Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-00-01361/USCOURTS-caDC-00-01361-0/pdf.json

Parties Involved:
Federal Energy Regulatory Commission
Respondent
Ocean Energy, Inc.
Petitioner

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 1, 2002 Decided August 6, 2002

No. 00-1355

ExxonMobil Gas Marketing Company,

a Division of Exxon Mobil Corporation,

Petitioner

v.

Federal Energy Regulatory Commission,

Respondent

ANR Pipeline Company, et al.,

Intervenors

Consolidated with 00-1357,

00-1361, 00-1363, 00-1364, 00-1365

On Petition for Review of Orders of the

Federal Energy Regulatory Commission

Jon L. Brunenkant and Stephen L. Teichler argued the

causes for petitioners Amerada Hess Corporation, et al.

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With them on the briefs were David G. Stevenson, Frederick

T. Kolb, Stanley P. Geurin, John P. Beall, Douglas W.

Rasch, and Mickey J. Lawrence. Cheryl J. Walker entered

an appearance.

James M. Costan argued the cause for petitioner Producer

Coalition and intervenor Independent Petroleum Association

of America. With him on the briefs were T. Alana Deere and

David M. Sweet. Bruce W. Neely and John W. Wilmer, Jr.,

entered appearances.

Timm Abendroth, Attorney, Federal Energy Regulatory

Commission, argued the cause for respondent. With him on

the brief were Cynthia A. Marlette, Acting General Counsel,

and Dennis Lane, Solicitor.

Brian D. O'Neill argued the cause for intervenors Sea

Robin Pipeline Company and Williams Gas Processing-Gulf

Coast Company. With him on the brief were David P.

Sharo, Merlin E. Remmenga, James T. McManus, Joseph S.

Koury and Mari M. Ramsey.

Before: Ginsburg, Chief Judge, Edwards and Sentelle,

Circuit Judges.

Opinion for the Court filed by Circuit Judge Sentelle.

Dissenting opinion filed by Circuit Judge Edwards.

Sentelle, Circuit Judge: ExxonMobil Gas Marketing

Company, et al.,1 (hereinafter "ExxonMobil") and the Producer Coalition2 petition for review of Federal Energy Regulato-

__________

1 Joining ExxonMobil Gas Marketing Co.'s brief are: Amerada

Hess Corp., Amoco Production Co., BP Energy Co., Anadarko

Petroleum Corp., Marathon Oil Co., Murphy Exploration and Production Co., Phillips Petroleum Co., and Texaco Natural Gas, Inc.

2 The Producer Coalition consists of Forest Oil Corp., the Houston Exploration Co., Newfield Exploration Co., Ocean Energy, Inc.,

Dominion Exploration & Production, Inc., and TotalFinaElf E&P

U.S.A., Inc. Intervenor Independent Petroleum Association of

America joins the Producer Coalition's brief.

ry Commission ("FERC" or "the Commission") orders in

which FERC reclassified portions of Sea Robin Pipeline

Company's pipeline system on the Outer Continental Shelf as

non-jurisdictional "gathering" facilities for natural gas, rather

than jurisdictional "transportation" facilities, pursuant to section 1(b) of the Natural Gas Act, 15 U.S.C. s 717(b). FERC

argues that in developing and applying its reformulated "primary function" test the Commission followed the suggestion

of the United States Court of Appeals for the Fifth Circuit in

Sea Robin Pipeline Co. v. FERC, 127 F.3d 365 (5th Cir. 1997)

("Sea Robin I"), and reasonably identified the demarcation

point between gathering and transportation in Sea Robin's

pipeline system. Because the Commission did not act unreasonably in determining that portions of Sea Robin's system

were non-jurisdictional, we deny the petitions for review.

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I. Background

A. Statutory and Regulatory Framework

Section 1(b) of the Natural Gas Act ("the Act"), 15 U.S.C.

s 717 et seq., governs "the transportation of natural gas in

interstate commerce." 15 U.S.C. s 717(b). However, in section 1(b) of the Act Congress prescribed not only "the intended reach of the Commission's power, but also specified the

areas into which this power was not to extend." Federal

Power Comm'n v. Panhandle E. Pipe Line Co., 337 U.S. 498,

503 (1949) (emphasis added). Section 1(b) expressly exempts

from the Commission's jurisdiction "the production or gathering of natural gas." 15 U.S.C. s 717(b). Thus, Congress

"carefully divided," Northwest Central Pipeline Corp. v. State

Corp. Comm'n, 489 U.S. 493, 510 (1989), energy regulatory

authority and "did not envisage federal regulation of the

entire natural-gas field to the limit of constitutional power.

Rather it contemplated the exercise of federal power as

specified in the Act." Panhandle Eastern, 337 U.S. at 502-

03.

The Natural Gas Act does not define either "transportation," which falls within the Commission's jurisdiction, or

"gathering," which is exempt from FERC authority under the

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Act. The Supreme Court has, however, held that "[e]xceptions to the primary grant of jurisdiction in the section are to

be strictly construed." Interstate Natural Gas Co. v. Federal

Power Comm'n, 331 U.S. 682, 690-91 (1947) (construing 15

U.S.C. s 717(b)). Thus, the Supreme Court has "consistently

held 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."

Northern Natural Gas Co. v. State Corp. Comm'n, 372 U.S.

84, 90 (1963). The Commission's long-held definition of gathering, taken as consistent with the Supreme Court's pronouncements on the Act, is "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 also

Conoco Inc. v. FERC, 90 F.3d 536, 539 n.2 (D.C. Cir. 1996)

("Gathering is the process of taking natural gas from the

wells and moving it to a collection point for further movement

through a pipeline's principal transmission system.") (citing

Northwest Pipeline Corp. v. FERC, 905 F.2d 1403, 1404 n.1

(10th Cir. 1990)).

Despite these attempts to clarify the Natural Gas Act, this

Court has observed that "[t]he line between jurisdictional

transportation and nonjurisdictional gathering is not always

clear." Conoco, 90 F.3d at 542. For many years the Commission employed two principal tests to differentiate transportation from gathering. Developed in the on-shore context,

these tests were the "behind-the-plant" test and the "centralpoint-in-the-field" test. The "behind-the-plant" test presumes

that all facilities located between the wellhead and a processing plant are non-jurisdictional gathering lines, while facilities

downstream of the processing plant are presumptively transportation facilities. See Phillips Petroleum Co., 10 F.P.C.

246, 276-78 (1951), rev'd on other grounds, Wisconsin v.

Federal Power Comm'n, 205 F.2d 706 (D.C. Cir. 1953), aff'd,

Phillips Petroleum Co. v. Wisconsin, 347 U.S. 672 (1954).

For gas that requires no processing the "central-point-in-thefield" test applied, under which lateral lines collecting gas

from separate wells that then converge into a single larger

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line (typically at the point where the gas is compressed for

transportation by the pipeline), were classified as gathering

facilities. E.g., Barnes Transp. Co., 18 F.P.C. 369, 372 (1957).

Since 1983, the Commission has subsumed these two tests

into its "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."

Conoco, 90 F.3d at 543 (citing Farmland Industries, Inc., 23

F.E.R.C. p 61,063, at 61,143 (1983); Amerada Hess Corp., 52

F.E.R.C. p 61,268, at 61,987-88 (1990)).

The "primary function" 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. Lomak Petroleum, Inc.

v. FERC, 206 F.3d 1193, 1196 (D.C. Cir. 2000). 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 Natural Gas Act

and other legislation; and (4) the changing technical and

geographic nature of exploration and production activities.

Id. 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.

