Oklahoma Natural Gas Co., a Div. of ONEOK Inc. v. F.E.R.C.

• Citation: 906 F.2d 708
• Decision Date: 22 June 1990
• Docket Number: No. 89-1376,89-1376
• Parties: OKLAHOMA NATURAL GAS COMPANY, A DIVISION OF ONEOK INC., Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Williams Natural Gas Company, Ladd Gas Marketing, Inc., PowerSmith Cogeneration Project, Limited Partnership, Intervenors.
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

Page 708

906 F.2d 708

285 U.S.App.D.C. 14

OKLAHOMA NATURAL GAS COMPANY, A DIVISION OF ONEOK INC., Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent Williams Natural Gas Company, Ladd Gas Marketing, Inc. PowerSmith Cogeneration Project, Limited Partnership, Intervenors.

No. 89-1376.

United States Court of Appeals, District of Columbia Circuit.

Argued March 20, 1990.

Decided June 22, 1990.

William I. Harkaway, with whom C. Burnett Dunn, Gerald L. Hilsher, Brad D. Fuller and John L. Arrington, Jr. were on the brief, for petitioner.

Catherine C. Cook, Atty., F.E.R.C., with whom Jerome M. Feit, Sol., was on the brief, for respondent. Katherine Waldbauer, Atty., F.E.R.C., also entered an appearance, for respondent.

Harold L. Talisman, Megan A. Sperling and John H. Cary for Williams Natural Gas Co., Douglas E. Nordlinger and John N. Estes for PowerSmith Cogeneration Project, Ltd. Partnership, and James L. Trump and Michael T. Mishkin for Ladd Gas Marketing, Inc., were on the joint brief, for intervenors. Maria M. Jackson, for Williams Natural Gas Co., also entered an appearance, for intervenors.

Before RUTH B. GINSBURG, SILBERMAN and THOMAS, Circuit Judges.

Opinion for the Court filed by Circuit Judge SILBERMAN.

SILBERMAN, Circuit Judge:

Oklahoma Natural Gas Company ("ONG") petitions for review of an order of the Federal Energy Regulatory Commission ("FERC") authorizing Williams Natural Gas Company ("Williams") to construct and operate a 12.4 mile pipeline connecting Williams' interstate pipeline to PowerSmith Cogeneration Project ("PowerSmith") in Oklahoma City, Oklahoma. See Williams Natural Gas Co., No. CP89-93-001 (F.E.R.C. Feb. 16, 1989) (order issuing certificate) ("Order "); Williams Natural Gas Co., No. CP-93-001 (F.E.R.C. May 31, 1989) (order denying rehearing and clarifying prior order) ("Rehearing Order "). ONG, the local distribution company, aggrieved by the loss of a customer within its franchise area, disputes the Commission's order on various procedural and administrative law grounds--none of which appears to have any merit. ¹ But ONG also challenges FERC's assertion of jurisdiction over the pipeline, and we do not think the Commission's terse explanation of the basis for its exercise of jurisdiction is adequate to permit judicial review of what seems an important question. We therefore remand to the Commission.

I.

Williams operates a 16-inch certificated interstate pipeline called the "cement pipeline" which takes gas from producers in western Oklahoma and transports it in interstate commerce. PowerSmith is a cogeneration plant under construction in Oklahoma City, some 12 miles away from the cement pipeline. Ladd Gas Marketing, Inc. ("Ladd") has agreed to sell PowerSmith all its gas requirements for fifteen years, and Ladd, PowerSmith and Williams have entered into a "transportation" agreement whereby Williams will deliver gas from its cement pipeline to PowerSmith--which requires the 12.4 mile lateral pipeline extension, the certification of which is the subject of this appeal. Ladd will compensate Williams by delivering gas to its pipeline at a number of designated receipt points downstream of the new extension, including locations in Kansas and Wyoming. The Commission describes this arrangement as a form of transportation called a "backhaul," as if Williams were taking the gas that Ladd puts in the cement pipeline downstream of the extension and transporting it upstream to PowerSmith, which, of course, is not what actually happens.

