New Mexico Energy v. FERC ( 1997 )

REVISED
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 96-60036
PACIFIC GAS AND ELECTRIC COMPANY;
SOUTHERN CALIFORNIA GAS COMPANY;
SOUTHERN UNION GAS COMPANY,
Petitioners,
EL PASO MUNICIPAL CUSTOMER GROUP,
Intervenor,
versus
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent,
COLORADO INTERSTATE GAS COMPANY (CIG);
SOUTHERN CALIFORNIA EDISON COMPANY;
ANR PIPELINE COMPANY; SALT RIVER PROJECT;
EL PASO NATURAL GAS COMPANY;
MERIDIAN OIL INC.’S,
Intervenors.
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No. 96-60039
NEW MEXICO ENERGY, MINERALS AND
NATURAL RESOURCES DEPARTMENT;
COMMISSIONER FOR PUBLIC LANDS FOR
THE STATE OF NEW MEXICO,
Petitioners,
versus
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent.
Petitions for Review of an Order of the
Federal Energy Regulatory Commission
February 19, 1997
Before HIGGINBOTHAM, BARKSDALE, and EMILIO M. GARZA, Circuit
Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge:
This case requires us to decide whether the Natural Gas Act
supplies the Federal Energy Regulatory Commission with jurisdiction
over gathering facilities operated by a corporation that is wholly-
owned by an interstate natural gas pipeline company. We affirm
FERC’s conclusion that these gathering facilities are beyond its
regulatory reach, notwithstanding the fact that the gatherer is a
subsidiary of a pipeline company that transports gas in interstate
commerce.
I.
El Paso Natural Gas Co., one of the nation’s largest natural
gas pipeline companies, owns and operates twenty-nine gathering
facilities in New Mexico, Colorado, Oklahoma, and Texas. Because
some of these facilities are subject to certificates of public
convenience and necessity, El Paso sought FERC’s permission in 1994
to abandon its gathering facilities and convey them, along with
treating and processing facilities, to El Paso Field Services Co.,
which it would own in its entirety. El Paso established a Field
Services Division in 1991, and it explained in its FERC application
that conveying facilities to the liberated Field Services Co. was
the culmination of years of corporate reorganization.
After notice of El Paso’s application was published in the
Federal Register, forty-six parties filed motions to intervene.
Some of the intervenors sought to prevent El Paso from using Field
Services as a means of escaping FERC regulation. FERC issued El
2
Paso’s abandonment order on September 13, 1995, effective January
1, 1996. According to FERC, it “does not have jurisdiction over
companies such as Field Services that perform only a gathering
function.” El Paso Natural Gas Co., 72 FERC ¶ 61,220, at 62,014
(Sept. 13, 1995). The order imposed two conditions on Field
Services: (1) it had to amend its tariff to guarantee
nondiscriminatory access to the facilities and arm’s-length
dealings between El Paso and Field Services, and (2) it had to
offer existing customers a two-year default contract that would
preserve the status quo.1 FERC refused to hold a full evidentiary
hearing on the matter and declined the intervenors’ request to
examine whether Field Services would face sufficient competition.
FERC did, however, reserve the right to assert its jurisdiction
over Field Services if El Paso and Field Services failed to
maintain their separate corporate identities. FERC denied
rehearing in a written opinion on November 29, 1995.
Five intervenors have filed this appeal and asked us to
invalidate the abandonment order. Three are local distributors of
natural gas who use the El Paso system: Pacific Gas & Electric Co.,
Southern California Gas Co., and Southern Union Gas Co. The other
two are units of the State of New Mexico: the New Mexico Department
1
Because El Paso has not challenged FERC’s power to require
Field Services to offer default contracts, that issue is not part
of this appeal. Cf. Conoco, Inc. v. FERC, 90 F.3d 536, 553 (D.C.
