Lomak Petroleum v. Fed. Energy Comm'n

• Decision Date: 28 March 2000
• Docket Number: No. 99-1113,99-1113
• Citation: 206 F.3d 1193
• Parties: (D.C. Cir. 2000) Lomak Petroleum, Inc.,Petitioner v. Federal Energy Regulatory Commission, Respondent Norse Pipeline, LLC and Columbia Gas Transmission Corporation, Intervenors
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1193

206 F.3d 1193 (D.C. Cir. 2000)

Lomak Petroleum, Inc.,Petitioner v. Federal Energy Regulatory Commission, Respondent

Norse Pipeline, LLC and Columbia Gas Transmission Corporation, Intervenors

No. 99-1113

United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 29, 2000

Decided March 28, 2000

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

Joseph D. Lonardo argued the cause for petitioner. With him on the briefs was John W. Wilmer, Jr.

Judith A. Albert, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With her on the brief were John H. Conway, Acting Solicitor, and Susan J. Court, Acting Deputy Solicitor. Jay L. Witkin, Solicitor at the time the brief was filed, entered an appearance.

Frederic J. George, Robin Nuschler, Randall S. Rich and S. Dennis Holbrook were on the brief of intervenors Columbia Gas Transmission Corporation and Norse Pipeline, LLC. Betsy R. Carr entered an appearance.

Before: Edwards, Chief Judge, Tatel, and Garland, Circuit Judges.

Opinion for the Court filed by Circuit Judge Garland.

Garland, Circuit Judge:

In May 1998, Columbia Gas Transmission Corporation requested authorization from the Federal Energy Regulatory Commission (FERC) to abandon, by sale to Norse Pipeline, LLC, Columbia's "Project Penny" facilities.¹ At the same time, Norse asked FERC to disclaim jurisdiction over the Project Penny facilities once Columbia conveyed them, on the ground that they would then constitute facilities used for the "gathering" of natural gas. Such facilities are exempt from FERC jurisdiction under section 1(b) of the Natural Gas Act (NGA), 15 U.S.C. § 717(b). On November 4, 1998, FERC acceded to both requests. See Columbia Gas Transmission Corp., 85 F.E.R.C. p 61,191 (1998).

FERC's order pleased Columbia and Norse, but displeased petitioner Lomak Petroleum, Inc., a gas producer that transports gas on the Project Penny system. Lomak sought rehearing, reasserting challenges both to the abandonment and to the disclaimer of jurisdiction. After FERC denied rehearing, see Columbia Gas Transmission Corp., 86 F.E.R.C. p 61,137 (1999), Lomak petitioned this court to review the decision to disclaim jurisdiction. Lomak contends that FERC's determination that the Project Penny facilities primarily perform a gathering function was arbitrary and capricious, inconsistent with a preexisting settlement agreement, and made without affording Lomak due process.

I

The Project Penny facilities are located in western New York and northwestern Pennsylvania. They are composed of approximately 336 miles of 2to 12-inch diameter pipeline, seven compressor stations, and other related facilities, all of which were the subject of certificates of public convenience and necessity issued by FERC during the period of Columbia's ownership. See 85 F.E.R.C. at 61,765. Columbia, a natural gas company engaged in the business of transporting natural gas in interstate commerce, constructed the facilities in the 1970s and 1980s to access Appalachian gas supplies for its customers. Because the facilities were not on its system, Columbia initially entered into third-party transportation and exchange agreements with other companies to bring the New York and Pennsylvania gas to market. Columbia intended to connect the Project Penny facilities to its main line, but before the connections were constructed the Commission implemented its major open-access orders, Order No. 436 and Order No. 636.² See id. As a consequence, Columbia became a transporter rather than a merchant of natural gas and no longer needed to operate Project Penny to access system supplies. See id.

In 1998, Columbia sought authorization to sell the Project Penny facilities to Norse. The latter is not a natural gas company, owns no facilities that come within FERC's jurisdiction, and provides no jurisdictional services. See id. at 61,-769. Norse operates exclusively in New York as the owner of discrete gathering facilities. See id. FERC determined that after Norse acquired the Project Penny facilities, it would continue to own exclusively gathering facilities, exempt from FERC jurisdiction under the NGA. See 86 F.E.R.C. at 61,486; 85 F.E.R.C. at 61,679.

II

Lomak's first contention is that FERC arbitrarily and capriciously determined that after Norse's acquisition, the primary function of the Project Penny facilities would be the juurisdictionally-exempt gathering, rather than the jurisdictionally-covered transmission, of natural gas.

