NGL Supply Wholesale, LLC v. FERC ( 2022 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
No. 20-1330 September Term, 2021
FILED ON: JANUARY 25, 2022
NGL SUPPLY WHOLESALE, LLC,
PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION AND UNITED STATES OF AMERICA,
RESPONDENTS
PHILLIPS 66 COMPANY AND PHILLIPS 66 PIPELINE LLC,
INTERVENORS
On Petition for Review of an Order
of the Federal Energy Regulatory Commission
Before: SRINIVASAN, Chief Judge, ROGERS, Circuit Judge, and SENTELLE, Senior Circuit
Judge.
JUDGMENT
This petition for review was considered on the record from the Federal Energy Regulatory
Commission and on the briefs and oral argument of the parties. The panel has accorded the issues
full consideration and has determined that they do not warrant a published opinion. See D.C. Cir.
R. 36(d). It is hereby
ORDERED AND ADJUDGED that the petition for review be DENIED.
Operated by Phillips 66 Pipeline LLC (Phillips Pipeline), the 688-mile Blue Line carries
propane between northern Texas and western Illinois. The northern half of the Blue Line is
bidirectional, flowing west-to-east in the winter months and east-to-west in the summer. Its
shippers include two propane suppliers: Phillips 66 Company (Phillips 66) and NGL Supply
Wholesale, LLC. Phillips 66 is an affiliate of Phillips Pipeline.
Under the Interstate Commerce Act (ICA), 49 U.S.C. app. § 1 et seq. (1988), the Federal
Energy Regulatory Commission (Commission) regulates the interstate transportation of propane
by pipeline. In 2019, NGL filed a complaint with the Commission, alleging that Phillips Pipeline
has unreasonably denied NGL access to the Blue Line and has instead favored Phillips Pipeline’s
affiliate, Phillips 66.
NGL’s complaint made three arguments relevant here. First, it contended that Phillips
Pipeline has illegally declined to offer common-carrier service over a small segment of Phillips
66-owned pipes and metering facilities that connect the Blue Line to a privately owned terminal
in Conway, Kansas. Second, NGL maintained that Phillips Pipeline’s prorationing policy—used
to allocate limited pipeline capacity among shippers in high-demand periods—is unjust,
unreasonable, and unduly discriminatory. Third, NGL argued that a propane-exchange agreement
into which it had entered with Phillips 66 effectively enabled Phillips 66 to set the terms and
conditions of transportation service on the Blue Line in violation of the ICA.
The Commission rejected those arguments. See NGL Supply Wholesale, LLC v. Phillips
66 Pipeline LLC, 172 FERC ¶ 61,016 (2020) (Order), J.A. 1–13. First, the Commission
determined that it lacked jurisdiction over Phillips 66’s proprietary interconnection at Conway,
reasoning that the location of the Conway interconnection site comes before the commencement
of propane transportation activities over which the Commission had jurisdiction. Second, the
Commission found that Phillips Pipeline’s prorationing policy was permissible. And third, the
Commission concluded that the NGL-Phillips 66 exchange agreement was a non-jurisdictional
commodity agreement rather than a jurisdictional transportation agreement.
NGL filed a timely petition for review of the Commission’s order, which we review under
the arbitrary-and-capricious standard. United Airlines, Inc. v. FERC, 827 F.3d 122, 127 (D.C. Cir.
2016). Applying that standard, we conclude that none of NGL’s arguments warrants relief.
First, NGL contends that the Commission ignored its arguments as to why Phillips 66’s
proprietary interconnection at Conway was subject to the Commission’s jurisdiction. Specifically,
NGL faults the Commission for failing to discuss its prior decision in Lakehead Pipe Line Co., 71
FERC ¶ 61,338 (1995), which held that certain tank facilities located in the middle of a pipeline
were subject to the Commission’s jurisdiction because they were “necessary” and “integral” to the
pipeline’s overall transmission function. But the Commission adequately accounted for Lakehead
by drawing upon a more recent Commission decision that was itself expressly based on Lakehead.