When these physical factors were developed, most jurisdictional questions involved onshore facilities. As an increasing

number of facilities have been constructed offshore on the

Outer Continental Shelf ("OCS"), where the pattern of gathUSCA Case #00-1361 Document #693902 Filed: 08/06/2002 Page 5 of 35
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ering and distribution differs, the applicability of the factors

has been questioned. See, e.g., EP Operating Co. v. FERC,

876 F.2d 46 (5th Cir. 1989). Specifically, it is often not

feasible to process raw gas on open water. As a result,

pipelines on the OCS typically do not gather gas at a local,

centralized point within a field as they would onshore, to

prepare it for traditional transportation. Rather, on the

OCS, relatively long lines are constructed to carry the raw

gas from offshore platforms, where "[o]nly the most rudimentary separation and dehydration operations" are conducted,

EP Operating, 876 F.2d at 47, to the shore or a point closer

to shore, where it can be processed into "pipeline quality"

gas. Id. at 48. In EP Operating Co., the Fifth Circuit

discounted FERC's ruling that the offshore platform where

initial gas treatment took place constituted a "central point in

the field" where the gathering function was complete, and

reversed FERC's decision that the 51-mile long, 16-inch

diameter OCS pipeline downstream of that platform was a

jurisdictional transportation facility. See id. at 49. Following EP Operating Co., FERC noted that "because of recent

advances in engineering and available technology, offshore

drilling operations continue to move further offshore and

further from existing interstate pipeline interconnections"

and therefore the Commission would assess "the continuing

viability and relevance of the 'primary function' test to current industry conditions." Amerada Hess, 52 F.E.R.C. at

61,988. FERC then modified its primary function test to

apply a sliding scale, "allow[ing for] the use of gathering

pipelines of increasing lengths and diameters in correlation to

the distance from shore and the water depth of the offshore

production area," id. at 61,988, and to consider the "nonphysical" criteria described above. This "modified" primary

function test was applied by FERC when Sea Robin petitioned in 1995 for a declaration that its facilities perform a

gathering function, rather than transportation, thus entitling

Sea Robin to exemption from the Commission's jurisdiction

under section 1(b) of the Act.

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B. Sea Robin's Pipeline System3

Sea Robin's pipeline system is located entirely offshore in

the Gulf of Mexico and approximately 90 percent of its

facilities lie in water depths of less than 140 feet. It is one of

numerous competing pipeline systems located in the Gulf.

The Sea Robin system is configured roughly in the form of an

inverted "Y" with two arteries stretching roughly southwest

and southeast from a central point about fifty miles south of

the Louisiana coast. These two pipelines collect raw gas

from sixty-seven offshore production platforms. Sea Robin's

Vermilion 149 Compressor Station stands at the intersection

of these two pipelines. It compresses the gas from the sixtyseven platforms for travel north, up the inclined seabed, to

the Erath Compressor Station on the mainland. After collecting gas from four more platforms, the system terminates

near Erath, Louisiana, where the gas is separated, dehydrated and processed. The Erath Compressor Station then

prepares the gas for delivery to downstream transmission

pipelines at five nearby entry points.

The Sea Robin system consists of 438 miles of dual-phase

pipelines with a capacity to transport 1.26 billion cubic feet of

gas per day (Bcf/day) and includes around 69,500 horsepower

(hp) of compression. The pipeline is "dual-phase" in that it

carries a raw stream of unpurified natural gas and liquid

hydrocarbons taken directly from the gas wells. The total

compression horsepower at the Vermilion 149 Station is

37,050 hp and is 32,490 hp at Erath, Louisiana. Of the 438

miles of pipes, 339 miles are larger than twenty inches in

diameter. The remaining ninety-nine miles of pipes, mostly

running from individual platforms to the larger pipes, are

between four and sixteen inches in diameter.

Along the two arms of the inverted "Y," which extend out

in the Outer Continental Shelf, 45 lateral lines with diameters

ranging from 4.5 to 30 inches are connected to 67 receipt

points located on production platforms, or at subsea taps

__________

3 This discussion is largely taken from Sea Robin I, 127 F.3d at

367-68. See also Sea Robin Pipeline Co., 87 F.E.R.C. p 61,384, at

62,430 (1999).

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where Sea Robin's facilities intersect with short lateral lines

of producers or pipelines. Through these upstream arms,

Sea Robin moves the raw gas to the Vermilion 149 Station at

the fork of the "Y," a manned platform with two turbine

compressor units of 12,350 horsepower each. From there,

the gas moves along the Vermilion 149-Erath segment. That

segment is the longest portion of the pipeline, consisting of

66.3 miles of 36-inch diameter pipeline running in a straight

line from Sea Robin's Vermilion compressor station to onshore processing facilities. Gas from four additional platforms is mingled with the gas traveling the Vermilion 149-

Erath segment. The four platforms along this section are

within twenty-five miles of the Vermilion compressor station,

which means that the last forty-one miles of the thirty-six

inch diameter pipeline are uninterrupted by lateral pipe

segments. The gas and liquefiables delivered by Sea Robin

meet the merchantable natural gas quality standards of

downstream transmission pipelines.

FERC issued the original certificate for the Sea Robin

system in 1969, pursuant to section 7(c) of the Natural Gas

Act, 15 U.S.C. s 717f(c), authorizing the system to both sell

and transport gas from the Outer Continental Shelf. Sea

Robin Pipeline Co., 41 F.P.C. 257 (1969). In later years the

Commission certificated extensions of the Sea Robin system

farther out on the OCS. See Sea Robin Pipeline Co., 87

F.E.R.C. at 62,429 n.26. Subsequently, Sea Robin became a

transportation-only pipeline, and its shippers today consist of

producers and marketers that transport gas onshore for

ultimate delivery to markets on connecting interstate pipelines. Id. at 62,428.

C. Prior Proceedings

In 1995, the Sea Robin Pipeline Company petitioned FERC

for a declaration that its facilities perform a "gathering"

function, rather than "transportation," and are thus not subject to the Commission's jurisdiction under section 1(b) of the

Natural Gas Act. See Sea Robin I, 127 F.3d at 367. FERC

denied Sea Robin's petition, determining that its pipelines

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were engaged in jurisdictional transportation activities. See

id.; Sea Robin Pipeline Co., 71 F.E.R.C. p 61,351 (1995),

order denying reh'g, 75 F.E.R.C. p 61,332 (1996). In reaching

its conclusion, FERC emphasized the "very large size of [Sea

Robin's] system." Sea Robin Pipeline Co., 71 F.E.R.C. at

62,398 (emphasis in original). According to the Commission,

"the length and diameter of the system's components, as well

as its overall size, [we]re not outweighed by other elements of

the 'primary function' test." Id. Further, FERC "repeatedly emphasized that the non-physical criteria in its test supported its conclusion that Sea Robin was a transporter,

particularly Sea Robin's prior certification as a jurisdictional

pipeline and its ownership by an interstate pipeline." Sea

Robin I, 127 F.3d at 369-70. Sea Robin petitioned for review

of FERC's order in the U.S. Court of Appeals for the Fifth

Circuit. The Fifth Circuit granted that petition for review,

vacated the order, and remanded to the Commission. Sea

Robin I, 127 F.3d at 372.

Specifically, the Fifth Circuit questioned FERC's reliance

on the size of Sea Robin's system as "presumptively" determinative, as well as the apparent abandonment, without reasoned consideration, of the "sliding scale" approach announced by the Commission in Amerada Hess, 52 F.E.R.C.

p 61,268 (1990). See Sea Robin I, 127 F.3d at 370. The Fifth

Circuit concluded that FERC had "reverted to its single

factor, bright-line approaches that it had previously rejected

as unworkable for offshore pipelines." Id. (citing Northwest

Pipeline Corp., 905 F.2d at 1409; EP Operating Co., 876 F.2d

at 48). The Court also faulted the Commission for the

reliance it placed on non-physical considerations, such as Sea

Robin's ownership and shipper expectations. See 127 F.3d at

370-71 ("If the Commission is to remain tethered to the

statute, as it must, that inquiry must be based primarily on

physical criteria and the realities of the field."). The Fifth

Circuit "intend[ed] that [non-physical criteria] be put in its

place as considerations secondary to the physical factors."

