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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 10, 2004 Decided July 13, 2004

No. 03-1179

WILLIAMS GAS PROCESSING – GULF COAST COMPANY, L.P., ET AL.,

PETITIONERS

v.

FEDERAL ENERGY REGULATORY COMMISSION,

RESPONDENT

SHELL OFFSHORE INC., ET AL.,

INTERVENORS

Consolidated with

03-1199, 03-1201

On Petitions for Review of Orders of the

Federal Energy Regulatory Commission

James T. McManus argued the cause for petitioners.

With him on the briefs were Craig R. Rich, Mari M. Ramsey,

David A. Glenn, and Gregory Grady.

 Bills of costs must be filed within 14 days after entry of judgment.

The court looks with disfavor upon motions to file bills of costs out

of time.
2

David H. Coffman, Attorney, Federal Energy Regulatory

Commission, argued the cause for respondent. With him on

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

Dennis Lane, Solicitor.

Thomas J. Eastment argued the cause for producer intervenors. With him on the brief were Charles J. McClees, Jr.,

James M. Costan, T. Alana Deere, Douglas W. Rasch, and

Stephen L. Teichler.

Before: GINSBURG, Chief Judge, and SENTELLE and ROBERTS,

Circuit Judges.

Opinion for the Court filed by Circuit Judge ROBERTS.

ROBERTS, Circuit Judge:

I.

The Natural Gas Act (NGA), 15 U.S.C. §§ 717–717w,

grants FERC jurisdiction over rates charged by any ‘‘naturalgas company for or in connection with the transportation or

sale of natural gas.’’ Id. § 717c(a). A ‘‘natural-gas company,’’ in turn, includes any firm ‘‘engaged in the transportation

of natural gas in interstate commerce.’’ Id. § 717a(6). The

‘‘gathering’’ of gas — ‘‘generally defined as 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,’’ Williams Gas Processing – Gulf Coast

Co., L.P. v. FERC, 331 F.3d 1011, 1013 (D.C. Cir. 2003)

(internal quotation marks omitted) — is explicitly excluded,

however, from FERC’s jurisdiction. See 15 U.S.C. § 717(b)

(‘‘this chapter TTT shall not apply to TTT the production or

gathering of natural gas’’). Notwithstanding that jurisdictional limitation, FERC historically exercised jurisdiction

over gathering services provided directly by interstate pipelines on the theory that such gathering services are provided

‘‘in connection with’’ the interstate transportation of gas.

See, e.g., Northern Natural Gas Co., 43 FERC ¶ 61,473
3

(1988), reh’g denied, 44 FERC ¶ 61,384 (1988) (citing 15

U.S.C. §§ 717c, 717d); see also Conoco Inc. v. FERC, 90 F.3d

536, 540 (D.C. Cir. 1996). FERC, however, has never claimed

jurisdiction over stand-alone gathering entities, i.e., gathering

facilities that are neither owned by nor affiliated with a

pipeline within FERC’s jurisdiction.

In response to this regulatory environment, several jurisdictional pipelines that provided gathering services sought

either to ‘‘spin off’’ their gathering facilities as unrelated

corporations or to ‘‘spin down’’ the gathering operations to

corporate affiliates by transferring ownership of the gathering facilities from the pipeline to a subsidiary. While a

gathering service spun off from a jurisdictional pipeline into a

separate corporation was clearly beyond FERC’s NGA jurisdiction, the jurisdictional status of gatherers spun down from

an interstate pipeline was less clear. FERC had claimed that

it retained ‘‘in connection with’’ jurisdiction over the rates

charged by spun-down gatherers. See Natural Gas Gathering Services Performed by Interstate Pipelines and Interstate Pipeline Affiliates — Issues Related to Rates and

Terms and Conditions of Service, 65 FERC ¶ 61,136, 61,689–

90 (1993) (citing Northwest Pipeline Corp., 59 FERC ¶ 61,115,

61,436–37 (1992)). But FERC never found occasion to exercise its authority over such an entity. In fact, when the

gathering affiliate in Northwest Pipeline challenged FERC’s

statutory authority for such jurisdiction in the court of appeals, ‘‘[t]he Commission represented TTT that its orders

neither assert[ed] jurisdiction nor impl[ied] that it ha[d] jurisdiction over [the gathering affiliate] at the present time.’’

