Williams Gas Processing—Gulf Coast Co. v. Federal Energy Regulatory Commission ( 2003 )

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United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued May 12, 2003 Decided June 20, 2003
No. 01-1327
WILLIAMS GAS PROCESSING—GULF COAST COMPANY, L.P. AND
TRANSCONTINENTAL GAS PIPE LINE CORPORATION,
PETITIONERS
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
DYNEGY MARKETING AND TRADE, ET AL.,
INTERVENORS
Consolidated with
02–1006, 02–1007, 02–1051, 02–1052, 02–1053, 02–1072,
02–1073, 02–1074, 02–1075, 02–1076
On Petitions for Review of Orders of the
Federal Energy Regulatory Commission
Thomas J. Eastment argued the cause for petitioners/inter-
venors Producer. With him on the briefs were Joshua B.
Bills of costs must be filed within 14 days after entry of judgment.
The court looks with disfavor upon motions to file bills of costs out
of time.
2
Frank, James M. Costan, T. Alana Deere, Timothy J. Jac-
quet, Joseph E. Mixon, Frederick T. Kolb, Douglas W. Rasch,
and Charles J. McClees, Jr. Linda L. Geoghegan entered an
appearance.
Joseph S. Koury argued the cause for petitioners/interve-
nors Williams Gas Processing – Gulf Coast Company, L.P., et
al. With him on the briefs were James T. McManus, Mari
M. Ramsey, Gisela B. Cherches and David A. Glenn.
David H. Coffman, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With him on
the brief were Cynthia A. Marlette, General Counsel, and
Dennis Lane, Solicitor.
Before: GINSBURG, Chief Judge, and ROGERS and TATEL,
Circuit Judges.
Opinion for the Court filed by Circuit Judge ROGERS.
ROGERS, Circuit Judge: Transcontinental Gas Pipe Line
Corp. (‘‘Transco’’) petitioned the Federal Energy Regulatory
Commission (‘‘FERC’’) for approval to transfer some of its
pipeline facilities to its affiliate, Williams Gas Processing –
Gulf Coast Co. (‘‘WGP’’), and to certify that the facilities
serve gathering rather than transmission functions. FERC
approved the applications in part and denied them in part,
and Transco and WGP now challenge the portions of the
orders that denied the requests, contending that FERC’s
assertion of jurisdiction is contrary to precedent regarding
the exemption of gathering facilities under the Natural Gas
Act (‘‘NGA’’), 15 U.S.C. § 717(b) (2000). A coalition of natu-
ral gas producers (‘‘the Producers’’) also petitions the court
for review, objecting to those portions of FERC’s orders that
granted the abandonment and reclassification of facilities as
gathering for lack of a reasoned determination and as con-
trary to the public interest. Our review of these petitions is
instructed by ExxonMobil Gas Marketing Co. v. FERC, 297
F.3d 1071, 1084 (D.C. Cir. 2002), where the court stated that
it will defer to FERC’s reasonable determinations regarding
3
gathering status under NGA section 1(b), 15 U.S.C. § 717(b).
We hold that petitioners fail to demonstrate that FERC’s
choices are ‘‘unreasonable and its chosen line[s] of demarca-
tion [are] not within a ‘zone of reasonableness’ as distinct
from the question of whether the line[s] [are] ‘precisely
right.’ ’’ ExxonMobil, 297 F.3d at 1084; see Conoco Inc. v.
FERC, 90 F.3d 536, 544 (D.C. Cir. 1996). Accordingly, we
deny the petitions inasmuch as FERC considered the appro-
priate factors under the primary function test and sufficiently
explained its reasoning.
I.
Section 1(b) of the NGA distinguishes between facilities
that are used for ‘‘the transportation of natural gas in inter-
state commerce,’’ which are subject to FERC’s jurisdiction,
and those used for ‘‘gathering,’’ which are not. 15 U.S.C.
§ 717(b). ‘‘Gathering’’ is generally defined as ‘‘the process of
taking natural gas from the wells and moving it to a collection
point for further movement through a pipeline’s principal
transmission system.’’ Conoco, 90 F.3d at 539 n.2 (citing
Northwest Pipeline Corp. v. FERC, 905 F.2d 1403, 1404 n.1
(10th Cir. 1990)). Although ‘‘[t]he line between jurisdictional
transportation and nonjurisdictional gathering is not always
clear,’’ Conoco, 90 F.3d at 542, it is central to this case.