In TE Products Pipeline Co., 131 FERC ¶ 61,277, at ¶ 12 (2010) (TEPPCO), the Commission
“appl[ied] . . . Lakehead” and determined that terminal facilities that were “not on [the pipeline’s]
mainline system and consist[ed] of smaller pipes, metering facilities, and storage tanks” were non-
jurisdictional because they were “not integral or necessary to the [pipeline’s] transportation
function.” The Commission relied on TEPPCO in the order under review, concluding that the
Phillips 66 proprietary interconnection at Conway—“a few feet of pipeline and some metering
facilities” through which Phillips 66 tenders propane to the Blue Line—was located before
jurisdictional transportation commenced. Order ¶¶ 13, 15 (citing TEPPCO ¶ 12), J.A. 4–5.
In addition, the Commission noted that shippers retain “other options” besides the
interconnection by which “to originate propane on the Blue Line at Conway.” Id. ¶ 16 n.18, J.A.
5; see also id. ¶ 14, J.A. 5 (reciting some). That observation further rebutted NGL’s contention
that the interconnection was a necessary or integral component of interstate propane transportation.
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It also demonstrates why NGL’s “concerns” that the Commission’s order enables FERC-regulated
pipelines to evade the ICA’s nondiscrimination mandate by providing affiliates control over
pipeline origin points are “misplaced on this record.” Big Bend Conservation All. v. FERC, 896
F.3d 418, 422 (D.C. Cir. 2018).
NGL relatedly insists that the Commission wrongly conflated TEPPCO, which addressed
non-jurisdictional storage terminals, with the non-storage pipeline facilities at issue here. Just as
in TEPPCO, however, Phillips 66’s proprietary interconnection at Conway was “not on [the]
mainline system” and “consist[ed] of smaller pipes” and “metering facilities” operated by a “non-
jurisdictional entit[y].” TEPPCO ¶ 12. And while TEPPCO involved “storage tanks,” the
Commission there also determined that the array of “smaller pipes” and “metering facilities”
connecting the mainline to the terminal were non-jurisdictional—even though product necessarily
moved through (and was not stored in) those pipes and meters. Id. ¶¶ 7, 12. The same is true for
the facilities the Commission deemed non-jurisdictional here. And while NGL briefly makes some
additional arguments about the Conway site, none demonstrates any deficiency in the
Commission’s order.
Second, NGL challenges the Commission’s decision to sustain Phillips Pipeline’s
prorationing policy. Set out in the pipeline’s tariff, that policy allocates the vast majority of the
Blue Line’s limited capacity to “regular shippers” with a record of shipments on the pipeline over
a continuous twelve-month period. The policy allocates the remainder to less consistent, “new
shippers.” In sustaining the policy, the Commission observed that prorationing policies based on
historical shipments are “commonplace” and have been “repeatedly approved.” Order ¶ 19, J.A.
7.
NGL begins by asserting that the Commission failed to account for the implications of its
prior decision in Colonial Pipeline Co., 156 FERC ¶ 61,001 (2016). There, the Commission
rejected a proposed prorationing policy that allocated capacity via a lottery system under which
new shippers faced “nearly impossible odds of . . . obtaining sufficient capacity allocations” to
become regular shippers. Order ¶ 21 (quoting Colonial ¶¶ 18–19), J.A. 9. In Colonial, new
shippers then were largely precluded from becoming regular shippers regardless of the volumes
they were prepared to nominate for shipment.
Here, by contrast, the Commission explained that “nothing” in Phillips Pipeline’s
prorationing policy “prevent[s] NGL from becoming a regular shipper if it nominates volumes in
12 consecutive months.” Id. The Commission’s inquiry into the prorationing policy’s “practical
effect” on shippers’ ability to achieve regular-shipper status (should they nominate the requisite
volumes) thus was consistent with Colonial. Id. (quoting Colonial ¶ 19); see Mo. Pub. Serv.
Comm’n v. FERC, 783 F.3d 310, 316 (D.C. Cir. 2015) (explaining that “deference is due to the
Commission’s interpretation of its own precedent”). As the policy at issue here in no way
prevented NGL from nominating the requisite volumes, the Commission permissibly determined
that the concerns underlying its order in Colonial were inapplicable in this case. Order ¶ 21, J.A.