Williams Gas Processing Co. v. FERC, 17 F.3d 1320, 1322

(10th Cir. 1994). The Tenth Circuit therefore dismissed the

petition for review for lack of a case or controversy. See id.

The Commission sought to resolve the jurisdictional status

of spun-down gathering entities in Arkla Gathering Services

Company, 67 FERC ¶ 61,257 (1994). FERC there reviewed

a jurisdictional pipeline’s proposal to spin down its gathering

facilities to an affiliate and various objections to that application. The Commission concluded that, as a general matter, it

lacked jurisdiction over ‘‘companies that perform only a gath-
4

ering function’’; ‘‘whether they are independent or affiliated

with an interstate pipeline,’’ such gathering entities ‘‘are not

natural gas companies’’ under the NGA. Id. at 61,871. The

Commission, though, found it hard to let go: FERC still

maintained that it could, ‘‘in particular circumstances,’’ reassert jurisdiction over a jurisdictional pipeline’s gathering affiliate ‘‘where such action is necessary to accomplish the Commission’s policies for the transportation of natural gas in

interstate commerce.’’ Id. The Commission warned that ‘‘if

an affiliated gatherer acts in concert with its pipeline affiliate

TTT and in a manner that frustrates the Commission’s effective regulation of the interstate pipeline,’’ the Commission

would set aside ‘‘the separate corporate structures and treat

the pipeline TTT as it would if the gathering facilities were

owned directly by an interstate pipeline.’’ Id.

The Commission went on to explain, however, that only

certain ‘‘types of affiliate abuses’’ — those ‘‘arising specifically

from the interrelationship between the pipeline and its affiliate’’ — would ‘‘trigger the Commission’s authority to disregard the corporate form’’ and permit it to assert jurisdiction

over a spun-down gathering affiliate. Id. Such abuses included ‘‘the affiliate’s giving preferences to market affiliate

gas or tying gathering service to the pipeline’s jurisdictional

transmission service; the pipeline’s giving transportation discounts only to those utilizing the affiliate’s gathering service;

and actions resulting in cross-subsidization between the affiliate’s gathering rates and the pipeline’s transmission rates.’’

Id. While the Commission acknowledged that ‘‘an affiliate

could undertake other types of anti-competitive activities,’’

the Commission viewed its residual jurisdiction as reaching

only scenarios ‘‘where the abuse is directly related to the

affiliate’s unique relationship with an interstate pipeline.’’ Id.

Only that brand of anti-competitive behavior breached ‘‘the

arm’s length relationship between the pipeline and an affiliated gathering company’’ and thereby authorized the Commission to treat a jurisdictional pipeline and its gathering affiliate

‘‘together as a single ‘natural gas company’ ’’ subject to

FERC jurisdiction. Id.
5

We affirmed FERC’s approval of the spin-down of the

Arkla gathering facilities. See Conoco, 90 F.3d at 544–50.

Specifically, we rejected the objections of various gas producers to the Commission’s determination that it generally

lacked NGA jurisdiction over gathering affiliates. Id. at 544–

49. We also approved — ‘‘[a]s an abstract matter’’ — the

Commission’s new policy concerning NGA gathering affiliates,

stating ‘‘we have no reason to doubt the Commission’s conclusion that a nonjurisdictional entity could act in a manner that

would change its status by enabling an affiliated interstate

pipeline to manipulate access and costs of gathering.’’ Id. at

549. We explicitly acknowledged, however, that the question

had not yet been squarely presented for resolution ‘‘because

the Commission has yet to assert its jurisdiction over a

gathering affiliate.’’ Id. That time has now come.

