Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-99-01113/USCOURTS-caDC-99-01113-0/pdf.json

Parties Involved:
Columbia Gas Transmission Corporation
Intervenor
Federal Energy Regulatory Commission
Respondent
Lomak Petroleum, Inc.
Petitioner
Norse Pipeline, LLC
Intervenor

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 29, 2000 Decided March 28, 2000

No. 99-1113

Lomak Petroleum, Inc.,

Petitioner

v.

Federal Energy Regulatory Commission,

Respondent

Norse Pipeline, LLC and

Columbia Gas Transmission Corporation,

Intervenors

On Petition for Review of Orders of the

Federal Energy Regulatory Commission

Joseph D. Lonardo argued the cause for petitioner. With

him on the briefs was John W. Wilmer, Jr.

Judith A. Albert, Attorney, Federal Energy Regulatory

Commission, argued the cause for respondent. With her on

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the brief were John H. Conway, Acting Solicitor, and Susan

J. Court, Acting Deputy Solicitor. Jay L. Witkin, Solicitor at

the time the brief was filed, entered an appearance.

Frederic J. George, Robin Nuschler, Randall S. Rich and

S. Dennis Holbrook were on the brief of intervenors Columbia Gas Transmission Corporation and Norse Pipeline, LLC.

Betsy R. Carr entered an appearance.

Before: Edwards, Chief Judge, Tatel, and Garland,

Circuit Judges.

Opinion for the Court filed by Circuit Judge Garland.

Garland, Circuit Judge: In May 1998, Columbia Gas

Transmission Corporation requested authorization from the

Federal Energy Regulatory Commission (FERC) to abandon,

by sale to Norse Pipeline, LLC, Columbia's "Project Penny"

facilities.1 At the same time, Norse asked FERC to disclaim

jurisdiction over the Project Penny facilities once Columbia

conveyed them, on the ground that they would then constitute

facilities used for the "gathering" of natural gas. Such

facilities are exempt from FERC jurisdiction under section

1(b) of the Natural Gas Act (NGA), 15 U.S.C. s 717(b). On

November 4, 1998, FERC acceded to both requests. See

Columbia Gas Transmission Corp., 85 F.E.R.C. p 61,191

(1998).

FERC's order pleased Columbia and Norse, but displeased

petitioner Lomak Petroleum, Inc., a gas producer that transports gas on the Project Penny system. Lomak sought

rehearing, reasserting challenges both to the abandonment

and to the disclaimer of jurisdiction. After FERC denied

rehearing, see Columbia Gas Transmission Corp., 86

F.E.R.C. p 61,137 (1999), Lomak petitioned this court to

review the decision to disclaim jurisdiction. Lomak contends

that FERC's determination that the Project Penny facilities

primarily perform a gathering function was arbitrary and

__________

1 Section 7(b) of the Natural Gas Act, 15 U.S.C. s 717f(b),

prohibits a natural gas company from abandoning any portion of its

jurisdictional facilities without FERC approval.

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capricious, inconsistent with a preexisting settlement agreement, and made without affording Lomak due process.

I

The Project Penny facilities are located in western New

York and northwestern Pennsylvania. They are composed of

approximately 336 miles of 2- to 12-inch diameter pipeline,

seven compressor stations, and other related facilities, all of

which were the subject of certificates of public convenience

and necessity issued by FERC during the period of Columbia's ownership. See 85 F.E.R.C. at 61,765. Columbia, a

natural gas company engaged in the business of transporting

natural gas in interstate commerce, constructed the facilities

in the 1970s and 1980s to access Appalachian gas supplies for

its customers. Because the facilities were not on its system,

Columbia initially entered into third-party transportation and

exchange agreements with other companies to bring the New

York and Pennsylvania gas to market. Columbia intended to

connect the Project Penny facilities to its main line, but

before the connections were constructed the Commission

implemented its major open-access orders, Order No. 436 and

Order No. 636.2 See id. As a consequence, Columbia

became a transporter rather than a merchant of natural gas

and no longer needed to operate Project Penny to access

system supplies. See id.

