United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 20, 2006 Decided December 19, 2006
No. 05-1342
WILLIAMS GAS PROCESSING-GULF COAST
COMPANY, L.P., ET AL.,
PETITIONERS
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
PRODUCER COALITION, ET AL.,
INTERVENORS
On Petition for Review of Orders of the
Federal Energy Regulatory Commission
James T. McManus argued the cause for petitioners. With
him on the briefs were Joseph S. Koury, Mari M. Ramsey, and
David A. Glenn.
Carol J. Banta, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. On the brief
were John S. Moot, General Counsel, and Robert H. Solomon,
Solicitor.
Thomas J. Eastment argued the cause for intervenors
Dominion Exploration & Production, Inc., et al. With him on
2
the brief were Adam J. White, James M. Costan, Charles J.
McClees, Douglas W. Rasch, Bruce A. Connell, and Frederick
T. Kolb.
Before: SENTELLE and TATEL, Circuit Judges, and
EDWARDS, Senior Circuit Judge.
Opinion for the Court filed by Senior Circuit Judge
EDWARDS.
EDWARDS, Senior Circuit Judge: Williams Gas Processing-
Gulf Coast Co. (“WGP”) and Transcontinental Gas Pipe Line
Corp. (“Transco”) petition for review of two Federal Energy
Regulatory Commission (“FERC” or “the Commission”) orders
asserting jurisdiction over a natural gas pipeline off the coast of
Louisiana. See Transcontinental Gas Pipe Line Corp., 111
F.E.R.C. ¶ 61,498 (2005) (“2005 Transco Rehearing Order”);
Transcontinental Gas Pipe Line Corp., 111 F.E.R.C. ¶ 61,090
(2005) (“2005 Transco Jurisdictional Order”). Under the
Natural Gas Act (“NGA” or “the Act”), 15 U.S.C. §§ 717-717z,
FERC has jurisdiction over pipelines that “transport” natural
gas, but not over those that “gather” it. But the Act does not
define these terms, leaving FERC to create a test that will
rationally and reliably distinguish between the two types of
pipeline. FERC’s efforts to properly classify Transco’s pipeline
are emblematic of its struggle to complete this task.
In 2001, FERC disclaimed jurisdiction over a 12.43 mile,
24-inch diameter pipeline in Transco’s Central Louisiana system
lying downstream of the pipeline facilities of Jupiter Energy
Corp. (“Jupiter”). Transcontinental Gas Pipe Line Corp., 96
F.E.R.C. ¶ 61,246 (2001) (“2001 Transco Jurisdictional
Order”), reh’g denied in relevant part, Transcontinental Gas
Pipe Line Corp., 97 F.E.R.C. ¶ 61,298 (2001) (“2001 Transco
Rehearing Order”). This court upheld FERC’s 2001 orders as
supported by substantial evidence and not arbitrary and
3
capricious. Williams Gas Processing-Gulf Coast Co. v. FERC,
331 F.3d 1011 (D.C. Cir. 2003) (“WGP-Transco I”).
In 2003, in a separate proceeding initiated by Jupiter, FERC
determined that an 8-inch Jupiter pipeline feeding into the 24-
inch Transco lateral serves a transportation function. Jupiter
Energy Corp., 103 F.E.R.C. ¶ 61,184 (2003), reh’g denied,
Jupiter Energy Corp., 105 F.E.R.C. ¶ 61,243 (2003) (“2003
Jupiter Rehearing Order”). The consequence of this ruling was
that a jurisdictional pipeline (Jupiter) flowed into a non-
jurisdictional pipeline (Transco). On review, the Fifth Circuit
vacated and remanded, holding that the Commission’s decision
was arbitrary and capricious because Jupiter’s transportation
pipeline sat upstream of a Transco gathering pipeline. Jupiter
Energy Corp. v. FERC, 407 F.3d 346, 350-51 (5th Cir. 2005)
(“Jupiter Appeal”). The Fifth Circuit noted that FERC’s Jupiter
orders produced an “anomalous scenario,” to wit: “A series of
gathering pipelines (upstream . . .) feed[ing] into a
transportation pipeline (Jupiter’s 8-inch line), . . . in turn
feed[ing] into a gathering pipeline (the Transco line).” Id. at
350. The court concluded that “this cannot be considered
consistent.” Id.
In 2004, before the Fifth Circuit’s Jupiter Appeal decision
had been handed down, FERC issued an order requiring WGP
and Transco to show cause why the agency’s 2001 Transco
Jurisdictional Order should not be reversed as “anomalous” in
light of the Jupiter orders. Transcontinental Gas Pipe Line
Corp., 107 F.E.R.C. ¶ 61,122 (2004) (“Show Cause Order”).
