Court Opinion

ID: 185102
Source: CourtListenerOpinion
Date Created: 2011-02-05 02:27:48+00
Date Added: 2024-06-11T09:42:44.341099
License: Public Domain

206 F.3d 1193 (D.C. Cir. 2000)
Lomak Petroleum, Inc.,Petitionerv.Federal Energy Regulatory Commission, RespondentNorse Pipeline, LLC and Columbia Gas Transmission Corporation, Intervenors
No. 99-1113
United States Court of AppealsFOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 29, 2000Decided March 28, 2000

On Petition for Review of Orders of the Federal Energy Regulatory Commission
Joseph D. Lonardo argued the cause for petitioner.  With  him on the briefs was John W. Wilmer, Jr.
Judith A. Albert, Attorney, Federal Energy Regulatory  Commission, argued the cause for respondent.  With her on the brief were John H. Conway, Acting Solicitor, and Susan  J. Court, Acting Deputy Solicitor.  Jay L. Witkin, Solicitor at thetime the brief was filed, entered an appearance.
Frederic J. George, Robin Nuschler, Randall S. Rich and  S. Dennis Holbrook were on the brief of intervenors Columbia Gas Transmission Corporation and Norse Pipeline, LLC.  Betsy R. Carr entered an appearance.
Before: Edwards, Chief Judge, Tatel, and Garland,  Circuit Judges.
Opinion for the Court filed by Circuit Judge Garland.
Garland, Circuit Judge:

1
In May 1998, Columbia Gas  Transmission Corporation requested authorization from the  Federal Energy Regulatory Commission (FERC) to abandon,  by sale to Norse Pipeline, LLC, Columbia's "Project Penny"  facilities.1  At the same time, Norse asked FERC to disclaim  jurisdiction over the Project Penny facilities once Columbia  conveyed them, on the ground that they would then constitute  facilities used for the "gathering" of natural gas.  Such  facilities are exempt from FERC jurisdiction under section  1(b) of the Natural Gas Act (NGA), 15 U.S.C. § 717(b).  On  November 4, 1998, FERC acceded to both requests.  See  Columbia Gas Transmission Corp., 85 F.E.R.C. p 61,191  (1998).

2
FERC's order pleased Columbia and Norse, but displeased  petitioner Lomak Petroleum, Inc., a gas producer that transports gas on the Project Penny system.  Lomak sought  rehearing, reasserting challenges both to the abandonment  and to the disclaimer of jurisdiction.  After FERC denied  rehearing, see Columbia Gas Transmission Corp., 86  F.E.R.C. p 61,137 (1999), Lomak petitioned this court to  review the decision to disclaim jurisdiction.  Lomak contends  that FERC's determination that the Project Penny facilities  primarily perform a gathering function was arbitrary and capricious, inconsistent with a preexisting settlement agreement, and made without affording Lomak due process.

3
* The Project Penny facilities are located in western New  York and northwestern Pennsylvania.  They are composed of  approximately 336 miles of 2to 12-inch diameter pipeline,  seven compressor stations, and other related facilities, all of  which were the subject of certificates of public convenience  and necessity issued by FERC during the period of Columbia's ownership.  See 85 F.E.R.C. at 61,765.  Columbia, a  natural gas company engaged in the business of transporting  natural gas in interstate commerce, constructed the facilities  in the 1970s and 1980s to access Appalachian gas supplies for  its customers.  Because the facilities were not on its system,  Columbia initially entered into third-party transportation and  exchange agreements with other companies to bring the New  York and Pennsylvania gas to market.  Columbia intended to  connect the Project Penny facilities to its main line, but  before the connections were constructed the Commission  implemented its major open-access orders, Order No. 436 and  Order No. 636.2  See id.  As a consequence, Columbia  became a transporter rather than a merchant of natural gas  and no longer needed to operate Project Penny to access  system supplies.  See id.

4
In 1998, Columbia sought authorization to sell the Project  Penny facilities to Norse.  The latter is not a natural gas  company, owns no facilities that come within FERC's jurisdiction, and provides no jurisdictional services.  See id. at  61,-769.  Norse operates exclusively in New York as the  owner of discrete gathering facilities.  See id.  FERC determined that after Norse acquired the Project Penny facilities, it would continue to own exclusively gathering facilities, exempt from FERC jurisdiction under the NGA.  See 86  F.E.R.C. at 61,486;  85 F.E.R.C. at 61,679.

