Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-98-01352/USCOURTS-caDC-98-01352-0/pdf.json

Parties Involved:
El Paso Natural Gas Company
Petitioner
Federal Energy Regulatory Commission
Respondent

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 8, 1999 Decided October 26, 1999

No. 98-1241

Williams Field Services Group, Inc., et al.,

Petitioners

v.

Federal Energy Regulatory Commission,

Respondent

Salt River Project Agricultural Improvement

and Power District, et al.,

Intervenors

---------

Consolidated with

98-1329, 98-1330, 98-1331, 98-1352

On Petitions for Review of Orders of the

Federal Energy Regulatory Commission

Richard C. Green argued the cause for petitioners Amoco

Production Company, et al. on the jurisdictional issue. With

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him on the briefs were Judy A. Johnson, Kenneth M. Minesinger, Robert M. Lamkin, James R. McCotter, Frederick T.

Kolb, Katherine B. Edwards, and Bruce A. Connell.

Katherine B. Edwards argued the cause for petitioners

Amoco Energy Trading Corporation, et al. on the nonjurisdictional issues. With her on the briefs were Frederick

T. Kolb and Bruce A. Connell.

Joseph S. Koury argued the cause for petitioner Williams

Field Services Group, Inc. With him on the briefs was Mari

M. Ramsey.

Judith A. Albert, Attorney, Federal Energy Regulatory

Commission, argued the cause for respondent. With her on

the brief were, Jay L. Witkin, Solicitor, and Susan J. Court,

Special Counsel.

Richard C. Green, Judy A. Johnson, Kenneth M. Minesinger, Robert M. Lamkin, and James R. McCotter were on

the brief for intervenor El Paso Natural Gas Company in

partial support of respondent.

Joseph S. Koury and Mari M. Ramsey were on the brief

for intervenor Williams Field Services Group, Inc. in partial

support of respondent.

Before: Edwards, Chief Judge, Sentelle and Randolph,

Circuit Judges.

Opinion for the Court filed by Chief Judge Edwards.

Edwards, Chief Judge: Numerous issues have been raised

in this case. The principal issue before the court, however, is

whether a natural gas compressor, the Chaco compressor

station, is a "gathering" facility or a "transmission" facility.

A transmission facility is subject to the regulatory jurisdiction

of the Federal Energy Regulatory Commission ("FERC" or

"Commission"), whereas a gathering facility is not. El Paso

Natural Gas ("El Paso") sought to transfer all of its gathering

facilities to its subsidiary, El Paso Field Services ("Field

Services"), but it did not transfer the Chaco compressor

station. El Paso claims the Chaco compressor station is a

transmission facility. Williams Field Services ("Williams"), a

competitor of Field Services and a petitioner in this case,

disagrees. FERC also now disagrees and, after initially

deciding otherwise, has found that the Chaco compressor

station is a gathering facility because its pressure is necessary both to process the natural gas and to overcome the

pressure on the mainline to deliver the natural gas. El Paso

argues that this decision was arbitrary and should be overturned. Because FERC's decision is consistent with its

precedent and well-reasoned, we uphold it.

The related issue in this case is whether and how FERC's

decision that the Chaco compressor station served a gathering function should have affected El Paso's rates. Before

FERC rendered its decision regarding the Chaco compressor

station, El Paso entered into a Rate Settlement ("Settlement") with various shippers. In s 15.2 of this Settlement,

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the parties agreed to treat the Chaco compressor as a transmission facility for the purpose of the rates agreed to in the

Settlement. FERC approved the Settlement.

As mentioned above, FERC initially decided that the Chaco

compressor station served a transmission function. This

decision was consistent with the Settlement. Its decision to

reverse that finding caused problems. Williams argued that

because the Commission had determined that the Chaco

compressor was a gathering facility, it was unfair to allow El

Paso to include Chaco's costs in its transmission rates.

