United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
April 12, 2005
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
Clerk
No. 04-60041
JUPITER ENERGY CORPORATION,
Petitioner,
versus
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent.
Petition for Review of an Order of the
Federal Energy Regulatory Commission
Before REAVLEY, HIGGINBOTHAM, and DEMOSS, Circuit Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge:
Jupiter Energy Corporation petitions this Court for review of
the Federal Energy Regulatory Commission’s determination that
Jupiter’s two pipelines perform a “transportation” function rather
than a “gathering” function, thereby subjecting them to the
Commission’s jurisdiction under Section 1(b) of the Natural Gas
Act.1 We grant the petition, vacate the Commission’s decision, and
remand.
I
Jupiter owns and operates two natural gas pipelines in the
Gulf of Mexico. Both pipelines originate at “Platform 39A,” which
1
15 U.S.C. § 717(b).
is owned by Jupiter’s parent corporation, Union Oil Company of
California. The Jupiter system is located roughly 10 miles
offshore from Louisiana in about 40 feet of water. The first
Jupiter pipeline (the “8-inch line”) is roughly eight inches in
diameter and is 3.2 miles long. It heads from Platform 39A and,
before reaching the shoreline, feeds into a pipeline owned by
Transcontinental Gas Pipe Line Corporation (“Transco”). The
Transco line is a lateral line ranging from 12 to 24 inches in
diameter and running parallel to the shore at the point of
connection with the 8-inch line. The second Jupiter pipeline (the
“10-inch line”) is roughly ten inches in diameter and is 10.2 miles
long. It runs from Platform 39A (via an abandoned platform) to a
land-based pipeline on the shore owned by Tennessee Gas
Transmission Company. Platform 39A is itself downstream from other
pipelines. Gas arrives at Platform 39A from 16 wells via non-
jurisdictional Unocal facilities: ten platforms and several
pipelines ranging from four to eight inches in diameter.
In 1966, the Commission’s predecessor, the Federal Power
Commission (“FPC”), determined that Jupiter provided gas
“transportation” services. That classification was carried on by
the Commission, thereby subjecting Jupiter to the Commission’s
jurisdiction. On November 4, 2002, Jupiter requested that the
Commission change the status of its pipelines from jurisdictional
to non-jurisdictional--that is, that the Commission determine that
Jupiter is engaged in “gathering” rather than “transportation” of
2
natural gas. The Commission unanimously denied this request, and
denied rehearing by a 2-1 vote. Jupiter now seeks our review.
II
Section 1(b) of the Natural Gas Act governs “the
transportation of natural gas in interstate commerce.”2 In
Section 1(b), Congress “not only prescribed the intended reach of
the Commission’s power, but also specified the areas into which
this power was not to extend.”3 This Section expressly exempts
from the Commission's jurisdiction the “production” or “gathering”
of natural gas.4 However, “[e]xceptions to the primary grant of
jurisdiction in [Section 1(b)] are to be strictly construed,”5 and
the terms “production” and “gathering” are to be “narrowly confined
to the physical acts of drawing the gas from the earth and
preparing it for the first stages of distribution.”6
The Commission employs a multi-factor “primary function” test
developed in the Farmland Industries case.7 Under this test, “the
Commission determines whether, with reference to the specific facts
and circumstances of the particular facility in question, its
2
15 U.S.C. § 717(b).
3
FPC v. Panhandle E. Pipe Line Co., 337 U.S. 498, 503 (1949); see N.W.
Cent. Pipeline Corp. v. State Corp. Comm'n, 489 U.S. 493, 510 (1989).
4
15 U.S.C. § 717(b).
5
Interstate Nat’l Gas Co. v. FPC, 331 U.S. 682, 690-91 (1947).
6
N. Nat’l Gas Co. v. State Corp. Comm'n, 372 U.S. 84, 90 (1963).
7
See Farmland Indus., Inc., 23 FERC ¶ 61,063 (1983).
3
primary function is gathering.”8 The test, which has continued to
evolve, currently employs both physical and non-physical factors.
