Aircraft Service International v. FERC ( 2021 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 10, 2020 Decided January 22, 2021
No. 20-1013
AIRCRAFT SERVICE INTERNATIONAL, INC., D/B/A MENZIES
AVIATION, ET AL.,
PETITIONERS
v.
FEDERAL ENERGY REGULATORY COMMISSION AND UNITED
STATES OF AMERICA,
RESPONDENTS
CENTRAL FLORIDA PIPELINE LLC AND KINDER MORGAN
LIQUIDS TERMINALS LLC,
INTERVENORS
On Petition for Review of an Order
of the Federal Energy Regulatory Commission
Matthew D. Field argued the cause for petitioners. With
him on the briefs was Richard E. Powers, Jr.
Lona T. Perry, Deputy Solicitor, argued the cause for
respondents. With her on the brief were Makan Delrahim,
Assistant Attorney General, Michael F. Murray, Deputy
Assistant Attorney General, U.S. Department of Justice, Robert
J. Wiggers and Robert B. Nicholson, Attorneys, David L.
Morenoff, Acting General Counsel, Federal Energy Regulatory
2
Commission, and Robert H. Solomon, Solicitor.
Amy L. Hoff argued the cause for intervenors. With her
on the brief were Deborah R. Repman, Charles F. Caldwell,
Daniel W. Sanborn, and Susan B. Kittey.
Before: WILKINS and RAO, Circuit Judges, and
SILBERMAN, Senior Circuit Judge.
Opinion for the Court filed by Senior Circuit Judge
SILBERMAN.
SILBERMAN, Senior Circuit Judge: Petitioners, led by
several Airlines,1 challenge FERC’s determination that fuel
transported by pipeline to Orlando’s airport—after being
delivered to the Port of Tampa—moves intrastate. Therefore,
the Commission decided that it lacked jurisdiction to regulate
the rates for transporting the jet fuel. We easily reject the
petition.
1
Petitioners include American Airlines, Delta Airlines,
Southwest Airlines, United Aviation Fuels (wholly owned by United
Airlines), and United Parcel Service. All operate aircraft at the
Orlando International Airport. Two companies formed by the
Airlines, Hookers Point Fuel Facilities and Aircraft Service
International, also join the petition. Hookers Point runs fuel storage
operations for the Airlines. Aircraft Service manages the receipt and
reallocation of fuel in Tampa. It also arranges for shipments of the
Airlines’ fuel through the Central Florida Pipeline and oversees the
supply of fuel in Orlando.
3
I
FERC adopted the extensive findings and
recommendations of the ALJ, so we shall refer to the ALJ’s
opinion and FERC’s decision as one and the same.2
This case concerns the transportation of jet fuel from
outside the state of Florida to Tampa, then from Tampa to the
Orlando airport. The fundamental issue before the Commission
was whether the Central Florida Pipeline—which connects the
Tampa and Orlando fuel storage terminals—is one link in a
continuous movement as determined by the original and
persisting intent of the shipper. Or did storage and other
activities in Tampa break the continuity of interstate
movement? See, e.g., Baltimore & Ohio Sw. R.R. Co. v. Settle,
260 U.S. 166, 173–74 (1922); Interstate Energy Co., 32 FERC
¶ 61,294, 61,690 (1985). If continuous, the pipeline
transportation falls within FERC’s jurisdiction, and the charged
rates (now unregulated by the state of Florida) would be subject
to federal oversight. See Frontier Pipeline Co. v. FERC, 452
F.3d 774, 776 (D.C. Cir. 2006).
Forty years ago, FERC set forth the framework that it
uses to answer this question. See Northville Dock Pipe Line
Corp. & Consol. Petrol. Terminal, Inc., 14 FERC ¶ 61,111,
61,207 (1981); see also Transp. of Petrol. and Petrol. Prods.
by Motor Carriers Within a Single State, 71 M.C.C. 17, 29
(1957). Whenever fuel crosses state lines and subsequently
moves within a state by pipeline, FERC begins with the
presumption that the fuel’s entire journey is interstate
commerce. Guttman Energy, Inc., 161 FERC ¶ 61,180, at *12
(2017). In Northville Dock, the Commission focused on three
2
Of course, FERC expressly rejected the same arguments
that the Airlines raise here. But since the dispute focuses on the
adopted decision, we see no need to separately describe the
Commission’s review.