Williams argued that FERC should remedy this inconsistency

by forcing El Paso to remove the costs of the Chaco compressor from its transmission rates. The Indicated Shippers, the

third set of petitioners in this case, had the opposite complaint. (The Indicated Shippers who appear before this court

are: petitioners Amoco Energy Trading Corp., Amoco Production Co., Burlington Resources Oil & Gas Co., and Conoco

Inc., and intervenor Marathon Oil Co). They argued that

s 15.2 precluded FERC from adjusting any of El Paso's

rates, including fuel rates, as a result of its decision that the

Chaco compressor was a gathering facility.

FERC split the baby. It agreed with the Indicated Shippers that s 15.2 precluded any change to El Paso's rates as a

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result of the Chaco compressor's changed status. It found,

however, that fuel charges were not part of the rates referred

to in s 15.2 and so could be adjusted to reflect the Chaco

compressor's new status. In the meantime, this court remanded FERC's order approving the very Settlement that

justified FERC's decision regarding the rate issues. See

Southern California Edison Co. v. FERC, 162 F.3d 116 (D.C.

Cir. 1999) ("Edison"). As a result of the remand, the status

of the Settlement is unclear. Because FERC's orders are

dependent on an interpretation of a Settlement that is no

longer settled, we vacate those orders as they relate to El

Paso's Settlement and remand the issues raised by Williams

and the Indicated Shippers.

I. Background

A. The Abandonment Proceeding and the Settlement

In January of 1994, pursuant to s 7(b) of the Natural Gas

Act ("NGA" or the "Act"), El Paso applied to abandon all of

its nonjurisdictional gathering, treating, and processing facilities. See 15 U.S.C. s 717f(b) (1994). FERC has jurisdiction

over the transmission of natural gas, but it does not have

jurisdiction over the gathering, treating, or processing of

natural gas. See 15 U.S.C. s 717(b) (1994). The line between the two is not always clear, but it is important. If a

facility is "functionalized" as transmission, the regulated company--in this case, El Paso--may incorporate the cost of that

facility into its rates. If it is functionalized as gathering, it

may not.

El Paso intended to abandon all of its nonjurisdictional

facilities by transferring them to its wholly owned subsidiary,

Field Services. The Chaco plant, located in the San Juan

basin, was one of the systems that El Paso intended to

transfer to Field Services. The Chaco plant consists of liquid

extraction, dehydration, and compression facilities. El Paso

transferred most of these facilities to Field Services. But one

of the compressor stations, the Chaco compressor station, was

not transferred to Field Services. The Chaco compressor

station consists of 16 compressor units that have a total of

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77,960 hp and that generate more than 800 pounds of pressure. See El Paso Natural Gas Co., 81 F.E.R.C. p 61,209, at

61,890 (1997). The Chaco compressor pressurizes gas coming

in from the fields before it enters a liquid extractor. Liquid

extraction is a part of natural gas processing and the extractor is a nonjurisdictional facility. El Paso did not transfer

the Chaco compressor station to Field Services because it

believed that Chaco was necessary to preserve mainline capacity and so served a jurisdictional transmission function.

Williams argued that the Chaco compressor was a gathering

facility and should have been transferred to Field Services.

In September 1995, FERC approved El Paso's application

to abandon its gathering facilities. See El Paso Natural Gas

Co., 72 F.E.R.C. p 61,220 (1995). In that same order, however, FERC also required El Paso to show cause why it did not

abandon the Chaco compressor. See id. at 62,020. After El

Paso transferred the Chaco plant facilities to Field Services,

Field Services replaced the liquid extractor, which used a

"lean oil" method, with a new cryogenic liquid extractor. The

relevant difference between the two is that, to function efficiently, the cryogenic extractor needs the large amounts of

pressure produced by the Chaco compressor station.

