Opinion ID: 405902
Heading Depth: 2
Heading Rank: 2

Heading: The ERA's Authority under the Natural Gas Act

Text: 50 Before turning to a discussion of our concerns over the evidentiary basis for the ERA's decision to approve imports under the Amendment Agreement, it is helpful to examine the statutory basis for ERA activity. 51 The authority and relevant standards guiding the ERA's regulation of natural gas imports, originally the responsibility of the FPC, 26 are rooted in the plain language of section 3 of the Natural Gas Act (NGA) of 1938. Section 3 provides, 52 After six months from June 21, 1938 no person shall export any natural gas from the United States to a foreign country or import any natural gas from a foreign country without first having secured an order of the Commission authorizing it to do so. The Commission shall issue such order upon application, unless, after opportunity for hearing, it finds that the proposed exportation or importation will not be consistent with the public interest. The Commission may by its order grant such application, in whole or in part, with such modification and upon such terms and conditions as the Commission may find necessary or appropriate, and may from time to time, after opportunity for hearing, and for good cause shown, make such supplemental order in the premises as it may find necessary or appropriate. 27 53 Although the history of the NGA does not fully reveal Congress' intent in enacting the particulars of section 3, 28 there is no reason to believe that the purposes behind the grant of broad regulatory authority over the importation and exportation of natural gas are in any way inconsistent with the general purposes of the NGA-to protect the consuming public from exploitative practices of the natural gas companies. 29 54 Section 3 is for the most part unchanged from the earliest drafts of the Act, 30 and although Committee reports and congressional debates offer no explanation for even the few changes that were made, including modifications to the standard guiding Commission action under the section, the changes are not such that they resist the processes of common sense. For example, whereas under earlier drafts the agency's power extended only to exportation of natural gas (under transportation to a foreign country), the section as finally adopted included both exportation and importation. Thus, the standard under initial drafts that the Commission could deny an application only upon a finding that the proposed transportation would impair the sufficiency of the supply of natural gas within the United States, 31 was changed to one obviously more consistent with the requirements of agency review of both export and import proposals: denial of an application must be based on a finding that the proposed importation or exportation will not be consistent with the public interest. 55 The Supreme Court has stated that public interest is properly framed by the purposes of the pertinent regulatory statute: Thus, in order to give content and meaning to the words 'public interest' as used in the Power and (Natural) Gas Acts, it is necessary to look to the purposes for which the Acts were adopted. 32 As stated briefly above, the courts have long recognized that the purposes of the Natural Gas Act, including section 3, are to protect consumers against exploitation at the hands of natural gas companies. 33 In other words, Congress' intent was to afford consumers a complete, permanent and effective bond of protection from excessive rates and charges. 34 56 While many cases calling for a review of agency action against this intent relate specifically to the regulatory power, now in the FERC, over the sale price of natural gas in interstate commerce under section 7 of the Act, this court has observed that (t)he Commission has long regarded Section 3's 'public interest' standard and Section 7's 'public convenience and necessity' standard as substantially equivalent. 35 This is not to say, however, that there are not important differences remaining in how the standards are to be applied to actions taken under the respective sections. 57 Agency authorization is a statutory prerequisite, under section 3, to any importation or exportation of natural gas, just as a certificate of public convenience and necessity is required by section 7 before a party may engage in interstate activity in the industry. Contrary to section 7, however, section 3 sets out a general presumption favoring such authorization, by language which requires approval of an application unless there is an express finding that the proposed activity would not be consistent with the public interest. Section 3 therefore differs significantly from other sections under the NGA which condition agency approval upon a positive finding that the proposed activity will be in the public interest. 36 This distinction was recognized early by the Fifth Circuit in Cia Mexicana de Gas v. FPC, 37 which offered the following comparison between the relative standards under sections 7 and 3: 58 A certificate of public convenience and necessity (under section 7) requires as a condition to its granting that the commission make a positive finding of consistency with the public interest. 59 An export (or import) permit (under section 3), on the other hand, must be issued unless the commission makes a negative finding, and it may not be doubted, that the authority of the commission to grant a ... permit is certainly as broad as its authority under the certificate section. 