Id. at 371. Finally, the Fifth Circuit found FERC's "regulatory gap" argument, that a regulatory gap might arise if Sea

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Robin was held to be a gathering system, wanting: "Need for

regulation cannot alone create authority to regulate." Id.

In remanding to the Commission, the Fifth Circuit acknowledged that "Sea Robin's system resists easy categorization because the logistics of offshore pipelines obscures differences between gathering gas from Gulf platforms and

transporting it to the mainland." Sea Robin I, 127 F.3d at

370. It also observed that "the pattern of gathering and

distribution on shore differs from the pattern of transportation and gathering of gas from the middle of the Gulf to the

mainland," id., and suggested that FERC "again consider the

applicability of the primary function test to offshore pipeline

systems and if necessary, reformulate this test." Id. at 367.

The Court noted that on remand, "Sea Robin may choose to

respond to the Commission's invitation to offer portions of its

system as predominantly involved in a gathering or a transportation function." Id. at 371 (footnote omitted). In doing

so, the Court specifically admonished the Commission that

"[d]iscomfort in drawing the jurisdictional line at points internal to an overall system may be soothed with the reminder

that Congress did not intend to extend FERC's jurisdiction

to all natural gas pipelines; indeed it demands the drawing of

jurisdictional lines, even when the end of gathering is not

easily located." Id. The Court opined that the Commission

could "consider, for example, a distinction between the field

south of the Vermilion Compressor Station and the pipelines

leading north to Erath, Louisiana." Id.

On remand, FERC accepted the Fifth Circuit's invitation to

reformulate its primary function test. Sea Robin Pipeline

Co., 87 F.E.R.C. p 61,384 (1999) ("Remand Order"). In reformulating its primary function test, the Commission concluded

that the "behind-the-plant" factor is not necessarily determinative of where gathering ends when applied to offshore

facilities. See id. at 62,425. Further, FERC determined that

it would "assess the physical configuration of offshore pipeline

systems to determine if there exists a central location where

gas is aggregated for further transportation to shore." Id.

Such a location would be the "offshore analogue of the

onshore 'central-point-in-the-field' criterion." Id. In cases

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where a pipeline system is configured to deliver gas collected

from upstream wells to a centralized location through several

relatively small diameter lines for further delivery onshore

through a single larger diameter pipeline, that centralized

aggregation location is considered by FERC to be analogous

to the central-point-in-the-field factor and "given weight in

identifying the demarcation point between gathering and

transportation on OCS pipeline systems." Id. at 62,426.

Thus, the Commission was willing to consider, as suggested

by the Fifth Circuit, that the demarcation point between

gathering and transmission on a system like Sea Robin's

could be determined to be at a point internal to an overall

pipeline system. See Sea Robin Pipeline Co., 92 F.E.R.C.

p 61,072, at 61,285 (2000) ("Rehearing Order").

Applying its reformulated primary function test, the Commission concluded that Sea Robin's pipeline facilities comprise

two distinct components: a jurisdictional transportation system from the Vermilion 149 Station to Erath, and a nonjurisdictional gathering system upstream of the Vermilion 149

Station. See Remand Order, 87 F.E.R.C. at 62,426. FERC

found that the primary function of the Vermilion-Erath line

"is to transport to shore natural gas that has been delivered

from many areas through a network-like configuration of

relatively smaller diameter lines to a centralized point where

gas is aggregated and compressed," namely the Vermilion 149

Station. Id. at 62,432.

In support of its decision to draw the jurisdictional line at

the Vermilion 149 Compressor Station, the Commission emphasized certain key aspects of the system's overall physical

configuration. Specifically, FERC found that the "straightshot" geographical configuration of Sea Robin's system downstream of the Vermilion 149 Station, interconnecting with

only two laterals delivering gas from only four wells along its

66.3-mile length, and the line's large 36-inch diameter are

indicative of transportation. See id. at 62,430. In contrast,

the facilities upstream of the Vermilion 149 Station interconnect with 45 laterals connected to 67 production platforms,

and the lines are 30 inches or less in diameter. See id. at

62,431. Moreover, FERC found that the compression that

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occurs at Vermilion 149 "is typical of compression found on

large diameter transportation lines transporting high volumes

of gas over relatively long distances," rather than "field

compression" associated with production. Id. at 62,430. According to FERC, the Vermilion 149 Station thus represented

a central aggregation location highly suggestive of the demarcation point between gathering and transportation. See id. at

62,431. The Commission concluded that in the "most fundamental meaning of the 'primary function' test, the 'totality of

the circumstances' demonstrates that the primary function of

the Vermilion-Erath Line is to transport to shore natural gas

that has been delivered from many areas through a networklike configuration of relatively smaller diameter lines to a

centralized point where the gas is aggregated and compressed," and these smaller lines upstream of Vermilion 149

are engaged in non-jurisdictional gathering. Id. at 62,432.

On rehearing, the Commission adhered to its position. See

Rehearing Order, 92 F.E.R.C. at 61,284. FERC reiterated

that its reformulated primary function test included: (1)

consideration of an additional analytical element applicable

where OCS pipeline facilities exhibit a "centralized aggregation point"; (2) adjustment in the weight to be afforded the

behind-the-plant criterion on the OCS; and (3) a primary

focus on physical factors. Id. at 61,285. It addressed arguments from the petitioners that all of Sea Robin's system was

engaged in jurisdictional transportation, and arguments from

Sea Robin that its system was engaged entirely in nonjurisdictional gathering.4 Specifically the Rehearing Order

identifies 13 physical factors considered in concluding that the

facilities upstream of the Vermilion 149 Station are engaged

in non-jurisdictional gathering. See id. at 61,291. These

physical factors are:

(1) the 66.3 mile length of the Vermillion-Erath line;

(2) the 36-inch diameter of the Vermillion-Erath line;

__________

4 Sea Robin no longer challenges FERC's Remand Order and

supports the Commission's decision to draw the line between jurisdictional transportation and non-jurisdictional gathering at the Vermilion 149 Station.

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(3) the straight-line configuration of the Vermillion-Erath line;

(4) the inverted-Y configuration of the Sea Robin System;

(5) the existence of only four platforms along the length

of the Vermillion-Erath line as compared to the

connections to 71 production platforms upstream

of the Vermillion 149 Compressor Station;

(6) the abrupt change in physical attributes and configuration in the system occurring at the Vermillion

149 Compressor Station;

(7) the concentration of compression at the Vermillion

149 Compressor Station;

(8) the existence of a centralized aggregation location at

the Vermillion 149 Compressor Station;

(9) the 4.5 to 24 inch diameters of the lines upstream of

the Vermillion 149 Compressor Station;

(10) the existence of 45 laterals feeding into the two

upstream arms of the inverted-Y upstream of the

Vermillion 149 Compressor station;

(11) the presence of 71 production platforms connected

to the system upstream of the Vermillion 149

Compressor station;

(12) the network configuration of Sea Robin's facilities

upstream of the Vermillion 149 Compressor Station; and

(13) the onshore location of processing plants, which was

not considered a determinative factor due to the

geographic and technical characteristic of production and transportation offshore.

Id. Further, FERC rejected the argument that it had substituted the new "centralized aggregation point" criteria for its

prior impermissible reliance on a single-factor test. Rather,

it explained, "the centralized-aggregation-point is more appropriately viewed as a descriptive label for a set of a number

of individual physical characteristics." Id. "Just as the

historical behind-the-plant and central-point-in-the-field factors are based on the existence of a confluence of individual

elements, the new centralized-aggregation-point factor also is

an example of an additional physical factor that can arise as

the result of the combination of several individual physical

components...." Id. at 61,292. Relying on the Fifth Circuit's Sea Robin I decision, the Commission rejected the

suggestion that various production platforms, rather than the

Vermilion 149 Station, are centralized aggregation points.