Shortly after the Fifth Circuit vacated the Jupiter orders, FERC
reversed its prior determination and held that the Transco lateral
directly downstream of the Jupiter facility serves a
transportation function. 2005 Transco Jurisdictional Order, 111
F.E.R.C. ¶ 61,090.
On June 28, 2005, FERC issued two decisions. First, in the
case on remand from the Fifth Circuit, the Commission affirmed
4
its jurisdictional determination in the Jupiter orders. Jupiter
Energy Corp., 111 F.E.R.C. ¶ 61,497 (2005). Second, FERC
denied the request for rehearing of its 2005 Transco
Jurisdictional Order, on the grounds that the disputed 2001
orders were issued “on the basis of incomplete information,” and
“no gas is collected along the length of Transco’s downstream
line.” 2005 Transco Rehearing Order, 111 F.E.R.C. ¶ 61,498.
The Jupiter orders are now pending review before the Fifth
Circuit and the challenges to the Commission’s 2005 Transco
Jurisdictional Order and 2005 Transco Rehearing Order are at
the heart of the petition for review in this case.
WGP and Transco’s principal argument is that it was
unlawful for FERC to reconsider its prior conclusion regarding
Transco’s pipeline segment lying downstream of the pipeline
facilities of Jupiter. Petitioners argue, in particular, that “[t]he
Commission’s lone finding and premise . . . that the subject
pipeline facility is not a ‘gathering’ facility solely because,
purportedly, no gas was collected along that pipeline . . . is
contrary to the facts of record.” Petitioners’ Reply Br. at 2.
Petitioners also contend that, because “the Commission . . .
previously decided these same facilities to be gathering in final,
court-affirmed orders, the Commission is barred from
re-deciding these same issues.” Id.
WGP and Transco are right in their observation that “[t]his
is a classic case of an agency, both in its orders under review
and its brief to this Court, failing to demonstrate that it has
engaged in reasoned decisionmaking.” Id. They are wrong,
however, in suggesting that FERC was without authority to
reconsider its 2001 Transco Jurisdictional Order. Indeed,
petitioners’ counsel conceded at oral argument that it is within
FERC’s authority to make jurisdictional determinations that rest
on the premises that (1) there is one point on any given route
where gathering stops and transportation begins, and (2) a
transportation pipeline cannot feed into a gathering pipeline.
5
See Recording of Oral Argument at 12:06. These two points
were highlighted by the Fifth Circuit in the Jupiter Appeal
decision. 407 F.3d at 350-51. If these two principles apply,
then FERC might be justified in finding that both the Jupiter and
Transco lines are jurisdictional facilities. The problem here is
that the agency’s rationale underlying the disputed 2005 Transco
Jurisdictional Order and 2005 Transco Rehearing Order only
hints at these principles.
In its briefs to this court, FERC argues that it revisited its
2001 Transco Jurisdictional Order to eliminate a “fundamental
inconsistency” in its case law. Respondent’s Br. at 3, 13. The
Commission could have stated as much in its 2005 orders and
justified the policy shift, for an agency is free to change course
in a regulatory regime provided that it offers a reasoned
explanation for so doing and is not otherwise constrained by
statutory limitations. We are forced to vacate the 2005 orders,
however, because in those decisions, FERC neither explained its
action as consistent with precedent nor justified it as a reasoned
and permissible shift in policy. Although these orders ultimately
may prove to be justified on the merits, they are presently
wanting for lack of reasoned decisionmaking.
I. BACKGROUND
The Natural Gas Act grants FERC the power to regulate
“the transportation [or ‘transmission’] of natural gas in interstate
commerce” but not “the production or gathering of natural gas.”
15 U.S.C. § 717(b). Until fairly recently, companies sold gas
under rates that encompassed both gathering and transportation
services. Lomak Petroleum, Inc. v. FERC, 206 F.3d 1193, 1195
n.2 (D.C. Cir. 2000). However, “in the wake of major
regulatory changes in the natural gas industry,” including the
unbundling of gathering and transportation services, Conoco
Inc. v. FERC, 90 F.3d 536, 539-41 (D.C. Cir. 1996), companies
primarily engaged in transporting gas “no longer need[] to
operate” gathering facilities, Lomak, 206 F.3d at 1195. As a
6
result, many natural gas transporters have sought to separate
their transportation and gathering facilities, through transfer
(otherwise known as “spindown”) of the latter to gathering
affiliates. See WGP-Transco I, 331 F.3d at 1015.