Since 1983, FERC has used a multi-factor ‘‘primary func-
tion test’’ to determine ‘‘whether a facility is devoted to the
collection of gas from wells — gathering — or to the further
(‘downstream’) long-distance movement of gas after it has
been collected — interstate transportation.’’ Conoco, 90 F.3d
at 543 (citing Farmland Indus., Inc., 23 F.E.R.C. ¶ 61,063, at
61,143 (1983); Amerada Hess Corp., 52 F.E.R.C. ¶ 61,268, at
61,987–88 (1990)). Under the primary function test, FERC
considers six physical criteria: (1) the pipelines’ length and
diameter; (2) the central point in the field; (3) the facility’s
geographic configuration or pattern; (4) the location of com-
pressors and processing plants, particularly where the pipe-
lines are located behind the plant; (5) the location of wells
along all or part of the facilities; and (6) the line’s operating
4
pressure. ExxonMobil, 297 F.3d at 1077 (citing Lomak
Petroleum, Inc. v. FERC, 206 F.3d 1193, 1196 (D.C. Cir.
2000)). FERC also accounts for certain nonphysical factors,
including: (1) the facility’s purpose, location, and operation;
(2) the pipeline owner’s general business activity; (3) the
objectives of the NGA and other pertinent legislation; and (4)
the changing technical and geographic nature of exploration
and production activities. ExxonMobil, 297 F.3d at 1077.
No single criterion is dispositive, and not all of the factors
apply in all situations. Id. (citing Williams Field Servs.
Group, Inc. v. FERC, 194 F.3d 110, 116 (D.C. Cir. 1999);
Conoco, 90 F.3d at 543).
FERC initially developed the primary function test for
classifying onshore facilities, and it later modified the test in
considering the increasing number of pipelines that were
being constructed offshore on the Gulf of Mexico’s Outer
Continental Shelf (‘‘OCS’’), where gathering and distribution
patterns are somewhat different. ExxonMobil, 297 F.3d at1077 (citing EP Operating Co. v. FERC, 876 F.2d 46 (5th Cir.
1989)). Because offshore pipelines often must transport raw
gas over longer distances, FERC adopted a ‘‘sliding scale’’
approach that permitted gathering pipelines of greater length
and diameter in correlation with distance from shore and
water depth. ExxonMobil, 297 F.3d at 1078 (citing Amerada
Hess, 52 F.E.R.C. at 61,988). When FERC applied this
modified approach in determining that the Sea Robin Pipeline
Company’s pipelines were jurisdictional transmission facili-
ties, the Fifth Circuit reversed, questioning FERC’s heavy
emphasis on the facilities’ size and on nonphysical factors and
inviting FERC to reformulate its primary function test in
light of the ‘‘physical, geographical and operational character-
istics of pipelines in the OCS.’’ Sea Robin Pipeline Co. v.
FERC, 127 F.3d 365, 369–71 (5th Cir. 1997). On remand,
FERC determined that the ‘‘behind-the-plant’’ test is not
determinative of the gathering question offshore, and that
instead it would look at the offshore system’s configuration to
locate a central point where gas is aggregated for transporta-
tion onshore. Sea Robin Pipeline Co., 87 F.E.R.C. ¶ 61,384,
at 62,425 (1999) (Sea Robin II). FERC explained that this
5
central aggregation point is analogous to the ‘‘central-point-
in-the-field’’ criterion for onshore systems and should be
‘‘given weight in identifying the demarcation point between
gathering and transportation on OCS pipeline systems.’’ Id.
at 62,426. FERC also emphasized that it would focus primar-
ily on physical factors, according only secondary importance
to nonphysical factors. Sea Robin Pipeline Co., 92 F.E.R.C.
¶ 61,072, at 61,284 (2000). This court subsequently held that
FERC reasonably applied its reformulated primary function
test to the Sea Robin system. ExxonMobil, 297 F.3d at 1087.
It was against the backdrop of the evolving primary func-
tion test and the distinction between jurisdictional transmis-
sion and exempt gathering facilities that Transco and WGP
filed the applications at issue. In the parlance of the oil and
gas industry, a ‘‘spindown’’ occurs when a natural gas trans-
porter transfers operation of its facilities to a gathering
affiliate. See Conoco, 90 F.3d at 541. In 1996, Transco
sought FERC’s authorization, pursuant to NGA section 7(b),
15 U.S.C. § 717f(b), to spin down a number of its facilities to
WGP as part of a comprehensive corporate restructuring
plan. Transco’s application covered a large number of its
facilities on seven different pipeline systems in Texas and
Louisiana and offshore on the OCS. On the same day, WGP
petitioned FERC for an order declaring that the facilities it
intended to acquire from Transco — most of which FERC
had previously certificated as transmission facilities under
section 7(c) of the NGA — were gathering facilities exempt
from its jurisdiction under section 1(b).
FERC dismissed the comprehensive application without
prejudice. Transcon. Gas Pipeline Corp., 76 F.E.R.C. ¶ 61,-
317, at 62,543 (1996) (‘‘Comprehensive Order’’). FERC ob-
served that ‘‘[t]he physical parameters of the subject facilities
are massive and complex, involving over 3,100 miles of pipe-
line,’’ and that the number of facilities included in Transco’s
application ‘‘is without precedent in prior ‘spin-down’ cases.’’