Meanwhile, before the show cause proceeding regarding

the Chaco compressor was completed, El Paso sought a rate

increase in an entirely separate proceeding. In 1996, El Paso

submitted a Settlement in that rate proceeding, which contained a provision relating to the pending dispute over the

Chaco compressor. This provision, s 15.2, provides:

15.2 Refunctionalization Issues. In consideration of

the other provisions of this Stipulation and Agreement,

all El Paso facilities underlying the rates in Docket No.

RP95-363-000, are properly functionalized as transmission facilities solely for the term of this Stipulation and

Agreement. Accordingly, (i) the show cause proceeding

in Docket No. CP94-183-002 shall be terminated without

prejudice to later filings after the term of this Stipulation

and Agreement; (ii) during the term of the Stipulation

and Agreement, no party shall contest, in any Commission proceeding, the functionalization of El Paso's faciliUSCA Case #98-1352 Document #472372 Filed: 10/26/1999 Page 5 of 17
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ties; and (iii) regardless of any actions taken by the

Commission or by non-consenting parties to this Settlement Agreement, the settlement rates established herein

will not be subject to change during the term of this

Stipulation and Agreement based on any refunctionalization issue.

Stipulation and Agreement in Settlement of Rate and Related

Proceedings, reprinted in Joint Appendix ("J.A.") 661.

Williams objected to s 15.2, arguing that if the Chaco compressor was later found to be nonjurisdictional, this provision

would improperly allow El Paso to continue to incorporate

Chaco's costs into its transmission rates. Williams complained that the effect of this provision is to subsidize Field

Services because Field Services would not have to pay the

compressor's costs.

Despite Williams' objections, FERC approved the Settlement on April 16, 1997, finding that it was a "fair and

reasonable resolution of difficult issues." El Paso Natural

Gas Co., 79 F.E.R.C. p 61,028, at 61,131 (1997), reh'g denied,

80 F.E.R.C. p 61,084 (1997). With regard to the pending

show cause proceeding, the Commission noted that was "issuing an order in that docket concluding that El Paso appropriately did not include the Chaco facilities among the facilities

to be transferred to its gathering affiliate because the primary function of that facility is jurisdictional transmission."

Id. Soon after, FERC issued an order in the show cause

proceeding finding that the Chaco compressor functioned as a

transmission facility and was therefore properly functionalized as jurisdictional by El Paso. See El Paso Natural Gas

Co., 79 F.E.R.C. p 61,079 (1997). This order was consistent

with FERC's order approving the Settlement: Both orders

provided that the Chaco compressor was a jurisdictional

facility.

B. The Refunctionalization of Chaco and the Ensuing Disputes

Subsequently, in response to objections from Williams and

others, FERC requested more information from El Paso

about the functions of the Chaco compressor. On November

14, after receiving that new information, FERC granted a

rehearing of its April 23 order, reversed its position, and

declared that the Chaco compressor performed a nonjurisdictional gathering function. See El Paso Natural Gas Co., 81

F.E.R.C. p 61,209. FERC based this decision on two

grounds: (1) the Chaco compressor station's compression "is

required to increase the pressure of the natural gas stream

... to ensure an efficient cryogenic liquids extraction process," id. at 61,891, a process that all agree is nonjurisdictional; and (2) Chaco's compression is necessary to overcome the

pressure in the mainline, which, pursuant to El Paso's tariffs,

is the gatherer's (in this case, Field Service's) responsibility.

See id. at 61,892. FERC rejected El Paso's contention that

the Chaco compressor was necessary to maintain capacity on

the pipeline. See id. FERC noted that, because high compression "is required to satisfy the delivery pressure to El

Paso's system, pursuant to El Paso's effective tariff, reclassification of the Chaco Compressor Station from transmission

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to gathering would not reduce the capacity of the San Juan

Triangle System ..." Id.

