Texas Pipeline Ass'n v. Fed. Energy Regulatory Comm'n

• Decision Date: 24 October 2011
• Docket Number: No. 10–60066.,10–60066.
• Citation: 661 F.3d 258
• Parties: TEXAS PIPELINE ASSOCIATION; Railroad Commission of Texas, Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Fifth Circuit

661 F.3d 258

TEXAS PIPELINE ASSOCIATION; Railroad Commission of Texas, Petitioners,

v.FEDERAL ENERGY REGULATORY COMMISSION, Respondent.

No. 10–60066.

United States Court of Appeals, Fifth Circuit.

Oct. 24, 2011.

Paul Korman (argued), Van Ness Feldman, P.C., Washington, DC, James Patrick Sullivan, Asst. Sol. Gen. (argued), Douglas Burt Fraser, Asst. Atty. Gen., Environmental Protection & Administrative Law Div., Austin, TX, for Petitioners.

Robert Harris Solomon, Sol. (argued), Beth Guralnick Pacella, Samuel Soopper, FERC, Washington, DC, for Respondent.

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

Before SMITH, BENAVIDES and HAYNES, Circuit Judges.

JERRY E. SMITH, Circuit Judge:

The Texas Pipeline Association and the Railroad Commission of Texas petition for review of Order Nos. 720 and 720–A of the Federal Energy Regulatory Commission (“FERC”). We grant review and vacate both orders because they exceed the scope of FERC's authority under the Natural Gas Act of 1938 (“NGA”), 15 U.S.C. § 717.

I.

Congress regulates the natural gas industry primarily through the NGA, which gives FERC extensive regulatory powers over the industry, including the ability to fix rates and issue the certificates required for natural gas companies to operate. See 15 U.S.C. §§ 717c(a), 717f(c)(1)(A). Yet, Congress deliberately chose not to regulate “the entire natural-gas field to the limit of constitutional power” but instead designated the areas to be regulated and the areas in which FERC cannot regulate.¹ Specifically, § 1(b) of the NGA states that the Act applies “to the transportation of natural gas in interstate commerce [and] to the sale in interstate commerce of natural gas for resale ... 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....” 15 U.S.C. § 717(b) (emphasis added).

As part of the Energy Policy Act of 2005, Congress amended the NGA by adding § 23, Pub.L. No. 109–58, § 316, 119 Stat. 594, 691–92, which directs FERC to “facilitate price transparency in markets for the sale or transportation of physical natural gas in interstate commerce,” 15 U.S.C. § 717t–2(a)(1). To that end, § 23 allows FERC to obtain and disseminate information about “the availability and prices of natural gas sold at wholesale and in interstate commerce” from “any market participant.” Id. § 717t–2(a)(2)–(3). Pursuant to that grant of authority, FERC issued Order No. 720, which adopted a rule (the “Posting Rule”) that requires “major non-interstate pipelines ... to post scheduled flow information and to post information for each receipt and delivery point with a design capacity greater than 15,000 MMBtu per day.”² “Major non-interstate pipelines,” according to the rule, are defined as “those natural gas pipelines that deliver more than 50 million MMBtu per year.”³

After participating in notice and comment for Order No. 720, petitioners applied for rehearing, contending that the proposed rule would exceed FERC's authority under the NGA. In Order No. 720–A, FERC clarified the rule and reduced the number of non-interstate pipelines covered by it but ultimately denied rehearing.⁴ Petitioners filed separate petitions for review as authorized by 15 U.S.C. § 717r(b), arguing again that the Posting Rule exceeds FERC's authority under the NGA and seeking vacatur of Order Nos. 720 and 720–A. We consolidated the petitions for review.

II.

Petitioners contend that the Posting Rule exceeds the authority granted to FERC by the NGA, in violation of § 10(e) of the Administrative Procedure Act (“APA”), which prohibits any agency action “in excess of statutory jurisdiction, authority, or limitations.” 5 U.S.C. § 706(2)(C). FERC responds that its interpretation of the NGA, and specifically § 23, authorizes the Posting Rule. We review FERC's construction of the NGA under the familiar two-step framework articulated in Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984).⁵

At step one, we examine de novo whether Congress has “directly spoken to the precise question at issue.” Id. at 842, 104 S.Ct. 2778 (citations omitted). If, using traditional tools of statutory construction, the intent of Congress is clear, then the matter is at an end, and the challenged regulation will stand or fall in accordance with the unambiguous will of Congress. Id. at 842–43 & n. 9, 104 S.Ct. 2778. If, however, the statute is genuinely ambiguous on the question at issue, then we proceed to step two, at which we will defer to the agency's construction of the statute so long as it is a permissible one. See id. at 843, 104 S.Ct. 2778.