38 60 Furthermore, that portion of the section which empowers the regulating agency to grant an application in whole or in part, with such modification and upon such terms and conditions as the Commission may find necessary or appropriate, 39 affords the ERA an obvious and significant flexibility in its basic approval function. 61 This court recognized the broad scope of section 3's regulatory authority in Distrigas v. FPC, 40 a case involving the FPC's jurisdiction over a company which it had authorized to import Algerian LNG. The controversy in Distrigas was rooted in a 1948 case, Border Pipe Line Co. v. FPC, 41 in which this court had distinguished interstate commerce from foreign commerce for purposes of the NGA, and had reversed an FPC finding that a pipeline company located in Texas and exporting gas to a customer in Mexico was subject to the certification requirements of section 7. Although we held in Border that the FPC's sole source of regulatory jurisdiction over exported gas was section 3, and thereby rejected the Commission's argument that foreign commerce was to be counted as interstate commerce for purposes of the Act and that a certificate of public convenience and necessity for both the export service and the pipeline facilities involved was necessary under section 7, we did not outline any requirements for review of an application under section 3. 62 The particular controversy in Distrigas arose over the FPC's requirement that Distrigas file for a section 7 certificate to construct and operate LNG import facilities which, unlike the facilities at issue in Border, were also linked to interstate pipeline networks. 42 Distrigas argued that the FPC's requirement violated the foreign commerce/interstate commerce distinction made in Border, that the Commission had no jurisdiction over the facilities under section 7 and therefore that it could not require a certificate of public convenience. The FPC argued, on the other hand, that unless its interstate commerce jurisdiction (was) held to extend to all sales of imported natural gas and the facilities related thereto, there would result the sort of 'attractive regulatory gap' that Congress intended the Natural Gas Act to fill. 43 It contended that if the Border opinion unavoidably contributed to this regulatory gap, it should be overruled. 44 63 This court declined to accept the FPC's urgings that Border's foreign commerce/interstate commerce distinction should be overruled, 45 but we also rejected Distrigas' position that the Commission had no power to require the certificates. We concluded that the broad authorization under section 3 to modify import authorization as required by the public interest afforded the FPC all the jurisdiction necessary to require certification as it had: 64 Under Section 3, the Commission's authority over imports of natural gas is at once plenary and elastic.... (W)e find it fully within the Commission's power, so long as that power is responsibly exercised, to impose on imports of natural gas the equivalent of Section 7 certification requirements both as to facilities and-what we suspect is of more vital concern to the Commission and to petitioners-as to sales within and without the state of importation. Indeed, we think that Section 3 supplies the Commission not only with the power necessary to prevent gaps in regulation, but also with flexibility in exercising that power-flexibility far greater than would be the case were we to hold that imports are interstate commerce, automatically and compulsorily subject to the entire panoply of Section 7's requirements. 46 65 Clearly, the use of such power is to be governed by section 3's own standards, rather than those of other sections. 66 The DOE Act's restructuring of the administrative framework did not alter the flexibility of this statutory authority under section 3. The FPC's broad general power to condition permits as necessary or appropriate was transferred to the Secretary of Energy, who included it in his delegation to the ERA. 47 The language of this delegation evidences an anticipation that the ERA might impose conditions which would overlap with areas-such as the pricing structure of natural gas-over which FERC normally would have jurisdiction: 67 In exercising the functions (of determining whether importation or exportation of natural gas is not inconsistent with the public interest), the Administrator may attach such terms and conditions as he shall determine to be necessary to make the import or export not inconsistent with the public interest, which terms and conditions the FERC shall include in any order it may issue which authorizes the import or export pursuant to Delegation Order No. 0204-26. 48 68 The Supreme Court has recognized this need for regulatory flexibility in more general terms: 69 (An agency) created to protect the public interest must be free, within the ambit of (its) statutory authority, to make practical adjustments which may be called for by particular circumstances. 49 70 We have found it unnecessary in the past, even as we do now, to attempt to define the precise bounds of this flexibility. 50 Rather, as this court noted in Distrigas, 71 (i)t is for the Commission in the first instance to determine, after reasoned consideration and on the basis of substantial evidence, whether and in what manner to exercise its flexible Section 3 power, and this determination will in turn be subject to the normal review processes provided in the Act. 51 72 We now arrive at the critical point. The decisive issue here is that the normal review processes encompass a determination of whether necessary findings are based on substantial evidence, and whether, in all other respects, the decision was the product of a deliberate and reasonable process. It is to this examination that we now turn. 73