Because the NGA does not define gathering and
transportation, FERC is responsible for drawing the “not always
clear” line between the two. See ExxonMobil Gas Mktg. Co. v.
FERC, 297 F.3d 1071, 1076-77 (D.C. Cir. 2002) (quoting
Conoco, 90 F.3d at 542). Gathering facilities are generally
understood to be pipelines that collect gas from wells (where gas
originates) and deliver it into pipelines which will transport it in
interstate commerce. Id. at 1076; Conoco, 90 F.3d at 539 n.2.
However, since on any given route between the wells (upstream)
and the final destination (downstream), various pipeline
segments may be owned by different companies, it is no mean
feat for the agency to determine which segments serve a
gathering function and which do not. Faced with this reality and
inundated with requests for jurisdictional clarification, see Gas
Pipeline Facilities & Servs. on the Outer Cont’l Shelf, 74
F.E.R.C. ¶ 61,222, at 61,751-52 (1996), FERC has had trouble
finding its footing. See ExxonMobil, 297 F.3d at 1087 (“FERC
has been struggling with the reclassification of facilities . . . .”);
Shell Gas Pipeline Co., 74 F.E.R.C. ¶ 61,277, at 61,895 (1996)
(“[T]he development of an appropriate methodology has been an
ongoing task . . . .”).
In Farmland Industries, Inc., 23 F.E.R.C. ¶ 61,063 (1983),
FERC announced the “primary function test,” under which it
considers six factors to determine the jurisdictional status of a
pipeline: “(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 compressors and processing plants,
particularly where the pipelines are located behind[, i.e.
upstream of,] the [processing] plant; (5) the location of wells
along all or part of the facilities; and (6) the line[s’] operating
7
pressure.” WGP-Transco I, 331 F.3d at 1014. Only six years
later, however, the Fifth Circuit found fault with the test,
because it ignored the geographical realities of offshore gas
collection (where pipelines serving a gathering function often
need to be larger and longer) and focused instead on purely
physical criteria. EP Operating Co. v. FERC, 876 F.2d 46, 48-
49 (5th Cir. 1989). The primary function test was seen by the
court as failing to classify facilities with “marked similarities in
operational characteristics” the same way. Id. at 50.
In response, FERC modified its primary function test to
include “a sliding scale which will 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 Corp., 52 F.E.R.C. ¶ 61,268,
at 61,988 (1990). It also announced that it would consider
“nonphysical criteria such as the purpose, location and operation
of the facility, the general business activity of the owner of the
facility, and whether the jurisdictional determination is
consistent with the objectives of the NGA . . . .” Id. at 61,987;
see Sea Robin Pipeline Co. v. FERC, 127 F.3d 365, 369 (5th Cir.
1997) (“Sea Robin I”). After several years, however, the Fifth
Circuit concluded that FERC had once again failed to create a
viable test. According to the court, FERC had “reverted,”
committing exactly the same error criticized in EP Operating:
it treated the physical size of the pipeline as presumptive. Id. at
370. The court also found that the Commission was relying too
much on nonphysical factors, which, while “relevant, . . . are
only part of the mix” and should be treated as “secondary to the
physical factors.” Id. at 371. Because, in the court’s view,
FERC seemed unable to consistently resolve when gathering
ceases and transportation commences, the Fifth Circuit invited
FERC to “reformulate” its primary function test another time.
Id.
8
On remand, FERC revised the test. First, FERC concluded
that the “behind-the-plant” factor should be given less weight in
the offshore context, because almost all offshore facilities are
situated upstream of processing plants. Sea Robin Pipeline Co.,
87 F.E.R.C. ¶ 61,384, at 62,425 (1999) (“Sea Robin II”), reh’g
denied, Sea Robin Pipeline Co., 92 F.E.R.C. ¶ 61,072 (2000)
(“Sea Robin II Rehearing Order”). FERC then replaced the
“central point in the field” factor used in the onshore context
with a “centralized aggregation” inquiry into whether “there
exists a central location where gas is aggregated for further
transportation to shore.” Id. FERC stated that its revised test
would enable it to consistently discern the “point at which the
collection or gathering of gas ends, and interstate transmission
begins.” Id. at 62,427.