Cir. 1996) (“[W]e conclude that the Commission did not adequately
explain its jurisdiction to condition approval of the spin-down of
gathering facilities on a default contract mechanism . . . .”),
petition for cert. filed, 65 U.S.L.W. 3354 (U.S. Oct 31, 1996) (No.
96-686).
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of Energy, Minerals, and Natural Resources; and the Commissioner of
Public Lands for the State of New Mexico. Many of the remaining
intervenors have aligned themselves with these parties. The
appellants argue that allowing El Paso’s wholly-owned subsidiary to
operate El Paso’s gathering facilities without any regulatory
oversight and without any significant competition will lead to
unreasonably high natural gas prices.
II.
As a threshold matter, we must ensure that the local
distribution companies and the New Mexico appellants have standing
to challenge FERC’s order. According to El Paso, the abandonment
order does not threaten these appellants with any concrete,
imminent injury. The local distribution companies, on the other
hand, insist that they will inevitably be forced to pay higher gas
prices if FERC ends its regulation of the rates charged by the
gathering facilities through which the gas must pass. The New
Mexico appellants assert that they have an interest not only in
protecting their citizens from monopolistic gathering facilities,
but also in avoiding the expense of imposing their own regulation
of natural gas to compensate for FERC’s decision to bow out of the
regulation of gatherers affiliated with interstate pipelines. See
Florida v. Weinberger, 492 F.2d 488, 494 (5th Cir. 1974) (“[T]he
State of Florida has standing, arising from its clear interest . .
. in being spared the reconstitution of its statutory [system for
licensing nursing homes].”).
4
In addition to the constitutional and prudential standing
limitations, the Natural Gas Act itself specifies who may challenge
FERC’s orders issued under the Act. See 15 U.S.C. § 717r(a)
(granting the rights to seek rehearing before FERC and review in a
circuit court to “aggrieved” states, municipalities, and state
commissions); 15 U.S.C. § 717r(b) (granting the same rights to
“aggrieved” parties to FERC proceedings). A party has not been
“aggrieved” by a FERC decision unless its injury is “present and
immediate.” Tenneco, Inc. v. FERC, 688 F.2d 1018, 1022 (5th Cir.
1982). Case law has not established how this test for standing
might differ from the test developed under Article III. See, e.g.,
American Agriculture Movement v. Board of Trade, 848 F. Supp. 814,
819 n.6 (N.D. Ill. 1994) (suggesting that standing cases decided
under § 717r do not always provide solid authority for standing
cases decided under Article III), aff’d in part and rev’d in part,
62 F.3d 918 (7th Cir. 1995).
El Paso directs our attention to Williams Gas Processing Co.
v. FERC, 17 F.3d 1320 (10th Cir. 1994), another case in which an
interstate pipeline company created a wholly-owned subsidiary to
take over its gathering facilities and thus escape regulation.
FERC responded to the pipeline’s application to abandon the
facilities in much the same way that FERC responded to El Paso’s
application: it granted the request, placed no rate restrictions or
reporting obligations on the affiliate, and explained that its
jurisdiction over the affiliate would arise if the parent and the
affiliated subsidiary failed to subscribe to an open-access policy.
5
Natural gas producers and shippers intervened in the FERC
proceedings and ultimately petitioned for review in the Tenth
Circuit because they did not want to pay an unregulated entity for
gathering and transportation costs. The court held that these
intervenors did not have standing under § 717r(b) because they
could not show a looming, unavoidable threat of injury from the
FERC action:
There is no evidence in this record that Chevron
and Conoco have suffered, or will unavoidably suffer,
an economic injury as a result of the Commission’s
orders. Their fear that Williams will charge
unreasonable rates is only speculation for now, and
even if it materializes, they can challenge the
reasonableness of Williams’s rates under section 5 [of
the Natural Gas Act], 15 U.S.C. § 717d.
Williams, 17 F.3d at 1322.