The physical factors include:
(1) the facility’s length and diameter, (2)
the extension of the facility beyond the
central point in the producing field, (3) the
facility’s geographic configuration, (4) the
placement of compressors and processing
plants, (5) the location of wells along all or
part of the facility, and (6) operating
pressures.9
The non-physical factors are “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 and Natural Gas Policy
Act.”10 The Commission “do[es] not consider any single factor to
be determinative and recognize[s] that all factors do not
necessarily apply in all situations.”11
In 1990, in Amerada Hess Corporation, the Commission modified
the primary function test with respect to offshore facilities by
applying “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
8
Sea Robin Pipeline Co., 127 F.3d 365, 368 (5th Cir. 1997) (citing EP
Operating Co. v. FERC, 876 F.2d 46, 48 (5th Cir.1989)).
9
Transcon. Gas Pipe Line Corp., 97 FERC ¶ 61,296, at 62,380 (2001)
(describing the Farmland Industries test).
10
Id.
11
Id.
4
area” based on the observation that as a result of “recent advances
in engineering and available technology, offshore drilling
operations continue to move further offshore and further from
existing interstate pipeline interconnections.”12 Following our
1997 decision in Sea Robin Pipeline Co. v. FERC,13 the Commission
again modified the test with respect to offshore facilities by
(1) adopting an additional analytical element
applicable to systems that contain a
centralized aggregation point; (2) adjusting
the weight to be afforded the
“behind-the-plant” criterion so that the
location of processing plants is not
necessarily determinative and can be
outweighed by other factors; and (3) focusing
primarily on physical factors.14
The primary function test, as thus modified, was subsequently
upheld.15
III
A
Under the Administrative Procedure Act, an agency
determination shall be set aside if it is “arbitrary, capricious,
12
52 FERC ¶ 61,268, at 61,988 (1990) (responding to EP Operating Co.).
13
127 F.3d 365 (5th Cir. 1997).
14
Transcon. Gas Pipe Line Corp., 97 FERC ¶ 61,296, at 62,380 (citing the
Sea Robin litigation); see Sea Robin Pipeline Co., 71 FERC ¶ 61,351 (1995), reh’g
denied, 75 FERC ¶ 61,332 (1996), vacated sub nom. Sea Robin Pipeline Co. v. FERC,
127 F.3d 365 (5th Cir. 1997), order on remand, Sea Robin Pipeline Co., 87 FERC
¶ 61,384 (1999), reh’g denied, 92 FERC ¶ 61,072 (2000).
15
See ExxonMobil Gas Mktg. Co. v. FERC, 297 F.3d 1071 (D.C. Cir. 2002).
5
an abuse of discretion or otherwise not in accordance with law.”16
“The fundamental precept that permits this deferential standard of
review is that ‘an agency must cogently explain why it has
exercised its discretion in a given manner’ and ‘must supply a
reasoned analysis’ for any departure from other agency decisions.”17
However, “a court is not to substitute its judgment for that of the
agency” or “supply a reasoned basis for the agency's action that
the agency itself has not given.”18
B
Jupiter argues that the Commission’s decision--that Jupiter’s
system is transportational--is arbitrary and capricious because one
of its pipelines is upstream from a gathering pipeline.19 We agree.
In a prior matter, the Commission determined that a portion of
the Transco pipeline, into which Jupiter’s 8-inch line flows, is a
non-jurisdictional gathering pipeline.20 That decision was upheld
by the D.C. Circuit.21 In the present case, the Commission decided
16
5 U.S.C. § 706(2)(A); see Sea Robin Pipeline Co., 127 F.3d at 369; EP
Operating Co., 876 F.2d at 48.
17
Sea Robin Pipeline Co., 127 F.3d at 369 (quoting Motor Vehicle Mfrs.
Ass’n v. State Farm, 463 U.S. 29, 48, 57 (1983)).
18
State Farm, 463 U.S. at 43 (internal quotation marks and citations
omitted); see Sea Robin Pipeline Co., 127 F.3d at 369.
19
We may review this objection because it was “urged before the Commission
in the application for rehearing.” 15 U.S.C. § 717r(b).