In its order denying rehearing of Sea Robin II, FERC stated,
“[T]he Commission does not agree that the fact of Sea Robin’s
upstream interconnection with [a jurisdictional facility], by
itself, compels a finding that the east leg of Sea Robin’s system
is jurisdictional.” Sea Robin II Rehearing Order, 92 F.E.R.C. ¶
61,072, at 61,295. ExxonMobil sought review before this court
arguing, inter alia, that “FERC’s jurisdictional ruling has
created an utterly illogical situation, wherein gas is transported
on a jurisdictional pipeline . . . into a non-jurisdictional
gathering leg of Sea Robin’s pipeline.” ExxonMobil, 297 F.3d
at 1087 (internal quotation marks omitted). After canvassing
FERC’s case law, we held that “the presence of an
interconnection with an upstream jurisdictional facility [does not
compel] a finding that the downstream facility is likewise
jurisdictional.” Id. Based on the historical treatment of the lines
in question, we explained that, “[i]f anything,” the jurisdictional
line upstream of the Sea Robin facility “ha[d] been erroneously
classified.” Id. We accepted FERC’s argument that the
“inconsistent treatment of the [upstream] pipeline and the Sea
Robin pipeline” did not necessarily render the decision arbitrary
and capricious and upheld the classification. Id. at 1087, 1089.
9
Such was the state of FERC’s primary function test when
Transco asked FERC to authorize the spindown of its Central
Louisiana system to WGP, and WGP in turn petitioned FERC
for a declaratory order disclaiming jurisdiction over the
facilities. After considering each factor of the revised primary
function test, FERC found that a large central pipeline, “the
spine,” serves a transportation function, while “6 to 24-inch
offshore lateral lines connect at various locations into the spine
and serve to collect gas from the surrounding production areas.”
2001 Transco Jurisdictional Order, 96 F.E.R.C. ¶ 61,246, at
61,976. FERC concluded that these lateral lines “serve to gather
gas from production located in their vicinity.” Id. FERC denied
rehearing with respect to the laterals’ classification, see 2001
Transco Rehearing Order, 97 F.E.R.C. ¶ 61,298, and we upheld
the 2001 orders as supported by substantial evidence and not
arbitrary and capricious, see WGP-Transco I, 331 F.3d 1011.
Before this court’s decision had issued in WGP-Transco I,
FERC conducted a separate jurisdictional status proceeding
covering Jupiter’s 8-inch line upstream of and feeding into one
of the 24-inch Transco laterals. Jupiter Energy Corp., 103
F.E.R.C. ¶ 61,184. Focusing heavily on the centralized
aggregation point factor, FERC concluded that the Jupiter
pipeline performs a transportation function. Id. at 61,713.
Jupiter sought rehearing, arguing that the presence of Transco’s
gathering lateral downstream of the Jupiter pipeline foreclosed
a finding that the facility engages in transportation. 2003
Jupiter Rehearing Order, 105 F.E.R.C. ¶ 61,243. FERC
concluded that its 2001 orders “cannot now be the basis for
claiming that Jupiter’s facilities should also be declared to be
gathering.” Id. at 62,286. In a footnote, FERC reversed the
position it had taken in its Sea Robin II Rehearing Order and
declared that “[t]he presence of upstream transmission facilities
determines the classification of downstream facilities, not the
opposite.” Id. at n.8.
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Seemingly uncomfortable with the muddle it had created –
“[a] series of gathering pipelines” feeding into “a transportation
pipeline (Jupiter’s 8-inch line), . . . in turn feed[ing] into a
gathering pipeline (the Transco line),” Jupiter Appeal, 407 F.3d
at 350 – FERC issued an order requiring WGP and Transco to
show cause why the 2001 Transco Jurisdictional Order should
not be reversed as “anomalous” in light of the Jupiter orders.
Show Cause Order, 107 F.E.R.C. ¶ 61,122, at 61,411. FERC
also repeated the declaration contained in its Jupiter footnote
that upstream transportation facilities determine the
classification of downstream facilities. Id.
Before FERC could address the Show Cause Order, the
Fifth Circuit vacated FERC’s Jupiter orders. Jupiter Appeal,
407 F.3d 346. The Fifth Circuit highlighted that FERC’s Sea
Robin II decision endorsed the principle that “there is one point
on any given route where gathering stops and transportation
begins.” Id. at 350. The Fifth Circuit therefore reasoned that,
because FERC had “already set the jurisdictional boundary
downstream from one of Jupiter’s pipelines,” it was “arbitrary
for the Commission now to set a jurisdictional dividing point
[further upstream].” Id. at 351. The court vacated the Jupiter
orders as anomalous and inconsistent. Id. at 350-51.