We question whether the appellants could make use of § 717d at
some later time to challenge unreasonably high rates. That section
applies only to rates charged by natural gas companies that make
sales within FERC’s jurisdiction. In both Williams and in this
case, FERC decided that affiliated gathering companies are not
natural gas companies unless they act “in connection with” their
parent pipelines. Section 717d would be available to these
appellants if Field Services were to charge rates that
discriminated against entities other than El Paso. But under
FERC’s order, there would be no jurisdiction over Field Services on
the basis of unreasonably high rates as such. Furthermore,
Williams fails to take account of any injury that might come from
terminating the affiliated gatherer’s duty to report rates. Unless
the gatherer has such a duty, the distributors must rely on FERC’s
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oversight to ensure that the gatherer does not abuse its
potentially monopolistic power.
In addition to Williams, El Paso relies on Shell Oil Co. v.
FERC, 47 F.3d 1186, 1200-03 (D.C. Cir. 1995). In that case, Shell
Oil objected to FERC’s conclusion that the Interstate Commerce Act,
which provides rate protection and tariff requirements, does not
apply to a pipeline system located entirely on the Outer
Continental Shelf. Shell obtained access to the pipeline in the
FERC proceeding under the Outer Continental Shelf Lands Act, 43
U.S.C. § 1334(f). Shell appealed because it objected to FERC’s
further conclusion that the Interstate Commerce Act does not grant
FERC jurisdiction over pipelines that lie entirely on the outer
continental shelf. The D.C. Circuit held that Shell did not have
standing to pursue such an appeal because “[t]he risk of injury .
. . flows from the legal rationale employed by the Commission in
its Order, not from the denial of relief actually sought by Shell
before the agency.” Shell Oil, 47 F.3d at 1201. The court went on
to reject Shell’s contention that “the hypothetical imposition of
unreasonable but non-discriminatory rates suffices for purposes of
finding injury in fact.” Id. at 1202 n.33. This case is different
from Shell Oil because the local distribution companies and the New
Mexico appellants have argued all along the same thing they are
arguing here: that FERC must regulate Field Services under the
Natural Gas Act. Furthermore, Shell’s potential injuries from rate
increases were more speculative than the potential injuries in this
case because a group of pipeline owners competed among themselves
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to sell capacity on the pipeline, and FERC determined that the
pipeline was underutilized even with Shell’s purchase of pipeline
capacity. Id. at 1202. Other cases cited by El Paso are also
distinguishable. See Colorado Interstate Gas Co. v. FERC, 83 F.3d
1298, 1301 (10th Cir. 1996) (holding that a natural gas company
that had agreed to report its gathering rates and provide non-
discriminatory access was not “aggrieved”); State ex rel. Sullivan
v. Lujan, 969 F.2d 877, 882 (10th Cir. 1992) (holding that Wyoming
did not have standing to challenge the Interior Department’s
exchange of land rich in coal because it could not show that the
Department would have leased the land for coal mining and thus have
entitled Wyoming to royalties); Panhandle Producers v. Economic
Regulatory Admin., 847 F.2d 1168, 1173-74 (5th Cir. 1988) (holding
that an association of natural gas producers did not have standing
to challenge the ERA’s failure to refer its policy of authorizing
imports of Canadian gas to FERC because the association was not
within the statute’s zone of interest); Tenneco, Inc. v. FERC, 688
F.2d 1018, 1022 (5th Cir. 1982) (holding that a natural gas
pipeline company did not have standing to challenge FERC’s decision
to transform an adjudicatory hearing into an off-the-record
investigation because the decision did not adjudicate facts or
deprive the pipeline of property).
We hold that the local distribution companies and the New
Mexico appellants have standing to challenge FERC’s abandonment
order. When an agency deregulates a major portion of a
distributor’s supply structure, the threat to the distributor’s
8
economic security is not merely speculative. It is likely that
Field Services will charge a higher price than it would have under
FERC regulation. Thus, these appellants have a considerable
interest in the regulatory status of affiliated gatherers and will
be unable to challenge FERC’s treatment of the issue if FERC’s
position that affiliated gatherers are outside of its jurisdiction
becomes established precedent. We have recognized a similar
principle in affording standing to pipeline companies facing a high
risk of economic injury by FERC’s treatment of their competitors.
