. 294, 71 L.Ed.2d 54 (1927); Missouri v. Kansas Natural Gas Co., 265 U.S. 298, 44 S.Ct. 544, 68 L.Ed. 1027 (1924).

Panhandle 's holding, of course, was an affirmative finding of state regulatory power. But in City of Hastings v. FPC, 221 F.2d 31, 32-33, 38-39 (D.C.Cir.1954), cert. denied, 349 U.S. 920, 75 S.Ct. 660, 99 L.Ed. 1252 (1955), this court applied Panhandle 's reasoning and unequivocal language to support the flipside--the absence of Commission authority. As here, the sales in question were to a city exclusively for use in the city's power plant.

Thus, even if the commingling by Amoco Production rendered its sales to Amoco Gas jurisdictional, the latter's sales to Farmington would not be. Farmington presents nothing in its arguments to support any such extension of Commission jurisdiction.

The first link of Farmington's claim is also unsupportable. It relies primarily on California v. Lo-Vaca Gathering Co., 379 U.S. 366, 85 S.Ct. 486, 13 L.Ed.2d 357 (1965). There the Supreme Court considered the jurisdictional status of sales of gas to an interstate pipeline that were earmarked by contract to be used only in the pipeline's compressors. The pipeline, however, commingled the compressor gas with gas that it intended to sell for resale in interstate commerce. Consequently, some molecules nominally purchased for pipeline use would in fact be delivered to out-of-state...