4
factors to determine whether a stop within a state breaks the
continuity of interstate transportation:
(1) At the time of shipment, there is no specific order
being filled for a specific quantity of a given product
to be moved through to a specific destination
beyond terminal storage;
(2) The terminal storage is a distribution point or local
marketing facility from which specific amounts of
the product are sold or allocated; and
(3) Transportation in the furtherance of this distribution
within the single state is specifically arranged only
after a sale or allocation from storage.
Northville, 14 FERC at 61,207 (The Northville Factors)
(cleaned up). All three factors need not be satisfied for FERC
to conclude that the continuity of movement has ceased. See
Guttman, 161 FERC ¶ 61,180, at *18. But when all are, that is
enough to establish that the continuity of transportation has
“been broken,” and the interstate journey has ended. Interstate
Energy, 32 FERC at 61,690.
To establish that Northville was to be applied, FERC
observed that the fuel stopped at the Tampa Terminal. When
jet fuel is offloaded in Tampa, the ALJ explained, it does not
smoothly flow from a ship, through the terminals, and into the
Central Florida Pipeline. Rather, it remains in the Tampa
Terminal for a minimum of one to four days. The Airlines did
not contest this point before the ALJ. And, since the fuel came
to rest in Tampa, the ALJ proceeded to assess each of the
Northville factors.
First, the ALJ determined that the Airlines placed no
specific order for a specific quantity of fuel for delivery to
Orlando at the time of shipment. The Airlines’ supply
contracts specify Tampa—not Orlando—as the delivery point
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for the fuel.3 And the Airlines pipe fuel to Orlando based on
inventory targets in Orlando, not the quantities delivered in
Tampa. The supply contracts themselves are quantity estimates
and are thus not “specific.” Furthermore, neither of the
Airlines’ two fuel suppliers, Valero or Chevron, ship their fuel
for receipt by any specific airline. Valero preloads its ships
without regard to the quantity requested by an airline. Chevron,
on the other hand, loads its vessels based on aggregate orders
placed by multiple airlines. But, upon delivery in Tampa, the
fuel is allocated among Chevron’s customers based on their
current inventory levels—not the amount they ordered. It can
hardly be said, moreover, that any airline’s fuel order is specific
because all fuel is commingled in transit and storage.
Next, the ALJ found that the Tampa Terminal also
functioned as non-operational storage as well as a local
marketing and distribution point. By non-operational, FERC
refers to storage activities separate and apart from the daily
needs at the Orlando airport. On average, the ALJ determined
that jet fuel remains stored in Tampa for 9.5 to 12 days before
it is shipped inland. And when that fuel is shipped, it goes
towards maintaining optimal inventory levels in Orlando—not
day-to-day functions. The ALJ also explained that, because jet
fuel is fungible, the Airlines trade it among themselves in
Tampa. This business activity—localized in Tampa—allows
Airlines to reallocate fuel as needed. The ALJ similarly
described how the Tampa Terminal serves as a distribution
point from which specific amounts of jet fuel are allocated for
further transportation. Although most fuel is piped to Orlando
3
The ALJ noted that some monthly nominations, which are
precursors to supply contracts, indicated that fuel would end up at
“MCO” (the Orlando Airport). But these were not specific orders
because the nominations did not “specify . . . when individual
shipments must occur, or the amount of jet fuel that must be delivered
in individual shipments.” J.A. 130. Therefore, with respect to timing
and quantity, they are even less specific than the supply contracts.
6
in batches, about ten percent is trucked to other regional
airports in response to specific airline requests.
