[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
JUNE 20, 2002
THOMAS K. KAHN
No. 01-10216 CLERK
FERC No. CP99-604-000
BOARD OF WATER, LIGHT and SINKING FUND
COMMISSIONERS OF THE CITY OF DALTON,
GEORGIA,
Petitioner-Appellant,
versus
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent-Appellee.
__________________________
Petition for Review of Orders of the
Federal Energy Regulatory Commission
__________________________
(June 20, 20002)
Before ANDERSON and BLACK, Circuit Judges, and NANGLE*, District Judge.
*
Honorable John F. Nangle, U.S. District Judge for the Eastern District of
Missouri, sitting by designation.
ANDERSON, Circuit Judge:
Petitioner Board of Water, Light & Sinking Fund Commissioners of the City
of Dalton, Georgia (“Dalton”) challenges two orders by the Federal Energy
Regulatory Commission (“FERC” or the “Commission”) permitting the
construction of a direct delivery connection between Southern Natural Gas
Company’s (“Southern”) natural gas pipeline and one of Dalton’s current
customers, the Beaulieu Plant (“Beaulieu”). The proposed connection will allow
Beaulieu to bypass Dalton. Dalton contends that FERC’s orders are unlawful for
several reasons, including that they violate Southern’s tariff and that they were
impermissible under various sections of the Natural Gas Act (“NGA”). Dalton
also challenges whether the Commission had jurisdiction under the NGA to issue
the orders permitting the direct pipeline connection, arguing that by approving the
bypass connection, the Commission intruded into the state’s regulatory province
over local distribution of natural gas. We conclude that the Commission had
jurisdiction to issue its orders, and that it did not act arbitrarily or capriciously in
deciding that the requested bypass connection should be permitted. Furthermore,
we conclude that the Commission did not abuse its discretion by denying the
request for an evidentiary hearing.
2
I. FACTUAL AND PROCEDURAL BACKGROUND
A. Southern’s Policy Concerning Direct Delivery Connections
The issues involved in this case derive in part from a previous action in
which an end-user of natural gas, Arcadian Corp. (“Arcadian”), sought to require
Southern to grant it a direct delivery connection1 to Southern’s pipeline. On May
12, 1994, the Commission approved a settlement in Arcadian’s case, pursuant to
which Southern was required to construct a bypass connection for Arcadian.
Furthermore, the settlement required Southern to file proposed tariff2 provisions
governing future requests by end-users of natural gas seeking direct delivery
pipeline connections. See Arcadian Corp. v. Southern Natural Gas Co., 67 FERC
¶61,176 (1994). The direct delivery provision eventually approved by FERC
became § 36 of Southern’s tariff. Section 36, in relevant part, states:
DIRECT DELIVERY CONNECTIONS
1
Direct delivery connections are also commonly referred to as “bypass
connections” because they permit an end-user to bypass a local distribution
company by utilizing the direct connection to the pipeline. We will use these terms
interchangeably in this opinion.
2
“A tariff is the ‘contract which governs a pipeline’s service to its
customers.’ . . . It contains a listing of the pipeline’s rate schedules and the terms of
its service agreements with customers.” Atlanta Gas Lights Co. v. FERC, 140 F.3d
1392, 1395 n.1 (11th Cir. 1998) (citations and quotations omitted).
3
(a) As used herein, the term direct delivery connection shall refer to
interconnection, measurement, and appurtenant facilities necessary to
deliver gas directly to an end-user.
(b) A SHIPPER may request a new direct delivery connection by
submitting to the attention of [Southern’s] Transportation Services
Department, . . . a written request to [Southern] in the format set out in
Appendix A to these General Terms and Conditions. If SHIPPER is
currently receiving natural gas services from the local distributor
servicing the area, or if the direct delivery connection is in the
authorized service area of a local distribution company, SHIPPER
shall provide a copy of its request for a direct delivery connection to
such local distribution company. SHIPPER shall notify [Southern] of
the date SHIPPER has complied with this notice requirement, and
[Southern] shall not make the filing required by Section 157.211(a)(2)
of the Commission’s Regulations until thirty (30) days after the date
SHIPPER notified such local distribution company of its request for a
direct delivery connection.
(c) [Southern] will add a new direct delivery connection if such direct
delivery connection is operationally and economically feasible.
(d) A direct delivery connection is operationally feasible if, with such
connection facilities, [Southern] has the existing pipeline capacity to
perform the requested service through the proposed direct delivery
connection and such service will not impair [Southern’s] ability to
provide service to its existing firm customers.
(e) (1) A direct delivery connection is economically feasible if the
proposed transportation service to be provided through the
direct deliver connection will produce a net revenue gain
(“revenue positive”), or is revenue neutral to [Southern].
(2) To the extent that the new direct delivery connection serves
an end-user that has historically been served by a firm customer
of [Southern], the proposed transportation service to be
provided through the new direct delivery connection will be
deemed revenue positive or revenue neutral if the costs set out
4
in Section 26(f)(1), (3), and (4), as applicable, are paid or
reimbursed in full by the SHIPPER obtaining the direct delivery
connection. . . .
