Big Bend Conservation Alliance v. FERC , 896 F.3d 418 ( 2018 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued March 6, 2018 July 17, 2018
No. 17-1002
BIG BEND CONSERVATION ALLIANCE,
PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
TRANS-PECOS PIPELINE, LLC,
INTERVENOR
On Petition for Review of Orders of the
Federal Energy Regulatory Commission
Jacob Brooks argued the cause for petitioner. With him
on the briefs was David A. Bricklin. Carolyn Elefant entered
an appearance.
Beth G. Pacella, Deputy Solicitor, Federal Energy
Regulatory Commission, argued the cause for respondent.
With her on the brief were James P. Danly, General Counsel,
and Robert H. Solomon, Solicitor.
Jeremy C. Marwell argued the cause for intervenor. With
him on the brief were Michael B. Wigmore, James D. Seegers,
and Conor P. McEvily.
2
Before: TATEL, MILLETT, and KATSAS, Circuit Judges.
Opinion for the Court filed by Circuit Judge KATSAS.
KATSAS, Circuit Judge: Big Bend Conservation Alliance
petitions for review of two orders of the Federal Energy
Regulatory Commission authorizing facilities to export natural
gas from the United States to Mexico. Seeking an expanded
environmental review, Big Bend argues that FERC, in addition
to exercising jurisdiction over the export facilities at the border,
also should have exercised jurisdiction over the intrastate
pipeline delivering gas to the border. Alternatively, Big Bend
contends that regardless of the scope of FERC’s jurisdiction
under the Natural Gas Act, an expanded review was required
by the National Environmental Policy Act.
I
A
The Natural Gas Act regulates transporting and selling
natural gas in “interstate commerce,” as well as importing and
exporting natural gas in “foreign commerce.” 15 U.S.C.
§ 717(b). The Act does not regulate “any other transportation
or sale of natural gas.” Id.
Section 3 of the Act prohibits the “export” or “import” of
natural gas, to or from a foreign country, without prior
authorization by FERC. See 15 U.S.C. § 717b(a). (This grant
of authority to the Federal Power Commission was transferred
to the Secretary of Energy, 42 U.S.C. § 7151(b), then delegated
in part to FERC, U.S. Dep’t of Energy, Delegation Order No.
00-004.00A, § 1.21.A (May 16, 2006).) We have construed
Section 3 also to require prior authorization to construct export
3
and import facilities. See Distrigas Corp. v. Fed. Power
Comm’n, 495 F.2d 1057, 1064 (D.C. Cir. 1974).
Section 7 of the Natural Gas Act prohibits constructing or
operating a facility to transport or sell natural gas in interstate
commerce without a certificate of public convenience and
necessity from FERC. 15 U.S.C. § 717f(c)(1)(A); see 42
U.S.C. § 7172(a)(1)(C)–(D). However, Section 311 of the
Natural Gas Policy Act permits FERC to “authorize any
intrastate pipeline to transport natural gas on behalf of … any
interstate pipeline,” at prices deemed by FERC to be fair and
equitable. 15 U.S.C. § 3371(a)(2). Such authorized
transportation is exempt from “the jurisdiction of the
Commission” under the Natural Gas Act. Id. § 3431(a)(2)(A).
The National Environmental Policy Act (NEPA) requires
federal agencies to prepare an environmental impact statement
(EIS) for “major Federal actions significantly affecting the
quality of the human environment.” 42 U.S.C. § 4332(2)(C).
Implementing regulations issued by the Council on
Environmental Quality (CEQ) sometimes require agencies to
prepare an environmental assessment—a document used to
determine whether to prepare an EIS. 40 C.F.R.
§ 1508.9(a)(1). If the agency concludes that no EIS is required,
it must issue a finding of no significant impact—a document
explaining why the proposed action “will not have a significant
effect on the human environment.” Id. § 1508.13.