The NGA grants FERC jurisdiction over (inter alia) the transportation of natural gas in interstate commerce, but exempts from FERC's jurisdiction the production and gathering of natural gas. See 15 U.S.C. § 717(b). The term "gathering" is not defined in the NGA, but has been defined by the Commission as "the collecting of gas from various wells and bringing it by separate and several individual lines to a central point where it is delivered into a single line."Barnes Transp. Co., 18 F.P.C. 369, 372 (1957); see Northern Natural Gas Co. v. State Corp. Comm'n, 372 U.S. 84, 90 (1963) (stating that "production" and "gathering" are terms "narrowly confined to the physical acts of drawing the gas from the earth and preparing it for the first stages of distribution"). As we have previously remarked, "[t]he line between jurisdictional transportation and nonjurisdictional gathering is not always clear." Conoco Inc. v. FERC, 90 F.3d 536, 542 (D.C. Cir. 1996).

Since 1982, FERC has used the "primary function" test to determine "whether a facility is devoted to the collection of gas from wells--gathering--or to the further ('downstream') long-distance movement of gas after it has been collected-interstate transportation." Id. at 543. That test generally employs the following six physical criteria:

(1) the length and diameters of the lines; (2) the extension of the facility beyond the central point in the field;(3) the geographic configuration of the facility; (4) the location of compressors and processing plants; (5) the location of wells along all or part of the line facility; and(6) the operating pressure of the lines.

85 F.E.R.C. at 61,768 (citing Farmland Indus., Inc., 23 F.E.R.C. p 61,063 (1983), and Amerada Hess Corp., 52 F.E.R.C. p 61,268 (1990)). In addition, FERC considers the following "non-physical" criteria:

(1) the purpose, location and operation of the facility; (2)the general business activity of the owner of the facility;(3) whether a jurisdictional determination, i.e., gathering versus transmission, is consistent with the objectives of the NGA and the Natural Gas Policy Act (NGPA); and(4) the changing technical and geographic nature of exploration and production activities. Id.

(citing Amerada Hess, 52 F.E.R.C. at 61,844-45). No one factor is determinative in the primary function test, and not all factors apply in all situations. See Williams Field Servs. Group, Inc. v. FERC, 194 F.3d 110, 116 (D.C. Cir. 1999);Conoco, 90 F.3d at 543. The Commission "gives consideration to all of the facts and circumstances of the case rather than mechanically applying a facilities configuration standard." West Tex. Gathering Co., 45 F.E.R.C. p 61,386, at 62,219 n.4 (1988); see also Conoco, 90 F.3d at 543.

Lomak agrees that the primary function test is appropriate for determining whether a facility engages in gathering, but contends that FERC's application of the test to Project Penny was arbitrary and capricious. As we have previously held, "[i]n evaluating and balancing the several factors under the primary function test, the Commission brings to bear its considerable expertise about the natural gas industry." Conoco, 90 F.3d at 544. Accordingly, we will uphold the Commission's application of the test as long as it gives "reasoned consideration to each of the pertinent factors" and articulates factual conclusions that are supported by substantial evidence in the record. Id.; see 15 U.S.C. § 717r(b) ("The finding of the Commission as to the facts, if supported by substantial evidence, shall be conclusive."); Williams Field Servs., 194 F.3d at 115.

Lomak contends that while purporting to apply the primary function test, FERC in fact employed a "pipeline-alwayswins" test. Lomak Br. at 14. We see no sign of such duplicity here.³ In the challenged orders, FERC set forth the primary function test's factors and, after analysis, concluded that four of the physical factors indicated that the Project Penny facilities were primarily engaged in "gathering." It found that the mostly small diameters and short lengths of the project's lines were consistent with the conclusion that Project Penny serves to gather gas from wells for delivery to a jurisdictional transportation system. The Commission noted that there was no processing plant on the system; that the lines formed a web-like geographic configuration, with the longer lines forming backbones that collect gas from feeding lines along their lengths; and that the low wellhead and pipeline pressures were consistent with gathering rather than transmission. In the past, FERC has relied on these same factors to determine that a system primarily performs a gathering function. See, e.g., NorAm Gas Transmission Co., 75 F.E.R.C. p 61,127, at 61,429-30 (1996) (citing small diameters, low pipeline pressures and web-like configuration); Arkla Gathering Servs. Co., 67 F.E.R.C. p 61,257, at 61,868-69 (1994) (noting short length, small-diameter pipelines, web-like configuration, and that there were "no gathering facilities downstream of any processing plants"); Panhandle E. Pipe Line Co., 59 F.E.R.C. p 61,108, at 61,405-06 (1992) (citing small diameter lines and "network of small lines appending an array of wells"); Dorchester Gas Producing Co., 32 F.E.R.C. p 61,409, at 61,917 (1985) (noting geographic configuration, location "behind the processing plant," and small diameter lines).

In making its findings...