II.

Transcontinental Gas Pipe Line Corporation (Transco) is a

FERC-regulated natural gas transportation company that

operates approximately 10,500 miles of natural gas pipeline

extending from the Gulf of Mexico to New York. In November 2000, Transco sought permission from FERC to spin

down its gathering facilities in the Gulf of Mexico located

offshore of North Padre Island, Texas to its gathering affiliate Williams Gas Processing – Gulf Coast Company, L.P.

(WGP).1

 The North Padre Island (NPI) gathering facilities

consist of two small offshore legs — 3.83 miles of 10-inch

pipeline and 18.79 miles of 20-inch pipeline — both of which

gather and move gas before converging offshore and connecting to Transco’s separate 24-inch pipeline that provides ITfeeder service2

 to an onshore processing facility and eventually to Transco’s main pipeline in Texas.

1 Both Transco and WGP are wholly owned by The Williams

Companies, Inc., a publicly-traded corporation.

2 This IT-feeder service is an interruptible gas transportation

service that has higher priority than Transco’s other interruptible

service. See Exxon Mobil Corp. v. FERC, 315 F.3d 306, 308 (D.C.

Cir. 2003).
6

FERC approved the spin-down of the NPI gathering facilities to WGP over the objections of numerous producers and

shippers, including Shell Offshore Inc., an intervenor in this

proceeding. See Transcontinental Gas Pipe Line Corp., 96

FERC ¶ 61,115, 61,433, 61,442 (2001) (Spin-Down Order),

aff’d, Williams Gas Processing – Gulf Coast Co., 331 F.3d at

1020–23. Moreover, as WGP engaged only in gathering and

other nonjurisdictional activities, the Commission concluded

that once ownership of the NPI facilities was transferred

from Transco to WGP, those facilities would become exempt

from FERC’s NGA jurisdiction. Spin-Down Order, 96

FERC at 61,442. The Commission, however, noted on several occasions that, as the NPI gathering facilities were located

offshore, they would remain subject to FERC’s jurisdiction

under the Outer Continental Shelf Lands Act (OCSLA), 43

U.S.C. §§ 1331–1356, and OCSLA’s requirement that service

be provided on an open access and nondiscriminatory basis,

id. § 1334(f)(1)(A). Spin-Down Order, 96 FERC at 61,435–

37. Transco closed the spin-down of the NPI gathering

facilities to WGP on December 1, 2001, and those facilities are

now operated by Williams Field Services (WFS), a whollyowned subsidiary of WGP.

Intervenor Shell Offshore Inc. (Shell) produced gas offshore of North Padre Island, Texas and delivered its gas into

the NPI 20-inch gathering pipeline at an interconnection 3.08

miles from that pipe’s interconnection to Transco’s 24-inch

IT-feeder line. Prior to the spin-down of the NPI facilities,

Transco charged Shell $0.08 per dekatherm to gather and

transport Shell’s gas 230 miles from Shell’s NPI interconnection to Transco’s main line. After the spin-down, WFS

informed Shell that it intended to charge Shell $0.12 per

dekatherm to gather and move Shell’s gas just the 3.08 miles

from Shell’s NPI interconnection to Transco’s 24-inch ITfeeder line. For its part, Transco proposed to maintain its

transportation rate of $0.08 per dekatherm for the remaining

227 miles of IT-feeder service. Shell was thus being asked to

pay $0.20 per dekatherm to move its gas to Transco’s main

line, whereas before the spin-down it had paid $0.08 per

dekatherm for the same 230-mile haul.
7

Unable to reach an agreement with WFS on an appropriate

gathering charge, on November 30, 2001, Shell filed a complaint with the Commission against Transco, WGP, and WFS,

and shortly thereafter shut in its gas. See Shell Offshore Inc.