The central question is whether § 23 permits FERC to compel owners and operators of intrastate pipelines (or, as FERC has designated them, “non-interstate pipelines”) to post flow, capacity, and scheduling information on the Internet. The relevant portions of § 23 direct FERC to promulgate rules that facilitate transparency in the interstate market for natural gas:

(2) ... The rules shall provide for the dissemination, on a timely basis, of information about the availability and prices of natural gas sold at wholesale and in interstate commerce to the Commission, State commissions, buyers and sellers of wholesale natural gas, and the public.

(3) The Commission may—

(A) obtain the information described in paragraph (2) from any market participant....

15 U.S.C. § 717t–2(a)(2)–(3).

In support of its position that it had the authority to promulgate the Posting Rule, FERC focuses on the language in § 23(3)(A) that includes “any market participant” within the ambit of regulable entities. FERC argues that broad phrase is ambiguous but can reasonably be interpreted to include major intrastate pipelines because they are so integrated with the interstate market, being links between interstate pipelines and through participation in national market hubs (which service both interstate and intrastate pipelines), that interstate and intrastate markets functionally operate as one large interconnected market. Thus, FERC contends it can fulfill Congress's directive of facilitating price transparency in the interstate market only by requiring this information from major intrastate pipelines, because “a complete picture of the interstate natural gas market ... require[s] information from non-interstate natural gas pipelines.” Order 720–A at 73,496. In short, FERC argues that major intrastate pipelines “participate” in the interstate market, so § 23(3)(A) can reasonably be interpreted to apply to them—an interpretation that, urges FERC, warrants Chevron deference.

Before we address deference to FERC's interpretation of § 23 under step two, we must first, under step one, determine whether Congress has unambiguously spoken to the question whether intrastate pipelines may be regulated under § 23. As in all statutory-construction cases, we begin by examining the text. See Barnhart v. Sigmon Coal Co., 534 U.S. 438, 450, 122 S.Ct. 941, 151 L.Ed.2d 908 (2002). Section 23 directs FERC to “facilitate price transparency in markets for the sale or transportation of physical natural gas in interstate commerce.” 15 U.S.C. § 717t–2(a)(1) (emphasis added).⁶ Thus, the market referred to in the phrase “any market participant” is specifically the interstate market. FERC concedes this point but argues that the term “any” is broad (or at least ambiguous) enough to include major intrastate pipelines, because they also “participate” in the interstate market.

Although sufficient ambiguity might exist to warrant moving to Chevron step two if § 23 floated solitary and free in the U.S. Code, “a reviewing court should not confine itself to examining a particular statutory provision in isolation. The meaning—or ambiguity—of certain words or phrases may only become evident when placed in context.” FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 132, 120 S.Ct. 1291, 146 L.Ed.2d 121 (2000) (citations omitted).

The context of § 23 is the NGA, codified in Title 15, Chapter 15B, which commences, in § 1(b), with the scope of the chapter:

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 ..., and to the importation or exportation of natural gas in foreign commerce ..., 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.

15 U.S.C. § 717(b) (emphasis added). That provision unambiguously denies FERC the power to regulate entities specifically excluded from Chapter 15B, including wholly-intrastate pipelines, given that they either are involved solely in the “local distribution of natural gas” or are otherwise involved in “other transportation” of natural gas not in interstate commerce. The entirety of Chapter 15B is inapplicable to intrastate pipelines, so neither § 23 nor the phrase “any market participant” can apply to those pipelines.

Nevertheless, FERC sees ambiguity in these otherwise-clear provisions, using three principal arguments. First, it contends that the jurisdictional limitations of § 1(b) are not applicable to § 23; rather, Congress through § 23 intended to create a new “transparency authority” separate and distinct from the rate-making and certification authority delimited in § 1. Although finding no support for this new, expanded jurisdiction in the text or legislative history, FERC posits that Congress's intent to grant this new “transparency authority” can be divined from other entities more explicitly regulated by an expanded jurisdiction in § 23.

As its prime example, FERC points to § 23(d)(2), which exempts “natural gas producers ... who have a de minimis market presence.” This means that, FERC...