Court Opinion

ID: 9439315
Source: CourtListenerOpinion
Date Created: 2023-08-03 06:31:06.487492+00
Date Added: 2024-06-11T17:26:18.531712
License: Public Domain

HARRY T. EDWARDS, Circuit Judge,
dissenting.
The issue in this case focuses on the line between the “transportation” of natural gas and the “gathering” of natural gas. For many years, most of the Sea Robin Pipeline Company complex in the Gulf of Mexico has been designated as a transportation facility, and, thus, within the jurisdiction of the Federal Energy Regulatory Commission (“FERC” or “Commission”) under the Natural Gas Act (“NGA”). Now, however, the Commission has partially reversed that settled status, reclassifying a major segment of the Sea Robin pipeline as engaged in nonjurisdictional gathering. In my view, FERC’s decision is devoid of reasoned decision making. I therefore dissent from the court’s decision denying the petition for review.
* sH * *
Sea Robin operates a massive pipeline complex (438 miles overall), almost all of which is located offshore on top of the Outer Continental Shelf (“OCS”) in the Gulf of Mexico. This system is shaped like an inverted “Y,” whose two arms sweep across the OCS to meet at a point approximately 50 miles off the coast of Louisiana. The Vermillion 149 Compressor Station sits at this point of convergence. There, much of the gas flowing from various production platforms that feed into the system *1090comes together for shipment 66 miles north to Sea Robin’s onshore processing plants near Erath, Louisiana. During the journey to Erath, the aggregated gas is joined by additional gas from four platforms located closer to the shore. Once the gas reaches shore, it is separated, dehydrated, and processed, then transported to the Erath Compressor Station from whence it is pumped into interstate pipelines for downstream delivery. (See Appendix.)
Before the challenged reclassification of the Sea Robin system, once the gas was produced and gathered at the production platforms south (upstream) of Vermillion, it was deemed to be in “transportation,” and thus within FERC’s jurisdiction. In 1995, Sea Robin sought to undo this regulatory situation. The company asked FERC for an order declaring that its pipelines were gathering facilities exempt from the Commission’s jurisdiction under the § 1(b) of the NGA. FERC refused, holding that the primary function of Sea Robin’s system was transportation. Sea Robin Pipeline Co., 71 F.E.R.C. (CCH) ¶ 61,351, 1995 WL 361806 (1995). Rehearing was sought, but denied, Sea Robin Pipeline Co., 75 F.E.R.C. ¶ 61,332, 1996 WL 355518 (1996), leading Sea Robin to petition for review in the Fifth Circuit. The court granted the petition, remanding the case to FERC for further consideration. Sea Robin Pipeline Co. v. FERC, 127 F.3d 365 (5th Cir.1997) (“Sea Robin I”).
Sea Robin I held that the Commission’s decision to deny reclassification was arbitrary and capricious because the agency did not fairly apply the “primary function” test that it had adopted as the touchstone for its analysis. In Farmland Industries, Inc., 23 F.E.R.C. ¶ 61,063, 1983 WL 39391 (1983), and subsequent decisions, FERC had identified six factors that were to guide the functional inquiry into whether a pipeline is a gatherer or a transporter:
(1) the diameter and length of the facility
(2) the location of compressors and processing plants
(3) the extension of facility beyond the central point in the field
(4) the location of wells along the facility
(5) the geographical configuration of the field
(6) the operating pressure of the line
See EP Operating Co. v. FERC, 876 F.2d 46, 48 (5th Cir.1989).
This test was developed for, and most readily applies to, land-based pipeline facilities. In order to account for the differences between onshore and offshore facilities, FERC subsequently attempted to refine the above analysis. See Amerada Hess Corp., 52 F.E.R.C. ¶ 61,268, 1990 WL 1241336 (1990). Because technological advances had allowed drilling and gas production to take place further and further from land, gathering pipelines of increasing length and diameter were being used in places such as the OCS. This reality suggested to FERC that it adopt a “sliding scale” approach to the physical factors identified in Farmland: the deeper and further from shore a pipeline, the longer and wider it could be and still be deemed a gatherer. Moreover, in order to ensure that such pipes were properly classified, the agency announced that it would consider certain non-physical factors when applying the primary function analysis. These include the (1) purpose, location, and operation of the facility; (2) the general business activity of the facility; and (3) the overall objectives of the NGA and Natural Gas Policy Act. Id. at 61,988.
Sea Robin I held that the Commission erred in selectively applying the Farmland *1091factors, over-relying dn the nonphysical factors described in Amerada Hess, and failing to apply the “sliding scale.” First, the court held that the Commission imper-missibly “reduced the primary function analysis to a litmus test that turned on the length and diameter of the overall system.” 127 F.3d at 370. That is, FERC classified Sea Robin’s system as one engaged in transportation simply because of the size of its pipes alone, deeming the other Farmland factors inapplicable. In so doing, the Commission abandoned, “without reasoned consideration,” its earlier recognition that the exigencies of moving offshore gas long-distances to land may require larger pipelines that should not necessarily be classified as transporters. Id.