__________

2 See Order No. 436, Regulation of Natural Gas Pipelines After

Partial Wellhead Decontrol, FERC Stats. & Regs. p 30,665 (1985);

Order No. 636, Pipeline Service Obligations and Revisions to Regulations Governing Self-Implementing Transportation Under Part

284 of the Commission's Regulations, and Regulation of Natural

Gas Pipelines After Partial Wellhead Decontrol, FERC Stats. &

Regs. p 30,939 (1992). Prior to these orders, pipelines like Columbia provided bundled sales services, wherein the costs of all facilities to move gas from the wellhead to the customer were reflected

in the pipeline's sales rates. Order 636 required the unbundling of

services including gathering. See Conoco Inc. v. FERC, 90 F.3d

536, 540-41 (D.C. Cir. 1996). See generally United Distribution

Cos. v. FERC, 88 F.3d 1105 (D.C. Cir. 1996).

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In 1998, Columbia sought authorization to sell the Project

Penny facilities to Norse. The latter is not a natural gas

company, owns no facilities that come within FERC's jurisdiction, and provides no jurisdictional services. See id. at

61,769. Norse operates exclusively in New York as the

owner of discrete gathering facilities. See id. FERC determined that after Norse acquired the Project Penny facilities,

it would continue to own exclusively gathering facilities, exempt from FERC jurisdiction under the NGA. See 86

F.E.R.C. at 61,486; 85 F.E.R.C. at 61,679.

II

Lomak's first contention is that FERC arbitrarily and

capriciously determined that after Norse's acquisition,

the primary function of the Project Penny facilities would

be the juurisdictionally-exempt gathering, rather than the

jurisdictionally-covered transmission, of natural gas.

The NGA grants FERC jurisdiction over (inter alia) the

transportation of natural gas in interstate commerce, but

exempts from FERC's jurisdiction the production and gathering of natural gas. See 15 U.S.C. s 717(b). The term

"gathering" is not defined in the NGA, but has been defined

by the Commission as "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 Northern

Natural Gas Co. v. State Corp. Comm'n, 372 U.S. 84, 90

(1963) (stating 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"). As we have previously remarked, "[t]he line

between jurisdictional transportation and nonjurisdictional

gathering is not always clear." Conoco Inc. v. FERC, 90 F.3d

536, 542 (D.C. Cir. 1996).

Since 1982, FERC has used the "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--

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interstate transportation." Id. at 543. That 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.

85 F.E.R.C. at 61,768 (citing Farmland Indus., Inc., 23

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

F.E.R.C. p 61,268 (1990)). 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 NGA and the Natural Gas Policy Act (NGPA); and

(4) the changing technical and geographic nature of

exploration and production activities.

Id. (citing Amerada Hess, 52 F.E.R.C. at 61,844-45). 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.

Lomak agrees that the primary function test is appropriate

for determining whether a facility engages in gathering, but

contends that FERC's application of the test to Project

Penny was arbitrary and capricious. As we have previously

held, "[i]n 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. Accordingly, we will uphold the Commission's application of the test as long as it gives "reasoned

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consideration to each of the pertinent factors" and articulates

factual conclusions that are supported by substantial evidence

in the record. Id.; 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."); Williams Field Servs., 194

F.3d at 115.

Lomak contends that while purporting to apply the primary

function test, FERC in fact employed a "pipeline-alwayswins" test. Lomak Br. at 14. We see no sign of such

duplicity here.3 In the challenged orders, FERC set forth

the primary function test's factors and, after analysis, concluded that four of the physical factors indicated that the