II

5
Lomak's first contention is that FERC arbitrarily and  capriciously determined that after Norse's acquisition,  the primary function of the Project Penny facilities would be the juurisdictionally-exempt gathering, rather than the  jurisdictionally-covered transmission, of natural gas.

6
The NGA grants FERC jurisdiction over (inter alia) the  transportation of natural gas in interstate commerce, but  exempts from FERC's jurisdiction the production and gathering of natural gas.  See 15 U.S.C. § 717(b).  The term  "gathering" is not defined in the NGA, but has been defined  by the Commission as "the collecting of gas from various  wells and bringing it by separate and several individual lines  to a central point where it is delivered into a single line."Barnes Transp. Co., 18 F.P.C. 369, 372 (1957);  see Northern  Natural Gas Co. v. State Corp. Comm'n, 372 U.S. 84, 90  (1963) (stating that "production" and "gathering" are terms  "narrowly confined to the physical acts of drawing the gas  from the earth and preparing it for the first stages of  distribution").  As we have previously remarked, "[t]he line  between jurisdictional transportation and nonjurisdictional  gathering is not always clear."  Conoco Inc. v. FERC, 90 F.3d 536, 542 (D.C. Cir. 1996).

7
Since 1982, FERC has used the "primary function" test to  determine "whether a facility is devoted to the collection of  gas from wells--gathering--or to the further ('downstream')  long-distance movement of gas after it has been collected-interstate transportation."  Id. at 543.  That test generally  employs the following six physical criteria:

8
(1) the length and diameters of the lines;  (2) the extension of the facility beyond the central point in the field;(3) the geographic configuration of the facility;  (4) the location of compressors and processing plants;  (5) the location of wells along all or part of the line facility;  and(6) the operating pressure of the lines.

9
85 F.E.R.C. at 61,768 (citing Farmland Indus., Inc., 23  F.E.R.C. p 61,063 (1983), and Amerada Hess Corp., 52  F.E.R.C. p 61,268 (1990)).  In addition, FERC considers the  following "non-physical" criteria:

10
(1) the purpose, location and operation of the facility;  (2)the general business activity of the owner of the facility;(3) whether a jurisdictional determination, i.e., gathering versus transmission, is consistent with the objectives of the NGA and the Natural Gas Policy Act (NGPA);  and(4) the changing technical and geographic nature of exploration and production activities. Id.

11
(citing Amerada Hess, 52 F.E.R.C. at 61,844-45).  No one  factor is determinative in the primary function test, and not  all factors apply in all situations.  See Williams Field Servs.  Group, Inc. v. FERC, 194 F.3d 110, 116 (D.C. Cir. 1999);Conoco, 90 F.3d at 543.  The Commission "gives consideration to all of the facts and circumstances of the case rather  than mechanically applying a facilities configuration standard."  West Tex. Gathering Co., 45 F.E.R.C. p 61,386, at  62,219 n.4 (1988);  see also Conoco, 90 F.3d at 543.

12
Lomak agrees that the primary function test is appropriate  for determining whether a facility engages in gathering, but  contends that FERC's application of the test to Project  Penny was arbitrary and capricious.  As we have previously  held, "[i]n evaluating and balancing theseveral factors under the primary function test, the Commission brings to bear its  considerable expertise about the natural gas industry."  Conoco, 90 F.3d at 544.  Accordingly, we will uphold the Commission's application of the test as long as it gives "reasoned consideration to each of the pertinent factors" and articulates  factual conclusions that are supported by substantial evidence  in the record.  Id.;  see 15 U.S.C. § 717r(b) ("The finding of  the Commission as to the facts, if supported by substantial  evidence, shall be conclusive.");  Williams Field Servs., 194 F.3d at 115.