Second, Sea Robin I criticized the agency for treating the non-physical factors as the equals of the physical factors in making the gathering/transportation distinction. The Fifth Circuit reminded FERC that this distinction, as understood by Congress, was primarily a tangible, operational one. As such, while non-physical criteria may be considered, they must remain a secondary “part of the mix,” not the starting point for the rest of the analysis. See id. at 370-71. Because FERC seemed to have misunderstood these points, the court remanded the case, suggesting that the Commission
may reformulate its primary function test. It may choose to discontinue criteria not relevant to the physical, geographical, and operational characteristics of pipelines in the OCS. The record suggests other criteria, such as the quality of the gas in the pipelines and the depth of the water in the offshore production area, that may be relevant to the inquiry.
Id. at 371.
The court recognized that the agency might be able to justify drawing the jurisdictional line between gathering and transportation at a point internal to the Sea Robin system, but this suggestion was offered merely in passing dicta. Nothing in the Fifth Circuit’s opinion in Sea Robin I in any way compelled FERC to draw the jurisdictional line at a point internal to Sea Robin’s overall system. Nor did anything in the court’s opinion compel the Commission to select the Vermillion Compressor Station as the dividing point between non-jurisdictional gathering and jurisdictional transportation. FERC, however, apparently threw up its hands in dismay upon reviewing Sea Robin I - obviously having no clue what to do to adhere to the court’s mandate - and simply opted for Vermillion as the jurisdictional dividing line because it is “central” to the Sea Robin system.
This is the kind of case in which a judge welcomes the opportunity to defer to the expert judgment of a regulatory agency. However, I can find no evidence of FERC “expertise” in operation in this case. Indeed, I view FERC’s decision as totally lacking in reasoned decision making. Because of the Commission’s inexplicable reliance on some passing dicta in Sea Robin I, its failure to offer a coherent explanation for the choice of Vermillion as the jurisdictional dividing line, and its complete failure to explain why it ignored other choices open to it, I can find no basis upon which to defer to the agency’s decision. I therefore dissent.
My starting point is the Supreme Court’s oft-quoted statement in Northern Natural Gas Co. v. State Corp. Comm’n of Kansas, 372 U.S. 84, 90, 83 S.Ct. 646, 649-50, 9 L.Ed.2d 601 (1963):
‘[P]roduction’ and ‘gathering’ are terms narrowly confined to the physical acts of drawing the gas from the earth and *1092preparing it for the first stages of distribution.
In this case, Vermillion is a point where gas coming from different production platforms comes together to be transported further north; but Vermillion is not a place where gas is either produced or gathered. The production and gathering is done at the many production platforms south of Vermillion - this always has been FERC’s understanding, and there are no changed circumstances in this case to justify a different conclusion.
Vermillion is merely a junction in the pipeline, where gas from two preceding forks in the pipeline road come together before the gas travels north in one pipe instead of two. Nothing else of any consequence happens at Vermillion - nothing. Surely a “fork in the road” cannot be the demarcation line between unregulated production/gathering and regulated transportation. Vermillion is not a place where Sea Robin engages in any “physical acts of drawing the gas from the earth and preparing it for the first stages of distribution”; it is not, therefore, a place of production and gathering as those terms have been “narrowly” defined by the Supreme Court.
As I read the Commission’s orders now under review, once FERC identified what it thought was the central point in the field, the Vermillion Station, it then largely ignored the physical characteristics of the pipelines that lay upstream (south) of that point. But, as petitioners rightly point out, those characteristics (size, pressure, configuration) are entirely compatible with a transportation function. If FERC meant to view the Sea Robin system in terms of its consistent parts, rather than as an integrated whole (as it had done prior to the Fifth Circuit’s decision), the Commission should have applied its new analysis to each part of the facility that it sought to exempt from its regulatory jurisdiction. That, at least, seems to be the central holding of Sea Robin I. See 127 F.3d at 371 (“If the Commission is to remain tethered to the statute, as it must, [the jurisdictional] inquiry must be based primarily on physical criteria and the realities of the field.”). The court’s suggestion that FERC might analyze the various parts of the field was not an invitation to ignore the relevant physical properties of the Sea Robin facility.
FERC’s focus on the purported central point of the Sea Robin field would have been plausible only if the agency had carefully examined the specifications of the entire pipeline system, both upstream and downstream of its designated midpoint. Indeed, FERC apparently understood this. See Sea Robin Pipeline Co., Order Denying Rehearing, 92 F.E.R.C. (CCH) ¶ 61,072, at 61,291-92, 2000 WL 1100267 (2000). FERC, however, failed to make good on this understanding. The Commission claims to rely on the size of the pipes, the number of cross-connections, and the pressure of the gas in order to distinguish the lines downstream of Vermillion from those upstream. See id. However, none of these factors is relevant, because not one supports the demarcation of gathering and transportation at Vermillion. On the upstream trunk legs, just as on the Vermillion-Erath line, raw highly pressurized gas is propelled over long distances through relatively wide pipes toward land. In other words, the so-called “central point” of the field is utterly irrelevant to a determination of the point where non-jurisdictional production and gathering become regulated transportation.