See id.

Similarly, the Commission relied on the Fifth Circuit's

decision to reject the suggestion that the reformulated primary function test would create an unlawful "regulatory gap"

on the Outer Continental Shelf. See id. at 61,293 (citing Sea

Robin I, 127 F.3d at 371). Moreover, FERC claimed to have

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addressed such "regulatory gap" concerns in its separate

decision to promulgate regulations under the Outer Continental Shelf Lands Act ("OCSLA"), 43 U.S.C. s 1331 et seq., to

ensure that natural gas is transported in an open and nondiscriminatory manner. Rehearing Order, 92 F.E.R.C. at 61,293

(citing 65 Fed. Reg. 20,354 (Apr. 17, 2000)).

FERC also addressed arguments that it had given inadequate attention to the impact of the jurisdictional determination on the settled expectations of customers and on new

upstream deepwater systems. The Commission found that

the "remanding Court's directions on this point were clear.

The Court ruled that while the practical effect of the determination of gathering is relevant, the primary consideration in

formulating a jurisdictional test must be the physical characteristics that distinguish gathering from transmission." Id. at

61,293-94 (citing Sea Robin I, 127 F.3d at 371). Thus,

although FERC considered these non-physical factors, the

primary focus, as required by the Fifth Circuit, had to be the

physical factors, and those factors supported drawing the

jurisdictional line at the Vermilion 149 Station. See id. at

61,294.

Finally, FERC considered and rejected arguments that:

(1) a 1978 amendment to OCSLA purportedly equated the

scope of the "gathering" exemption in the Natural Gas Act

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with the concept of "feeder lines," see id.; (2) certificates

issued to Sea Robin for the reclassified non-jurisdictional

facilities must be subject to "abandonment" proceedings pursuant to section 7(b) of the Natural Gas Act, 15 U.S.C.

s 717f(b), see id. at 61,294-95; and (3) the fact that a

jurisdictional upstream pipeline (the Garden Banks pipeline)

delivers gas into the east leg of Sea Robin's system upstream

of the Vermilion 149 Station prevents the Commission from

reclassifying the Sea Robin system as non-jurisdictional. See

id. at 61,295. On this last issue, petitioners contended that

FERC had violated its prior ruling in Tarpon Transmission

Co., 60 F.E.R.C. p 61,041 (1992), which they read as precluding pipeline facilities that carry gas delivered by a jurisdictional transportation pipeline from being classified as gathering facilities. FERC noted that this issue was raised for the

first time on rehearing; however, the Commission went on to

hold that the petitioners' reliance on Tarpon was misplaced.

See Rehearing Order, 92 F.E.R.C. at 61,295. Although the

presence of upstream transportation facilities was one factor

considered in Tarpon, the real concern in that proceeding was

that finding Tarpon's facilities to be engaged in nonjurisdictional gathering would have left shippers and producers unprotected from the exercise of monopoly power. See

id. FERC concluded that such concerns were no longer

relevant for facilities exempt from the Natural Gas Act

because of the Commission's new OCSLA anti-discrimination

regulations. Id. at 61,295-96.

ExxonMobil and the Producer Coalition filed timely petitions for review challenging the Remand Order and the

Rehearing Order in this Court.

II. Analysis

The challenged orders are subject to reversal if the

FERC's action was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C.

s 706(2)(A). In making this determination, "[t]he court must

consider whether the decision was based on a consideration of

the relevant factors and whether there has been a clear error

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of judgment.... The court is not empowered to substitute

its judgment for that of the agency." Citizens to Preserve

Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971); see

Motor Vehicle Manufacturers Ass'n v. State Farm Mutual

Automobile Insurance Co., 463 U.S. 29, 43 (1983). To the

extent that the petitioners are challenging FERC's interpretation of section 1(b) of the Natural Gas Act, 15 U.S.C.

s 717(b), we apply the two-step approach of Chevron U.S.A.

Inc. v. Natural Resources Defense Council, 467 U.S. 837

(1984). When Congress has spoken, we are bound by that

pronouncement and that ends this Court's inquiry. Chevron,

467 U.S. at 842-43 (Chevron step one). Where "the statute is

silent or ambiguous with respect to the specific issue, the

question for the court is whether the agency's answer is

based on a permissible construction of the statute." Id. at

843 (footnote omitted) (Chevron step two).

In reviewing the Commission's determinations, we are

mindful that "[t]he line between jurisdictional transportation

and non-jurisdictional gathering is not always clear." Conoco, 90 F.3d at 542. The jurisdictional determination under

section 1(b) of the Act is "a line-drawing problem for which

there is no easy answer." Williams Field Servs., 194 F.3d at

118. Thus, "it is not this court's role to interpose its judgment." Id. Rather, we are mindful that in "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; see

also Lomak, 206 F.3d at 1196-97; Williams Field Servs., 194

F.3d at 118. "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." Lomak, 206 F.3d at 1197 (quoting Conoco, 206 F.3d

at 544); see 15 U.S.C. s 717r(b) ("The finding of the Commission as to the facts, if supported by substantial evidence, shall

be conclusive."). The burden is on the petitioners to show

that the Commission's choices are unreasonable and its chosen line of demarcation is not within a " 'zone of reasonableness' " as distinct from the question of whether the line drawn

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by the Commission is "precisely right." Hercules Inc. v.

EPA, 598 F.2d 91, 107 (D.C. Cir. 1978) (quoting Federal

Power Comm'n v. Conway Corp., 426 U.S. 271, 278 (1976)).

We cannot say that the Commission acted unreasonably

either in interpreting the Natural Gas Act or declining to

exercise jurisdiction over portions of Sea Robin's system.

Therefore petitioners have failed to carry their burden, and

the petitions must be denied.

A.

ExxonMobil challenges FERC's determination that the

Vermilion 149 Station is a reasonable point at which the

Commission may draw the line between non-jurisdictional

gathering and jurisdictional transportation. It contends that

the added compression at Vermilion 149 only serves to push

and pull gas along an "integrated" transportation system.

Petitioner proposes that the individual production platforms

mark the point at which gathering ends and transportation

begins. However, petitioner's differing interpretation of the

physical factors present on the Sea Robin system does not

provide us with a basis to upset the Commission's order.

Reasonable people may disagree as to where gathering ends

and transportation begins. Were we the Federal Energy

Regulatory Commission, we might draw the line at Erath.

Others might draw it at the production platforms themselves.

But see EP Operating Co., 876 F.2d at 49. But after considering the inherent ambiguity in the statute and the fact that

"[t]he line between jurisdictional transportation and nonjurisdictional gathering is not always clear," Conoco, 90 F.3d

at 542, (as it is not clear here) we simply cannot conclude that

the Commission's choice of the Vermilion 149 Station as the

dividing line was unreasonable, especially in light of the Fifth

Circuit's decision on remand. See Sea Robin I, 127 F.3d at

371. We therefore hold that the Commission's choice, if not

unassailable, is at least defensible, and survives the arbitraryand-capricious review of the Administrative Procedure Act.

FERC relied on the smaller dimensions of the upstream

lines in contrast to the 36-inch Vermilion-Erath line; the 45

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laterals feeding into the two upstream arms; the 67 production platforms connected to the upstream facilities compared

with only four downstream; the network configuration of the

upstream facilities; and the need for added compression at

the Vermilion 149 Station to move gas to shore. See Rehearing Order, 92 F.E.R.C. at 61,291-92. All of these physical

factors show a meaningful distinction between the facilities

upstream and downstream of Vermilion 149 and make it

reasonable to define it as the central aggregation point.