Project Penny facilities were primarily engaged in "gathering." It found that the mostly small diameters and short

lengths of the project's lines were consistent with the conclusion that Project Penny serves to gather gas from wells for

delivery to a jurisdictional transportation system. The Commission noted that there was no processing plant on the

system; that the lines formed a web-like geographic configuration, with the longer lines forming backbones that collect

gas from feeding lines along their lengths; and that the low

wellhead and pipeline pressures were consistent with gathering rather than transmission. In the past, FERC has relied

on these same factors to determine that a system primarily

performs a gathering function. See, e.g., NorAm Gas Transmission Co., 75 F.E.R.C. p 61,127, at 61,429-30 (1996) (citing

small diameters, low pipeline pressures and web-like configuration); Arkla Gathering Servs. Co., 67 F.E.R.C. p 61,257, at

61,868-69 (1994) (noting short length, small-diameter pipelines, web-like configuration, and that there were "no gather-

__________

3 Lomak's contention that pipelines have prevailed in a large

majority of the cases in which FERC has applied the primary

function test does not prove the company's thesis. Without evaluating the merits of each of those cases, we cannot determine whether

their dispositions were justified. Nor can we evaluate the merits of

those cases here, as none of the relevant evidence is before us. All

we have is the record of the Project Penny decision and, as

discussed below, it is a record that justifies the result reached by

the Commission with respect to that facility.

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ing facilities downstream of any processing plants"); Panhandle E. Pipe Line Co., 59 F.E.R.C. p 61,108, at 61,405-06

(1992) (citing small diameter lines and "network of small lines

appending an array of wells"); Dorchester Gas Producing

Co., 32 F.E.R.C. p 61,409, at 61,917 (1985) (noting geographic

configuration, location "behind the processing plant," and

small diameter lines).

In making its findings regarding Project Penny, FERC

further relied on one of the primary function test's nonphysical factors: "the general business activity of the owner

of the facility." FERC emphasized that, unlike Columbia,

Norse operates only gathering facilities, "is not a natural gas

company," provides no transmission services, and is not affiliated with a jurisdictional pipeline. See 86 F.E.R.C. at 61,486;

85 F.E.R.C. at 61,769. FERC further noted that the Project

Penny facilities do not deliver gas off the system to city or

farm taps. See 86 F.E.R.C. at 61,486-87. Rather, "[t]he

lines gather gas produced from local wells and transport it

directly to the interstate lines of Tennessee Gas Pipeline

Company," an unaffiliated entity. Id. at 61,487. These, too,

appear to be reasonable indices that Project Penny is primarily a gathering rather than transmission facility.

Lomak contends that FERC's resolution of this case is

inconsistent with its determinations in others, where it classified facilities as primarily performing a transmission function

despite the presence of some of the same factors relied upon

here. Lomak's effort to focus on the presence or absence of

specific factors in individual cases is not persuasive, however,

in the context of an explicitly multifactor test which necessarily involves a balancing of those factors that are present and

those that are not. Moreover, FERC has reasonably distinguished the cases Lomak cites for support. For example,

although Lomak contends that FERC has found that small

diameter pipelines can perform transmission functions,

FERC notes that in those cases, "other indicia of gathering,

such as wells and/or feeder lines along their length, were

absent." 85 F.E.R.C. at 61,768 n.20. Lomak specifically

observes that FERC classified Columbia's Miley facility,

which utilized 8-, 10-, and 12-inch pipe, as a transmission

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facility. But as FERC notes, unlike Project Penny, the Miley

facility was "located between jurisdictional compressor stations [and] used primarily to balance transmission loads,

maximize throughput, and provide storage services." Columbia Gas Transmission Corp., 86 F.E.R.C. p 61,223, at 61,799-

800 (1999); see FERC Br. at 24.4

"[T]he party challenging an agency's action as arbitrary

and capricious bears the burden of proof." San Luis Obispo

Mothers For Peace v. United States Nuclear Regulatory

Comm'n, 789 F.2d 26, 37 (D.C. Cir. 1986) (en banc). Lomak

has failed to establish convincing inconsistencies between

FERC's treatment of Project Penny and other facilities, and

has offered no affirmative evidence supporting its contention

that the Project Penny facilities are primarily engaged in

transmission. Accordingly, Lomak has not met its burden,

and we reject its first challenge to FERC's orders.