Id. (footnote omitted). Explaining that important differences
existed among the many pipelines that Transco included in its
application, and that, ‘‘[a]t the very minimum, large portions
of the facilities are clearly properly classified as jurisdictional
6
transmission facilities,’’ id. at 62,543, FERC also noted that ‘‘a
decision to grant the requested abandonment in this case
could set a precedent for ending NGA jurisdiction on the
OCS, as it is likely that virtually every similar interstate
pipeline on the OCS then would file a similar application.’’
Id. at 62,542. Because ‘‘[n]either Transco nor WGP included
in [its] pleadings an alternative request that [FERC] find
specific parts of the facilities to be TTT nonjurisdictional,’’
FERC dismissed the comprehensive application while stating
that Transco and WGP could still file ‘‘another proposal
requesting that [FERC] consider discrete portions of the
facilities TTT to be gathering.’’ Id. at 62,543. FERC denied
the request for rehearing, noting that ‘‘the parties [did] not
seek to parse the Transco facilities; rather, they continue[d]
to insist that [FERC] should find all the facilities at issue to
be gathering.’’ Transcon. Gas Pipe Line Corp., 95 F.E.R.C.
¶ 61,396, at 62,475–76 & n.3 (2001) (‘‘Comprehensive Rehear-
ing Order’’).
Transco and WGP then filed three sub-spindown applica-
tions seeking permission to abandon and to reclassify discrete
portions of the Transco systems. FERC approved the spin-
down of the North Padre Island and Central Texas Systems.
Transcon. Gas Pipe Line Corp., 96 F.E.R.C. ¶ 61,115, at
61,429 (2001) (‘‘North Padre/Central Texas Order’’). Relying
on the reformulated primary function test set forth in Sea
Robin II, 87 F.E.R.C. ¶ 61,384 (1999), FERC determined that
each system featured a central aggregation point demarcat-
ing gathering and transmission functions. North Padre/Cen-
tral Texas Order, 96 F.E.R.C. at 61,440–41 (2001). FERC
applied similar reasoning in approving Transco’s abandon-
ment of portions of the North High Island and West Camer-
on systems, again pinpointing central aggregation points and
identifying some, but not all, of the pipelines as serving
gathering functions. Transcon. Gas Pipe Line Corp., 96
F.E.R.C. ¶ 61,118, at 61,449, 61,458–60 (2001) (‘‘North High
Island/West Cameron Order’’). Finally, FERC approved
Transco’s requested abandonment of the Central Louisiana
facilities and, upon locating a central aggregation point at
Vermilion Block 67, designated part of the system as gather-
7
ing. Transcon. Gas Pipe Line Corp., 96 F.E.R.C. ¶ 61,246, at
61,966 (2001) (‘‘Central Louisiana Order’’). Transco and
WGP sought rehearing of those portions of the orders that
designated parts of the systems as transmission facilities, and
the Producers sought rehearing of the gathering determina-
tions. FERC denied the rehearing requests. Transcon. Gas
Pipe Line Corp., 97 F.E.R.C. ¶ 61,296 (2001), order on reh’g,
North Padre/Central Texas Order; Transcon. Gas Pipe Line
Corp., 97 F.E.R.C. ¶ 61,298 (2001), order on reh’g, Central
Louisiana Order; Transcon. Gas Pipe Line Corp., 97
F.E.R.C. ¶ 61,300 (2001), order on reh’g, North High Is-
land/West Cameron Order.
II.
Transco and WGP contend that FERC erred in rejecting
their initial comprehensive application and improperly deter-
mined in the sub-spindown proposals that portions of the
facilities were transmission rather than gathering. In consid-
ering these objections, the court will sustain FERC’s factual
findings if they are supported by ‘‘substantial evidence,’’ 15
U.S.C. § 717r(b); Louisiana Ass’n of Indep. Producers &
Royalty Owners v. FERC, 958 F.2d 1101, 1115 (D.C. Cir.
1992) (per curiam), and will set aside FERC’s actions if they
are arbitrary and capricious, Motor Vehicle Mfrs. Ass’n v.
State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983). The
court also applies Chevron’s familiar two-step framework to
FERC’s interpretation of section 1(b) of the NGA. Exxon-
Mobil, 297 F.3d at 1083 (citing Chevron U.S.A. Inc. v. Natu-
ral Res. Def. Council, 467 U.S. 837 (1984)). Moreover, the
court is mindful that in ‘‘evaluating and balancing the several
factors under the primary function test, [FERC] brings to
bear its considerable expertise about the natural gas indus-
try.’’ Conoco, 90 F.3d at 544 (citations omitted). Conse-
quently, ‘‘[t]he burden is on the petitioners to show that
[FERC’s] choices are unreasonable and its chosen line of
demarcation is not within a ‘zone of reasonableness’ as dis-
tinct from the question of whether the line drawn by [FERC]
is ‘precisely right.’ ’’ ExxonMobil, 297 F.3d at 1084 (citations
omitted).