B
In the proceeding below, Trans-Pecos Pipeline, LLC, a
Texas company, sought authorization under Section 3 to
construct and operate an export facility consisting of a 1,093-
foot pipeline running from a meter station in Presidio County,
Texas, to the international border (the Export Facility). At the
4
same time, Trans-Pecos undertook to construct and operate,
with regulatory approval from the Railroad Commission of
Texas, a 148-mile intrastate pipeline (the Trans-Pecos Pipeline)
that would transport natural gas produced in Texas to the
Export Facility. At its upstream end, this pipeline would
connect with other intrastate pipelines in West Texas, and
might later connect with interstate pipelines. Big Bend
intervened and argued that the Trans-Pecos Pipeline was an
interstate pipeline covered by Section 7 and, alternatively, that
this pipeline should be subject to NEPA review because FERC
effectively controlled it.
FERC authorized the Export Facility under Section 3.
Trans-Pecos Pipeline, LLC, 155 FERC ¶ 61140 (May 5, 2016)
(Authorizing Order). It concluded that the Export Facility was
subject to Section 3, but that the Trans-Pecos Pipeline was an
intrastate pipeline not subject to Section 7. Id. at P 31. FERC
stated that even if the pipeline were later authorized to transport
interstate gas, its jurisdiction under the Natural Gas Policy Act
would extend only to that service and would not trigger Section
7. Id. FERC further concluded that there was insufficient
federal control over the pipeline to warrant NEPA review. See
id. at PP 32–36. Big Bend sought rehearing, which FERC
denied. Trans-Pecos Pipeline, LLC, 157 FERC ¶ 61081 (Nov.
1, 2016) (Rehearing Order).
FERC’s jurisdictional determinations affected the scope of
its environmental review. In particular, FERC issued an
environmental assessment addressing impacts of the Export
Facility and recommending a finding of no significant impact.
Because FERC concluded that the Trans-Pecos Pipeline was
intrastate and not under federal control, the assessment did not
analyze its environmental impacts. FERC concluded that an
EIS was not required because approval of the Export Facility
“would not constitute a major federal action significantly
5
affecting the quality of the human environment.” Authorizing
Order, 155 FERC ¶ 61140, P 30.
Big Bend raises three lines of attack on these decisions.
First, it contends that the Trans-Pecos Pipeline is itself an
export facility subject to Section 3 of the Natural Gas Act.
Second, it contends that the pipeline is an interstate pipeline
subject to Section 7. Third, it contends that even if the pipeline
were not subject to FERC’s direct regulatory authority, it
should nonetheless have been subject to NEPA review.
II
We begin with Big Bend’s argument that the Trans-Pecos
Pipeline is an export facility. Because Big Bend failed to
present this argument to FERC on rehearing, we lack
jurisdiction to consider it.
Section 19(a) of the Natural Gas Act bars judicial review
of a FERC order “unless the person seeking review has first
‘made application to the Commission for a rehearing thereon.’”
ASARCO, Inc. v. FERC, 777 F.2d 764, 771 (D.C. Cir. 1985)
(quoting 15 U.S.C. § 717r(a)). Moreover, Section 19(b) limits
judicial review to arguments raised in the application for
rehearing: “No objection to the order of the Commission shall
be considered by the court unless such objection shall have
been urged before the Commission in the application for
rehearing unless there is reasonable ground for failure so to
do.” 15 U.S.C. § 717r(b). As we explained in addressing
parallel provisions under the Federal Power Act, “the party
seeking judicial review must have raised in its rehearing
request before the Commission each objection it puts before the
reviewing court.” New England Power Generators Ass’n, Inc.
v. FERC, 879 F.3d 1192, 1198 (D.C. Cir. 2018).
6
Big Bend insists that it did raise its Section 3 argument on
rehearing before FERC. It highlights two statements in its
application for rehearing. First, in its argument summary, Big
Bend asserted that “[t]he Commission erred in allowing the
applicant’s requested classification of the system, incorrectly
isolating the project into a single jurisdictional border-crossing
facility under [the] Natural Gas Act [of] 1938, Section 3, and a
non-jurisdictional associated facility regulated as an intrastate
pipeline.” J.A. 492. Second, Big Bend argued that the entire
project should be subject to NEPA review because “the
‘jurisdictional’ segment is entirely, wholly dependent on the
upstream ‘non-jurisdictional’ segment.” J.A. 506.
