United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
March 15, 2007
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
Clerk
No. 05-61173
JUPITER ENERGY CORPORATION,
Petitioner,
versus
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent.
On Petition for Review of Orders
of the Federal Energy Regulatory Commission
Before DAVIS and STEWART, Circuit Judges, and GODBEY, District Judge.*
CARL E. STEWART, Circuit Judge:
Jupiter EnergyCorporation (“Jupiter”) applied to the Federal EnergyRegulatoryCommission
(the “Commission”) for a determination that its two natural gas pipelines gather as opposed to
transport natural gas. In May 2003, the Commission denied Jupiter’s application, concluding that
Jupiter engages in jurisdictional transportation. See Jupiter Energy Corp., 103 F.E.R.C. ¶ 61,184
(2003), reh’g denied, 105 F.E.R.C. ¶ 61,243 (2003), reh’g denied, 106 F.E.R.C. ¶ 61,170 (2004)
(the “2003 Jupiter Jurisdictional Order”). The Fifth Circuit granted review, vacated the
*
District Judge for the Northern District of Texas, sitting by designation.
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Commission’s decision, and remanded the case. See Jupiter Energy Corp. v. F.E.R.C., 407 F.3d 346
(5th Cir. 2005) [hereinafter Jupiter I]. On remand, the Commission reaffirmed its original
determination and denied Jupiter’s request for rehearing. See Jupiter Energy Corp., 111 F.E.R.C.
¶ 61,497, reh’g denied, 113 F.E.R.C. ¶ 61,103 (2005). After careful review, we once again remand
this case to the Commission for further proceedings consistent with this opinion.
I. FACTUAL AND PROCEDURAL BACKGROUND
The natural gas industry divides a company’s operations into three functions: production,
gathering, and transportation. The Natural Gas Act (“NGA”), 15 U.S.C. § 717(b), authorizes the
Commission to regulate the transportation of natural gas in interstate commerce. The Jupiter system
consists of two natural gas pipelines located approximately ten miles offshore from Louisiana in the
Vermilion Block 39 (“Platform 39A”). The gas arriving at Platform 39A comes from sixteen wells
located in Vermilion Blocks 23, 38, and 39. The gas travels from the wells to Platform 39A over
Unocal-owned gathering facilities. The first Jupiter pipeline is 3.2 miles and 8-5/8 inches in diameter
(the “8-inch line”). The second Jupiter pipeline is 10.2 miles and 10-3/4 inches in diameter (the
“10-inch line”). Jupiter’s 8-inch line moves gas from Platform 39A to a sub-sea line owned by
Transcontinental Gas Pipe Line Corp. (“Transco”), and the 10-inch line moves gas from Platform
39A to a land-based pipeline owned by Tennessee Gas Transmission Company (“Tennessee”).1
Unocal compresses some of the gas to create sufficient pressure for transportation through the Jupiter
system to the downstream interstate pipelines. Otherwise, the gas moved on the Jupiter system
1
Prior to 2000, the 10-inch line connected to the Tennessee pipeline, and then the gas traveled
twenty-two miles to a separation and dehydration facility owned by Jupiter. At this facility, Jupiter
separated the gas condensate from the water and metered the gas prior to its continuing on the
Tennessee system.
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remains unprocessed. In 1997, Jupiter became a wholly-owned subsidiary of Unocal, and Unocal
produces a large portion of the gas moved through the Jupiter system.2 Unocal’s production and
gathering operations in the Gulf of Mexico are exempt from the Commission’s jurisdiction.
In 1966, the Federal Power Commission (a federal administrative predecessor of F.E.R.C.)
determined that Jupiter provided a transportation function. The Jupiter Corp., 35 F.P.C. 1091
(1966). On November 4, 2002, Jupiter requested that the Commission relinquish jurisdiction because
its facilities primarily perform a gathering function. On May 16, 2003, the Commission issued an
order stating that Jupiter’s pipelines are transmission facilities subject to the Commission’s
jurisdiction. See 103 F.E.R.C. ¶ 61,184. The Commission reasoned that Platform 39A constitutes
a point of delineation where gathering ends and jurisdictional transmission begins; therefore, Jupiter’s
facilities located downstream of Platform 39A serve a transmission function. 103 F.E.R.C. ¶ 61,184
at 61,713. On November 20, 2003, the Commission reaffirmed its previous order and denied
Jupiter’s request for rehearing. 105 F.E.R.C. ¶ 61,243 at 62,285.