v. Transcontinental Gas Pipe Line Corp., Docket No. RP02-

99-000, Complaint Requesting Fast Track Processing and

Request for Interim Relief (Nov. 30, 2001). The complaint

alleged that Transco and WFS were unlawfully leveraging

their dominance in the North Padre Island gathering and

transportation markets in an effort to force Shell to pay

unjust and unreasonable gathering rates and to accept anticompetitive terms and conditions of gathering service, such as

promising to dedicate its North Padre gas reserves to WFS

gathering for the life of production. Id. at 3. The complaint

urged the Commission to find that Transco and WFS were

acting in concert and in an anti-competitive manner that

frustrated the Commission’s ability to regulate Transco’s

jurisdictional pipeline, and further requested that FERC

reassert jurisdiction over the NPI gathering facilities pursuant to its Arkla Gathering theory of residual jurisdiction. Id.

at 13-21.

Shortly thereafter, Superior Natural Gas (Superior), a marketer, and Walter Oil & Gas (Walter), a producer, filed their

own complaint against WGP and WFS, alleging violations of

OCLSA. See Superior Natural Gas Corp. v. Williams Gas

Processing – Gulf Coast Co., L.P., Docket No. RP02-144-000,

Complaint of Superior Natural Gas Corporation and Walter

Oil & Gas Corporation (Jan. 15, 2002). Specifically, Superior

and Walter alleged that WFS was ‘‘imposing anticompetitive

and discriminatory rates and terms and conditions for gathering service,’’ id. at 2, in violation of OCSLA’s requirement of

‘‘open and nondiscriminatory access.’’ 43 U.S.C. §

1334(f)(1)(A).

WFS attempted to reach a settlement with Shell, offering

to provide gathering service for $0.08 per dekatherm. Shell

countered with an offer of $0.019 per dekatherm, which WFS

rejected. With the parties at loggerheads, the dispute was

thrown to the Commission for resolution. The Commission

set both the Shell and the Superior/Walter complaints for
8

expedited hearing before an administrative law judge. See

Shell Offshore Inc. v. Transcontinental Gas Pipe Line Corp.,

98 FERC ¶ 61,253 (2002). In doing so, the Commission

reaffirmed its ability to reassert jurisdiction over spun-down

gathering affiliates whenever ‘‘an affiliated gatherer acts in

concert with its pipeline affiliate in connection with the transportation of gas in interstate commerce and in a manner that

frustrates the Commission’s effective regulation of the interstate pipeline.’’ Id. at 62,017 (quoting Arkla Gathering

Servs., 67 FERC at 61,871). The Commission directed the

ALJ to develop a record on that issue and also on whether

WFS violated OCSLA’s open access and nondiscrimination

provision. Id. at 62,017–18.

The hearing before the ALJ commenced in April 2002.

Within three days, WFS had reached a settlement with

Superior and Walter disposing of their OCSLA complaint.

See Shell Offshore Inc. v. Transcontinental Gas Pipe Line

Corp., 99 FERC ¶ 63,034, 65,231 (2002). Superior and Walter

accordingly withdrew their pre-filed testimony and did not

participate further in the hearing. Id. at 65,231–32. Shell,

though, carried on, and in June 2002 the ALJ ruled in Shell’s

favor, concluding that Transco and WFS ‘‘in fact have acted

in concert in offering gathering services and have abused

their monopoly market power in a manner that frustrates the

Commission’s effective regulation of Transco and the interstate transportation of natural gas from the North Padre

Island (NPI) system.’’ Id. at 65,230; see also id. at 65,239–

59. Consistent with the Commission’s instructions, the ALJ

left it for the Commission to decide whether or not to

reassert NGA jurisdiction over the NPI gathering facilities.

Id. at 65,260.