Pacific Gas Transmission Co. v. FERC, 998 F.2d 1303, 1307 n.4 (5th
Cir. 1993). Down-stream gas distributors are within the zone of
interest contemplated by the rate regulation provisions of the
Natural Gas Act. See Interstate Natural Gas Co. v. Federal Power
Comm’n, 331 U.S. 682, 693 (1947). And similar cases have either
explicitly or implicitly found that entities other than direct
competitors can have a sufficient interest in a pipeline’s
regulatory status to confer standing. See, e.g., Conoco, Inc. v.
FERC, 90 F.3d 536 (D.C. Cir. 1996) (allowing producers to challenge
a pipeline’s spin-off of an affiliated gathering company), petition
for cert. filed, 65 U.S.L.W. 3354 (U.S. Oct 31, 1996) (No. 96-686);
Mississippi Valley Gas Co. v. FERC, 68 F.3d 503, 507-08 (D.C. Cir.
1995) (finding that a local distribution company had standing to
challenge FERC’s adjustment of a pipeline’s rates).
III.
We review FERC’s abandonment order to ensure that it is “based
on a permissible construction” of the Natural Gas Act; “a court may
9
not substitute its own construction of a statutory provision for a
reasonable interpretation made by the administrator of an agency.”
Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S.
837, 843-44, 104 S. Ct. 2776, 2782 (1984). An interpretation is
reasonable so long as it is not “arbitrary, capricious, or
manifestly contrary to the statute.” Id. at 844, 104 S. Ct. at
2782. In this case, we must determine whether FERC imposed a
reasonable construction on the description of its statutory powers
in sections four and five of the Natural Gas Act, 15 U.S.C. §§
717c(a) & 717d(a), which allow FERC to regulate prices charged “in
connection with” the transportation or sale of natural gas that is
subject to FERC jurisdiction.
The local distribution companies and the New Mexico appellants
rely principally on language in Northern Natural Gas Co. v. FERC,
929 F.2d 1261, 1269 (8th Cir.), cert. denied, 112 S. Ct. 169
(1991). The Northern Natural court held that FERC may regulate
gathering facilities owned by natural gas companies in spite of the
fact that gathering facilities are explicitly excluded from FERC’s
jurisdiction under 15 U.S.C. § 717(b). Such regulation, the court
reasoned, was necessary to perform FERC’s role of preventing unfair
trade practices by monopolistic pipelines under §§ 717c & 717d.
929 F.2d at 1273. It explained that “it would be inconsistent to
hold that the Commission may not regulate rates for transportation
over a pipeline’s own gathering facilities performed in connection
with admittedly jurisdictional interstate transportation.” Id. at
1269.
10
We do not find this language controlling in this case.
Northern Natural did not involve an affiliated gatherer. According
to Conoco, Inc. v. FERC, 90 F.3d 536 (D.C. Cir. 1996), petition for
cert. filed, 65 U.S.L.W. 3354 (U.S. Oct 31, 1996) (No. 96-686),
that fact makes all the difference. In Conoco, a case decided
after the parties in this case submitted the appellate brief, a
pipeline created a corporate subsidiary to take over its gathering
facilities so that it could “operate on a level playing field with
. . . independent gatherers unregulated by the Commission.” 90
F.3d at 541. As in this case, FERC allowed the pipeline to abandon
the facilities to the affiliate so long as it included equal-access
provisions in its tariff and offered customers a default contract
to preserve the status quo for at least two years. The court held
that FERC’s order was not an arbitrary and capricious
interpretation of the statute because transportation and sales by
truly independent gathering affiliates could be understood as not
“in connection with” transportation or sales by interstate
pipelines. Id. at 547.
Our task is not to determine whether the regulatory structure
that FERC gleans from the Natural Gas Act is the most sensible.