In Jupiter I, the Fifth Circuit vacated the 2003 Jupiter Jurisdictional Order and remanded the
case. 407 F.3d at 351. This court reasoned that Jupiter’s facilities were located upstream from a
gathering pipeline, the Transco line; therefore, the Commission could not classify the facilities as
performing a transmission function. Id. Meanwhile, the Commission issued an order asserting
jurisdiction over the Transco line, concluding that Transco’s system also serves a transmission
function. See Transcon. Gas Pipe Line Co., 111 F.E.R.C. ¶ 61,090, reh’g denied, 111 F.E.R.C.
2
Since 1992, Jupiter facilities only ship gas for its parent company, Unocal. In previous years,
Jupiter transported gas for Kerr-McGee, Phillips Petroleum Company, and Unocal.
3
61,498 (2005) (the “2005 Transco Jurisdictional Order”).3 Based on its 2005 Transco Jurisdictional
Order, the Commission reaffirmed its jurisdiction over Jupiter’s lines, reasoning that the Fifth
Circuit’s contentions were no longer applicable. 111 F.E.R.C. ¶ 61,497 at 63,112 . On the same date,
the Commission denied a request for rehearing of its 2005 Transco Jurisdictional Order. Transcon.
Gas Pipe Line Corp., 111 F.E.R.C. ¶ 61,498 (2005). On October 28, 2005, the Commission also
denied Jupiter’s request for rehearing. 113 F.E.R.C. ¶ 61,103 (2005). Jupiter filed a timely appeal.4
The central issue before this court is whether the Commission erred in finding that Jupiter’s pipelines
transport natural gas, thus requiring termination of the Commission’s regulatory jurisdiction under
§ 1(b) of the NGA, 15 U.S.C. § 717(b).
3
In 2001, the Commission determined that the Transco line served a gathering function.
Transcon.Gas Pipe Line Corp., 96 F.E.R.C. ¶ 61,246 at 61,976 (2001), reh’g denied in relevant
part, 97 F.E.R.C. ¶ 61,298 (2001) (the “2001 Transco Jurisdictional Order”). The Commission then
held a separate proceeding determining that Jupiter’s lines performed a transmission function. Prior
to the Fifth Circuit’s opinion in Jupiter I, the Commission issued an order for Williams Gas
Processing-Gulf Coast Company (“WGP”) and Transco to show cause why the 2001 Transco
Jurisdictional Order should not be reversed in light of the 2003 Jupiter Jurisdictional Order.
Transcon. Gas Pipe Line Corp., 107 F.E.R.C. ¶ 61,122 at 61,411 (2004). The Fifth Circuit entered
its judgment in Jupiter I, however, prior to the Commission’s addressing the show cause order.
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WGP and Transco petitioned the D.C. Circuit for review of the 2005 Transco Jurisdictional
Order. The D.C. Circuit acknowledged the pendency of Jupiter II in this court and commented that
“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.” Williams Gas Processing-Gulf Coast
Co., L.P. v. F.E.R.C., 475 F.3d 319, 2006 WL 3716638 at *2 (D.C. Cir. 2006). The court vacated
the Commission’s 2005 Transco Jurisdictional Order for further proceedings and concluded that any
“decision on the merits must await reasoned decisionmaking from the Commission.” Id. at *11. The
D.C. Circuit’s vacatur effectively recreated the same anomalous scenario that existed in Jupiter I
wherein a transportation line sits upstream of a pipeline classified as a gathering line.
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II. STANDARD OF REVIEW
This court reviews an administrative order under the arbitrary and capricious standard. 5
U.S.C. § 706(2)(A); Acadian Gas Pipeline Sys. v. F.E.R.C., 878 F.2d 865, 868 (5th Cir. 1989). The
court will uphold the Commission’s application of the multi-factor primary function test so long as
it gives “reasoned consideration to each of the pertinent factors and articulates factual conclusions
that are supported by substantial evidence in the record.” ExxonMobil Gas Mktg. Co. v. F.E.R.C.,
297 F.3d 1071, 1084 (D.C. Cir. 2002) (citing Lomack Petroleum, Inc. v. F.E.R.C., 206 F.3d 1193,
1197 (D.C. Cir. 2000)).