13
Lomak contends that while purporting to apply the primary  function test, FERC in fact employed a "pipeline-alwayswins" test.  Lomak Br. at 14.  We see no sign of such  duplicity here.3  In the challenged orders, FERC set forth  the primary function test's factors and, after analysis, concluded that four of the physical factors indicated that the  Project Penny facilities were primarily engaged in "gathering."  It found that the mostly small diameters and short  lengths of the project's lines were consistent with the conclusion that Project Penny serves to gather gas from wells for  delivery to a jurisdictional transportation system.  The Commission noted that there was no processing plant on the  system;  that the lines formed a web-like geographic configuration, with the longer lines forming backbones that collect  gas from feeding lines along their lengths;  and that the low  wellhead and pipeline pressures were consistent with gathering rather than transmission.  In the past, FERC has relied  on these same factors to determine that a system primarily  performs a gathering function.  See, e.g., NorAm Gas Transmission Co., 75 F.E.R.C. p 61,127, at 61,429-30 (1996) (citing  small diameters, low pipeline pressures and web-like configuration);  Arkla Gathering Servs. Co., 67 F.E.R.C. p 61,257, at  61,868-69 (1994) (noting short length, small-diameter pipelines, web-like configuration, and that there were "no gathering facilities downstream of any processing plants");  Panhandle E. Pipe Line Co., 59 F.E.R.C. p 61,108, at 61,405-06  (1992) (citing small diameter lines and "network of small lines  appending an array of wells");  Dorchester Gas Producing  Co., 32 F.E.R.C. p 61,409, at 61,917 (1985) (noting geographic  configuration, location "behind the processing plant," and  small diameter lines).

14
In making its findings regarding Project Penny, FERC  further relied on one of the primary function test's nonphysical factors:  "the general business activity of the owner  of the facility."  FERC emphasized that, unlike Columbia,  Norse operates only gathering facilities, "is not a natural gas  company," provides no transmission services, and is not affiliated with a jurisdictional pipeline.  See 86 F.E.R.C. at 61,486;85 F.E.R.C. at 61,769. FERC further noted that the Project  Penny facilities do not deliver gas off the system to city or  farm taps.  See 86 F.E.R.C. at 61,486-87.  Rather, "[t]he  lines gather gas produced from local wells and transport it  directly to the interstate lines of Tennessee Gas Pipeline  Company," an unaffiliated entity.  Id. at 61,487.  These, too,  appear to be reasonable indices that Project Penny is primarily a gathering rather than transmission facility.

15
Lomak contends that FERC's resolution of this case is  inconsistent with its determinations in others, where it classified facilities as primarily performing a transmission function  despite the presence of some of the same factors relied upon  here.  Lomak's effort to focus on the presence or absence of  specific factors in individual cases is not persuasive, however, in thecontext of an explicitly multifactor test which necessarily involves a balancing of those factors that are present and  those that are not.  Moreover, FERC has reasonably distinguished the cases Lomak cites for support.  For example,  although Lomak contends that FERC has found that small  diameter pipelines can perform transmission functions,  FERC notes that in those cases, "other indicia of gathering,  such as wells and/or feeder lines along their length, were  absent."  85 F.E.R.C. at 61,768 n.20.  Lomak specifically  observes that FERC classified Columbia's Miley facility,  which utilized 8-, 10-, and 12-inch pipe, as a transmission facility.  But as FERC notes, unlike Project Penny, the Miley  facility was "located between jurisdictional compressor stations [and] used primarily to balance transmission loads,  maximize throughput, and provide storage services."  Columbia Gas Transmission Corp., 86 F.E.R.C. p 61,223, at 61,799800 (1999);  see FERC Br. at 24.4

16
"[T]he party challenging an agency's action as arbitrary  and capricious bears the burden of proof."  San Luis Obispo  Mothers For Peace v. United States Nuclear Regulatory  Comm'n, 789 F.2d 26, 37 (D.C. Cir. 1986) (en banc).  Lomak  has failed to establish convincing inconsistencies between  FERC's treatment of Project Penny and other facilities, and  has offered no affirmative evidence supporting its contention  that the Project Penny facilities are primarily engaged in  transmission.  Accordingly, Lomak has not met its burden,  and we reject its first challenge to FERC's orders.

III

17
Lomak's second claim is that FERC's determination regarding Project Penny conflicts with a settlement agreement  approved by the agency in a separate proceeding.  See Columbia Gas Transmission Corp., 79 F.E.R.C. p 61,044 (1997).As Lomak was not itself a party to that agreement, its  interpretation of the agreement carries little weight.  Moreover, "[b]ecause 'Congress explicitly delegated to FERC  broad powers over ratemaking, including the power to analyze relevant contracts,' and because the Commission has greater technical expertise in this field than does the Court,  we accord deference to the Commission's interpretation of  ... Settlement Agreement[s]."  Amerada Hess Pipeline  Corp. v. FERC, 117 F.3d 596, 604 (D.C. Cir. 1997) (quoting  Tarpon Transmission Co. v. FERC, 860 F.2d 439, 441-42  (D.C. Cir. 1988)) (other citations omitted);  see Northern  Mun. Distribs. Group v. FERC, 165 F.3d 935, 943 (D.C. Cir.  1999).  "To be sure, we need not accept 'an agency interpretation that black means white.  However, if the choice lies  between dark grey and light grey, the conclusion of the  agency, unmistakably possessed as it is of special expertise, in  favor of one or the other will have great weight.' "  Western  Resources, Inc. v. FERC, 9 F.3d 1568, 1576 (D.C. Cir. 1993)  (quoting National Fuel Gas Supply Corp. v. FERC, 811 F.2d 1563, 1572 (D.C. Cir. 1987)).