These statements were not made in support of any
argument that the Trans-Pecos Pipeline was subject to Section
3. Rather, they were made in support of Big Bend’s second
and third arguments—that the pipeline was an interstate one
subject to Section 7 and that FERC impermissibly declined to
review a project over which it had control. Thus, in developing
the argument that FERC misclassified the pipeline, Big Bend
asserted that the Export Facility “in fact combines with the so-
called ‘non-jurisdictional’ segment into an interstate system.”
J.A. 492; see also, e.g., J.A. 495 (“The applicant’s clear intent
is to operate the system as an interstate pipeline.”); J.A. 496
(“this is a post-facto attempt to bypass required Section 7
classification”). Likewise, in developing the argument that
whole-project review was required because FERC had control
over the pipeline, Big Bend asserted that FERC’s “underlying
error” was its failure to classify the pipeline “as [an] interstate
facilit[y] subject to … Section 7.” J.A. 504. Nowhere did Big
Bend alternatively assert that FERC also erred in failing to
classify the pipeline as an export facility subject to Section 3.
Because Big Bend did not raise its Section 3 argument on
rehearing before FERC, we cannot consider it here.
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III
We review the remaining issues on the merits. The
Administrative Procedure Act requires us to set aside FERC
orders that are “arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A).
Any “finding of the Commission as to the facts, if supported by
substantial evidence, shall be conclusive.” 15 U.S.C.
§ 717r(b). FERC must “examine the relevant data and
articulate a satisfactory explanation for its action including a
rational connection between the facts found and the choice
made.” New England Power Generators Ass’n, Inc. v. FERC,
881 F.3d 202, 210 (D.C. Cir. 2018) (quoting Motor Vehicle
Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43
(1983)).
A
Big Bend contends that the Trans-Pecos Pipeline is an
interstate pipeline subject to Section 7. In determining that the
pipeline is an intrastate one subject to the regulatory authority
of the Railroad Commission of Texas, FERC found that the
pipeline initially will transport only gas produced in Texas. See
Authorizing Order, 155 FERC ¶ 61140, P 31. Moreover, it
concluded that, if the Trans-Pecos Pipeline were later
authorized to transport gas on behalf of an interstate pipeline,
that would not trigger Section 7. See id. at P 31. Big Bend
challenges both conclusions.
Big Bend first asserts that the Trans-Pecos Pipeline is
interstate because it will immediately ship natural gas that
crossed state lines. However, substantial evidence supports
FERC’s conclusion that the pipeline “initially will only
transport natural gas produced in Texas and received from
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other Texas intrastate pipelines or Texas processing plants.”
Rehearing Order, 157 FERC ¶ 61081, P 9. The pipeline is
located entirely within Texas. Id. at P 2 n.7. It is directly
connected with other intrastate pipelines, id. at P 9, but not with
the Waha Hub—a nearby source of interstate gas, id. at P 2 n.7.
Moreover, there is “abundant Texas-sourced natural gas to
supply the Trans-Pecos Pipeline without relying on interstate
volumes.” Id. at P 11. Finally, Trans-Pecos specifically
represented that the pipeline would, in fact, carry only gas
produced in Texas. Id.
Next, Big Bend contends that the pipeline is interstate
because Trans-Pecos anticipates using it to transport gas
produced outside of Texas. Big Bend acknowledges that
Section 311 of the Natural Gas Policy Act permits FERC to
authorize an intrastate pipeline to transport gas on behalf of an
interstate pipeline without triggering Section 7, but it argues
that Section 311 does not apply to new pipelines. Otherwise,
Big Bend asserts, pipeline operators could avoid Section 7 by
building nominally intrastate pipelines that in reality will
engage solely in Section 311 transportation.
Whatever the merits of such concerns about future
developments, they are misplaced on this record. First, the
orders under review do not prospectively authorize the Trans-
Pecos Pipeline to transport natural gas under Section 311.
They simply observe that if the pipeline someday provides
qualifying service under Section 311, that service will not
subject the pipeline to Section 7. See Authorizing Order, 155
FERC ¶ 61140, P 31; Rehearing Order, 157 FERC ¶ 61081,
PP 10–11. This observation merely restates applicable law—
the Natural Gas Policy Act provides that “the jurisdiction of the
Commission” under the Natural Gas Act “shall not apply” to
transportation authorized under Section 311. 15 U.S.C.