This order failed to satisfy anyone. While Williams agreed

with the refunctionalization of Chaco, it was not satisfied with

FERC's failure to address this order's impact on El Paso's

rates. Williams requested a clarification, or a hearing, addressing its claim that the Chaco compressor should be

removed from El Paso's transmission rates. See Request for

Clarification, or Alternatively Rehearing, of Williams Field

Services Group, Inc., reprinted in J.A. 818. Williams argued

that "the Commission should clarify that El Paso must now

include the Chaco compressor station among the facilities

transferred to Field Services and completely remove those

facilities from El Paso's jurisdictional transmission services

and rates." Id. at 822. In a footnote, Willliams noted that

the Commission had the "authority and the responsibility" to

remedy the discrepancy under s 5 of the NGA. Id. at 822

n.3 (citing 15 U.S.C. s 717d (1994)).

El Paso and the Indicated Shippers objected to the refunctionalization of the Chaco compressor and requested a rehearing. In addition, El Paso understood FERC's order to mean

that the location of or operation at the cryogenic plant did not

impact the Chaco compressor's jurisdictional status. El Paso

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asked FERC to clarify this point. The Indicated Shippers

requested clarification on the rate issue. Specifically, they

asked FERC to clarify that the settlement rates embodied in

the Settlement, including transportation and fuel, would not

change as a result of the refunctionalization. The Indicated

Shippers were particularly concerned about possible modifications to fuel rates and emphasized that fuel charges are part

of the settlement rates covered in Section 15.2 of the parties'

Settlement.

On rehearing, FERC affirmed its decision to functionalize

the Chaco compressor station as a nonjurisdictional gathering

facility. See El Paso Natural Gas Co., 82 F.E.R.C. p 61,337

(1998). In response to El Paso's request for clarification,

FERC noted that its "decision that the Chaco compression

performs a gathering function is affected by both the location

of and the operations at the cryogenic plant." Id. at 62,336.

With regard to the rate issue, FERC determined that it

would not upset the Settlement and that settlement rates

would not change despite the Chaco refunctionalization. See

id at 62,340. It also found, however, that the fuel charges are

not part of the settlement rates and would be adjusted to

reflect the refunctionalization of Chaco during the next modification period. See id. FERC determined that "there will

be no fuel costs associated with the Chaco facilities to include

in the calculation of the fuel charges to take effect January 1,

2001 and thereafter." Id.

Williams filed the instant appeal arguing that FERC did

not provide an adequate remedy for the refunctionalization of

the Chaco compressor. El Paso and the Indicated Shippers

requested another rehearing. El Paso contested FERC's

finding that the relationship between the cryogenic liquid

extractor and the Chaco compressor supported functionalizing

the compressor as a gathering facility. The Indicated Shippers contested FERC's finding that the fuel costs could be

adjusted to reflect the refunctionalization of the Chaco compressor. They noted that the Settlement stipulated that the

show cause proceeding was to be terminated for the settling

parties, so FERC's decision in the show cause proceeding

cannot impact the fuel rates for settling parties.

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On July 20, FERC denied these requests for rehearing.

See El Paso Natural Gas Co., 84 F.E.R.C. p 61,048 (1998).

In this order, FERC reiterated its view that because "fuel

charges are not a part of the settlement rates," fuel rates

could be adjusted. Id. at 61,203. FERC found that this

decision was consistent with the stipulation in s 15.2 that the

show cause proceeding was to be terminated. It reasoned

that the purpose of terminating the show cause proceeding

was to ensure that settlement rates did not change as a result

of any refunctionalization; and because settlement rates did

not change as a result of the refunctionalization, its order in

the show cause proceeding was consistent with the Settlement. See id at 61,204. With regard to the functionalization

of Chaco, FERC reaffirmed its prior decision noting that the

"location and operation of the cryogenic plant were two of a

number of factors that weigh against a finding that the

compression performs a transmission function." Id. at

61,205. El Paso and the Indicated Shippers filed their petitions for review.

In the meantime, this court remanded FERC's April 1997

order approving El Paso's Settlement. See Edison, 162 F.3d

116. The court in Edison found that FERC had failed to

provide for the interests of indirect consumers in the Settlement and remanded the case to FERC for reconsideration.