18
The relevant portions of the settlement at issue here read  as follows:

ARTICLE I
DISTANCE-SENSITIVE RATE ISSUE

19
The distance-sensitive rate issue ... shall be settled for the periods describedbelow and upon the following terms and conditions:

20
A. Postage Stamp Rate Design.....

21
(2) In addition, prior to April 1, 2002, neither Columbia, nor any party or other person shall raise or advocate any issue related to functionalization, classification, allocation or direct assignment of any Columbia facilities ... so as to directly charge the costs of such facilities or associated costs to any individual customers served under a generally applicable rate schedule, either(a) because of physical or operational differences ... on different parts of Columbia's system ... or (b) for any other reason.  Nothing in this Stipulation shall prevent Columbia or any party from:  (a) proposing or challenging the proposed rate and accounting treatment of a sale and/or transfer of facilities by Columbia....

22
Settlement, Article I (emphasis added).  Lomak contends  that the sentence italicized above, which states in part that no  party may raise "any issue related to functionalization," prohibits FERC from "refunctionalizing" the Project Penny facilities from transmission to gathering.  FERC disagrees, stating that "[i]nstead of prohibiting refunctionalization, the  above-referenced subparagraph precludes parties and others  from departing from Columbia's rate design during the  locked-in period of the settlement."  86 F.E.R.C. at 61,486.

23
We find FERC's reading of the sentence, as applying to  rates rather than jurisdiction, to be reasonable.  As the  Commission noted, the sentence does not bar a party from  raising "any issue related to the refunctionalization of any  Columbia facilities" per se, but only from raising such an  issue "so as to directly charge the costs of such facilities ...  to any individual customers served under a generally applicable rate schedule."  See id.  Indeed, the sentence is contained  in an article entitled "Distance-Sensitive Rate Issue";  the  introductory sentence of the article states that "the distance sensitive rate issue ... shall be settled ... upon the following  terms and conditions";  and the specific subheading in which  the sentence is found is entitled "Postage Stamp Rate Design."  Moreover, the sentence following that cited by Lomak  states that "[n]othing in this Stipulation shall prevent Columbia or any party from:  (a) proposing ... rate and accounting  treatment of a sale and/or transfer of facilities by Columbia,"  thus plainly contemplating that a sale like that at issue here  might occur.

24
To protect Columbia's existing customers, the settlement  does provide that "purchasers of Columbia's abandoned gathering facilities will continue to provide gathering service for  two years on a non-discriminatory open-access basis at rates  not to exceed the applicable maximum rates shown on Appendix F of the settlement."  86 F.E.R.C. at 61,486.  But Norse  agreed to assume that obligation, and FERC concluded that "Norse's agreement to hold rates steady in accordance with  the settlement agreement is sufficient to address Lomak's  concerns about a potential rapid increase in gathering rates."Id.  Because FERC reasonably interpreted the settlement as  posing no impediment to the jurisdictional reclassification of  the Project Penny facilities, we reject Lomak's second attack  on FERC's orders.

IV

25
Lomak's final contention is that FERC deprived it of due  process by failing to hold a technical conference before concluding that the Project Penny facilities primarily involved  gathering.  This court "has repeatedly held that the Commission 'is required to hold hearings only when the disputed  issues may not be resolved through an examination of written  submissions.' "  Conoco, 90 F.3d at 543 n.15 (quoting Environmental Action v. FERC, 996 F.2d 401, 413 (D.C. Cir.  1993)).  In its initial order, FERC denied Lomak's request  for a technical conference, finding "the record to be complete  and no issues ofmaterial fact which cannot be resolved on the  record."  85 F.E.R.C. at 61,767 n.11.  In its order denying  rehearing, the Commission again concluded that a technical  conference was unnecessary because "[t]here are no material  issues of fact in dispute which cannot be resolved on the basis  of the existing record."  86 F.E.R.C. at 61,485.