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A.
According to Transco and WGP, FERC misconstrued the
comprehensive application as an ‘‘all or nothing’’ request — in
other words, FERC misunderstood Transco and WGP as
requesting that FERC allow them to abandon and reclassify
all of their facilities or none at all. Transco and WGP
maintain that their filings contained no such ‘‘all-or-nothing’’
contingency. Because Transco and WGP failed to object to
FERC’s all-or-nothing characterization in seeking rehearing,
they are precluded from raising this argument here. Section
19(b) of the NGA, 15 U.S.C. § 717r(b), bars the court from
considering on review any objection that was not raised on
rehearing, without good cause shown. Fed. Power Comm’n
v. Colorado Interstate Gas Co., 348 U.S. 492, 497–99 (1955);
ASARCO v. FERC, 777 F.2d 764, 774–75 (D.C. Cir. 1985).
Transco and WGP sought rehearing, challenging FERC’s
denial of the comprehensive application on a number of
grounds, but, despite FERC’s invitation to clarify that they
were making an alternative request that FERC find that
some parts of the facilities perform a gathering function,
Transco and WGP nowhere requested that FERC sever the
comprehensive application. Having filed a rehearing request
that implicitly accepted the Comprehensive Order’s all-or-
nothing understanding, and not having shown good cause for
failing to raise their severance argument before the agency,
Transco and WGP are barred from challenging that under-
standing before the court. See ASARCO, 777 F.2d at 775.
FERC therefore was forced either to declare that all of the
facilities at issue performed a gathering function or to deny
the comprehensive application altogether. In this posture,
jurisdiction and merits overlap, for the court must consider
the merits of FERC’s decision that at least one of the
facilities performed a transmission function, thereby preclud-
ing approval of the all-or-nothing petition. FERC’s decision
in the Comprehensive Order was driven by the primary
function analysis: FERC considered the relevant factors —
including pipeline size and length, volume of gas, and water
depth — and relied on no irrelevant factors. Comprehensive
Order, 76 F.E.R.C. at 62,542–43 & nn.9–12. Transco and
9
WGP contend that FERC was preoccupied with size, without
regard to the ‘‘sliding scale’’ analysis required by EP Operat-
ing, 876 F.2d at 48–49. On the contrary, FERC’s orders
demonstrate that FERC was concerned with the transmission
function of the pipelines located closest to shore, in the
shallowest waters, id. at 62,543 — precisely the type of
analysis contemplated by the sliding scale approach, Exxon-
Mobil, 297 F.3d at 1078 (citing Amerada Hess, 52 F.E.R.C. at
61,988). Specifically, FERC found that Transco and WGP
had ‘‘not adequately explained how TTT existing interstate
pipeline facilities that are not located in deep OCS waters,
i.e., waters in excess of 200 meters, can properly be reclassi-
fied as gathering lines under the ‘primary function’ test.’’
Comprehensive Order, 76 F.E.R.C. at 62,543. In light of this
analysis, it was reasonable for FERC to conclude that, ‘‘[a]t
the very minimum, large portions of the facilities are clearly
properly classified as jurisdictional transmission facilities.’’
Id.B.
Regarding two of the three sub-spindown proposals, Tran-
sco and WGP contend that FERC erred by failing to recog-
nize the physical realities of gathering exhibited by all of the
pipelines addressed in the Central Louisiana Order and the
North High Island/West Cameron Order, and thus failed
properly to apply the modified primary function test for
offshore gathering systems. See EP Operating Co., 876 F.2d
at 48–49; Amerada Hess, 52 F.E.R.C. ¶ 61,268 (1990).
Transco and WGP contend that the Central Louisiana
Order was in error for two primary reasons. First, they
claim that FERC neglected to apply Amerada Hess’s sliding-
scale approach, which was designed to ‘‘allow the use of
gathering pipelines of increasing lengths and diameters in
correlation to the distance from shore and the water depth of
the offshore production area.’’ Amerada Hess, 52 F.E.R.C.
at 61,988. Transco and WGP maintain that FERC failed to
recognize that the Central Louisiana system’s spine-and-
lateral configuration is characteristic of a gathering function,
10
regardless of whether the system is on- or offshore, and that
the offshore pipelines are longer and larger only because of
the distances involved, not because their function is different.