While the downstream, northern portion of the line may be punctuated by relatively few lateral connections (four), there are also only four laterals interrupting the final stage of the left trunk leg that runs *1093toward Vermillion. Yet, FERC never examined whether the primary function of that upstream segment might be transportation.
FERC mentions the existence of compression at Vermillion, as if to suggest that this is a relevant consideration' for purposes of comparison. It is not. The Sea Robin compressors both push and pull gas through the system, pressurizing lines both upstream and downstream. Indeed, in an earlier order, the Commission explicitly noted that pressure upstream of Vermillion “is similar to that of other offshore systems found to be transmission facilities.” 71 F.E.R.C. at 62,402. FERC has never suggested that there is any greater pressure in the downstream segment. In fact, the only physical change that takes place at Vermillion is a marginal increase in the diameter of the pipelines heading north, which is hardly surprising in light of the fact that two upstream pipelines converge into one at the Vermillion junction. And while the pipes do get larger, the upstream trunk lines are also quite wide; indeed, the Commission’s previous decisions recognize that those lines are just as compatible with transportation as the final Vermillion-Erath line. See id. at 62,398 (“Sea Robin’s system is of the diameter and length that are more typical of an interstate transportation system rather than an exempt gathering system.”).
FERC has thus asked this court to validate a determination that “gathering” ends where two large lines become one and growr proportionately wider as a result. This proposition is perplexing on its own terms, and it is unlawful in light of what we have been told by the Supreme Court in Northern Natural Gas Co., namely, that production and gathering entail only “the physical act[] of drawing the gas from the earth and preparing it for the first stages of distribution.” 372 U.S. at 90, 83 S.Ct. at 650. The gas itself undergoes no alteration at Vermillion, nor does any event occur beyond the aggregation of gas that has already been partially aggregated, and will be further aggregated once it is processed for interstate distribution. Given these facts, there is no basis that I can discern for how the lines immediately upstream of Vermillion have as their primary function the gathering of natural gas while those immediately downstream do not.
The Commission’s reclassification decision becomes positively absurd when it is considered in the light of the “Garden Banks” transportation pipeline. The Garden Banks segment of line is south (upstream) of Vermillion and it is concededly a pipeline segment that is subject to FERC’s regulatory jurisdiction. See Shell Gas Pipeline Co., 74 F.E.R.C. ¶ 61,277, 1996 WL 111350 (1996). Yet, as a result of FERC’s reclassification of the Sea Robin system, a situation has been created in which a jurisdictional “transportation” line (Garden Banks) flows into a non-jurisdie-tional pipeline segment upstream of Vermillion. Not surprisingly, FERC has previously disapproved of such situations, for it is facially illogical to have gas being transported to where it is gathered only then to be transported again. See Trunkline Gas Co., 70 F.E.R.C. ¶ 61,163, 1995 WL 58234 (1995); Tarpon Transmission Co., 60 F.E.R.C. ¶ 61,041, 1992 WL 166429 (1992). The Commission offers no reasonable justification for this unseemly situation, arguing meekly that this one factor should not be considered because other factors support FERC’s judgment.
This all might make sense had FERC no other serious options to consider in discharging its line-drawing responsibilities. Such was not the case, however, as the Commission had before it, and ignored, another viable division point: the offshore production platforms. In previous decisions, FERC has found such platforms to *1094be “the central point in an offshore gas field where numerous wells are produced on the platform and raw production from other wells is transported to the platform through short flowlines.” Amerada Hess Corp., 47 F.E.R.C. (CCH) ¶ 61,187, at 61,623, 1989 WL 261393 (1989), modified on reh’g on other grounds 52 F.E.R.C. ¶ 61,268, 1990 WL 1241336 (1990).
In this case, the Commission never explained away these precedents, nor tried to justify its implicit - and by no means obvious - decision to treat the entire Sea Robin system as a single production field, with one central point, rather than as an aggregation of smaller fields, each with a central point, which in turn feed into the trunk lines for downstream transportation. This approach was presented by the gas producers below; FERC’s decision to ignore it was, in my view, arbitrary and capricious. See Farmers Union Cent. Exchange, Inc. v. FERC, 734 F.2d 1486, 1511 (D.C.Cir.1984) (“It is well established that an agency has a duty to consider reasonable alternatives to its chosen policy, and to give a reasoned explanation for its rejection of such alternatives.”). Indeed, ignoring this reasonable alternative allowed the Commission to pay scant attention to the very thing that it was supposed to rely on most heavily: the physical properties of the facilities whose jurisdictional status it was endeavoring to determine.
In sum, under FERC’s new legal regime, “gathering” ends where the widest pipe on a pipeline system starts and where the gas begins to flow on a direct angle to its processing plant. This approach takes insufficient account of those physical realities that might suggest a different demarcation point between gathering and transportation, and, as applied here, led the Commission to a result that is difficult to square with the language of the statute, with the language of the Supreme Court, and with the holding (as opposed to the dicta) of the Fifth Circuit. Because the agency neither explains the discrepancy between its jurisdictional line and the one described by Congress, nor why it ignored plausible alternatives to that line, FERC is owed no deference in this case. I respectfully dissent.
*1095[[Image here]]