As a result of this remand, the Settlement, which underlies

the rate disputes in this case, is no longer settled. It has

come to the court's attention that the parties involved in the

Edison case have reached a tentative agreement resolving the

issues that concerned the Edison court. The court is also

aware that Williams is pursuing another complaint with

FERC regarding the same rate concerns addressed in this

case.

II. Analysis

A. The Functionalization of the Chaco Compressor

In the orders under review, FERC found that the Chaco

compressor station was a nonjurisdictional gathering facility.

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We review FERC's orders under the Administrative Procedure Act's arbitrary and capricious standard. 5 U.S.C.

s 706(2)(A) (1994). See Sithe/Independence Power Partners

v. FERC, 165 F.3d 944, 948 (D.C. Cir. 1999). El Paso argues

that FERC's decision was arbitrary because: (1) FERC

misapplied the primary function test; (2) FERC was wrong

to consider the operation at the cryogenic processor; (3)

FERC misapprehended the relationship between mainline

capacity and the Chaco compression; and (4) this decision is

inconsistent with FERC's precedent functionalizing similar

compressors. El Paso's arguments fail. FERC applied the

primary function test as well as it could have in this situation,

properly considered the operation of the cryogenic processor,

made a reasonable decision regarding the relationship between Chaco's compression and mainline capacity, and correctly distinguished this case from the precedents El Paso

cites. We therefore uphold FERC's decision to functionalize

the Chaco compressor station as a gathering facility.

El Paso argues that FERC misapplied the primary function test. Under the NGA, the Commission has jurisdiction

over the transportation, but not the processing or gathering

of, natural gas. See 15 U.S.C. s 717(b) (1994). However,

"[t]he line between jurisdictional transportation and nonjurisdictional gathering is not always clear. To draw that line, the

Commission employs the 'primary function test,' which examines various factors to determine whether a facility is primarily devoted to gathering or to interstate transportation."

Conoco Inc. v. FERC, 90 F.3d 536, 542 (D.C. Cir. 1996). No

single factor of the primary function test is determinative,

and not all factors apply in every situation. See id. at 543.

This is especially true here where the facility at issue is a

compressor station. As El Paso itself noted, "[m]any if not

most of these factors typically are present when the facility in

question is a pipeline. They have less direct application,

however, when the facility is a compressor." Joint Initial Br.

of Petitioners at 12. The six factors of this test include: (1)

the length and diameter of the relevant lines; (2) the extension of the facility beyond the central point in the field; (3)

the lines' geographic configuration; (4) the location of comUSCA Case #98-1352 Document #472372 Filed: 10/26/1999 Page 10 of 17
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pressors and processing plants; (5) the location of wells along

all or part of the facility; and (6) the operating pressure of

the lines. Conoco, 90 F.3d at 544 n.16. FERC considered

the test, but found only the fourth factor to be truly weighty.

In particular, FERC noted that "the compression's location

upstream of the processing plant" was the factor under the

primary function test that weighed heavily in favor of finding

that the Chaco compressor was a gathering facility. 82

F.E.R.C. p 61,337, at 62,336. This is a reasonable determination: The Commission's precedent establishes that a facility

located behind a processing plant is more likely to perform a

gathering function. See Williams Natural Gas Co., 71

F.E.R.C. p 61,115, at 61,375 (1995) (noting that the fact that

the facilities are located behind the plant "strongly supports a

finding that they are gathering").

Significantly, El Paso challenges FERC's application of the

primary function test, but it offers no counter analysis. Thus,

this is not a case where FERC has ignored applicable parts of

the primary function test. Cf. Louisiana Intrastate Gas

Corp. v. FERC, 962 F.2d 37, 42-43 (D.C. Cir. 1992) (remanding consideration of a facility because FERC failed to apply

the primary function test, which was indisputably applicable

to that facility). Rather, "the Commission here gave reasoned consideration to each of the pertinent factors of the

primary function test ..." Conoco, 90 F.3d at 544. However,

because most of the factors of the primary function test do

not apply to the Chaco compressor station, FERC's decision

properly rests on additional considerations.