26
Lomak's briefs make only two, vague references to the kind  of information it wished to present at a technical conference. First, Lomak states that such a conference would have given  it the opportunity "to demonstrate the devastating effect"  Norse's rates would have on Lomak after the two-year transition period ended.  Lomak Br. at 8.  Yet, while such evidence  might arguably be relevant to the question of whether Columbia should have been permitted to abandon the Project Penny  facilities, Lomak has not challenged abandonment on this  appeal.  Rather, its challenge is to FERC's decision to "relinquish" jurisdiction on the ground that the facilities primarily  involve gathering.  See Lomak Br. at 2 (statement of issues  presented).  Economic impact, however, is not one of the factors in the primary function test for FERC jurisdiction. More important, even if economic impact were relevant,  Lomak offers no reason why evidence of such impact could  not have been submitted in written form.

27
Second, Lomak contends in a footnote that:  "One of the  reasons a Technical Conference was requested was the fact  that production associated with the Project Penny system is  classified as Appalachian Basin production and, as such, has  unique characteristics unlike those found in any other gas producing region of the country."  Lomak Br. at 21 n.34.But at oral argument, Lomak conceded that FERC is familiar  with the unique attributes of the Appalachian region,5 and  offered no specifics as to which it wished to enlighten the  agency.  Nor did Lomak give any reason why it could not  have adequately depicted those unique attributes in a written  submission.  We therefore find no error in FERC's decision  to dispense with a technical conference.  See Woolen Mill  Assocs. v. FERC, 917 F.2d 589, 592 (D.C. Cir. 1990) ("[M]ere  allegations of disputed fact are insufficient to mandate a  hearing;  a petitioner must make an adequate proffer of  evidence to support them.").

V

28
For the foregoing reasons, we reject Lomak's challenges to  FERC's orders and deny the company's petition for review.

Notes:

1
 Section 7(b) of the Natural Gas Act, 15 U.S.C. § 717f(b),  prohibits a natural gas company from abandoning any portion of its  jurisdictional facilities without FERC approval.

2
 See Order No. 436, Regulation of Natural Gas Pipelines After  Partial Wellhead Decontrol, FERC Stats. & Regs. p 30,665 (1985);Order No. 636, Pipeline Service Obligations and Revisions to Regulations Governing Self-Implementing Transportation Under Part  284 of the Commission's Regulations, and Regulation of Natural  Gas Pipelines After Partial Wellhead Decontrol, FERC Stats. &  Regs. p 30,939 (1992).  Prior to these orders, pipelines like Columbia provided bundled sales services, wherein the costs of all facilities to move gas from the wellhead to the customer were reflected  in the pipeline's sales rates.  Order 636 required the unbundling of  services including gathering.  See Conoco Inc. v. FERC, 90 F.3d 536, 540-41 (D.C. Cir. 1996).  See generally United Distribution  Cos. v. FERC, 88 F.3d 1105 (D.C. Cir. 1996).

3
 Lomak's contention that pipelines have prevailed in a large  majority of the cases in which FERC has applied the primary  function test does not prove the company's thesis.  Without evaluating the merits of each of those cases, we cannot determine whether  their dispositions were justified.  Nor can we evaluate the merits of  those cases here, as none of the relevant evidence is before us.  All  we have is the record of the Project Penny decision and, as  discussed below, it is a record that justifies the result reached by  the Commission with respect to that facility.

4
 Lomak also complains that although FERC noted that Project  Penny lacks a processing plant, the Commission recently found that  a facility with a processing plant can still perform a gathering  function.  See Kentucky-West Va. Gas Co., No. CP99-321-000, 1999 WL 549651 (FERC July 29, 1999).  Depending upon its location,  the presence of a processing plant may be a factor indicating  transmission.  See Williams Field Servs., 194 F.3d at 116.  Neverthe less, the fact that the presence of a processing plant may not  disqualify a facility from being classified as gathering (where other  factors typical of gathering exist) does not mean that the absence of  a processing plant signals transmission or that the Commission is  acting inconsistently.

5
 See, e.g., National Fuel Gas Supply Corp., 71 F.E.R.C.  p 61,031, at 61,138 (1995) (noting "the unique circumstances in the  Appalachian region").