Last, the ALJ found that onward transportation to
Orlando is arranged only after the fuel is allocated from the
Tampa Terminal. Although jet fuel remains in the Tampa
Terminal (on average) for over a week, the Airlines designate
fuel for pipeline shipment only a few days in advance. The
Airlines may revise their shipment even as the jet fuel enters
the Central Florida Pipeline. Thus, the ALJ concluded, “for all
practical purposes” the shipments over the Central Florida
Pipeline are always arranged after the jet fuel has arrived in
Tampa. J.A. 216.
With all three Northville criteria satisfied, the ALJ
found that the stop in Tampa broke the continuity of interstate
transportation, and so the jet fuel moved intrastate through the
Central Florida Pipeline. FERC therefore lacked jurisdiction to
regulate the pipeline rates. The Commission affirmed this
conclusion despite acknowledging the Airlines’ professed
“overarching intent to ship jet fuel from . . . locations outside
of Florida to the Orlando Airport.” J.A. 265. FERC explained
that “the manner in which [the Airlines] effectuate this intent,
when looked at [] objectively,” shows that the pipeline
movement is intrastate in nature. J.A. 265.
II
Petitioners advance four challenges in a rather
scattershot fashion. They assert that, assuming Northville was
good law, FERC misapplied it. They follow with the argument
that Northville is too narrow an analytical framework, as FERC
itself has recognized. Third, they contend that FERC’s decision
contradicts Supreme Court precedent. Finally—and this is
key—the Airlines argue that their “overarching intent” to
transport the fuel from ships through Tampa to Orlando means
the pipeline movement is interstate in nature.
7
Taking these arguments in order, Petitioners contend
that FERC misapplied the Northville factors primarily because
the Tampa Terminal was not a distribution point or local
marking facility. The Airlines emphasize that there were only
four spot sales from the Tampa Terminal over five years. In
their view, this is insufficient to establish local marketing
activity under the second Northville factor.
But this is not what FERC relied upon to find the second
factor satisfied. The Airlines treat the jet fuel in Tampa as a
fungible pool and trade it among themselves. FERC found that
this was local business activity. It was determined that any
airline could run a negative balance on their account—a
practice called negative inventory—by shipping more fuel to
Orlando than they theoretically owned in the Tampa Terminal.
This practice is more than just an accounting function, as
Petitioners claim. Airlines are borrowing from the accounts of
others, and this borrowing is much more frequent than any
occasional aberration. One airline, for example, ran negative
inventory 185 times during the five-year period FERC
reviewed. We think the Commission was quite reasonable in
determining that the Tampa Terminal was a local marketing
facility.
Next, Petitioners contend that the Northville factors are
inadequate to make this important determination. According to
the Petitioners, the Commission itself recognized this point in
its recent Guttman decision. See 161 FERC ¶ 61,180, at *12,
*18. But Guttman involved not an intermediate terminal, rather
a connection point of one pipeline to another. Id. at *5, *14–
15. Because that did not fit the classic Northville paradigm,
FERC employed twelve additional factors to determine
whether there was a break in interstate transportation.
Ironically, in this case, FERC found that at least nine of those
twelve additional factors would support its decision. And only
one—referring to the lack of additional processing in the
Tampa tanks—clearly weighs in favor of the Petitioners. We
8
think that is too slim a reed on which Petitioners can rely to
claim precedential support.
Then, Petitioners bring out the big legal guns, asserting
that the Commission misinterpreted the teachings of old
Supreme Court cases: Texas & New Orleans R.R. Co. v. Sabine
Tram Co., 227 U.S. 111 (1913); Carson Petrol. Co. v. Vial, 279
U.S. 95 (1929); United States v. Erie R.R. Co., 280 U.S. 98(1929). The three cases, Sabine, Carson, and Erie, all
determined that a stop in transit did not break the continuity of
an interstate movement.
But all three involved pauses that were incidental to and
supportive of continued movements. In Sabine, lumber for
export came to a stop after it was unloaded by a railroad at port,
requiring only the delay necessary to transfer the lumber from
rail to the ship. 227 U.S. at 126. Carson involved oil for export
held in a port’s storage tanks only as long as necessary for a
ship—or the minimum quantity of oil for shipment—to arrive.