Just a week after the Fifth Circuit vacated the Jupiter orders,
FERC decided that WGP and Transco had failed to show cause
sufficient to prevent reclassification of the 24-inch lateral. 2005
Transco Jurisdictional Order, 111 F.E.R.C. ¶ 61,090. In the
“Background” section of its decision, FERC stated: (1) since it
had not been aware that a transportation facility stood upstream
of the lateral when it disclaimed jurisdiction over it in 2001, its
determination “was made on the basis of incomplete
information”; and (2) “[t]he presence of upstream transmission
facilities determines the classification of downstream facilities,
not the opposite.” Id. at 61,411. In the “Discussion” section of
its decision, FERC based its conclusion that Transco’s 24-inch
11
lateral actually serves a transportation function on one fact:
unlike the gathering arms of the Sea Robin pipeline, “[n]o gas
is collected along the Jupiter pipeline.” Id. at 61,413.
On June 28, 2005, FERC issued two decisions. First, FERC
affirmed its jurisdictional determination in the Jupiter orders. In
so doing, FERC noted that, because Transco’s pipeline was
being reclassified from gathering to transportation, “the
inconsistency identified by the [Fifth Circuit] no longer exists.”
Jupiter Energy Corp., 111 F.E.R.C. ¶ 61,497. Second, FERC
denied Transco’s request for rehearing, offering two rationales
in a five-paragraph decision: (1) the 2001 orders were issued
“on the basis of incomplete information”; and (2) “no gas is
collected along the length of Transco’s downstream line.” 2005
Transco Rehearing Order, 111 F.E.R.C. ¶ 61,498. FERC
provided no other reasoning or factual support for its conclusion.
WGP and Transco now seek review in this court.
II. ANALYSIS
A. Standard of Review
We must vacate FERC’s 2005 orders if they are arbitrary
and capricious. 5 U.S.C. § 706(2)(A); see ExxonMobil, 297
F.3d at 1083. We therefore look to whether FERC “articulated
a rational explanation for its action.” AT&T Inc. v. FCC, 452
F.3d 830, 837 (D.C. Cir. 2006) (quoting Eagle-Picher Indus.,
Inc. v. EPA, 759 F.2d 905, 921 (D.C. Cir. 1985)). Reasoned
decisionmaking necessarily requires consideration of relevant
precedent. See Brusco Tug & Barge Co. v. NLRB, 247 F.3d 273,
278 (D.C. Cir. 2001) (“[I]t is ‘axiomatic that [agency action]
must either be consistent with prior [action] or offer a reasoned
basis for its departure from precedent . . . .’” (quoting ConAgra,
Inc. v. NLRB, 117 F.3d 1435, 1443 (D.C. Cir. 1997))).
However, it is well understood that
[a]n agency is free to discard precedents or practices it no
longer believes correct. Indeed we expect that an[] agency
12
may well change its past practices with advances in
knowledge in its given field or as its relevant experience
and expertise expands. If an agency decides to change
course, however, we require it to supply a reasoned analysis
indicating that prior policies and standards are being
deliberately changed, not casually ignored.
Nuclear Energy Inst., Inc. v. EPA, 373 F.3d 1251, 1296 (D.C.
Cir. 2004) (per curiam) (internal citations and quotation marks
omitted); see Motor Vehicle Mfrs. Ass’n v. State Farm Mut.
Auto. Ins. Co., 463 U.S. 29, 57 (1983) (“An agency’s view of
what is in the public interest may change, either with or without
a change in circumstances. But an agency changing its course
must supply a reasoned analysis . . . .”) (internal quotation marks
omitted); see, e.g., Office of Commc’n, Inc. of the United Church
of Christ v. FCC, 327 F.3d 1222, 1228-29 (D.C. Cir. 2003)
(upholding policy-shift where agency adequately explained its
departure); ANR Pipeline Co. v. FERC, 205 F.3d 403, 407 (D.C.
Cir. 2000) (“An agency may not of course depart from prior
policy without explanation. But FERC explained how changed
circumstances justified a new policy.”); Busse Broad. Corp. v.
FCC, 87 F.3d 1456, 1458 (D.C. Cir. 1996) (upholding agency
action where “to the extent the agency departed from precedent,
it offered a reasonable explanation for doing so”).
Arbitrary and capricious review “demands evidence of
reasoned decisionmaking at the agency level; agency rationales
developed for the first time during litigation do not serve as
adequate substitutes.” Kansas City v. HUD, 923 F.2d 188, 192
(D.C. Cir. 1991); see Point Park Univ. v. NLRB, 457 F.3d 42, 50
(D.C. Cir. 2006) (“Nor can our Court fill in critical gaps in [an
agency’s] reasoning. We can only look to the [agency’s] stated
rationale. We cannot sustain its action on some other basis the
[agency] did not mention.”); Williams Gas Processing-Gulf
Coast Co. v. FERC, 373 F.3d 1335, 1345 (D.C. Cir. 2004) (“It
is axiomatic that we may uphold agency orders based only on
13
reasoning that is fairly stated by the agency in the order under
review . . . .”).
