Northwest Pipeline Corp. v. F.E.R.C.
| Decision Date | 13 June 1990 |
| Docket Number | No. 88-2261,88-2261 |
| Parties | NORTHWEST PIPELINE CORPORATION, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Questar Pipeline Company; Colorado Interstate Gas Company; Washington Natural Gas Company; Cascade Natural Gas Corporation; Southwest Gas Corporation; ANR Pipeline Company; Pacific Gas and Electric Company; and Natural Gas Corporation of California, Intervenors. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Steven W. Snarr, Asst. General Counsel, (Mark C. Moench, Sr. Atty., on the briefs) Salt Lake City, Utah, for petitioner Northwest Pipeline Corp.
Robert Wolfe, Atty., (Catherine C. Cook, General Counsel and Jerome Feit, Sol., on
the brief) Washington, D.C., for respondent F.E.R.C.
Gary G. Sacket, Div. Counsel, Salt Lake City, Utah, for Intervenor Questar Pipeline Co.
Robert B. McLennan, Atty., San Francisco, Cal., for Intervenors Pacific Gas and Electric Co. and Natural Gas Corp. of California.
Daniel F. Collins, Donald C. Shepler, and Kathrine L. Henry, Washington, D.C., on the brief, for Intervenors ANR Pipeline Co. and Colorado Interstate Gas Co.
Before McKAY, MOORE, and ANDERSON, Circuit Judges.
Northwest Pipeline Corporation (Northwest) petitions for review of two orders of the Federal Energy Regulatory Commission (FERC or the Commission) asserting jurisdiction over certain facilities under Sec. 1(b) of the Natural Gas Act (NGA), 15 U.S.C. Sec. 717(b). Northwest urges the production and gathering exclusion of Sec. 717(b) exempts these facilities. Finding error in the Commission's assertion of jurisdiction, we reverse the orders in this respect.
Northwest operates an interstate gas pipeline system which extends from New Mexico to Washington in the western United States. In addition to transporting and selling gas, Northwest produces, purchases, and imports gas, almost all of which is sold for resale subject to the Commission's jurisdiction.
Northwest also owns and operates several gathering systems 1 in New Mexico, Colorado, Utah, and Wyoming, which are utilized for its own system supply and for other parties. The focus of the underlying rate proceeding in this case is the Piceance Basin area, comprised of six gathering facilities located in Colorado and Utah. Of the six Piceance Basin facilities, three, Grand Valley, Foundation Creek, and North Douglas Creek, are connected to Northwest's own mainline transmission system; and three, River Bend, Love, and Argyle, are connected to the transmission system of Mountain Fuel Resources, Inc. 2
Natural Gas Corporation of California (NGC), an exploration subsidiary of Pacific Gas and Electric Company (PG & E), utilizes Northwest's gathering and transportation services in the Piceance Basin area. Northwest moves NGC gas from the wellhead in the Rocky Mountain region through a tentacular network which feeds into Northwest's interstate pipeline for ultimate delivery to PG & E at the California border. Northwest's pipeline provides the "most practical routing for transportation of NGC's gas." Opinion No. 270, 38 F.E.R.C. p 61,302, at 61,979 (1987).
These proceedings were generated by Northwest's filing a general rate increase for the gathering and transportation services charged to NGC in the Piceance Basin area. Ultimately, the parties agreed to proposed settlements approved by the Commission on all issues except the appropriate rate level for gathering services Northwest performs for NGC in the Piceance Basin. Surviving the Commission's resolution of this rate issue 3 is the dispute over the propriety of FERC's assertion of jurisdiction in the first instance over these gathering facilities.