Second, Transco and WGP contend that in concluding that
Vermilion Block 67 marks the central aggregation point at
which the offshore lines convert from gathering to transmis-
sion, FERC ignored the fact that the offshore pipelines are
part of the spine-and-lateral gathering system, and that the
Cow Island Junction is the proper point of central aggrega-
tion.
Because ‘‘[i]t is for [FERC], in the first instance, to deter-
mine the patterns of gathering and transportation in the
offshore context,’’ the court is ‘‘generally ‘unwilling to review
line-drawing performed by [FERC] unless a petitioner can
demonstrate that lines drawn TTT are patently unreasonable,
having no relationship to the underlying regulatory prob-
lem.’ ’’ ExxonMobil, 297 F.3d at 1085 (quoting Cassell v.
FCC, 154 F.3d 478, 485 (D.C. Cir. 1998)). The Central
Louisiana Order makes clear that FERC properly consid-
ered the facilities’ diameter (sixteen and twenty inches),
length (forty-two miles), and the source of the pipelines’
pressure (from the wellhead), as well as the absence of
processing plants (which, FERC explained, means little off-
shore). 96 F.E.R.C. at 61,976. Transco and WGP have not
carried their burden of showing that FERC’s determination
falls outside of a ‘‘zone of reasonableness.’’ ExxonMobil, 297
F.3d at 1084. The court in ExxonMobil affirmed FERC’s
use of the central-aggregation-point test for offshore systems,
id. at 1087, and a map of the Central Louisiana system shows
that FERC reasonably concluded that the entire system
features two aggregation points — one at Vermilion Block 67
and the other at Cow Island Junction. Given the system’s
configuration — a spine-and-lateral system in which many
smaller pipelines branch off of a central ‘‘spine’’ — it was
permissible for the Commission to find that some of the
pipelines assume a transmission function when they converge
at Vermilion Block 67, while others serve a gathering purpose
until they reach Cow Island. 96 F.E.R.C. at 61,977. ‘‘Rea-
sonable people may disagree as to where gathering ends and
11
transportation begins,’’ and this court will not substitute its
judgment for a FERC determination that is not ‘‘patently
unreasonable.’’ ExxonMobil, 297 F.3d at 1085; see also
Conoco, 90 F.3d at 544.
The same deference principles apply to FERC’s findings in
the North High Island/West Cameron Order. This system is
shaped like an inverted ‘‘Y’’ with two ‘‘legs’’ — the North
High Island pipelines to the west and the West Cameron
pipelines to the east — that converge onshore at the Station
44/Cameron Meadows complex. FERC determined that only
a portion of the North High Island subsystem is nonjurisdic-
tional, locating a central aggregation point at Block 10, North
High Island/West Cameron Order, 96 F.E.R.C. at 61,458–59,
and that the entirety of the West Cameron subsystem serves
a transmission function, id. at 61,459. Transco and WGP
contend that FERC erred by evaluating the east and west
legs independently rather than treating the Station 44/Cam-
eron Meadows complex as the central aggregation point.
According to Transco and WGP, the entire system, like the
Sea Robin system, must be evaluated as a whole, and FERC
cannot view each leg of the ‘‘Y’’ independently. But FERC
explained that the two subsystems ‘‘generally operate inde-
pendently, with the North High Island facilities collecting gas
from the west in Offshore Texas and the West Cameron
facilities collecting gas from the east in Offshore Louisiana.’’
Id. at 61,458. Then, in assessing each subsystem, FERC
noted the differences between the two. FERC reasonably
concluded, in light of these differences, that the subsystems
serve transmission functions before converging at the Station
44/Cameron Meadows complex. As in ExxonMobil, it was
permissible for FERC to conclude ‘‘that different parts of the
system required different jurisdictional treatment.’’ Exxon-
Mobil, 297 F.3d at 1085.
Transco and WGP next contend that FERC improperly
designated a central aggregation point on the North High
Island facility rather than finding the whole facility to be
gathering. FERC explained that ‘‘[t]he North High Island
subsystem consists of approximately 174 miles of 4 to 30–inch
pipeline,’’ most of which is ‘‘relatively small, with the lines
12
ranging from 4 to 24–inches in diameter.’’ North High
Island/West Cameron Order, 96 F.E.R.C. at 61,458. ‘‘The
longest segment is a 63 mile, 24–inch Line C that connects all
the upstream facilities with the plant complex onshore.’’ Id.FERC concluded that ‘‘[a]lthough the North High Island
Block 10 point does not exhibit as strong an indication of a
marked physical change in facilities as was the case in Sea
Robin,’’ the interconnection of the 24–inch Line C with a 12–
mile, 16–inch line at Block 10 nonetheless ‘‘serves as the
central point of aggregation for the subsystem, where all the
gas gathered upstream is delivered to a single point for
transportation onshore.’’ Id. at 61,458–59. In reaching this
conclusion, FERC considered the length and diameter of the
pipeline, the volume of gas transmitted, the shape of the
subsystem, and the gas pressure. Id. at 61,459. Given that
FERC considered the pertinent factors, its conclusion was
not arbitrary and capricious. See Conoco, 90 F.3d at 544.