Obedient to the Fifth Circuit's suggestion, FERC examined

Sea Robin's system in parts, rather than as a whole, and

reasonably concluded that different parts of the system required different jurisdictional treatment. Moreover, as described by the Commission, the central aggregation test is not

a new, bright-line test, but rather is an amalgamation of

physical factors, and in any event, is wholly consistent with

past FERC precedent. It has long been the Commission's

view, upheld by this Court, among others, that when gas from

separate wells is collected by several lines which converge at

a single location in the producing field for delivery into a

single line for transportation, the separate lateral lines behind

the central point are classified as non-jurisdictional gathering

facilities. Accord Barnes Transp. Co., 18 F.P.C. 369, 372

(1957). That aptly describes the Sea Robin system. At

Vermilion 149 gas from several lateral lines is brought together and propelled to shore. The dissent is critical of FERC's

determination because in its view, "[s]urely a 'fork in the

road' cannot be the demarcation line between unregulated

production/gathering and regulated transportation." Dis. Op.

at 5. But why not? Cannot two roads diverging (or in this

case, converging) make all the difference? Indeed, has that

not always been the thrust of the Commission's "centralpoint-in-the-field" test? In this case, the forks of the "Y"

gathered gas from production platforms at 67 receipt points,

whereas the straight segment received gas at only four such

points; the forks were pipes of smaller diameter than that of

the straight segment; and the forks required less compression to move the gas along. Moreover, the line between

gathering and transportation is inherently elusive, see, e.g.,

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Conoco, 90 F.3d at 542, and FERC "has wide discretion to

determine where to draw administrative lines." AT&T Corp.

v. FCC, 220 F.3d 607, 627 (D.C. Cir. 2000). It is for the

Commission, in the first instance, to determine the patterns

of gathering and transportation in the offshore context. "We

are generally 'unwilling to review line-drawing performed by

the Commission unless a petitioner can demonstrate that

lines drawn ... are patently unreasonable, having no relationship to the underlying regulatory problem.' " Cassell v.

FCC, 154 F.3d 478, 485 (D.C. Cir. 1998) (quoting Home Box

Office, Inc. v. FCC, 567 F.2d 9, 60 (D.C. Cir. 1977)). We

conclude that petitioner has failed to carry its burden.

ExxonMobil makes much of the Supreme Court's language

in Northern Natural Gas Co. v. State Corp. Comm'n of

Kansas, 372 U.S. 84, 90 (1963), in which the Court held 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." Thus,

petitioner essentially contends that given the length and size

of the upstream portion of Sea Robin's system, it cannot

possibly be involved in gathering, as described by the Supreme Court. However, the Fifth Circuit expressly rejected

FERC's per se reliance on length of a pipeline, holding that a

51-mile pipeline was non-jurisdictional. EP Operating Co.,

876 F.2d at 49. This same decision weighs against FERC's

treating the production platforms as central aggregation

points as well. See id. Rather, the Fifth Circuit required

the Commission to recognize that "the pattern of gathering

and distribution on shore differs from the pattern of transportation and gathering of gas from the middle of the Gulf to the

mainland." Sea Robin I, 127 F.3d at 370; see also Amerada

Hess, 52 F.E.R.C. at 61,988 (adopting the "modified primary

function test" in response to EP Operating Co., and in

recognition of the "changing technical and geographic nature

of exploration and production"). Given these different physical realities, what might not seem "narrowly confined" in the

on-shore context, may well be on the Outer Continental Shelf.

Cf. West v. Gibson, 527 U.S. 212, 218 (1999) ("Words in

statutes can enlarge or contract their scope as other changes,

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in the law or in the world, require their application."); Oncale

v. Sundowner Offshore Servs., Inc., 523 U.S. 75, 79 (1998)

(statutory provisions often go beyond "the principal evil Congress was concerned with"). Given this backdrop, we cannot

conclude that FERC's determination is unreasonable here.

Moreover, we have previously recognized the limited reach

of the Supreme Court's holding in Northern Natural. In

each case in which the Supreme Court "has applied this

narrow definition of 'production' and 'gathering' to uphold the

Commission's jurisdiction, the regulated entity was engaged

in a jurisdictional activity." Conoco, 90 F.3d at 545. Thus,

"when a natural gas company provided bundled sales and

interstate transportation from its own wells to consumers and

distributors, the Commission could properly include the company's production and gathering costs in its rate base for the

bundled service." Id. We found that it was in the "context"

of bundled jurisdictional and non-jurisdictional activities that

"the Court defined 'gathering' narrowly, as limited to activities preceding sales for resale." Id. at 546 (citing Phillips

Petroleum, 347 U.S. at 678). But we now live in an unbundled world. See id. at 539-40 (observing that in Order No.

636, FERC "mandat[ed] the unbundling of gas sales and

interstate transportation ... in order to give pipeline customers unimpeded access to the competitive wellhead market and

to permit all gas sellers to compete on an equal basis"). Sea

Robin is no longer involved in the sales of gas from the OCSit is now strictly a transportation system. Remand Order, 87

F.E.R.C. at 62,428. Therefore the Supreme Court's restrictive definition of "gathering," while clearly relevant, must be

considered in context. In the context of unbundled, off-shore

pipeline systems, "the physical acts of drawing the gas from

the earth and preparing it for the first stages of distribution,"

Northern Natural Gas, 372 U.S. at 90, cannot be as narrowly

construed as on-shore. Accord Sea Robin I, 127 F.3d at 370;

EP Operating Co., 876 F.2d at 49; Amerada Hess, 52

F.E.R.C. at 61,988.

ExxonMobil faults the Commission for failing to give

weight to the previously "settled status" of the classification

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of Sea Robin's pipeline as engaged in jurisdictional transportation. However, as alluded to above, these petitions, like

those in Conoco, "arise in the wake of major regulatory

changes in the natural gas industry." Conoco, 90 F.3d at 539.

Whereas Sea Robin was once involved in sales and transportation, now it is strictly a transportation-only pipeline. When

interstate gas pipelines served the multi-function role of

purchasing, gathering, transporting, and re-selling natural

gas, i.e. bundled sales, the transportation/gathering jurisdictional question may have been of less consequence. See, e.g.,

El Paso Natural Gas Co., 72 F.E.R.C. p 61,219, at 62,002

(1995) ("Under [a] bundled sales regulatory environment, the

gathering/transmission function distinction was not as important as it is in a post-Order 636 environment [requiring

unbundling].... Consequently, many facilities that actually

perform a gathering function originally were construed under

[Natural Gas Act] section 7 certificates."); CNG Transmission Corp., 67 F.E.R.C. p 61,330, at 62,177 (1994). Thus, the

historical classification of Sea Robin's system is of limited

utility. Moreover, the Fifth Circuit expressly instructed

FERC in this case to relegate non-physical factors, such as

the "settled status" of a pipeline, and the expectations of

shippers to secondary status: "If the Commission is to remain tethered to the statute, as it must, that inquiry must be

based primarily on physical criteria and the realities of the

field." Sea Robin I, 127 F.3d at 371. The Fifth Circuit held

that "general business activity and prior certification are

relevant, but they are only part of the mix." Id. We agree.

Therefore, as FERC adequately considered non-physical factors, but properly relied primarily on physical factors, again,

we cannot find its decision to decline jurisdiction over a

portion of Sea Robin's system unreasonable.

