Pacific Gas & Elec v. FERC ( 1997 )


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  •                             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.
    ****************************************************************
    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).
    3
    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
    6
    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
    7
    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.
    14
    

Document Info

Docket Number: 96-60036

Filed Date: 6/2/1997

Precedential Status: Precedential

Modified Date: 12/21/2014

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