§ 3431(a)(2)(A)(ii). The statement is also consistent with
9
FERC precedent recognizing that new intrastate pipelines may
provide Section 311 service after being placed into service.
See, e.g., Roadrunner Gas Transmission, LLC, 153 FERC
¶ 61041, P 5 (Oct. 15, 2015) (“new intrastate pipeline …
initially … will provide only intrastate service,” but “may later
provide service under Section 311”); NET Mex. Pipeline
Partners, LLC, 145 FERC ¶ 61112, 61598 (Nov. 8, 2013)
(similar). In addition, neither the Authorizing Order nor the
Rehearing Order commits the agency to any particular course
of action should Trans-Pecos seek to provide Section 311
service in the future.
Second, this is not a case where the only realistic, or even
primary, use of an intrastate pipeline is to provide Section 311
service. Rather, as noted above, FERC permissibly found both
that there is enough Texas-sourced gas to support the pipeline
and that it initially will carry only Texas-sourced gas.
Although we can imagine a pipeline operator submitting an
artificially narrow application in order to evade federal
regulation, this is not such a case. Here, FERC found “no
evidence” that building the Trans-Pecos Pipeline would
frustrate the purposes of the Natural Gas Act or of the Natural
Gas Policy Act, see Rehearing Order, 157 FERC ¶ 61081,
P 11, and Big Bend does not point us to any evidence that it
believes FERC overlooked. Moreover, the Commission has
previously asserted Section 7 jurisdiction over ostensibly
intrastate facilities that were constructed solely to provide
Section 311 service. See, e.g., Egan Hub Partners, L.P., 73
FERC ¶ 61334, 61930 (Dec. 18, 1995). Indeed, in this very
proceeding, FERC indicated that it might have taken that
approach had it detected an effort to evade the Natural Gas Act.
See Rehearing Order, 157 FERC ¶ 61081, P 11 & n.32.
Finding none, the Commission reasonably concluded that it
lacked jurisdiction over the pipeline.
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In sum, substantial evidence supports FERC’s finding that
the Trans-Pecos Pipeline is a non-jurisdictional intrastate
pipeline subject to regulation by the State of Texas. We affirm
its refusal to exercise jurisdiction over the pipeline.
B
Big Bend finally contends that even if the Trans-Pecos
Pipeline were not subject to FERC’s direct regulatory
authority, the agency nonetheless should have included it in its
NEPA review. Big Bend asserts two alternative theories: the
projects at issue were impermissibly segmented, and the
pipeline should be “federalized” for NEPA purposes. FERC
rejected both theories, see Authorizing Order, 155 FERC
¶ 61140, PP 32–36; Rehearing Order, 157 FERC ¶ 61081,
PP 7–16, as do we.
1
CEQ regulations require federal agencies, in conducting
NEPA reviews, to jointly consider “[c]onnected actions.” 40
C.F.R. § 1508.25(a)(1). Actions are connected if they are
“interdependent parts of a larger action and depend on the
larger action for their justification.” Id. § 1508.25(a)(1)(iii).
“The point of the connected actions doctrine is to prevent the
government from ‘segmenting’ its own ‘federal actions into
separate projects and thereby failing to address the true scope
and impact of the activities that should be under
consideration.’” Sierra Club v. U.S. Army Corps of Eng’rs,
803 F.3d 31, 49–50 (D.C. Cir. 2015) (brackets omitted)
(quoting Del. Riverkeeper Network v. FERC, 753 F.3d 1304,
1313 (D.C. Cir. 2014)).
The connected-actions doctrine does not require the
aggregation of federal and non-federal actions. In Sierra Club,
11
we held that the need for federal approvals to construct discrete
segments of an oil pipeline did not subject the entire pipeline
to NEPA review. See 803 F.3d at 49–50. Although the pipeline
was “undoubtedly a single ‘physically, functionally, and
financially connected’ project,” the key point was that the bulk
of it was not subject to federal jurisdiction. See id. at 50
(quoting Del. Riverkeeper, 753 F.3d at 1308). “The connected
actions regulation,” we explained, “does not dictate that NEPA
review encompass private activity outside the scope of the sum
of the geographically limited federal actions.” Id. at 49.