Similarly, we find ExxonMobil's argument that FERC's

jurisdictional ruling has created an "utterly illogical situation," wherein gas is transported on a jurisdictional pipeline

(the Garden Banks pipeline) into a non-jurisdictional gathering leg of Sea Robin's pipeline, unavailing. Petitioners rely

on Tarpon Transmission Co., 60 F.E.R.C. p 61,041 (1992),

and Trunkline Gas Co., 70 F.E.R.C. p 61,163 (1995), for the

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proposition that the presence of an interconnection with an

upstream jurisdictional facility compels a finding that the

downstream facility is likewise jurisdictional. First, reliance

on these orders for such a proposition is inherently suspect as

in both instances the classification of the upstream system

was in dispute, and in both cases the upstream system was

reclassified as non-jurisdictional. If anything, this suggests

that it is the Garden Banks pipeline, rather than Sea Robin,

that has been erroneously classified. To hold that the Garden Banks pipeline's jurisdictional status compelled FERC to

classify Sea Robin's system as jurisdictional would create a

classic example of circular reasoning. When Garden Banks

requested a non-jurisdictional gathering classification, FERC

ruled that it was jurisdictional because it was located "proximate to jurisdictional lines." Shell Gas Pipeline Co., 74

F.E.R.C. p 61,277, at 61,897 (1996) (emphasis added). Thus,

proximity to Sea Robin, among other pipelines, resulted in

Garden Banks's jurisdictional classification. To now hold that

Garden Banks's interconnection with Sea Robin requires the

latter to also be jurisdictional, is for the tail to wag the dog.

Perhaps the present inconsistent treatment of the Garden

Banks pipeline and the Sea Robin pipeline is "positively

absurd," as suggested by the dissent, Dis. Op. at 7, but that

does not mean that the problem is necessarily with Sea

Robin's classification. FERC has been struggling with the

reclassification of facilities in the wake of the unbundling of

gas sales and interstate transportation in Order No. 636. See

Conoco, 90 F.3d at 539-41. As it is entirely appropriate for

FERC to proceed on a case-by-case basis, see SEC v. Chenery Corp., 332 U.S. 194, 202-03 (1947), then "the reform may

take one step at a time." Williamson v. Lee Optical of

Oklahoma, Inc., 348 U.S. 483, 489 (1955). We do not mean to

pre-judge how FERC might apply its reformulated primary

function test to Garden Banks. We only conclude that the

status of the Garden Banks pipeline does not render the

Commission's reclassification of portions of Sea Robin's system unreasonable.

We turn now to ExxonMobil's least persuasive argumentthat FERC's determination that portions of Sea Robin's

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system are engaged in non-jurisdictional gathering results in

a "regulatory gap." We find this argument no more persuasive than did the Fifth Circuit. We emphatically agree that

"[n]eed for regulation cannot alone create authority to regulate." Sea Robin I, 127 F.3d at 371. Rather it is statutory

authorization alone that gives FERC the authority to regulate, and in the absence of such authority, FERC's action " 'is

plainly contrary to law and cannot stand.' " Atlantic City

Elec. Co. v. FERC, No. 97-1097, --- F.3d ----, slip op. at 10

(D.C. Cir. July 12, 2002) (quoting Michigan v. EPA, 268 F.3d

1075, 1081 (D.C. Cir. 2001)). Here Congress clearly contemplates that the Commission will not have jurisdiction under

the Natural Gas Act over "the production or gathering of

natural gas." 15 U.S.C. s 717(b). The language could not be

any plainer. We have repeatedly admonished federal agencies that jurisdiction may not be presumed based solely on

the fact that there is not an express withholding of jurisdiction. E.g., Atlantic City Elec. Co., slip op. at 11; Michigan,

268 F.3d at 1082; American Petroleum Inst. v. EPA, 52 F.3d

1113, 1119-20 (D.C. Cir. 1995); Ethyl Corp. v. EPA, 51 F.3d

1053, 1060 (D.C. Cir. 1995). Where Congress has gone so far

as to expressly delineate the limits of agency jurisdiction, we

cannot fault the Commission for taking a conservative view of

its own authority.

Finally, we can quickly dispense with ExxonMobil's argument that Sea Robin's system was subject to abandonment

proceedings under section 7(b) of the Act, 15 U.S.C.

s 717f(b). Simply put, Sea Robin does not seek to abandon

any facilities or services. Rather, it merely seeks to be able

to continue operating previously certificated facilities as gathering facilities, exempt from FERC's jurisdiction under the

Natural Gas Act. This is not "abandonment" within the

meaning of section 7(b). Cf. Conoco, 90 F.3d at 553. In

addition, section 7(b) only applies to jurisdictional facilities,

and "do[es] not expand the Commission's s 1(b) jurisdiction."

Id. Therefore it cannot be used to bootstrap FERC jurisdiction here.

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B.

The Producer Coalition argues that the scope of the "gathering" exemption under section 1(b) of the Natural Gas Act is

defined by the concept of "feeder lines" in the Outer Continental Shelf Lands Act, 43 U.S.C. s 1331 et seq. Under

OCSLA, the Commission is responsible for ensuring open and

nondiscriminatory access to transportation of oil and gas for

all shippers on the Outer Continental Shelf. 43 U.S.C.

s 1334(f)(1)(A). FERC, however, may exempt from

OCSLA's requirements "any pipeline or class of pipelines

which feeds into a facility where oil and gas are first collected

or a facility where oil and gas are first separated, dehydrated,

or otherwise processed." 43 U.S.C. s 1334(f)(2). The Producer Coalition contends that the scope of exemption for

"feeder lines" is coterminous with "gathering" facilities under

the Natural Gas Act. Thus, in essence the Producer Coalition contends that FERC's reformulated primary function

test is unnecessary and that the Commission has stumbled

under Chevron step one.

In support of its position, the Producer Coalition relies on

bits and pieces of legislative history surrounding the 1978

Amendments to OCSLA. But snippets of legislative history

do not a law make. Accord Aldridge v. Williams, 44 U.S. (3

How.) 9, 24 (1845); In re Sealed Case, 237 F.3d 657, 669 (D.C.

Cir. 2001) ("The limits on the Commission's authority-like

that authority itself-are derived from statutory provisions,

not from loosely worded fragments extracted from congressional reports and speeches"). Petitioners offer no direct

evidence of congressional intent to fill in the Natural Gas Act

definition of "gathering" sub silentio by reference to the

feeder line concept. Indeed, there is no definition of "gathering" in the OCSLA, and it does not even use the term.

Rather the Producer Coalition relies on isolated excerpts

from the floor discussion by Congressman Sieberling. While

Congressman Sieberling may have spoken, Congress has not.

Morever, it would be anomalous to treat the "feeder line"

provision of OCSLA and the "gathering" exemption of the

Natural Gas Act as redundant. Under the Producer CoaliUSCA Case #00-1361 Document #693902 Filed: 08/06/2002 Page 24 of 35
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tion's interpretation, in enacting the OCSLA Amendments,

Congress would have replicated the non-discriminatory provisions already contained in the Natural Gas Act. Compare 43

U.S.C. s 1334(f)(a)(1)(A) (OCSLA), with 15 U.S.C. ss 717c(b),

717d(a) (Natural Gas Act). Likewise, there would have been

no need to authorize the Commission to exempt "feeder lines"

from FERC jurisdiction if they were already exempt as

gathering facilities. Rather, a more plausible inference is

that Congress amended OCSLA to make OCS facilities not

covered by the Natural Gas Act subject to similar nondiscriminatory requirements, with the exception of "feeder

lines." However, we do not decide whether it would be

reasonable for FERC to equate the feeder line and gathering

facilities exemptions. We simply hold that FERC's interpretation of section 1(b) of the Natural Gas Act is not unreasonable, and therefore Chevron deference is applicable.