III. DISCUSSION
To determine the primary function of a natural gas facility, the Commission applies a multi-
factor test, which includes the following factors: (1) length and diameter of the pipeline; (2) proximity
to the central point in a field; (3) geographic configuration of the facility; (4) proximity to processing
plants and compressors; (5) location of wells along all or part of the facilities; and (6) operating
pressure. Farmland Indus., Inc., 59 F.E.R.C. ¶ 61,063 (1983). The Commission applies this multi-
factor test to the unique facts and circumstances of each case without any one factor deemed as
outcome determinative. EP Operating Co. v. F.E.R.C., 876 F.2d 46, 48 (5th Cir. 1989). For
offshore facilities, the Commission also evaluates “non-physical” criteria: (1) the purpose, location,
and operation of a facility; (2) the business of the owner; (3) whether the jurisdictional determination
is consistent with the objectives of the NGA and other legislation; and (4) the changing technical and
geographic nature of exploration and production. Amerada Hess Corp., 52 F.E.R.C. ¶ 61,268 at
61,987-88 (1990). Following Sea Robin Pipeline Co., 92 F.E.R.C. ¶ 61,072 (2000), the Commission
modified the primary function test as follows: (1) it adopted an additional analytical element
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applicable to systems that contain a centralized aggregation point; (2) it adjusted 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) when weighing the totality of the
circumstances, the Commission places greater focus on the physical factors rather than the non-
physical factors. Jupiter I, 407 F.3d at 349.
To successfully contest a jurisdictional determination, the petitioner must show that the
“Commission’s choices are unreasoned and its chosen line of demarcation is not within a zone of
reasonableness as distinct from the question of whether the line drawn by the Commission is precisely
right.” ExxonMobil, 297 F.3d at 1084 (quoting Hercules, Inc. v. E.P.A., 598 F.2d 91, 107 (D.C. Cir.
1978)) (internal quotations omitted). Jupiter argues that under circuit precedent, the Commission’s
order should be set aside because it attributed undue weight to the central point factor. The
Commission contends that Jupiter cannot meet its burden of proving the Commission’s jurisdictional
line was a patently unreasonable determination. Moreover, the Commission reasonably reaffirmed
its functional analysis after resolving the incongruity in the status of Jupiter’s upstream facilities and
Transco’s downstream facilities.
The Commission’s jurisdictional determination hinged on the finding that Platform 39A serves
as the central point of aggregation for the Jupiter system.5 103 F.E.R.C. ¶ 61,184 at 61,713.
According to the Commission, the physical attributes of the gas and geographic configuration of the
system undergo a “marked change” at Platform 39A; therefore, Jupiter’s lines are jurisdictional
transmission facilities. Id. In its order on rehearing, the Commission maintained that “the factor
5
The central line of aggregation is a point where small lines carrying gas from various wells
converge and deliver their collective volumes in a single large line for transportation to shore.
Transcon. Gas Pipe Line Corp., 95 F.E.R.C. ¶ 61,396 at 62,479.
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bearing the greatest weight is the location of Jupiter’s pipeline facilities downstream of Unocal’s
Platform 39A, which is both the last point at which gas is collected and the point at which gas is
compressed to transmission pressures before entering Jupiter’s two pipelines which transport the gas
to shore.” 105 F.E.R.C. ¶ 61, 243 at 62,286.
In Sea Robin, the Fifth Circuit vacated and remanded a jurisdictional determination because
although the Commission “purported to work through all the factors in the primary function test. .
. . Yet it excluded at least four factors on grounds that [the factors] did not shed light on the problem
. . . .” Sea Robin v. F.E.R.C., 127 F.3d 365, 370 (5th Cir. 1997). The court further stated that
[t]he Commission must apply consistently its primary function test and not discount,
without reasoned analysis, application of any factor which points to a non-
jurisdictional result. It may not “disregard those facts or issues that prove difficult or
inconvenient” or “refus[e] to come to grips” with certain results in applying the
primary function test.