III

Lomak's second claim is that FERC's determination regarding Project Penny conflicts with a settlement agreement

approved by the agency in a separate proceeding. See Columbia Gas Transmission Corp., 79 F.E.R.C. p 61,044 (1997).

As Lomak was not itself a party to that agreement, its

interpretation of the agreement carries little weight. Moreover, "[b]ecause 'Congress explicitly delegated to FERC

broad powers over ratemaking, including the power to analyze relevant contracts,' and because the Commission has

__________

4 Lomak also complains that although FERC noted that Project

Penny lacks a processing plant, the Commission recently found that

a facility with a processing plant can still perform a gathering

function. See Kentucky-West Va. Gas Co., No. CP99-321-000, 1999

WL 549651 (FERC July 29, 1999). Depending upon its location,

the presence of a processing plant may be a factor indicating

transmission. See Williams Field Servs., 194 F.3d at 116. Nevertheless, the fact that the presence of a processing plant may not

disqualify a facility from being classified as gathering (where other

factors typical of gathering exist) does not mean that the absence of

a processing plant signals transmission or that the Commission is

acting inconsistently.

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greater technical expertise in this field than does the Court,

we accord deference to the Commission's interpretation of

... Settlement Agreement[s]." Amerada Hess Pipeline

Corp. v. FERC, 117 F.3d 596, 604 (D.C. Cir. 1997) (quoting

Tarpon Transmission Co. v. FERC, 860 F.2d 439, 441-42

(D.C. Cir. 1988)) (other citations omitted); see Northern

Mun. Distribs. Group v. FERC, 165 F.3d 935, 943 (D.C. Cir.

1999). "To be sure, we need not accept 'an agency interpretation that black means white. However, if the choice lies

between dark grey and light grey, the conclusion of the

agency, unmistakably possessed as it is of special expertise, in

favor of one or the other will have great weight.' " Western

Resources, Inc. v. FERC, 9 F.3d 1568, 1576 (D.C. Cir. 1993)

(quoting National Fuel Gas Supply Corp. v. FERC, 811 F.2d

1563, 1572 (D.C. Cir. 1987)).

The relevant portions of the settlement at issue here read

as follows:

ARTICLE I

DISTANCE-SENSITIVE RATE ISSUE

The distance-sensitive rate issue ... shall be settled

for the periods described below and upon the following

terms and conditions:

A. Postage Stamp Rate Design.

....

(2) In addition, prior to April 1, 2002, neither Columbia, nor any party or other person shall raise or advocate any issue related to functionalization, classification, allocation or direct assignment of any Columbia

facilities ... so as to directly charge the costs of such

facilities or associated costs to any individual customers

served under a generally applicable rate schedule, either

(a) because of physical or operational differences ... on

different parts of Columbia's system ... or (b) for any

other reason. Nothing in this Stipulation shall prevent

Columbia or any party from: (a) proposing or challengUSCA Case #99-1113 Document #506252 Filed: 03/28/2000 Page 9 of 12
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ing the proposed rate and accounting treatment of a sale

and/or transfer of facilities by Columbia....

Settlement, Article I (emphasis added). Lomak contends

that the sentence italicized above, which states in part that no

party may raise "any issue related to functionalization," prohibits FERC from "refunctionalizing" the Project Penny facilities from transmission to gathering. FERC disagrees, stating that "[i]nstead of prohibiting refunctionalization, the

above-referenced subparagraph precludes parties and others

from departing from Columbia's rate design during the

locked-in period of the settlement." 86 F.E.R.C. at 61,486.

We find FERC's reading of the sentence, as applying to

rates rather than jurisdiction, to be reasonable. As the

Commission noted, the sentence does not bar a party from

raising "any issue related to the refunctionalization of any

Columbia facilities" per se, but only from raising such an

issue "so as to directly charge the costs of such facilities ...

to any individual customers served under a generally applicable rate schedule." See id. Indeed, the sentence is contained

in an article entitled "Distance-Sensitive Rate Issue"; the

introductory sentence of the article states that "the distancesensitive rate issue ... shall be settled ... upon the following

terms and conditions"; and the specific subheading in which

the sentence is found is entitled "Postage Stamp Rate Design." Moreover, the sentence following that cited by Lomak

states that "[n]othing in this Stipulation shall prevent Columbia or any party from: (a) proposing ... rate and accounting

treatment of a sale and/or transfer of facilities by Columbia,"

thus plainly contemplating that a sale like that at issue here

might occur.