The Commission affirmed the ALJ’s factual findings, concluding that the ALJ’s analysis was ‘‘generally well-reasoned

and provide[d] a sound basis for reasserting NGA jurisdiction

over the TTT spundown NPI gathering facilities.’’ See Shell

Offshore Inc. v. Transcontinental Gas Pipe Line Corp., 100

FERC ¶ 61,254, 61,912 (2002) (Order). The Commission applied the two-part test set forth in Arkla Gathering, though it

did so in a manner that ‘‘diverge[d] slightly from the ALJ.’’
9

Id. at 61,913. As to the first part — whether Transco and

WFS had acted in concert — the Commission adopted the

ALJ’s finding that they had. Id. To address the second half

of the test — whether the concerted action frustrated the

Commission’s effective regulation of Transco — the Commission first made a predicate finding: Because Transco’s and

WFS’s actions were ‘‘conducted on a concerted basis, the

actions of WFS can be attributed to Transco, and vice versa,

as if the facilities were still part of the Transco system.’’ Id.

The Commission therefore reframed the second question,

asking ‘‘whether the rates and terms and conditions of service

exacted directly by WFS, and indirectly by Transco, for the

subject gathering services, are unjust and unreasonable or

unduly discriminatoryTTTT’’ Id. The answer was yes, and

the Commission thus concluded that ‘‘[b]y demanding a monopolistically egregious rate in conjunction with anticompetitive terms and conditions of service, TTT the single

entity, Transco/WFS, frustrated the Commission’s regulation

over the rates and services provided on Transco.’’ Id. at

61,914. Based on these findings, the Commission reasserted

NGA jurisdiction over the NPI gathering facilities and established $0.0169 per dekatherm as a just and reasonable unbundled gathering rate for Shell. Id. at 61,915.

Even though WFS had settled the Superior/Walter complaint and the ALJ neither accepted evidence nor reached

any conclusion as to whether WFS’s actions violated OCSLA,

the Commission nevertheless addressed Superior’s and Walter’s OCSLA claim. The Commission’s analysis was curt,

concluding that ‘‘[i]n light of our findings that Transco and

WFS, in concert, have abused their monopoly power,’’ Transco had violated the open access and nondiscrimination requirements of OCLSA. See id. at 61,914–15. The Commission thus ‘‘also assert[ed] OCSLA jurisdiction over the rates

and services provided by Transco/WFS.’’ Id. at 61,915.

On rehearing, Transco and WFS argued, inter alia, that

the Commission lacked any authority under the NGA to

assert jurisdiction over an affiliated gatherer, misapplied its

Arkla Gathering test, erred in finding a violation of OCSLA,

and erred in setting a cost-based rate as a remedy. See Shell
10

Offshore Inc. v. Transcontinental Gas Pipe Line Corp., 103

FERC ¶ 61,177, 61,661 (2003) (Order on Rehearing). Calling

the NPI spin-down ‘‘a sham’’ ‘‘designed to circumvent the

Commission’s regulation,’’ the Commission denied rehearing,

affirming its previous order in all respects. Id. at 61,662,

61,663–71.

WGP now seeks review in this court, raising substantially

the same arguments as in its petition for rehearing before the

Commission. We vacate the Commission’s Order and Order

on Rehearing and remand for further proceedings.

III.

We review orders of the Commission under the standards

of the Administrative Procedure Act, upsetting agency action

only when it is ‘‘arbitrary, capricious, an abuse of discretion,

or otherwise not in accordance with law.’’ 5 U.S.C.

§ 706(2)(A). Under this standard, while we will defer to an

agency’s reasonable application of its own precedents, see,

e.g., Vernal Enters., Inc. v. FCC, 355 F.3d 650, 658 (D.C. Cir.

2004), we will not countenance an agency’s departure from its

precedent without explanation, see, e.g., Ramaprakash v.

FAA, 346 F.3d 1121, 1124 (D.C. Cir. 2003). Under the NGA,

the Commission’s factual findings will be upheld so long as

they are supported by substantial evidence. See 15 U.S.C.