Transco and WGP further contend that FERC erred in
concluding that all of the West Cameron facility is transmis-
sion. In assessing the West Cameron facility, FERC consid-
ered the length, diameter, and pressure of the pipeline on the
West Cameron subsystem; the location of wells and lack of
processing plants along the line; and the shape of the long,
continuous pipeline connecting production in the OCS to the
onshore processing facilities. North High Island/West Cam-
eron Order, 96 F.E.R.C. at 61,459–60. Based on these fac-
tors, FERC found ‘‘that the West Cameron subsystem’s
primary function is that of a transmission facility, not a
gathering one.’’ Id. at 61,460. This conclusion was not
arbitrary and capricious.
Transco and WGP contend, finally, that FERC failed to
comply with its own precedent when it ignored the historical
evolution of the Central Louisiana and North High Is-
land/West Cameron systems in determining their primary
function. In Enron Gulf Coast Gathering L.P., 95 F.E.R.C.
¶ 61,318 (2001), FERC stated that the fact that the pipelines
in question ‘‘were built in separate stages over a number of
years after’’ the original system’s construction ‘‘in order to
access new gas supplies on the OCS also speak[s] to their
13
primary gathering function.’’ Id. at 62,097 (footnote omitted).
Transco and WGP contend that, consistent with that prece-
dent, they presented FERC with detailed evidence showing
that the systems’ history and evolution suggest a primary
gathering function. But FERC did not err in according little
weight to this factor. Although FERC recognized in Enron
that the historical evolution of the pipeline system may be
relevant, it has not traditionally been a criterion in the
primary function test. See ExxonMobil, 297 F.3d at 1077.
Moreover, as FERC notes, the Fifth Circuit instructed
FERC to afford nonphysical factors, such as a system’s
historical evolution, only secondary importance. Sea Robin,
127 F.3d at 371. In any event, this court has observed that
‘‘the historical classification’’ of a system is ‘‘of limited utility’’
in ‘‘ ‘the wake of major regulatory changes in the natural gas
industry’ ’’ effected by Order No. 636, Pipeline Service Obli-
gations and Revisions to Regulations Governing Self–Imple-
menting Transportation and Regulation of Natural Gas
Pipelines After Wellhead Decontrol, F.E.R.C. Stats. & Regs.
¶ 30,939, reh’g granted in part, Order No. 636–A, F.E.R.C.
Stats. & Regs. ¶ 30,950, reh’g denied, Order No. 636–B, 61
F.E.R.C. ¶ 61,272 (1992), aff’d in part, rev’d in part sub nom.
United Distrib. Cos. v. FERC, 88 F.3d 1105 (1996) (per
curiam) (‘‘Order No. 636’’). ExxonMobil, 297 F.3d at 1086–87
(quoting Conoco, 90 F.3d at 539). For reasons we explain in
Part III, this analysis applies to Transco’s facilities. Thus,
FERC did not err in declining to classify the lines as gather-
ing on the basis of their historical evolution.
III.
The Producers challenge approval of the abandonment and
reclassification of Transco’s facilities on the grounds that
FERC: (1) failed to find that a change in circumstances
justified revisiting an earlier classification of Transco’s facili-
ties as gathering; (2) misapplied the reformulated primary
function test; and (3) neglected to conduct a sufficient public
interest analysis. Each of these contentions lacks merit.
14
FERC has stated that ‘‘[e]xisting interstate pipelines and
gathering facilities [will] retain their status barring some
change in circumstancesTTTT’’ Gas Pipeline Facilities and
Services on the Outer Continental Shelf, 74 F.E.R.C. ¶ 61,222,
at 61,757 (1996) (‘‘OCS Policy Statement’’). According to the
Producers, Transco requested in 1990 that FERC certificate
its facilities as transmission when Transco was restructuring
from a merchant to a transporter. Because FERC granted
Transco’s request, the Producers maintain, the OCS Policy
Statement required FERC to find that a change in circum-
stances justified revisiting the certification decision.
FERC explained in the orders on review that Order No.
636, which promoted the unbundling of pipeline services,
effected significant changes in the industry, and that those
changes justified Transco’s abandonment request. E.g.,
North Padre/Central Texas Order, 96 F.E.R.C. at 61,434.