III. Conclusion

FERC's jurisdiction over natural gas pipelines "demands

the drawing of jurisdictional lines, even when the end of

gathering is not easily located." Sea Robin I, 127 F.3d at

371. Although we might draw a different line, we cannot say

that the Commission acted unreasonably in concluding that

the Vermilion 149 Station is the place where nonjurisdictional gathering ends and jurisdictional transportation

begins. It is not our role to substitute our own judgment for

that of the agency. Given the instructions of the United

States Court of Appeals for the Fifth Circuit on remand, we

cannot say that FERC has failed to give appropriate consideration to the primary physical factors and the secondary

non-physical factors of its reformulated primary function test.

Therefore the petitions for review are denied.

So ordered.

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Edwards, Circuit Judge, dissenting. The issue in this case

focuses on the line between the "transportation" of natural

gas and the "gathering" of natural gas. For many years,

most of the Sea Robin Pipeline Company complex in the Gulf

of Mexico has been designated as a transportation facility,

and, thus, within the jurisdiction of the Federal Energy

Regulatory Commission ("FERC" or "Commission") under

the Natural Gas Act ("NGA"). Now, however, the Commission has partially reversed that settled status, reclassifying a

major segment of the Sea Robin pipeline as engaged in nonjurisdictional gathering. In my view, FERC's decision is

devoid of reasoned decision making. I therefore dissent from

the court's decision denying the petition for review.

* * * *

Sea Robin operates a massive pipeline complex (438 miles

overall), almost all of which is located offshore on top of the

Outer Continental Shelf ("OCS") in the Gulf of Mexico. This

system is shaped like an inverted "Y," whose two arms sweep

across the OCS to meet at a point approximately 50 miles off

the coast of Louisiana. The Vermillion 149 Compressor

Station sits at this point of convergence. There, much of the

gas flowing from various production platforms that feed into

the system comes together for shipment 66 miles north to Sea

Robin's onshore processing plants near Erath, Louisiana.

During the journey to Erath, the aggregated gas is joined by

additional gas from four platforms located closer to the shore.

Once the gas reaches shore, it is separated, dehydrated, and

processed, then transported to the Erath Compressor Station

from whence it is pumped into interstate pipelines for downstream delivery. (See Appendix.)

Before the challenged reclassification of the Sea Robin

system, once the gas was produced and gathered at the

production platforms south (upstream) of Vermillion, it was

deemed to be in "transportation," and thus within FERC's

jurisdiction. In 1995, Sea Robin sought to undo this regulatory situation. The company asked FERC for an order declarUSCA Case #00-1361 Document #693902 Filed: 08/06/2002 Page 26 of 35
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ing that its pipelines were gathering facilities exempt from

the Commission's jurisdiction under the s 1(b) of the NGA.

FERC refused, holding that the primary function of Sea

Robin's system was transportation. Sea Robin Pipeline Co.,

71 F.E.R.C. (CCH) p 61,351 (1995). Rehearing was sought,

but denied, Sea Robin Pipeline Co., 75 F.E.R.C. p 61,332

(1996), leading Sea Robin to petition for review in the Fifth

Circuit. The court granted the petition, remanding the case

to FERC for further consideration. Sea Robin Pipeline Co.

v. FERC, 127 F.3d 365 (5th Cir. 1997) ("Sea Robin I").

Sea Robin I held that the Commission's decision to deny

reclassification was arbitrary and capricious because the

agency did not fairly apply the "primary function" test that it

had adopted as the touchstone for its analysis. In Farmland

Industries, Inc., 23 F.E.R.C. p 61,063 (1983), and subsequent

decisions, FERC had identified six factors that were to guide

the functional inquiry into whether a pipeline is a gatherer or

a transporter:

(1) the diameter and length of the facility

(2) the location of compressors and processing plants

(3) the extension of facility beyond the central point in

the field

(4) the location of wells along the facility

(5) the geographical configuration of the field

(6) the operating pressure of the line

See EP Operating Co. v. FERC, 876 F.2d 46, 48 (5th Cir.

1989).

This test was developed for, and most readily applies to,

land-based pipeline facilities. In order to account for the

differences between onshore and offshore facilities, FERC

subsequently attempted to refine the above analysis. See

Amerada Hess Corp., 52 F.E.R.C. p 61,268 (1990). Because

technological advances had allowed drilling and gas production to take place further and further from land, gathering

pipelines of increasing length and diameter were being used

in places such as the OCS. This reality suggested to FERC

that it adopt a "sliding scale" approach to the physical factors

identified in Farmland: the deeper and further from shore a

pipeline, the longer and wider it could be and still be deemed

a gatherer. Moreover, in order to ensure that such pipes

were properly classified, the agency announced that it would

consider certain non-physical factors when applying the primary function analysis. These include the (1) purpose, location, and operation of the facility; (2) the general business

activity of the facility; and (3) the overall objectives of the

NGA and Natural Gas Policy Act. Id. at 61,988.

Sea Robin I held that the Commission erred in selectively

applying the Farmland factors, over-relying on the nonphysical factors described in Amerada Hess, and failing to

apply the "sliding scale." First, the court held that the

Commission impermissibly "reduced the primary function

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analysis to a litmus test that turned on the length and

diameter of the overall system." 127 F.3d at 370. That is,

FERC classified Sea Robin's system as one engaged in

transportation simply because of the size of its pipes alone,

deeming the other Farmland factors inapplicable. In so

doing, the Commission abandoned, "without reasoned consideration," its earlier recognition that the exigencies of moving

offshore gas long-distances to land may require larger pipelines that should not necessarily be classified as transporters.

Id.

Second, Sea Robin I criticized the agency for treating the

non-physical factors as the equals of the physical factors in

making the gathering/transportation distinction. The Fifth

Circuit reminded FERC that this distinction, as understood

by Congress, was primarily a tangible, operational one. As

such, while non-physical criteria may be considered, they

must remain a secondary "part of the mix," not the starting

point for the rest of the analysis. See id. at 370-71. Because

FERC seemed to have misunderstood these points, the court

remanded the case, suggesting that the Commission

may reformulate its primary function test. It may

choose to discontinue criteria not relevant to the physical,

geographical, and operational characteristics of pipelines

in the OCS. The record suggests other criteria, such as

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the quality of the gas in the pipelines and the depth of

the water in the offshore production area, that may be

relevant to the inquiry.

Id. at 371.

The court recognized that the agency might be able to

justify drawing the jurisdictional line between gathering and

transportation at a point internal to the Sea Robin system,

but this suggestion was offered merely in passing dicta.

Nothing in the Fifth Circuit's opinion in Sea Robin I in any

way compelled FERC to draw the jurisdictional line at a

point internal to Sea Robin's overall system. Nor did anything in the court's opinion compel the Commission to select

the Vermillion Compressor Station as the dividing point

between non-jurisdictional gathering and jurisdictional transportation. FERC, however, apparently threw up its hands in

dismay upon reviewing Sea Robin I - obviously having no

clue what to do to adhere to the court's mandate - and simply

opted for Vermillion as the jurisdictional dividing line because

it is "central" to the Sea Robin system.

This is the kind of case in which a judge welcomes the

opportunity to defer to the expert judgment of a regulatory

agency. However, I can find no evidence of FERC "expertise" in operation in this case. Indeed, I view FERC's

decision as totally lacking in reasoned decision making. Because of the Commission's inexplicable reliance on some

passing dicta in Sea Robin I, its failure to offer a coherent

explanation for the choice of Vermillion as the jurisdictional

dividing line, and its complete failure to explain why it

ignored other choices open to it, I can find no basis upon

which to defer to the agency's decision. I therefore dissent.

* * * *

My starting point is the Supreme Court's oft-quoted statement in Northern Natural Gas Co. v. State Corp. Comm'n of

Kansas, 372 U.S. 84, 90 (1963):

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'[P]roduction' 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.