This reasoning controls here. The Export Facility was
subject to FERC’s jurisdiction, but the Trans-Pecos Pipeline
was not. Because no federal action was required to authorize
the pipeline’s construction, there were no connected federal
actions, and so the connected-actions regulation does not apply.
Big Bend errs in its reliance on Delaware Riverkeeper,
which held that FERC had arbitrarily divided a single natural-
gas pipeline into four separate projects for purposes of its
NEPA review. See 753 F.3d at 1314, 1318–19. In Delaware
Riverkeeper, the entire interstate project was subject to FERC’s
Section 7 jurisdiction. Id. at 1307. Here, in contrast, the Trans-
Pecos Pipeline is not subject to federal jurisdiction.
2
Big Bend alternatively contends that FERC’s involvement
in authorizing the Export Facility was enough to “federalize”
the Trans-Pecos Pipeline. This Court has declined to adopt that
theory on several occasions.
We first discussed the federalization theory in Macht v.
Skinner, 916 F.2d 13 (D.C. Cir. 1990). That case involved a
NEPA challenge to the construction of a railroad line that
12
required a federal wetlands permit. Id. at 17–18. The plaintiffs
argued that the need for this permit “federalized” the project.
We disagreed. Although we described the federalization
theory as “sound,” we declined to apply it because the Army
Corps of Engineers had control over “only a negligible portion”
of the project. Id. at 19–20 (quotation marks omitted).
Subsequent developments have called into question
whatever support Macht’s dictum may have given to the
federalization theory. As we explained in Karst Environmental
Education & Protection, Inc. v. EPA, 475 F.3d 1291 (D.C. Cir.
2007), when Macht was decided, “we had not yet held … that
NEPA claims must be brought pursuant to the APA.” Id. at
1297. Once we did, it became clear that judicial review of
NEPA claims must address actions by the federal government,
because review under the APA requires “final agency action,”
5 U.S.C. § 704, which means final action by an agency of “the
Government of the United States,” id. § 701(b)(1). See Karst,
475 F.3d at 1297–98; see also Sierra Club, 803 F.3d at 50–51
(federal regulatory control over segments of oil pipeline did not
federalize entire pipeline project); Coal. for Underground
Expansion v. Mineta, 333 F.3d 193, 197–98 (D.C. Cir. 2003)
(federal funding for portions of rail transit system and prospect
of future federal funding did not federalize rail-line extension
project). Thus, as we definitively held in Karst, “although the
federalization theory may have had merit when we decided
Macht, it lacks vitality today.” 475 F.3d at 1297.
In light of Karst, we view Big Bend’s remaining
arguments about which federalization test should govern as
largely beside the point. But, at the risk of gilding the lily, we
note that they fail even on their own terms.
The Commission assessed its control over the Trans-Pecos
Pipeline under the four-factor balancing test it had set out in
13
Algonquin Gas Transmission Co., 59 FERC ¶ 61255, 61934–
35 (June 2, 1992). Big Bend does not challenge how FERC
applied the factors, but whether those factors set forth the
proper test. Specifically, Big Bend contends that FERC should
have asked whether the pipeline would have been constructed
but for the agency’s approval of the Export Facility. In
National Committee for the New River, Inc. v. FERC, 373 F.3d
1323 (D.C. Cir. 2004), which was decided before Karst, we
rejected this but-for test as one that would improperly allow
FERC “to extend its jurisdiction over non-jurisdictional
activities simply on the basis that they were connected to a
jurisdictional pipeline.” Id. at 1334. Big Bend further asserts
that FERC had previously used a but-for test in 1987, but
arbitrarily abandoned it here. In fact, FERC abandoned that
test in Algonquin Gas, see 59 FERC ¶ 61255, 61935, and has
not used it since. Big Bend’s arguments thus depend on a
version of a theory that both FERC and this Court had rejected,
even before this Court rejected the theory itself.
* * *
For these reasons, we deny the petition for review.
So ordered.