The Commission affirmed the initial decision of the ALJ who found the gathering services Northwest performed for NGC subject to FERC's jurisdiction. The Commission agreed with the ALJ that the parties' use of the term "gathering" as a shorthand to describe the services at issue was not alone dispositive of the function performed. 4 Instead, Commission and court precedent cast these services as the transportation of natural gas in interstate commerce. Id., at 61,981. To reach this conclusion, the Commission reasserted its current preference for judging the facilities by using a "primary function" test instead of the more rigid, traditional tests previously applied to distinguish between jurisdictional transportation and nonjurisdictional gathering. 5 By fostering the application of this test, the Commission suggested it could judge the facilities as a whole, not by their individual parts, so that given lines would not be segregated into jurisdictional and nonjurisdictional segments. Moreover, the Commission asserted that even if the Piceance Basin encompassed true gathering lines in terms of configuration, its concomitant primary function of transportation of gas from the wellhead to the interstate pipeline would override, subjecting the facilities to the Commission's jurisdiction. Finally, the Commission affirmed the assertion of jurisdiction on the ground that were it to decline regulating these facilities, an attractive regulatory gap would be created. "The conclusion is irresistible that Congress desired regulation by federal authority rather than nonregulation." Id., at 61,983 (quoting FPC v. Transcontinental Gas Pipe Line Corp., 365 U.S. 1, 28, 81 S.Ct. 435, 449-50, 5 L.Ed.2d 377 (1961)). 6
Subsequently, the Commission denied Northwest's request for a rehearing, rejecting Northwest's contentions that the Commission improperly redefined the primary function test and inexplicably departed from prior decisions. Viewing the result of this case against the vast regulatory scheme created by Congress, the Commission concluded that "the results here must be based on the intent of Congress in enacting the Act and that the Commission, nonetheless, has jurisdiction over these rates." Opinion No. 270-A, 43 F.E.R.C. p 61,491, at 62,215 (1988). 7
Northwest now challenges FERC's orders, arguing the Commission (1) exceeded its statutory authority, essentially rendering the Sec. 1(b) gathering exemption a nullity; (2) departed from precedent in an arbitrary and capricious manner; (3) discriminated against interstate pipelines in its application of the gathering exemption; and (4) failed to support its decision with substantial evidence. We have jurisdiction to review these contentions under section 19(b) of the NGA, 15 U.S.C. Sec. 717r(b).
Northwest asserts section 1(b) of the NGA circumscribes the Commission's jurisdiction to regulate the transportation of natural gas in interstate commerce for sale or resale and reserves the regulation of production or gathering to the states. In effect, Northwest contends the Commission's broad sweep of jurisdictional and nonjurisdictional facilities under one rug implicitly repeals the production and gathering exemption contrary to congressional intent and Commission and court precedent.
In opposition, summarizing the background and interplay of the NGA and the National Gas Production Act (NGPA), the Commission responds that its present regulatory effort reflects longstanding precedent that "no aspect of the interstate business of transporting or selling natural gas for resale is to be left unregulated by the Commission." In FERC's view, this case becomes an essential facet to the expanded regulatory role Congress intended in the agency's oversight of national energy production. According to FERC, this evolving regulatory scheme promotes and protects a national, interstate gas market. Moreover, fostering competitive market forces stimulates the national wellhead commodity market and assures equal and open access to that market. 8 The Commission contends that, within this scheme, the production and gathering exemption must be narrowly drawn and confined to the physical acts alone of production and gathering of natural gas which the states may regulate in the interest of natural resource conservation.
Section 1(b) of the NGA, 15 U.S.C. Sec. 717(b), defines FERC's jurisdiction. It states:
(b) The provisions of this chapter shall apply to the transportation of natural gas in interstate commerce, to the sale in interstate commerce of natural gas for resale for ultimate public consumption for domestic, commercial, industrial, or any other use, and to natural-gas companies engaged in such transportation or sale, but shall not apply to any other transportation or sale of natural gas or to the local distribution of natural gas or to the facilities used for such distribution or to the production or gathering of natural gas.
In Sec. 1(b) of the Act,
[t]hree things and three only Congress drew within its own regulatory power, delegated by the Act to its agent, the Federal Power Commission. These were (1) the transportation of natural gas in interstate commerce; (2) its sale in interstate commerce for resale; and (3) natural gas companies engaged in such transportation or sale.
FPC v. Louisiana Power & Light Co., 406 U.S. 621, 636, 92 S.Ct. 1827, 1836, 32 L.Ed.2d 369 (1972) (quoting Panhandle Eastern Pipe Line Co. v. Public Service Comm'n, 332 U.S. 507, 516, 68 S.Ct. 190, 194-95, 92 L.Ed. 128 (1947)). Set apart from federal regulation were the activities of production and gathering. Therefore, "under section 1(b) the Commission does not have express or implied rate-regulatory jurisdiction of the production and gathering of gas." Colorado Interstate Gas Co. v. FPC, 142 F.2d 943, 952 (10th Cir.1944), aff'd, 324 U.S. 581, 65 S.Ct. 829, 89 L.Ed. 1206 (1945).
However, because the NGA's "utility-type ratemaking," Transcontinental Gas Pipe Line Corp. v. State Oil and Gas Bd., 474 U.S. 409, 420, 106 S.Ct. 709, 715, 88 L.Ed.2d 732 (1986), was ill-suited to regulate or remedy the severe gas shortages of the early 1970's, Congress enacted the NGPA, which "reflects a congressional belief that a new...
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