Again, the stop was only due to the failure of the ships to arrive
at the same time as the oil. 279 U.S. at 108–09. A common
thread in these two cases is obvious: The goods came to rest
solely to facilitate continued transportation. On the other hand,
when goods stop for another purpose—such as for distribution
or allocation—it may be sufficient to break the continuity of
transportation. See, e.g., Atl. Coast Line R.R. Co. v. Standard
Oil Co. of Ky., 275 U.S. 257, 268–69 (1927); cf. Northville, 14
FERC at 61,207 (asking whether a terminal serves as a
“distribution point or local marketing facility”).
Turning to Erie, it involved a transfer of wood pulp for
import from a ship to rail, and transport was delayed in order to
prevent congestion at the rail destination. 280 U.S. at 101. So
again, this case involved a stop incident to the transportation
itself. Furthermore, as the Commission noted, the broker in
Erie placed orders for a specific number of bales of wood pulp.
Id. These bales were specifically identified for through
shipment to a specific customer, and the bales maintained their
9
specific identity through the entire shipment. Id. Of course,
where these factors are not present, the shipper is less likely to
have the intent to move the product in a continuous interstate
movement. See Northville, 14 FERC at 61,207 (asking whether
there is a specific order for a specific quantity to be shipped to
a specific location).
Petitioners quibble with FERC not about the holdings
of these cases or their distinctions from our case. Rather, they
take issue with how the Commission described the distinctions.
Petitioners assert—rather extraordinarily—that FERC’s
imprecise distinctions make the Commission’s opinion
arbitrary and capricious.
That contention has no merit. As long as the
Commission understood the holdings and saw the distinctions,
it is of no matter if the Commission’s description of a judicial
precedent is supposedly sloppy. We are not talking about the
Commission’s interpretation of a statute or a rule, but rather
Supreme Court opinions, which we can read ourselves. See
SFPP, L.P. v. FERC, 967 F.3d 788, 795 (D.C. Cir. 2020)
(giving no deference to the Commission’s interpretation of
judicial precedent). Petitioners’ objection is not substantial; it
is legal nitpicking.
That brings us to the core of Petitioners’ complaint.
They argue that their business model, jointly coordinating
fungible fuel storage and shipments to Orlando, is the only way
this process can be done efficiently. They reiterate that the
Airlines have an “overarching intent” to deliver fuel to
Orlando. But as FERC correctly responded, whether or not
Petitioners have developed an efficient business model is of
little significance in determining whether the stop in Tampa
ends the interstate movement.
As to the Airlines’ so-called “overarching intent” to
deliver fuel efficiently to Orlando, the short answer is that
factor is always present in cases in which the Commission (and
10
the Supreme Court) determines whether an intermediate stop
breaks the continuity of interstate transportation. In Atlantic
Coast, for instance, oil was delivered to the Port of Tampa, and
then stored for subsequent rail distribution to bulk and service
stations within the state of Florida. 275 U.S. at 263–64. The
entire business of the shipper was set up to facilitate the
distribution of oil to its customers. Id. at 267. As such, it was
apparent that the shipper had an “overarching intent” to
efficiently move fuel from out of state to its stations. The
Supreme Court nevertheless held that the within-state
movements were intrastate transportation based on the
objective facts of the transportation. Id. at 267–68. In other
words, if overarching intent for ultimate distribution were the
key, then continuity—upon which the Supreme Court relies—
would be irrelevant.
Although the Supreme Court, and FERC, have used the
“original and persisting intent” of the shipper to determine the
essential character of the commerce, those words can be
overread. A careful examination of all the relevant cases
indicates that the phrase does not really refer to the shipper’s
subjective motive as to the good’s ultimate destination. The
test refers to whether, using objective manifestations of the
shipper’s intent, an interstate movement has ended, and the
goods have continued in intrastate transit.4
Accordingly, the petition is denied.
So ordered.
4
In addition to the foregoing, Petitioners have made other,
peripheral arguments that we have considered and reject without
written opinion.