The Commission's jurisdiction over this transaction depends on the three-party arrangement being regarded as transportation, since the sale from Ladd to PowerSmith, even if viewed as interstate in character, would not itself confer jurisdiction on the Commission under section 1(b) of the Natural Gas Act ("NGA"), which provides only for FERC regulation of "the sale in interstate commerce of natural gas for resale ...." See 15 U.S.C. Sec. 717(b) (emphasis added). Under section 1(b), FERC may also exercise jurisdiction over the transportation of natural gas in interstate commerce. Id. Before the Commission, ONG challenged federal jurisdiction on three grounds: (1) The proposed facility is properly described as "local distribution of natural gas" and therefore exempt under the Act, see id.; (2) alternatively the proposed lateral will be connected to "gathering facilities" and is therefore exempt from Commission jurisdiction under section 1(b) of the NGA, 15 U.S.C. Sec. 717(b); and, (3) finally, on the most basic ground, the transaction for which the pipeline is proposed is not transportation in "interstate commerce" under the Act, which defines that term to mean "commerce between any point in a State and any point outside thereof, or between points within the same State but through any place outside thereof...." 15 U.S.C. Sec. 717a(7). ONG argued that, since no molecule of gas that would be transported to PowerSmith could possibly cross state lines--gas would be gathered from producers in Oklahoma, transported on the cement pipeline only in Oklahoma, and then carried from the cement pipeline through the lateral to PowerSmith in Oklahoma City--the lateral pipeline could not fall within the Commission's jurisdiction. The Commission rejected all three arguments, and ONG renews them before us, albeit not until page 33 of its opening brief.

II.

ONG's argument that the proposed line is exempt from Commission jurisdiction because it is a "local distribution" facility was rejected by the Commission because that term connotes a network of small local lines used to transmit gas from a large interstate pipeline to individual consumers spread out in a local geographic area--not a high-pressure line connecting an interstate pipeline to a single end-user. See Order at 7-8. We have just recently affirmed that statutory interpretation. "Distribution conjures up receiving a large quantity of some good and parcelling it out among many takers." Public Util. Comm'n of California v. FERC, 900 F.2d 269, 279 (D.C.Cir. Apr. 3, 1990), and, therefore, we reject ONG's challenge to the Commission's jurisdiction on this ground.

The second argument--that the cement pipeline itself is a "gathering facility" exempt under the statute and therefore that the lateral is similarly exempt--is also easily rejected. The Commission reasoned that the cement pipeline "is clearly part of [Williams'] integrated pipeline system and, as such, does not qualify as a gathering facility." Order at 7. And on rehearing, the Commission noted that the cement pipeline had been certificated as an interstate facility within its jurisdiction, see Cities Serv. Gas Co., 6 F.P.C. 270 (1947), and had not been abandoned. See Rehearing Order at 5. So the Commission had determined sometime ago that the cement pipeline was covered under the statute. ONG claims, nevertheless, that FERC is obliged to reconsider now whether the cement pipeline is a gathering facility. But we do not see why this is so, and, in any event, since it is uncontested that the pipeline is still used for the transmission of gas in interstate commerce, it apparently cannot be exempt as a gathering facility. See Public Util. Comm'n of California v. FERC, slip op. at 14.

A good deal more troublesome, however, is the Commission's treatment of ONG's basic challenge, that the proposed lateral is not to be used for the transportation of gas in interstate commerce. Its decision is, to be charitable, rather skimpy on this point; indeed this is dealt with entirely in a footnote:

The fact that the molecules of gas actually delivered to PowerSmith will originate in Oklahoma does not alter our view.

The transportation will be effected through the use of interstate pipeline facilities. Moreover, the transportation will be carried out by means of a backhaul arrangement that calls for gas to be delivered to [Williams] at a number of designated receipt points (some in Kansas and Wyoming) and commingled with the interstate stream of gas in [Williams'] system. We find that this is not a transaction that can be effectively regulated by the State of Oklahoma. See, e.g., Columbia Gas Transmission Corp., 10 FERC p 61,111 (1980) (certificating transportation by an interstate pipeline where the gas originated and was consumed within the same state.).

Order at 7 n. 15. We perceive two grounds (really just assertions) upon which the Commission rests its conclusion that the gas will be transported in interstate commerce. The first is that since the cement pipeline is a certificated interstate facility that carries gas destined for transportation out of Oklahoma, and the gas to be carried in the proposed facility must first flow through the cement pipeline, the proposed facility is also used for transportation in interstate commerce. Alternatively, the Commission is treating the 12.4 mile extension as part of a transportation arrangement whereby Ladd's gas to be delivered in part outside of Oklahoma is sent upstream to PowerSmith (i.e., a backhaul).

The first ground strikes us as having enormous reach; any extension connected to an interstate pipeline under this theory would itself be an interstate facility regardless of its purpose. The Commission, however, made no effort to draw this jurisdictional theory from the language or legislative history of the Act or precedent interpreting the Act. Indeed, the definition of interstate commerce in the NGA--which governs both "jurisdiction based on transportation and sales for resale--is commerce between any point in a state...