Id. (citing Tenneco Gas v. F.E.R.C., 969 F.2d 1187, 1214 (D.C. Cir. 1992)). Contrary to Sea
Robin’s instruction, the Commission’s initial review of Jupiter’s jurisdictional status summarily
dismissed the factors of length, diameter, and operating pressure, which all indicate a gathering
function. The order reads that, “[w]e recognize that the length, diameter and operating pressures of
Jupiter’s pipeline facilities may not necessarily be inconsistent with a gathering function. However,
it appears that gas aggregation is complete once the gas reaches Unocal’s Platform 39A.” 103
F.E.R.C. ¶ 61,184 at 61,713. The dissent argued that the Commission “failed to give adequate
weight to factors other than the central point of aggregation.” 105 F.E.R.C. ¶ 61,243 at 62,287. On
rehearing, the Commission included additional conclusory statements with no reasoned analysis for
why it negated the import of factors favoring a determination that Jupiter’s lines serve a gathering
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function. For example, in Pacific Offshore Pipeline Co., the Commission determined that “the
absence of wells located along POPCO’s line is not uncharacteristic for offshore gathering facilities.”
64 F.E.R.C. ¶ 61,167 at 62,509 (1993) (emphasis added). The 2003 Jupiter Rehearing Order states
that “[t]he Commission also gave weight to the fact that there are no wells or gathering lines
connecting to any of the subject pipeline facilities.” 105 F.E.R.C. ¶ 61,243 at 62,286. Yet, the
Commission provides no further analysis for how the absence of wells or gathering lines affected its
determination.
Jupiter’s system consists of two short, small-diameter lines. Jupiter compresses the gas, using
Unocal’s equipment, to a pressure sufficient for moving the gas downstream toward processing
plants. These physical factors, given short shrift in the Commission’s determination, support a
jurisdictional determination opposite that of the Commission’s order. Thus, the Commission must
provide a reasoned analysis for why these non-jurisdictional indicators were outweighed by the
remaining physical factors.
In the 2003 Jupiter Jurisdictional Order, the Commission expressly declined to consider the
non-physical factors supporting a gathering function because “this is not a case where the physical
factors are so ambiguous as to necessitate such an analysis.” 103 F.E.R.C. ¶ 61,184 at 61,713. The
non-physical factors, however, cannot be ignored when conducting the primary function test. The
Fifth Circuit recognizes non-physical factors as “secondary to the physical factors” but still requires
consideration when relevant to “the determinative question [of] when did gathering cease and
transportation commence.” Sea Robin, 127 F.3d at 371; see also ExxonMobil, 297 F.3d at 1087
(implying that the Commission should consider secondary factors in its jurisdictional analysis).
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Jupiter points to the following non-physical factors: (1) the parent company, Unocal, is
Jupiter’s only shipper; (2) neither Jupiter nor Unocal own any other jurisdictional facilities; (3)
Unocal’s business activity is gathering and production; and (4) Unocal would integrate the subject
facilities into its own gathering system. 105 F.E.R.C. ¶ 61,243 at 62,287. In light of the these non-
physical factors, the Commission should at a minimum provide a reasoned explanation of why
Jupiter’s lines fail to constitute an “integral part of [Unocal’s] natural gas gathering system.” Blue
Dolphin Pipe Line Co., 58 F.E.R.C. ¶ 61103 at 61362 (1992) (holding that a similar system with
larger lines and compressors performed a gathering function).
To receive judicial deference, an agency’s interpretation of law must be consistent with
previous agency determinations. An agency must provide a “reasoned explanation for its departure
from established case law.” EP Operating Co., 876 F.2d at 48 (5th Cir. 1989) (comparing the
Commission’s quality of jurisdictional analysis for two lines owned by different companies to
conclude whether the Commission should receive judicial deference). The glaring shortfall in the
Commission’s order is the lack of a reasoned explanation to support its disregard of the length,
diameter, operating pressure, and non-physical factors of Jupiter’s system, which all weigh in favor
of a gathering function.
In Williams, the D.C. Circuit expressly questioned the Commission’s policy that the
jurisdictional status of an upstream pipeline determines the primary function of a downstream facility.
2006 WL 3716638 at *8, 10. In vacating the 2005 Transco Jurisdictional Order, the court intimated
that once the Commission provided an adequately supported explanation for this policy, then the
court would re-examine, if necessary, the merits of the Commission’s decision. Id. at *11. Similarly,
the Commission may very well have reached an accurate functional determination of Jupiter’s
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pipelines; however, under applicable Fifth Circuit law, the Commission must articulate reasons for
dismissing the import of non-jurisdictional physical factors and relevant non-physical factors. See EP
Operating Co., 876 F.2d at 48; Sea Robin, 127 F.3d at 370. In this instance, we conclude that the
Commission failed to provide a sufficiently reasoned explanation.
CONCLUSION
For these reasons, we vacate the Commission’s Order and remand for further consideration
consistent with this opinion.
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