Opinion ID: 186974
Heading Depth: 2
Heading Rank: 2

Heading: Facial Validity of the Regulations

Text: The petitioners contend the two regulations [] exceed the Commission's authority under the NGA and the ANGPA and are arbitrary and capricious in that, if the Commission conditions a Certificate upon the building of a pipeline with capacity greater than that proposed by the sponsor of the project, then the sponsor will bear the additional cost of building a larger pipeline in order to transport gas that has not been and may never be discovered. The petitioners, which as of April 2002 had already spent $ 125 million on preliminary feasibility studies, anticipate it will cost hundreds of millions of dollars to prepare an application for a Certificate. They argue that uncertainty over the possibility of footing the bill now to provide capacity for those who might later wish to ship gas on the pipeline could make the project too risky for them or any potential sponsor to undertake, thus thwarting the purpose of the Congress to encourage the construction of an Alaska Pipeline. The Commission, joined by the Intervenors and the Amicus, [] argue the Commission has broad conditioning authority to support findings of public convenience and necessity per NGA § 7(e), including authority to condition a Certificate upon the sponsor making a design change. The Commission further contends any such condition would not be mandatory because an applicant for a Certificate could simply decline to accept a Certificate so conditioned. Regulations Governing the Conduct of Open Seasons for Alaska Natural Gas Transp. Projects (Order 2005-A), 70 Fed.Reg. 35,011, 35,015 ¶ 31. More to the point, the Commission represents that in promulgating §§ 157.36 and 157.37, it merely codif[ied] . . . existing authority and practice, id. at 35,015 ¶ 33, which is, where necessary in the public interest, to require design changes involving routing, cost allocations, and the design of initial service rates. The Commission believes there will be only one . . . Alaska pipeline for the foreseeable future, which intensifies the unique and complex competitive conditions facing an Alaska Pipeline project. Order 2005-A, 70 Fed.Reg. at 35,016 ¶ 36. In § 157.37, therefore, the Commission clearly asserts authority to require changes in project design necess[ary] to promote competition and offer a reasonable opportunity for access to the project. At oral argument, however, Commission counsel claimed the regulation also authorizes the Commission to require design changes in order to accommodate low-cost expansion and thereby promote future competition, but that is not at all clear on the face of the regulation. In the view of the State of Alaska, authority to ensure the pipeline can be expanded easily to accommodate future shippers follows necessarily from the directive of the Congress to the Commission, in ANGPA § 103(e)(2)(B), to promulgate regulations for the conduct of an open season in such a way as to promote competition in the exploration, development, and production of Alaska natural gas. These objectives are all the more important, we are told by the State, because the Alaska Pipeline will likely pass near areas with large unexplored reserves of natural gas, which may not be brought into production in the future if the pipeline cannot readily be expanded. At oral argument, Commission counsel conceded, as she could hardly deny, that § 157.36 does not state the expansion will be increased, and allowed as how the regulation could be read to allow only the allocation of such expansion capacity as is voluntarily proposed by the sponsor of an extant pipeline. With respect to § 157.37, however, counsel muddied the waters, arguing the Commission could under certain circumstances condition an initial Certificate upon an increase in the capacity of the proposed pipeline in order to ensure the project serves the public convenience and necessity and promote[s] competition  though we do not understand the Commission itself to claim authority to order an increase in the initial capacity of the Alaska Pipeline. Commission counsel, like the state of Alaska, nonetheless contends such a reading would be authorized by § 103(e)(2) of the ANGPA. The petitioners' facial challenge to §§ 157.36 and 157.37 is based upon a misreading of these regulations. They misread § 157.37 as asserting the Commission has authority to condition the issuance of an initial Certificate upon the project sponsor's agreement to build a pipeline capable of carrying more gas than the project sponsor proposes. Even Commission counsel, drawing upon the last clause of the regulation, maintained at oral argument that the regulation could be interpreted to authorize such a condition only in the interest of promot[ing] competition. The Commission itself has not adopted the reading of § 157.37 the petitioners oppose  which is highly strained  and it may never do so, particularly in view of the prohibition in NGA § 7(a) upon the Commission's authority to compel the enlargement of transportation facilities. Nor has the Commission adopted their lawyer's less expansive view. Indeed, Commission counsel herself tells us the Commission has never conditioned a Certificate for a non-Alaskan pipeline upon an increase over the capacity proposed, and in promulgating the challenged regulations, the Commission clearly represented that it was merely codify[ing][its] existing authority and practice, Order 2005-A, 70 Fed.Reg. at 35,015 ¶ 33, and making them applicable to the Alaska Pipeline. Thus, the Commission appears to have interpreted § 157.37 as authority to condition the issuance of a Certificate only upon the types of design change the Commission has imposed in the past  to wit, changes in routing, cost allocation, and initial rates, 70 Fed.Reg. at 35,015 ¶¶ 31, 33  which the petitioners do not challenge. Because § 157.37 is capable of several valid applications, i.e., may be invoked to require a design change of the aforementioned sorts, it obviously is not invalid on its face. See Amfac Resorts, L.L.C. v. U.S. Dep't of the Interior, 282 F.3d 818, 826-28 (D.C.Cir. 2002) (That there might be one invalid application is . . . far from enough to make the regulation unlawful). The petitioners misread § 157.36 as asserting the Commission may order an increase in the capacity of a proposed voluntary expansion to an extant Alaska Pipeline. The text of the regulation simply does not support the petitioners' reading. As Commission counsel acknowledged at oral argument, § 157.36 purports only to allow the Commission, in order to introduce new competitors into the market, to allocate such capacity as the sponsor itself proposes to add. So understood, the regulation ensures that a new shipper willing to sign a longterm contract may gain access to a portion of any proposed expansion capacity. Indeed, it would not make sense for the Commission to rely upon § 157.36 to order an increase in expansion capacity above that proposed by the sponsor: ANGPA § 105, 15 U.S.C. § 720c, specifically allows the Commission to order an expansion of the Alaska natural gas project when one or more parties so requesting has execute[d] a firm transportation agreement with the operator of the pipeline, and the Commission, after notice and the opportunity for a hearing, finds the expansion satisfies eight specific criteria and is, in addition, required by the present and future public convenience and necessity. This section of the statute would be set to naught if the Commission could order an increase in a proposed expansion upon the strength solely of the regulation. In sum, the petitioners have not offered any textually supported interpretation of § 157.36 that would exceed the Commission's authority under the NGA or the ANGPA. Accordingly, we do not find § 157.36 invalid on its face. Cf. Amfac Resorts, 282 F.3d at 826-28.