El Paso next argues that to the extent that FERC relied on

the operation of the cryogenic liquid extractor to determine

the jurisdictional status of the Chaco compressor station, it

was wrong to do so. The cryogenic liquid extractor is a

nonjurisdictional processing facility that prepares the gas to

go into El Paso's mainline. It replaced a lean-oil extractor in

1996, long after the Chaco compressor was built. It requires

the high pressure produced by the Chaco compressor in order

to operate efficiently. El Paso argues that the Chaco compressor was operating before the cryogenic liquid extractor

was installed and therefore installing the cryogenic extractor

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cannot change the function of the Chaco compressor. "Selection of the cryogenic method played no role whatsoever in

determining the amount of compression to be constructed,

because the compression was constructed long before the

cryogenic plant was built, in an amount determined solely by

the needs of mainline transmission." Joint Initial Br. of

Petitioners at 22.

As FERC notes, what El Paso misses is the point that the

cryogenic liquid extractor changed the purpose of the Chaco

compressor. Prior to the installation of the cryogenic extractor, the Chaco compressor simply pressurized the gas to

enter the mainline. After the installation of the cryogenic

processor, the Chaco compressor's purpose changed to include assisting in the efficient (nonjurisdictional) processing

of gas. Thus, because the cryogenic liquid extractor changed

the purpose of the Chaco compressor station, it was reasonable for FERC to determine that the operation of the cryogenic processor weighs in favor of finding that the Chaco

compressor is a gathering facility.

El Paso argues in the alternative that the Commission did

not rely on the operation of the cryogenic extractor in making

its decision about Chaco. El Paso noted that "it is far from

clear that consideration of the cryogenic plant ... has any

material impact on the Commission's jurisdictional analysis."

Joint Reply Brief of Petitioners at 14. Admittedly, the

Commission has been less than clear on this point. In the

first rehearing before FERC, the Commission noted that the

operation of the cryogenic liquid extractor "weighs against a

finding that the compression performs a transmission function." 82 F.E.R.C. p 61,337, at 62,336. And while it reiterated that point in the second rehearing, noting that the operation of the cryogenic plant is one of a "number of factors that

weigh against a finding that the compressor performs a

transmission function," it also stated that "the Chaco Compression would be nonjurisdictional gathering regardless of

whether the cryogenic plant or any other nonjurisdictional

processing facilities were located immediately downstream of

the compression facilities." 84 F.E.R.C. p 61,048, at 61,205.

Despite this language, in the three orders under review,

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FERC has explained extensively that the operation of the

cryogenic liquid extractor impacts the jurisdictional status of

the Chaco compressor. Thus, although some language in

FERC's last order suggests otherwise, it is this court's

understanding that the functionalization of Chaco as a gathering facility relies in part on the operation of the cryogenic

liquid extractor.

El Paso's third argument is that because the Chaco compression is necessary to maintain its jurisdictional mainline

capacity, the Chaco compression station is necessarily a jurisdictional facility. El Paso contends that "the Chaco compression is absolutely required as a matter of physics if the San

Juan Triangle capacity is going to remain available to El

Paso's jurisdictional transmission customers." Joint Initial

Br. of Petitioners at 16. As a matter of physics, and a matter

of fact, FERC does not disagree. As a legal matter, however,

FERC comes to a different conclusion. Under FERC's view,

the Chaco compressor is a gathering facility because it is

necessary to "overcome" the pressure of El Paso's mainline

system to deliver the natural gas. 81 F.E.R.C. p 61,209, at

61,892. In other words, FERC never directly disputes that

the compression is necessary for capacity, it simply finds that

the compression will be there because the natural gas gatherer, in this case Field Services, will supply it.

