Opinion ID: 186272
Heading Depth: 2
Heading Rank: 1

Heading: NGA Jurisdiction

Text: 19 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 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. 20 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. 21 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. 22 In this respect, WFS's conduct is quite different from the tying or cross-subsidization examples in Arkla Gathering. A 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, 112 S.Ct. 2072, 119 L.Ed.2d 265 (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. Cross subsidization 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. 23 WFS, though — unlike a participant in a tying or cross-subsidization 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. 24 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. 25 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). 26 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.