There is room to question whether the formality of creating a
separate corporate entity justifies turning a heavily regulated
gathering facility into a facility that is outside of FERC
jurisdiction. The appellants express a legitimate concern that
FERC’s reading gives little assurance that affiliated gatherers
will in fact act independently of the pipelines that own them.
11
Although FERC states that it will re-assert its jurisdiction if the
gatherers adopt rate or access practices that discriminate in favor
of their parent pipelines, it is not clear what mechanism FERC
might use to enforce its threat.
Nevertheless, the Conoco court is correct that FERC’s reading
of “in connection with” is a permissible interpretation of the
statute under the Chevron doctrine. The statute itself states that
it does not apply to gathering activities. If Field Services were
not owned by El Paso, there would be no question that FERC does not
have the authority to regulate it. The statute does not address
affiliated gatherers, and the petitioners have not cited any cases
that conflict with FERC’s reasoning that a gatherer that deals with
its parent even-handedly should get the same treatment as a
gatherer whose owners are not involved in jurisdictional
activities. The statutory language, then, allows FERC to treat
Field Services on its own terms and not as a company that provides
transportation or sales “in connection with” jurisdictional
activities. See also Altamont Gas Transmission Co. v. FERC, 92
F.3d 1239, 1245-46 (D.C. Cir. 1996) (deferring to FERC’s
determination that coordination and integration at arm’s length
between Pacific Gas Transmission, an interstate pipeline company,
and PG&E, a nonjurisdictional intrastate distribution company, did
not give FERC jurisdiction over the subsidiary pipeline company),
petition for cert. filed 65 U.S.L.W. 3531 (U.S. January 22, 1997).
The local distribution companies and the New Mexico appellants
also argue that FERC violated the Act because it failed to consider
12
whether competition was sufficient to warrant granting El Paso’s
abandonment request. Under 15 U.S.C. § 717f(b), FERC may not
authorize abandonment unless it finds that “future public
convenience or necessity permit such abandonment.” FERC’s response
to this argument curiously suggests that it does not have the power
to examine whether abandonment would be in the public interest when
a pipeline is abandoning its gathering facilities to a
nonjurisdictional entity. As we read the statute, it makes no
difference who gets the facilities or, indeed, whether anyone gets
them at all — “[a]bandonment within the meaning of NGA § 7 is an
act that permanently reduces a significant portion of a particular
service dedicated to interstate markets.” Columbia Gas
Transmission Corp. v. Allied Chemical Corp., 652 F.2d 503, 511 (5th
Cir. Aug. 1981) (citing Reynolds Metal Co. v. FPC, 534 F.2d 379,
384 (D.C. Cir. 1976)). But any error on FERC’s part was
inconsequential. FERC has the authority to develop its own methods
of ensuring public convenience and necessity. Consolidated Edison
Co. v. FERC, 823 F.2d 630, 636 (D.C. Cir. 1987). FERC did consider
antitrust problems that could arise from El Paso’s spin-off of its
gathering facilities and took steps to maintain competition by
requiring open access and default contracts and threatening to re-
assert its jurisdiction if Field Services should act
discriminatorily. The statute does not require a more specific
inquiry into the state of competition so long as FERC has carefully
evaluated the danger that abandonment will lead to monopoly and
acted to maintain competition. See generally United Distribution
13
Cos. v. FERC, 88 F.3d 1105, 1134-42, 1134 (D.C. Cir. 1996)
(granting petitioners relief “insofar as the Commission stated . .
. that any change to injection and withdrawal schedules can be
effected without a § [717f(b)] abandonment proceeding,” but
generally deferring to FERC on the adequacy of its protections
against monopoly power), petition for cert. filed, 65 U.S.L.W. 3531
(U.S. January 31, 1997).
In sum, we choose to follow the D.C. Circuit’s lead and hold
that FERC construed the Natural Gas Act reasonably when it
determined that gatherers are outside of its statutory jurisdiction
even if they are wholly-owned subsidiaries of interstate pipeline
companies.
AFFIRMED.
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