In this case, Vermillion is a point where gas coming from

different production platforms comes together to be transported further north; but Vermillion is not a place where gas

is either produced or gathered. The production and gathering

is done at the many production platforms south of Vermillion - this always has been FERC's understanding, and there

are no changed circumstances in this case to justify a different conclusion.

Vermillion is merely a junction in the pipeline, where gas

from two preceding forks in the pipeline road come together

before the gas travels north in one pipe instead of two.

Nothing else of any consequence happens at Vermillion -

nothing. Surely a "fork in the road" cannot be the demarcation line between unregulated production/gathering and regulated transportation. Vermillion is not a place where Sea

Robin engages in any "physical acts of drawing the gas from

the earth and preparing it for the first stages of distribution";

it is not, therefore, a place of production and gathering as

those terms have been "narrowly" defined by the Supreme

Court.

* * * *

As I read the Commission's orders now under review, once

FERC identified what it thought was the central point in the

field, the Vermillion Station, it then largely ignored the

physical characteristics of the pipelines that lay upstream

(south) of that point. But, as petitioners rightly point out,

those characteristics (size, pressure, configuration) are entirely compatible with a transportation function. If FERC

meant to view the Sea Robin system in terms of its consistent

parts, rather than as an integrated whole (as it had done

prior to the Fifth Circuit's decision), the Commission should

have applied its new analysis to each part of the facility that

it sought to exempt from its regulatory jurisdiction. That, at

least, seems to be the central holding of Sea Robin I. See

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127 F.3d at 371 ("If the Commission is to remain tethered to

the statute, as it must, [the jurisdictional] inquiry must be

based primarily on physical criteria and the realities of the

field."). The court's suggestion that FERC might analyze the

various parts of the field was not an invitation to ignore the

relevant physical properties of the Sea Robin facility.

FERC's focus on the purported central point of the Sea

Robin field would have been plausible only if the agency had

carefully examined the specifications of the entire pipeline

system, both upstream and downstream of its designated

midpoint. Indeed, FERC apparently understood this. See

Sea Robin Pipeline Co., Order Denying Rehearing, 92

F.E.R.C. (CCH) p 61,072, at 61,291-92 (2000). FERC, however, failed to make good on this understanding. The Commission claims to rely on the size of the pipes, the number of

cross-connections, and the pressure of the gas in order to

distinguish the lines downstream of Vermillion from those

upstream. See id. However, none of these factors is relevant, because not one supports the demarcation of gathering

and transportation at Vermillion. On the upstream trunk legs,

just as on the Vermillion-Erath line, raw highly pressurized

gas is propelled over long distances through relatively wide

pipes toward land. In other words, the so-called "central

point" of the field is utterly irrelevant to a determination of

the point where non-jurisdictional production and gathering

become regulated transportation.

While the downstream, northern portion of the line may be

punctuated by relatively few lateral connections (four), there

are also only four laterals interrupting the final stage of the

left trunk leg that runs toward Vermillion. Yet, FERC never

examined whether the primary function of that upstream

segment might be transportation.

FERC mentions the existence of compression at Vermillion, as if to suggest that this is a relevant consideration for

purposes of comparison. It is not. The Sea Robin compressors both push and pull gas through the system, pressurizing

lines both upstream and downstream. Indeed, in an earlier

order, the Commission explicitly noted that pressure upstream of Vermillion "is similar to that of other offshore

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systems found to be transmission facilities." 71 F.E.R.C. at

62,402. FERC has never suggested that there is any greater

pressure in the downstream segment. In fact, the only

physical change that takes place at Vermillion is a marginal

increase in the diameter of the pipelines heading north, which

is hardly surprising in light of the fact that two upstream

pipelines converge into one at the Vermillion junction. And

while the pipes do get larger, the upstream trunk lines are

also quite wide; indeed, the Commission's previous decisions

recognize that those lines are just as compatible with transportation as the final Vermillion-Erath line. See id. at 62,398

("Sea Robin's system is of the diameter and length that are

more typical of an interstate transportation system rather

than an exempt gathering system.").

FERC has thus asked this court to validate a determination that "gathering" ends where two large lines become one

and grow proportionately wider as a result. This proposition

is perplexing on its own terms, and it is unlawful in light of

what we have been told by the Supreme Court in Northern

Natural Gas Co., namely, that production and gathering

entail only "the physical act[] of drawing the gas from the

earth and preparing it for the first stages of distribution."

372 U.S. at 90. The gas itself undergoes no alteration at

Vermillion, nor does any event occur beyond the aggregation

of gas that has already been partially aggregated, and will be

further aggregated once it is processed for interstate distribution. Given these facts, there is no basis that I can discern

for how the lines immediately upstream of Vermillion have as

their primary function the gathering of natural gas while

those immediately downstream do not.

The Commission's reclassification decision becomes positively absurd when it is considered in the light of the "Garden

Banks" transportation pipeline. The Garden Banks segment

of line is south (upstream) of Vermillion and it is concededly a

pipeline segment that is subject to FERC's regulatory jurisdiction. See Shell Gas Pipeline Co., 74 F.E.R.C. p 61,277

(1996). Yet, as a result of FERC's reclassification of the Sea

Robin system, a situation has been created in which a jurisdictional "transportation" line (Garden Banks) flows into a

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non-jurisdictional pipeline segment upstream of Vermillion.

Not surprisingly, FERC has previously disapproved of such

situations, for it is facially illogical to have gas being transported to where it is gathered only then to be transported

again. See Trunkline Gas Co., 70 F.E.R.C. p 61,163 (1995);

Tarpon Transmission Co., 60 F.E.R.C. p 61,041 (1992). The

Commission offers no reasonable justification for this unseemly situation, arguing meekly that this one factor should

not be considered because other factors support FERC's

judgment.

This all might make sense had FERC no other serious

options to consider in discharging its line-drawing responsibilities. Such was not the case, however, as the Commission

had before it, and ignored, another viable division point: the

offshore production platforms. In previous decisions, FERC

has found such platforms to be "the central point in an

offshore gas field where numerous wells are produced on the

platform and raw production from other wells is transported

to the platform through short flowlines." Amerada Hess

Corp., 47 F.E.R.C. (CCH) p 61,187, at 61,623 (1989), modified

on reh'g on other grounds 52 F.E.R.C. p 61,268 (1990).

In this case, the Commission never explained away these

precedents, nor tried to justify its implicit - and by no means

obvious - decision to treat the entire Sea Robin system as a

single production field, with one central point, rather than as

an aggregation of smaller fields, each with a central point,

which in turn feed into the trunk lines for downstream

transportation. This approach was presented by the gas

producers below; FERC's decision to ignore it was, in my

view, arbitrary and capricious. See Farmers Union Cent.

Exchange, Inc. v. FERC, 734 F.2d 1486, 1511 (D.C. Cir. 1984)

("It is well established that an agency has a duty to consider

reasonable alternatives to its chosen policy, and to give a

reasoned explanation for its rejection of such alternatives.").

Indeed, ignoring this reasonable alternative allowed the Commission to pay scant attention to the very thing that it was

supposed to rely on most heavily: the physical properties of

the facilities whose jurisdictional status it was endeavoring to

determine.

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In sum, under FERC's new legal regime, "gathering" ends

where the widest pipe on a pipeline system starts and where

the gas begins to flow on a direct angle to its processing

plant. This approach takes insufficient account of those

physical realities that might suggest a different demarcation

point between gathering and transportation, and, as applied

here, led the Commission to a result that is difficult to square

with the language of the statute, with the language of the

Supreme Court, and with the holding (as opposed to the

dicta) of the Fifth Circuit. Because the agency neither

explains the discrepancy between its jurisdictional line and

the one described by Congress, nor why it ignored plausible

alternatives to that line, FERC is owed no deference in this

case. I respectfully dissent.

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[Appendix not available electronically.]

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