WGP and Transco point out that in 2001 FERC applied
each factor of its primary function test and concluded that
Transco’s 24-inch lateral performs a gathering function; yet, in
2005, FERC reached the opposite conclusion, Petitioners’ Br. at
19-20, but without the requisite support for such a drastic
change in course, id. at 18, 25. The simple question here is
whether FERC’s reclassification of the Transco lateral is
justified either as consistent with precedent or as a considered
departure therefrom. In other words, are the contested 2005
orders supported by reasoned decisionmaking?
B. FERC’s “Incomplete Information” Rationale Is
Inadequate
FERC justified its 2005 orders in part by stating that its
original decision was based on incomplete information. On this
point, the Commission claims that it did not become aware that
the Transco lateral sat downstream of a line properly classified
as jurisdictional until after the 2001 proceedings. See 2005
Transco Rehearing Order, 111 F.E.R.C. ¶ 61,498, at 63,113;
2005 Transco Jurisdictional Order, 111 F.E.R.C. ¶ 61,090, at
61,411. But FERC never explained why the classification of the
Jupiter facility is relevant to the jurisdictional status of the
Transco lateral under existing precedent. The only statement
approximating a clarification of the “incomplete information”
rationale can be found in a blanket assertion contained in the
“Background” section of the earlier of the two 2005 orders:
FERC declared, “The presence of upstream transmission
facilities determines the classification of downstream facilities,
not the opposite.” 2005 Transco Jurisdictional Order, 111
F.E.R.C. ¶ 61,090, at 61,411.
But FERC simply cited the Jupiter footnote (where it had
first stated the proposition without explanation). FERC made no
14
attempt to square this new policy statement with its directly
contradictory stance in Sea Robin II Rehearing Order and this
court’s decision in ExxonMobil. In Sea Robin II Rehearing
Order, FERC stated, “[T]he Commission does not agree that the
fact of Sea Robin’s upstream interconnection with [a
jurisdictional facility], by itself, compels a finding that the east
leg of Sea Robin’s system is jurisdictional.” 92 F.E.R.C.
¶ 61,072, at 61,295. And in ExxonMobil, FERC convinced this
court to conclude that “the presence of an interconnection with
an upstream jurisdictional facility [does not compel] a finding
that the downstream facility is likewise jurisdictional.” 297 F.3d
at 1087. Now FERC asserts that it must reclassify a downstream
line because “[t]he presence of upstream transmission facilities
determines the classification of downstream facilities.” 2005
Transco Jurisdictional Order, 111 F.E.R.C. ¶ 61,090, at 61,411.
FERC’s rationale could hardly be more inconsistent with
precedent. And “FERC’s attempts to distinguish its precedents
. . . [are] nonexistent.” PG&E Gas Transmission, Nw. Corp. v.
FERC, 315 F.3d 383, 389 (D.C. Cir. 2003).
C. FERC’s Inconsistent Precedents and Changing Policy
FERC’s new assertion that a facility downstream of a
jurisdictional pipeline must also be jurisdictional finds support
in two interrelated principles which FERC once embraced but
recently rejected: (1) there is one point along every route at
which gathering ceases and transportation begins, and (2) a
transportation facility cannot feed into a gathering facility.
In a 1996 Policy Statement, FERC announced, “[W]here
gas is destined for interstate commerce, there is necessarily a
point at which the gathering or collection of the gas ends, and
interstate transportation begins.” Gas Pipeline Facilities, 74
F.E.R.C. ¶ 61,222, at 61,757. In Sea Robin I, the Fifth Circuit
treated this principle as a settled component of FERC policy:
“The determinative question is when did gathering cease and
transportation commence.” 127 F.3d at 371. And indeed, on
15
remand FERC apparently endorsed that notion. Sea Robin II, 87
F.E.R.C. ¶ 61,384, at 62,427 (“[T]here is necessarily a point at
which the collection or gathering of gas ends, and interstate
transmission begins.”); see also Dauphin Island Gathering Sys.,
93 F.E.R.C. ¶ 61,198, at 61,653 (2000) (same). Yet, in Sea
Robin II, Sea Robin II Rehearing Order, and ExxonMobil, FERC
issued and defended an order which resulted in a route changing
from jurisdictional to non-jurisdictional and back to
jurisdictional. FERC thus recently eschewed the first principle
and persuaded this court to do so as well.