FERC noted that Transco had sought to certificate its pipe-
lines as transmission at a time when ‘‘Transco did not have a
need to precisely distinguish between jurisdictional transmis-
sion and exempt gathering facilities,’’ because those services
could be bundled. Id. at 61,431. But ‘‘Transco, like many
interstate pipelines, found after restructuring its system con-
sistent with Order No. 636, and moving from a bundled,
merchant function to an unbundled, transportation function,
that it no longer needed all of its existing system facilities.’’
Id. at 61,434. FERC accordingly found that Transco’s re-
quested spindown was reasonable ‘‘because [its] facilities are
no longer necessary for the service it currently provides.’’
Id.
FERC’s explanation is consistent with the major industry
changes wrought by Order No. 636. In ExxonMobil, for
instance, the petitioners complained that FERC failed ‘‘to
give weight to the previously ‘settled status’ of the classifica-
tion of [the facilities in question] as engaged in jurisdictional
transportation.’’ ExxonMobil, 297 F.3d at 1086. But the
court observed that ‘‘[w]hen interstate gas pipelines served
the multi-function role of purchasing, gathering, transporting,
and re-selling natural gas, i.e. bundled sales, the transporta-
tion/gathering jurisdictional question may have been of less
15
consequence.’’ Id. (citation omitted). The court then ex-
plained that FERC ‘‘has been struggling with the reclassifica-
tion of facilities in the wake of the unbundling of gas sales
and interstate transportation in Order No. 636.’’ Id. at 1087
(citing Conoco, 90 F.3d at 539–41). Because Order No. 636
took effect after Transco’s certification, the changes effected
by the Order then were sufficiently significant to justify
FERC’s revisiting of Transco’s classifications. The Produc-
ers object that if this rationale is accepted, then all prior
determinations of transmission/gathering status could poten-
tially be reopened, thereby upsetting producers’ reliance and
repose interests. Even so, the objection confirms the under-
standing that Order No. 636 worked a substantial change in
the industry; it does not provide a reason for declining to
revisit Transco’s certification.
Furthermore, in light of the court’s upholding in ExxonMo-
bil, 297 F.3d at 1087, of FERC’s modified primary function
test as reasonable, the Producers’ contention that FERC’s
orders are founded on a flawed reformulation of the primary
function test necessarily fails. Similarly, the Producers’ con-
tention that FERC misapplied the primary function test by
according determinative weight to the central-aggregation-
point factor also fails. Although FERC maintains that the
Producers waived this challenge by failing to raise it on
rehearing, see 15 U.S.C. § 717r(b); Colorado Interstate Gas,
348 U.S. at 497–99; ASARCO, 777 F.2d at 774–75, their
argument before FERC that it erred in selecting the specific
points along Transco’s system where gathering ends and
transmission began was sufficient to preserve the objection.
While the Producers maintain that FERC erred in finding
that virtually all facilities located upstream from the central
aggregation point are gathering and in failing to reconcile its
conclusions with prior precedents, the orders demonstrate
that FERC adequately considered a range of relevant fac-
tors — the facilities’ length and diameter, the volume of gas
transmitted, the pipelines’ configuration, the location of com-
pression facilities and processing plants, the source of pres-
sure, and the presence of a central aggregation point. North
Padre/Central Texas Order, 96 F.E.R.C. at 61,440–42; North
16
High Island/West Cameron Order, 96 F.E.R.C. at 61,458–60;
Central Louisiana Order, 96 F.E.R.C. at 61,976–77. FERC
did ‘‘not consider any one factor to be determinative,’’ North
Padre/Central Texas Order, 96 F.E.R.C. at 61,442, and its
determinations were consistent with prior precedent. Al-
though the Producers contend that FERC’s decisions in
Seahawk Shoreline System, 93 F.E.R.C. ¶ 61,097 (2000), reh’g
denied, Seahawk Transmission Co., 95 F.E.R.C. ¶ 61,342
(2001), and Venice Gathering Co., 97 F.E.R.C. ¶ 61,045 (2001),
are dispositive because the size of those pipelines was the
same as the size of Transco’s facilities, other relevant differ-
ences remain, including the systems’ proximity to shore and
their connections to other lines. Hence, ‘‘it is entirely appro-
priate for FERC to proceed on a case-by-case basisTTTT’’
ExxonMobil, 297 F.3d at 1087 (citing SEC v. Chenery Corp.,
332 U.S. 194, 202–03 (1947)). FERC gave reasoned consider-
ation to each of the pertinent factors, and its factual conclu-
sions are supported by substantial evidence in the record.
ExxonMobil, 297 F.3d at 1084 (citations and quotations omit-
ted).
Producers finally contend that even if the facilities are
properly classified as gathering, the NGA required FERC to
make a public interest finding before permitting Transco to
abandon the facilities by sale to a nonjurisdictional affiliate.
See 15 U.S.C. § 717f(b); Transcon. Gas Pipe Line Corp. v.