9.
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NGL further resists the Commission’s refusal to require that the Blue Line be prorationed
by season (winter and summer), rather than by year. As the Commission explained, however,
“there is no single method of allocating capacity in times of excess demand,” and pipelines retain
“considerable latitude” in crafting allocation policies designed to “meet circumstances specific to
their operations” and to “reward shipper loyalty.” Id. ¶¶ 19, 22 n.36 (citation omitted), J.A. 7, 10.
The Commission reasonably rejected NGL’s analogy to Suncor Energy Marketing Inc., 132 FERC
¶ 61,242, at ¶ 140 (2010), which approved a prorationing policy that allocated capacity separately
on “two physical segments of a pipeline system . . . with different capacities.” Order ¶ 22, J.A. 9.
The Blue Line, by contrast, consists of only a single pipeline segment and “changes in seasonal
flow direction.” Id., J.A. 9–10. The Commission permissibly determined that Suncor involved
unique circumstances and “does not stand for the proposition that a pipeline’s decision not to
prorate based on segments”—or seasons—“would in all instances be unjust, unreasonable and
unduly discriminatory.” Id., J.A. 10.
Third, NGL faults the Commission’s treatment of the NGL-Phillips 66 propane exchange
agreement, over which the Commission determined it lacked jurisdiction. Although the
Commission’s treatment of this issue is relatively terse and might have profited from further
elaboration, the order passes muster under our deferential standard of review. The Commission
explained that its jurisdiction “encompasses oil pipeline transportation, and does not extend to the
sales of petroleum products.” Id. ¶ 12 (citation omitted), J.A. 3–4. Under the exchange agreement,
NGL tendered propane to Phillips 66 at Conway in exchange for propane at NGL’s terminals
elsewhere on the Blue Line. The agreement thus plainly was an “exchange of product” that “does
not constitute transportation service” under the ICA. Id., J.A. 3. In accordance with that
conclusion, the Commission incorporated by reference a section of the Phillips companies’ joint
answer explaining that the exchange agreement was a supply arrangement for which there was “no
need to involve the pipeline at all,” as there was “nothing for the pipeline to do to make an
exchange happen.” J.A. 253 (quoting W. Refining Pipeline Co., 122 FERC ¶ 61,210, at ¶ 16
(2008)); see Order ¶ 11 & n.7, J.A. 3. And the Commission referenced precedent determining that
analogous exchange agreements were non-jurisdictional, including one decision reasoning that,
when “two shippers merely trade crude oil in one location on a pipeline system for barrels of oil
located elsewhere on the pipeline and then individually arrange for transportation with the pipeline
for the traded volumes . . . the trade . . . occurs separately from the pipeline’s jurisdictional
transportation services.” Order ¶ 12 n.8 (quoting Bridger Pipeline LLC, 126 FERC ¶ 61,182, at
¶ 16 (2009)), J.A. 4.
NGL contends that the Commission failed to respond meaningfully both to its efforts to
distinguish the cases upon which the order relied and NGL’s arguments as to why the exchange
agreement facilitated the shipment of propane along the Blue Line. But the Commission’s
discussion necessarily rejected certain of NGL’s contentions, and the remainder do not provide a
sufficient basis for rejecting the Commission’s rationale. See Pub. Serv. Elec. & Gas Co. v. FERC,
989 F.3d 10, 20 (D.C. Cir. 2021). Because the Commission determined that it lacked jurisdiction
over the exchange agreement, moreover, it properly declined to opine on NGL’s claims based on
that agreement.
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Pursuant to D.C. Circuit Rule 36, this disposition will not be published. The Clerk is
directed to withhold issuance of the mandate until seven days after resolution of any timely petition
for rehearing or rehearing en banc. See Fed. R. App. P. 41(b); D.C. Cir. R. 41(b).
Per Curiam
FOR THE COURT:
Mark J. Langer, Clerk
BY: /s/
Daniel J. Reidy
Deputy Clerk
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