20
See Transcon. Gas Pipe Line Corp., 96 FERC ¶ 61,245, reh’g order, 97
FERC ¶ 61,298 (2001).
21
See Williams Gas Processing--Gulf Coast Co. v. FERC, 331 F.3d 1011 (D.C.
Cir. 2003).
6
that Platform 39A represents the point at which gathering stops and
transportation begins and, therefore, that Jupiter’s two pipelines-
-including the one that flows into the Transco line--are
jurisdictional transportation lines. The result is the following
anomalous scenario: A series of gathering pipelines (upstream from
Platform 39A) feeds (via Platform 39A) into a transportation
pipeline (Jupiter’s 8-inch line), which in turn feeds into a
gathering pipeline (the Transco line). We are persuaded that this
cannot be considered consistent.
In Sea Robin Pipeline Co., we suggested that there is one
point on any given route where gathering stops and transportation
begins:
Discomfort in drawing the jurisdictional line
at points internal to an overall system may be
soothed with the reminder that Congress did
not intend to extend FERC’s jurisdiction to
all natural gas pipelines; indeed it demands
the drawing of jurisdictional lines, even when
the end of gathering is not easily located
. . . .22
On remand in the Sea Robin case, the Commission acknowledged: “As
noted by the Fifth Circuit, where gas is destined for interstate
commerce, there is necessarily a point at which the collection or
gathering of gas ends, and interstate transmission begins.”23
22
127 F.3d at 371 (emphasis added).
23
Sea Robin Pipeline Co., 87 FERC at 62,427 (emphasis added); see also
Tarpon Transmission Co., 78 FERC ¶ 61,278, at 62,165 (1997) (noting that where
the facilities at issue are “downstream of another pipeline’s jurisdictional
transmission facilities . . . a gathering finding is necessarily precluded”);
Trunkline Gas Co., 70 FERC ¶ 61,163, at 61,503 (1995) (upholding classification
7
The Commission already set the jurisdictional boundary
downstream from one of Jupiter’s pipelines. It is inconsistent and
arbitrary for the Commission now to set a jurisdictional dividing
point at Platform 39A. Given that the Commission’s decision as to
both of Jupiter’s pipelines flowed--so to speak--from the
conclusion that Platform 39A represents the point at which
gathering ceases and transportation begins, the inconsistency
generated in relation to the downstream non-jurisdictional line
infects the whole of the Commission’s decision. We decline to
address Jupiter’s additional arguments at this time.
IV
The Commission’s decision is fatally flawed by the
inconsistency of having the putative point where gathering ends and
transportation begins upstream from a gathering pipeline. The
of facility as “gathering,” and noting that, because “a facility functionalized
as gathering may not be located downstream of facilities functionalized as
transmission,” upstream pipeline owner “should functionalize its upstream
connecting pipeline segments as gathering for rate and accounting purposes in its
next section 4 rate proceeding”); accord Cavallo Pipeline Co., 71 FERC ¶ 61,053,
at 61,198 (1995).
More recently, the Commission declined to hold that the presence of an
upstream jurisdictional pipeline necessarily requires a finding that a given
segment further downstream is jurisdictional. See Sea Robin Pipeline Co., 92
FERC at 61,295 (“[T]he Commission does not agree that the fact of Sea Robin’s
upstream interconnection with [jurisdictional facilities], by itself, compels a
finding that the east leg of Sea Robin’s system is jurisdictional.”). This
decision was upheld by the D.C. Circuit. See ExxonMobil Gas Mktg. Co., 297 F.3d
at 1087 (upholding Commission’s finding that pipeline is non-jurisdictional
despite an upstream jurisdictional pipeline).
In contrast, we are asked today to review whether the Commission’s
jurisdictional finding is arbitrary in light of a downstream non-jurisdictional
pipeline. As such, we offer no opinion on the situation faced in ExxonMobil.
In any case, the D.C. Circuit, in upholding the Commission’s decision, tellingly
noted that “[i]f anything, . . . it is the [upstream] pipeline, rather than [the
pipeline at issue], that has been erroneously classified.” Id.
8
petition for review is GRANTED. The decision of the Commission is
VACATED and the case is REMANDED.
9