El Paso argues that this cannot be the basis for finding

that the Chaco compressor is nonjurisdictional because that

puts the responsibility for maintaining certified, jurisdictional

mainline capacity in nonjurisdictional, i.e., unregulated hands.

FERC has two responses. First, it notes that some of El

Paso's mainline capacity is already in the hands of nonjurisdictional facilities. See 82 F.E.R.C. p 61,337, at 62,336. Second, it notes that El Paso's tariff requires the producer to

deliver the gas to the pipeline at a pressure high enough to

overcome the pressure in the pipeline. See 81 F.E.R.C.

p 61,209, at 61,892. FERC reasons that because this responsibility rests with the producer, the facility that enables the

producer to meet it, here, the Chaco compressor, is necessarily a part of the production process, which is nonjurisdictional.

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Thus, FERC argues, the Chaco compressor is nonjurisdictional.

This is a line-drawing problem for which there is no easy

answer. The Chaco compressor sits at the very edge between gathering and transmission. In such a situation, it is

not this court's role to interpose its judgment. As this circuit

has noted, "the Commission brings to bear its considerable

expertise about the natural gas industry" when deciding

whether a facility is jurisdictional or nonjurisdictional. Conoco, 90 F.3d at 544. El Paso has pointed to no significant

evidence or reasoning that undermines FERC's decision here.

This decision is further supported because it is consistent

with recent cases in which FERC has decided that the

pressure necessary to overcome mainline capacity is the last

stage of the gathering process. See GPM Gas Corp. v. El

Paso Natural Gas Co., 81 F.E.R.C. p 61,208, at 61,888 (1997)

("In addition, a significant boost in pressure is often necessary to enable gas to move from the lower pressure gathering

system into transmission lines. The Commission has stated

that this type of compression is also integral to the gathering

function."). Thus, the Commission's reasoning here is not

arbitrary.

As a final matter, El Paso argues that FERC's decision

here is inconsistent with its precedent. This argument has no

weight for the reason FERC gives: All of the cases El Paso

cites can be distinguished from this one. The compressors in

those cases fed directly into a pipeline without going through

or assisting a nonjurisdictional processor, see Colorado Interstate Gas Co., 75 F.E.R.C. p 61,324, at 62,039 (1996); Panhandle Eastern Pipe Line Co., 70 F.E.R.C. p 61,178, at 61,583

(1995); Amerada Hess Corp., 52 F.E.R.C. p 61,268, at 62,012-

13 (1990); Williston Basin Interstate Pipeline Co., 33

F.E.R.C. p 61,211, at 61,439 (1985); United Gas Pipe Line

Co., 29 F.E.R.C. p 61,164, at 61,345 (1984), or were part of an

outer continental shelf facility, which the Commission has

determined to be different from on-shore facilities. See Sea

Robin Pipeline Co., 87 F.E.R.C. p 61,384, at 62,428 (1999).

Thus, FERC's functionalization of the Chaco compressor as a

nonjurisdictional gathering facility is upheld.

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B. The Rate Issues

Both the Indicated Shippers and Williams argue that

FERC has improperly addressed the effect of the refunctionalization on El Paso's rates. The Indicated Shippers argue

that FERC has gone too far by modifying the fuel charges;

Williams argues that FERC has not gone far enough because

it has not modified the remaining costs. In response, FERC

relies on an interpretation of El Paso's Settlement. Because

the status of that Settlement is no longer clear after this

court's remand in Edison, FERC's orders under review are

vacated insofar as they rely on an interpretation of the

Settlement.