§ 717r(b).

In this case, the Commission posited two statutory bases

for reasserting jurisdiction over the NPI gathering facilities

and setting a cost-based gathering rate — the NGA and

OCSLA. We address each in turn.

A. NGA Jurisdiction

As discussed above, the NGA expressly disclaims jurisdiction over gas gathering. See 15 U.S.C. § 717(b). Where,

however, the gathering entity is a corporate affiliate of a

jurisdictional pipeline, the Commission, in its Arkla Gathering order, reserved the right to reassert jurisdiction over the

gathering affiliate ‘‘in particular circumstances’’ pursuant to

its ‘‘in connection with’’ jurisdiction under Sections 4 and 5 of
11

the Act, id. §§ 717c, 717d. 67 FERC at 61,871. In fleshing

out the ‘‘particular circumstances’’ that might give rise to a

reclamation of jurisdiction, the Arkla Gathering decision established a two-part test: (1) concerted action between the

jurisdictional pipeline and its gathering affiliate, (2) undertaken in a manner that frustrates the Commission’s ability to

regulate the jurisdictional pipeline. Id.

But the Arkla Gathering decision did not end there. The

Commission went on to elaborate that its ability to reassert

jurisdiction was ‘‘limited to’’ abuses ‘‘directly related to the

affiliate’s unique relationship with an interstate pipeline,’’

such as ‘‘tying gathering service to the pipeline’s jurisdictional transmission service’’ or ‘‘cross-subsidization between the

affiliate’s gathering rates and the pipeline’s transmission

rates.’’ Id. Only those types of activities — where the

affiliate is leveraging its relationship with the pipeline to

enhance its market power — would ‘‘trigger the Commission’s

authority to disregard the corporate form’’ and treat the

pipeline and its affiliate as a single entity. Id.

The allegedly anti-competitive actions undertaken by WFS

against Shell fall outside this category. Shell lays two main

charges: that WFS (1) charged an exorbitant gathering rate;

and (2) attached anti-competitive conditions to its gathering

service, including that Shell commit all its remaining reserves

to be gathered by WFS. WFS could do these things for one

reason only — because it was a recently deregulated monopolist in the North Padre gathering market. The fact that

WFS is an affiliate of Transco is utterly irrelevant to its

ability to charge high rates, or to impose onerous conditions

for gathering service. This irrelevance is demonstrated by

the fact that WFS, as a deregulated monopolist, could have

(and likely would have) undertaken the same course of conduct had Transco been owned by someone else entirely. The

fact that WFS had an affiliate relationship with Transco

neither enhanced nor detracted from its ability to charge high

rates or impose onerous conditions.

In this respect, WFS’s conduct is quite different from the

tying or cross-subsidization examples in Arkla Gathering. A
12

tying arrangement — conditioning the sale of a good or

service on the purchase of another different (or tied) good or

service, see Eastman Kodak Co. v. Image Technical Servs.,

504 U.S. 451, 461 (1992) — creates a relationship between the

tied products. If the tie is the result of the affiliation

between two firms, with each firm producing one of the

underlying goods, then it is that relationship that gives rise to

the market-distorting competitive advantage of the tied product. So too in a cross-subsidization scenario. Crosssubsidization occurs when a carrier attributes costs from its

unregulated services to its regulated services, resulting in an

inflated cost-based rate for the regulated service. Customers

of the regulated monopoly thus bear part of the costs of —

i.e., they subsidize — the unregulated service. See Computer

& Communications Indus. Ass’n v. FCC, 693 F.2d 198, 205

n.25 (D.C. Cir. 1982). The competitive advantage for the

subsidized unregulated service depends on its relationship

with the regulated service.