FERC’s treatment of the second principle follows a similar
course. In 1983, FERC stated, “[B]ecause the movement of gas
through the Coronado system can be classified as intrastate
pipeline ‘transportation,’ we cannot find the subsequent
downstream movement of gas from that system to be exempt
‘gathering.’” Galaxy Energies, Inc., 24 F.E.R.C. ¶ 61,121, at
61,304 (1983). More recently, FERC declared, “[A] facility
functionalized as gathering may not be located downstream of
facilities functionalized as transmission.” Trunkline Gas Co., 70
F.E.R.C. ¶ 61,163, at 61,503 (1995); see also Dauphin Island,
93 F.E.R.C. ¶ 61,198, at 61,652 (“[I]t would be incongruous for
gas flowing on an upstream transportation line to be delivered
into a downstream gathering line.”). But in 2002, FERC
convinced this court to distinguish Trunkline as a case in which
“the classification of the upstream system was in dispute,” and
reject the “proposition that the presence of an interconnection
with an upstream jurisdictional facility compels a finding that
the downstream facility is likewise jurisdictional.” ExxonMobil,
297 F.3d at 1087.
In Jupiter Appeal, the Fifth Circuit assumed that the first
principle constituted FERC’s own tenet, and that the second
principle necessarily flows from the first. 407 F.3d at 350-51.
Indeed, the pull of the principles provides a logical explanation
for FERC’s 2005 orders. If there can only be one point along
16
any given route at which the function of facilities changes, then
the situation FERC created – where a transportation pipeline fed
into a gathering pipeline which, in turn, fed into a transportation
pipeline – was in fact anomalous and required reconsideration.
Likewise, if a gathering facility cannot sit downstream of a
transportation facility, FERC was required – as a matter of
reason – to change either the classification of the Jupiter pipeline
or the Transco lateral. Moreover, if the two principles demand
corrective action where a transportation facility sits upstream of
a gathering facility, FERC’s apparent new statement of policy
can be seen to proffer a third principle guiding resolution: “[t]he
presence of upstream transmission facilities determines the
classification of downstream facilities, not the opposite.” 2005
Transco Jurisdictional Order, 111 F.E.R.C. ¶ 61,090, at 61,411.
It would thus appear that FERC’s “incomplete information”
rationale rests on its tacit adoption of these two principles and
application of a new policy derived from them. Only if FERC
views the principles as inviolate, does FERC’s “incomplete
information” rationale begin to make sense.
D. The 2005 Orders Lack Reasoned Decisionmaking
The problem with FERC’s “incomplete information”
rationale is that it is not supported by any reasoned analysis in
the orders themselves. Although we suspect that the orders may
reflect an unstated endorsement of the two principles discussed
above, we have no good basis upon which to rest this
supposition. Arbitrary and capricious review strictly prohibits
us from upholding agency action based only on our best guess
as to what reasoning truly motivated it. Columbia Gas
Transmission Corp. v. FERC, 448 F.3d 382, 387 (D.C. Cir.
2006) (“It will not do for a court to be compelled to guess at the
theory underlying the agency’s action; nor can a court be
expected to chisel that which must be precise from what the
agency has left vague and indecisive.” (quoting SEC v. Chenery
Corp., 332 U.S. 194, 196-97 (1947))); PDK Labs. Inc. v. DEA,
17
362 F.3d 786, 798 (D.C. Cir. 2004) (“[I]t is important to
remember that if we find that an agency’s stated rationale for its
decision is erroneous, we cannot sustain its action on some other
basis the agency did not mention.”); AT&T Corp. v. FCC, 236
F.3d 729, 734-35 (D.C. Cir. 2001) (“[W]e may not supply a
reasoned basis for the agency’s action that the agency itself has
not given.” (quoting State Farm, 463 U.S. at 43)).
In order to rely on the two principles, FERC had to
acknowledge the need to reconsider its precedent, announce its
definitive adoption of the principles, and explain their impact on
the existing primary function test. If FERC intended to adopt a
new policy specifying that the classification of the downstream
facility must yield where the principles demand corrective
action, FERC was obliged to explain that extension of its case
law as well. See PG&E Gas, 315 F.3d at 390 (“FERC has given
no explanation whatsoever for this apparent shift in Commission
policy. FERC’s failure to come to terms with its own precedent
reflects the absence of a reasoned decisionmaking process.”);
Mo. Pub. Serv. Comm’n v. FERC, 234 F.3d 36, 41 (D.C. Cir.