The Indicated Shippers argue that FERC's orders on

review are inconsistent with its order approving the Settlement, specifically s 15.2. The Shippers argue that FERC

was wrong to find that fuel charges could be adjusted to

reflect the refunctionalization of the Chaco compressor because s 15.2 stipulated otherwise. As an initial matter, we

note that FERC's interpretation of the Settlement is questionable. Section 15.2 stipulated that "all El Paso facilities

underlying the rates in Docket No. RP95-363-000," which

includes the Chaco compressor, "are properly functionalized

as transmission facilities." Stipulation and Agreement, reprinted in J.A. 661. Section 15.2(i) emphasized that the show

cause proceeding for the Chaco compressor was to be terminated. Given these provisions, it is not clear that FERC

could adjust the fuel charges with that Settlement in place.

We need not decide the issue, however, because that Settlement may no longer be in place.

In 1998, this court remanded FERC's order approving the

Settlement that underlies the disputes here. See Edison, 162

F.3d 116. As a result, the status of that Settlement is no

longer clear. As FERC counsel noted,

if on remand, the Commission determines to modify the

settlement agreement--the interpretation of which underpins [the Indicated Shippers'] arguments here--based

on the Edison Court's mandated areas of factual inquiry,

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litigation over the terms of the settlement agreement

would yield nothing but an advisory opinion.

Br. for Respondent at 50. FERC's decisionmaking must be

"reasoned, principled, and based upon the record." Western

Resources, Inc. v. FERC, 9 F.3d 1568, 1572 (D.C. Cir. 1993)

(citation and quotation marks omitted). Without the Settlement in place, FERC's decisions relying on that Settlement

have no reasoned, principled basis. Thus, insofar as FERC's

orders depend on an interpretation of that Settlement, they

are vacated. In other words, FERC's orders finding that the

fuel charges can be modified at El Paso's next adjustment

period are vacated and remanded to FERC.

Likewise, FERC's order denying Williams' request for a

remedy is also vacated because it depends on an interpretation of the Settlement. Williams argues that FERC failed to

order an adequate remedy after it refunctionalized Chaco

from a transmission facility to a gathering facility. Specifically, Williams argues that FERC should have ordered El Paso

"to remove the Chaco 'gathering' costs from El Paso's jurisdictional 'transmission' rates." Reply Br. of Petitioner

Williams at 3. FERC denied Williams' request because it

had approved El Paso's rate in the order approving the

Settlement and it determined it would not upset that Settlement. First, it noted that the cost-of-service underlying the

settlement rates is a "black box" number making it impossible

to determine what costs of a particular facility were reflected

in the settlement cost of service. See 82 F.E.R.C. p 61,337, at

62,340. FERC then noted that settlements like this "involve

a complex exchange of risks and benefits among the parties"

and that it would "respect these quid pro quos because the

results are in the public interest." Id. The very Settlement

that FERC is purporting to respect is no longer settled, so

FERC's justifications no longer hold weight. In addition, we

note that at the time when FERC approved the Settlement,

the Commission had decided to functionalize the Chaco compressor as a jurisdictional facility. Williams did not have a

chance to challenge that Settlement because at that time it

was not injured. Now that FERC has refunctionalized the

Chaco compressor, Williams should be allowed to challenge

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the Settlement. Thus, the order denying Williams full consideration of its claims is vacated.

On remand, FERC must consider, in light of Williams'

challenges, whether to again approve s 15.2. If it does

uphold s 15.2, FERC must then consider the challenges

raised by the Indicated Shippers. FERC is already in the

process of reexamining these issues in the context of the

remand in Edison. The parties in Edison have proposed a

new settlement that specifically relies on the approval of the

Settlement. Obviously FERC cannot simply rubberstamp

this new settlement without reconsidering the issues raised

by the parties in this case. Indeed, Williams apparently has

filed a complaint against El Paso, raising some of the same

issues raised before this court.

On remand, it would be well for FERC to consolidate all

these related matters to reach a single, coherent disposition

of the outstanding issues. We vacate those portions of

FERC's order that rely on an interpretation of the Settlement and remand the case to the agency to reconsider these

issues in light of our opinion. We deny the petitions for

review in all other respects.

So ordered.

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