Fed. Power Comm’n, 488 F.2d 1325, 1328 (D.C. Cir. 1973)
(per curiam); Michigan Consol. Gas Co. v. Fed. Power
Comm’n, 283 F.2d 204, 214 (D.C. Cir. 1960). The Producers
explain that the facilities in question were certificated as
transmission, and the abandonment of certificated facilities is
subject to FERC’s public interest standard. In a public
interest analysis, ‘‘the burden of proof is on the applicant for
abandonment to show that the ‘public convenience and neces-
sity’ permits abandonment, that is, that the public interest
‘will in no way be disserved’ by abandonment.’’ Transcon.
Gas, 488 F.2d at 1328 (quoting Michigan Consol., 283 F.2d at
214). The Producers contend that FERC failed adequately to
consider the anti-competitive effects of Transco’s abandon-
ment.
17
In FERC’s view, ‘‘the issue of competition’’ is not ‘‘relevant
to whether or not [FERC] will regulate an affiliated gather-
er’s rates or terms and conditions of service after it acquires
abandoned facilities,’’ because FERC ‘‘has no authority under
the NGA to regulate a gatherer’s rates or its terms and
conditions of service.’’ North High Island/West Cameron
Order, 96 F.E.R.C. at 61,454 (citing Conoco, 90 F.3d 536).
Put more simply, ‘‘NGA § 7(b) does not require [FERC]
authorization for a transfer of gathering facilities.’’ Respon-
dent’s Br. at 50. As the court has explained, ‘‘section 7(b)
only applies to jurisdictional facilities, and ‘do[es] not expand
[FERC’s] § 1(b) jurisdiction.’ ’’ ExxonMobil, 297 F.3d at
1088 (quoting Conoco, 90 F.3d at 553); accordingly, the
petitioner in ExxonMobil could not use section 7(b) to ‘‘boot-
strap’’ FERC jurisdiction over a set of gathering facilities
that the petitioner sought to reclassify (but not to abandon).
Id. Although the situation here is slightly different than in
ExxonMobil, because Transco wishes to abandon its pipelines
rather than simply reclassify them, FERC properly deter-
mined that under NGA section 7(b) it had no discretion to
deny abandonment of Transco’s facilities that it found were
primarily functioning as gathering. See, e.g., North Pa-
dre/Central Texas Order, 96 F.E.R.C. at 61,435. We part
company with the Fifth Circuit’s opinion in Pacific Gas &
Electric Co. v. FERC, 106 F.3d 1190 (5th Cir. 1997), to the
extent it holds that FERC has discretion to examine whether
abandonment would be in the public interest, id. at 1197, for
once FERC determines that a facility is not dedicated to a
jurisdictional function, it has no authority to exercise jurisdic-
tion over that facility by denying the certificate of abandon-
ment for that facility.
As to shippers’ anti-competition concerns, FERC explained
that even though it lacked the authority to deny the abandon-
ment, the concerns were unfounded because the abandonment
was ‘‘consistent with the unbundling policies of Order No. 636
and should, in the long run, promote competition within the
gathering industry.’’ North High Island/West Cameron Or-
der, 96 F.E.R.C. at 61,454 (citing Northern Natural Gas Co.,
93 F.E.R.C. ¶ 61,101, at 61,273 (2000)). FERC further noted
18
that ‘‘the facilities at issue here are located on the OCS and
will become subject to the [Outer Continental Shelf Lands
Act (‘‘OCSLA’’), 43 U.S.C. §§ 1331–56 (2000),] upon approval
of the spindown,’’ thereby limiting any potential anti-
competitive effects. North Padre/Central Texas Order, 96
F.E.R.C. at 61,435. Under FERC’s OCSLA regulations,
WGP is required to report the terms under which it provides
service to shippers; a shipper can file a complaint if it
believes either Transco or WGP has violated its statutory
obligations and ‘‘the Commission will investigate any such
complaint in a timely manner.’’ Id. (citing 18 C.F.R. § 332.2,
332.206 (2000)). Thus, FERC has taken the long view, con-
cluding that Order No. 636’s unbundling policies create com-
petitive conditions and that, combined with the standards of
conduct for gathering facilities in Transco’s tariff, the OCSLA
sufficiently guards against the exercise of monopoly power.
See United Distrib. Cos., 88 F.3d at 1139.
Accordingly, because the court is ‘‘ ‘generally unwilling to
review line-drawing performed by [FERC] unless a petitioner
can demonstrate that lines drawn TTT are patently unreason-
able, having no relationship to the underlying regulatory
problem,’ ’’ ExxonMobil, 297 F.3d at 1085 (quoting Cassell v.
FCC, 154 F.3d 478, 485 (D.C. Cir. 1998)), and FERC’s conclu-
sions were reasonable, we deny the petitions for review.