To protect Columbia's existing customers, the settlement

does provide that "purchasers of Columbia's abandoned gathering facilities will continue to provide gathering service for

two years on a non-discriminatory open-access basis at rates

not to exceed the applicable maximum rates shown on Appendix F of the settlement." 86 F.E.R.C. at 61,486. But Norse

agreed to assume that obligation, and FERC concluded that

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"Norse's agreement to hold rates steady in accordance with

the settlement agreement is sufficient to address Lomak's

concerns about a potential rapid increase in gathering rates."

Id. Because FERC reasonably interpreted the settlement as

posing no impediment to the jurisdictional reclassification of

the Project Penny facilities, we reject Lomak's second attack

on FERC's orders.

IV

Lomak's final contention is that FERC deprived it of due

process by failing to hold a technical conference before concluding that the Project Penny facilities primarily involved

gathering. This court "has repeatedly held that the Commission 'is required to hold hearings only when the disputed

issues may not be resolved through an examination of written

submissions.' " Conoco, 90 F.3d at 543 n.15 (quoting Environmental Action v. FERC, 996 F.2d 401, 413 (D.C. Cir.

1993)). In its initial order, FERC denied Lomak's request

for a technical conference, finding "the record to be complete

and no issues of material fact which cannot be resolved on the

record." 85 F.E.R.C. at 61,767 n.11. In its order denying

rehearing, the Commission again concluded that a technical

conference was unnecessary because "[t]here are no material

issues of fact in dispute which cannot be resolved on the basis

of the existing record." 86 F.E.R.C. at 61,485.

Lomak's briefs make only two, vague references to the kind

of information it wished to present at a technical conference.

First, Lomak states that such a conference would have given

it the opportunity "to demonstrate the devastating effect"

Norse's rates would have on Lomak after the two-year transition period ended. Lomak Br. at 8. Yet, while such evidence

might arguably be relevant to the question of whether Columbia should have been permitted to abandon the Project Penny

facilities, Lomak has not challenged abandonment on this

appeal. Rather, its challenge is to FERC's decision to "relinquish" jurisdiction on the ground that the facilities primarily

involve gathering. See Lomak Br. at 2 (statement of issues

presented). Economic impact, however, is not one of the

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factors in the primary function test for FERC jurisdiction.

More important, even if economic impact were relevant,

Lomak offers no reason why evidence of such impact could

not have been submitted in written form.

Second, Lomak contends in a footnote that: "One of the

reasons a Technical Conference was requested was the fact

that production associated with the Project Penny system is

classified as Appalachian Basin production and, as such, has

unique characteristics unlike those found in any other gasproducing region of the country." Lomak Br. at 21 n.34.

But at oral argument, Lomak conceded that FERC is familiar

with the unique attributes of the Appalachian region,5 and

offered no specifics as to which it wished to enlighten the

agency. Nor did Lomak give any reason why it could not

have adequately depicted those unique attributes in a written

submission. We therefore find no error in FERC's decision

to dispense with a technical conference. See Woolen Mill

Assocs. v. FERC, 917 F.2d 589, 592 (D.C. Cir. 1990) ("[M]ere

allegations of disputed fact are insufficient to mandate a

hearing; a petitioner must make an adequate proffer of

evidence to support them.").

V

For the foregoing reasons, we reject Lomak's challenges to

FERC's orders and deny the company's petition for review.

__________

5 See, e.g., National Fuel Gas Supply Corp., 71 F.E.R.C.

p 61,031, at 61,138 (1995) (noting "the unique circumstances in the

Appalachian region").

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