2000) (“A passing reference . . . is not sufficient to satisfy the
Commission’s obligation to carry out reasoned and principled
decisionmaking. We have repeatedly required the Commission
to fully articulate the basis for its decision.”) (internal quotation
marks omitted). But instead of openly acknowledging its
intention to reverse course to bring order to its case law, FERC
attempted to “gloss[] over” its prior holding in Sea Robin II
Rehearing Order and its position in ExxonMobil, and, in so
doing, “cross[ed] the line from the tolerably terse to the
intolerably mute.” PG&E Gas, 315 F.3d at 390 (internal
quotation marks omitted).
In its briefs, FERC attempts to make the required showing,
explaining that the Commission reversed the Transco lateral’s
classification in order to eliminate a “fundamental
inconsistency” in its case law. Respondent’s Br. at 3, 13. But
18
counsel’s explanation to this court cannot substitute for
“reasoned decisionmaking at the agency level.” Kansas City,
923 F.2d at 192; see Chamber of Commerce of U.S. v. SEC, 412
F.3d 133, 145 (D.C. Cir. 2005) (“[The agency] – not its counsel
and not this court – is charged by the Congress with bringing its
expertise and its best judgment to bear upon [an issue of
policy].”); Village of Bensenville v. FAA, 376 F.3d 1114, 1121
(D.C. Cir. 2004) (“We do not ordinarily consider agency
reasoning that ‘appears nowhere in the [agency’s] order.’”
(quoting PanAmSat Corp. v. FCC, 198 F.3d 890, 897 (D.C. Cir.
1999))). Since we conclude that FERC neither explained how
the “incomplete information” finding fit within its muddled case
law nor rehabilitated that morass by clearly charting a new
course, we find that the rationale cannot support the 2005 orders.
This conclusion is dispositive. Although FERC rested its
decision on both the “incomplete information” rationale and its
finding that no gas is collected along either the Jupiter pipeline
or the Transco lateral, it did so without according the two
conclusions individual weight. “[W]hen an agency relies on
multiple grounds for its decision, some of which are invalid,” we
may only “sustain the decision [where] one is valid and the
agency would clearly have acted on that ground even if the other
were unavailable.” Casino Airlines, Inc. v. Nat’l Transp. Safety
Bd., 439 F.3d 715, 717-18 (D.C. Cir. 2006) (internal quotation
marks omitted); see Int’l Union, United Mine Workers v. Dep’t
of Labor, 358 F.3d 40, 44-45 (D.C. Cir. 2004) (finding that an
agency “failed to provide an adequate explanation for its
decision” where “[t]wo of the three reasons it gave . . . would
not support its decision,” and the court did “not know – nor [was
it] free to guess – what the agency would have done had it
realized that it could not justify its decision [based on the two
invalid grounds]”). Here, the 2005 orders do not reveal whether
FERC would have reclassified the Transco lateral on the basis
of its lack of gas collection finding alone. See Recording of
Oral Argument at 24:33 (admitting that the 2005 orders do not
19
indicate the relative weight accorded to the two bases). The
assurance of FERC’s counsel, see id. at 25:03 (urging the court
to uphold the decision based on the lack of gas collection
rationale alone), does not provide an acceptable substitute.
Allegheny Power v. FERC, 437 F.3d 1215, 1226 (D.C. Cir.
2006) (refusing to consider counsel’s clarification of a standard
where “counsel ha[d] pointed to nothing said by FERC itself
establishing such a concept”); KeySpan-Ravenswood, LLC v.
FERC, 348 F.3d 1053, 1059 (D.C. Cir. 2003) (“[P]ost hoc
salvage operations of counsel cannot overcome the inadequacy
of the Commission’s explanation.”) (internal quotation marks
omitted). We thus need not inquire into the validity of FERC’s
lack of gas collection rationale. See Petitioners’ Br. at 19-25
(arguing that FERC’s lack of gas collection justification is
inconsistent with FERC precedent); Respondent’s Br. at 15-19
(contending that the lack of gas collection rationale is consistent
with precedent); Intervenors’ Br. at 11-13 (same). Because
FERC rested its determination, at least in part, on its infirm
“incomplete information” ground, we must find the 2005 orders
devoid of reasoned decisionmaking and set them aside as
arbitrary and capricious.
III. CONCLUSION
For the reasons stated above, we vacate FERC’s 2005
orders and remand to the agency for further proceedings
consistent with this opinion. We offer no judgment on the
merits of FERC’s choice to reverse the Transco lateral’s
jurisdictional determination. The decision on the merits must
await reasoned decisionmaking from the Commission.