WFS, though — unlike a participant in a tying or crosssubsidization scheme — is able to engage in its allegedly anticompetitive conduct even in the absence of its affiliate relationship with Transco. Thus because WFS’s actions do not

‘‘aris[e] specifically from the interrelationship between [Transco] and [WFS],’’ they are not among the types of ‘‘affiliate

abuses which would trigger the Commission’s authority to

disregard the corporate form’’ and to reassert jurisdiction.

Arkla Gathering Servs., 67 FERC at 61,871.

Moreover, the Commission misapplied its two-part Arkla

Gathering test. The point of the Arkla Gathering test is to

identify the limited scenarios when the Commission ‘‘may look

through, or disregard, the separate corporate structures and

treat the pipeline and gatherer as a single entity.’’ Id. Only

when the Commission finds both concerted action between a

jurisdictional pipeline and its gathering affiliate and that the

concerted action frustrates the Commission’s effective regulation of the pipeline, may it then pierce the corporate veil and

treat the legally distinct entities as one. Id.
13

Here, however, the Commission found the requisite frustration of regulation by piercing WFS’s corporate veil one step

earlier in the Arkla Gathering analysis. After finding concerted action between WFS and Transco, but before addressing the second part of the Arkla Gathering test, the Commission jumped to the conclusion, reasoning that ‘‘[b]ecause their

actions have been found to have been conducted on a concerted basis, the actions of WFS can be attributed to Transco,

and vice versa, as if the facilities were still part of the

Transco system.’’ Order, 100 FERC at 61,913. By conflating

WFS and Transco into a single unit — in FERC’s words ‘‘the

Transco/WFS monopoly,’’ id. at 61,914 — the Commission

could thus attribute the gatherer’s alleged malfeasance to the

pipeline, and apply the pipeline’s regulatory requirements to

the gatherer. This absolved the Commission of the burden of

showing that the concerted action frustrated the Commission’s ability to regulate the pipeline. If WFS is Transco,

and Transco is subject to just and reasonable rate regulation,

then WFS’s (Transco’s) price hikes frustrate FERC’s ability

to maintain just and reasonable rates on Transco (which

includes WFS).

This line of reasoning founders as it adopts as its first

premise (WFS is Transco) the Arkla Gathering test’s ultimate conclusion — that the corporate form may be set aside.

This is a plainly unreasonable application of the Commission’s

Arkla decision. Therefore we must set aside the Commission’s orders reasserting NGA jurisdiction over the NPI

gathering facilities as arbitrary and capricious. Because our

conclusion is based on deficiencies in the Commission’s orders, we need not today confront WGP’s broader statutory

argument that NGA does not ever permit the Commission to

assert jurisdiction over gas gatherers, including those affiliated with jurisdictional pipelines. We express no opinion on

that question, leaving it for another day.

B. OCSLA Jurisdiction

The Commission also concluded that it had jurisdiction

under OCSLA to regulate the NPI gathering facilities and

that WFS’s violations of that statute’s open access and non-
14

discrimination requirements, see 43 U.S.C. § 1334(f)(1)(A),

provided an alternative justification for the remedies set out

in the Order. See Order, 100 FERC at 61,914–15; see also

Order on Rehearing, 103 FERC at 61,668–69. Ordinarily, we

do not entertain direct appeals from the orders of the Commission undertaken pursuant to OCSLA authority; OCSLA

gives the district courts first crack at judicial review. 43

U.S.C. § 1349(b)(1). Where, however, ‘‘an agency order arising from a common factual background and addressing a

common question of law relies on two statutory bases that

give rise to separate paths for judicial review,’’ we have held

that, notwithstanding OCSLA’s grant of jurisdiction to the

district courts, ‘‘the entire order should be reviewed in a

comprehensive and coherent fashion, and that review should

take place in the court of appeals.’’ Shell Oil Co. v. FERC, 47

F.3d 1186, 1195 (D.C. Cir. 1995); see also id. at 1195 n.19. So

here.

WFS, relying on our recent decision in The Williams

Companies v. FERC, 345 F.3d 910 (D.C. Cir. 2003), contends

that FERC’s orders exceed its authority under OCSLA. We

agree.

In The Williams Companies, we held that FERC regulations requiring OCS operators to file certain information

concerning their pricing and service structures exceeded the

authority granted to the Commission under Section 5(f) of

OCSLA, 43 U.S.C. § 1334(f). 345 F.3d at 914–16. We

examined the language of the statute and observed that the

text does not ‘‘provide FERC with a general power to enforce

OCSLA’s open access provisions,’’ but rather ‘‘merely assign[s] it a few well-defined tasks.’’ Id. at 914, 916. Subsection 5(f)(1)(A) mandates only that ‘‘every permit, license, TTT

or other grant of authority for the transportation by pipeline

on or across the outer Continental Shelf of oil or gas shall

require’’ the firms in question to provide ‘‘open and nondiscriminatory access.’’ 43 U.S.C. § 1334(f)(1), (f)(1)(A) (emphases added). The Commission, in its capacity as a licensor

under the NGA, thus is required to impose the OCSLAmandated conditions in its licenses for OCS operations and

has authority to enforce those conditions. See The Williams
15

Cos., 345 F.3d at 914. Finding no statutory basis, however,

for ‘‘general powers to create and enforce open access rules

on the OCS,’’ we affirmed the district court’s vacatur of the

rules. Id. at 916.

The Williams Companies would seem to doom both the

Commission’s assertion of broad authority to enforce open

access and nondiscrimination principles on the OCS and its

OCSLA-based reclamation of jurisdiction over the rates

charged by WFS. See Order, 100 FERC at 61,914–15; Order

on Rehearing, 103 FERC at 61,668–69. The Commission,

though, raises two arguments in an effort to distinguish that

decision. Both are unconvincing.

First, FERC argues that our decision in The Williams

Companies was limited to rulemakings and does not extend

to ‘‘adjudicatory matters between parties.’’ FERC Br. 55.

While it is true that The Williams Companies resolved a

challenge to FERC regulations, its rationale was not limited

to that context. Indeed, we concluded that the text of Section

5(f)(1) of OCSLA unambiguously constrained FERC’s authority to its role as ‘‘licensor’’ and did not grant the Commission ‘‘a general power to enforce OCSLA’s open access provisions.’’ 345 F.3d at 914. Nothing in our opinion supports the

Commission’s proposed distinction between rulemakings and

adjudications. Whether the Commission acts in a rulemaking

or adjudicatory capacity, its authority under OCSLA is limited by the plain language of the statute to that of a licensor.

The Commission alternatively argues that it was enforcing

the open access and nondiscrimination conditions in an

OCSLA license — Transco’s tariff. WFS, the Commission

contends, became subject to Transco’s conditions when it

acted in concert with Transco to frustrate the Commission’s

regulation of the pipeline. See FERC Br. 56–57. Even if

Transco’s NGA tariff sufficed as a ‘‘permit, license, TTT or

other grant of authority’’ under Section 5(f)(1) of OCSLA, and

even if we had not already rejected the Commission’s application of its Arkla Gathering test to extend NGA jurisdiction to

WFS, we could not sustain the Commission’s assertion of

OCSLA jurisdiction on this basis, for it is nowhere present in
16

either the Order or the Order on Rehearing. It is axiomatic

that we may uphold agency orders based only on reasoning

that is fairly stated by the agency in the order under review,

see SEC v. Chenery Corp., 318 U.S. 80, 88 (1943); ‘‘post hoc

rationalizations by agency counsel will not suffice,’’ Western

Union Corp. v. FCC, 856 F.2d 315, 318 (D.C. Cir. 1988).

* * *

The petition for review is granted. The Order and the

Order on Rehearing are vacated and the case is remanded to

the Commission for proceedings not inconsistent with this

opinion.