(f) The costs referenced in Sections 36(e) (2) and (3), as applicable
are:
(1) All costs, including overheads and taxes, associated with
construction of the required direct delivery connection facilities
and with any modifications to existing facilities required to
maintain service to existing firm customers. . . .
(g) After the SHIPPER requesting the direct delivery connection
executes an interconnection agreement agreeing to pay or reimburse
[Southern] in full for the costs set out in Section 36(f) (1), (2), (3), and
(4), as applicable, and [Southern] has received all necessary regulatory
authorizations to construct, install, and operate the direct delivery
connection facilities, [Southern] shall commence construction of the
new direct delivery connection in accordance with the terms of such
agreement and regulatory authorizations.
Southern’s Natural Gas Tariff, Seventh Revised, § 36. Therefore, subject to
regulatory authorization by FERC, section 36 requires Southern to provide a direct
delivery connection to an end-user when such a connection is requested by a
shipper, if providing the connection will either result in a revenue gain, or will be
revenue neutral, to the pipeline. Furthermore, section 36 indicates that a
connection will be considered “revenue neutral” if the shipper agrees to pay or
reimburse for all of th costs of the connection to Southern.
B. The Beaulieu Plant and Dalton
5
Beaulieu is a carpet manufacturer that became a natural gas customer of
Dalton in 1971.3 Initially, Dalton provided the Beaulieu Plant with “firm” gas
service, meaning that Beaulieu was guaranteed a certain amount of gas and in
exchange had to pay reservation or “demand” charges to Dalton, regardless of
whether it actually used the gas. But in 1987 Beaulieu switched to an
“interruptible” arrangement,4 under which it purchases gas from third-party
marketers, while retaining the option to purchase gas directly from Dalton when its
supply from third-party marketers is inadequate.
In 1997, Beaulieu began purchasing its natural gas from Interconn
Resources, Inc. (“Interconn”), a third-party marketer. Under its current
arrangement, Interconn purchases natural gas from out-of-state third parties, and
then transports the gas along Southern’s pipeline. Interconn retains title to the gas
until it reaches Dalton’s city gate station, at which point title is transferred to
Beaulieu. Dalton then delivers the gas to Beaulieu’s plant and charges a
transportation fee to Beaulieu.
3
When Dalton first began providing gas to the Beaulieu Plant, it was owned
and operated by Coronet Carpets. Beaulieu did not acquire the plant until 1989 or
1990.
4
“Interruptible” service refers to service which may be interrupted by the
seller, in this case Dalton, and for which the end-user does not have to pay monthly
demand charges.
6
The gas supplied to Beaulieu in this manner accounts for approximately 5%
of the total volume of Dalton’s throughput. According to Dalton, it has always
been able to meet Beaulieu’s natural gas needs.
C. Beaulieu’s Request for a Direct Delivery Connection
On August 3, 1998, Interconn advised Dalton that it had been retained by
Beaulieu to act as its agent in obtaining a direct delivery connection to Southern’s
pipeline. Interconn informed Dalton that it had submitted a request form to
Southern concerning the necessary facilities. Over a year later, on August 18,
1999, Southern filed a notice pursuant to 18 C.F.R. §§ 157.205 and 157.211 with
FERC, proposing to establish the new delivery point for Beaulieu.
Under the proposal filed with the Commission, Interconn would purchase
natural gas for Beaulieu out of state and then ship the gas along Southern’s
pipeline to the new facility, at which point title would pass to Beaulieu.5 Southern
would operate the meter station and related facilities, but Beaulieu would
5
Therefore, there is only one difference between the current and proposed
arrangements. Currently, Interconn passes title to the gas to Beaulieu at Dalton’s
city gate station, and Dalton gets a fee for transporting the gas from that point to
the plant. Under the proposed arrangement, title would pass to Beaulieu at the new
direct delivery station, and Dalton would neither transport, nor receive a fee for,
the natural gas going to the Beaulieu Plant.
7
reimburse Southern for its expenses in doing so. In addition, Interconn, acting as
Beaulieu’s agent, would construct and operate a four-mile long pipeline connecting
Beaulieu’s plant to the new connection facility. Therefore, Beaulieu, by itself or
through its agent, would construct, own, operate, and pay for the new facilities.
After Southern filed its notice concerning the direct connection facility for
Beaulieu, Dalton filed a protest with the Commission complaining that Southern’s
application violated FERC regulations concerning notice, that the proposed bypass
connection did not comply with the applicable requirements from § 36 of
Southern’s tariff, that the proposed connection was not for the “public convenience
and necessity” as required by § 7 of the NGA, and that the proposed activities
would constitute local distribution over which the Commission had no jurisdiction.
Treating Southern’s proposal as an application for specific NGA § 7(c)
authorization,6 FERC issued an order on April 3, 2000 denying Dalton’s protest
and request for an evidentiary hearing, and granting Southern authorization to
construct the new connection. In particular, the Commission found that the
6
Pursuant to FERC regulations, when a pipeline makes a request for
authorization pursuant to its blanket certificate of public convenience and necessity
(as Southern did in this case), authorization is automatically granted if no one files
a protest withing 45 days. Authorization is also automatic if all protests are
withdrawn within 30 days after the 45-day notice period. If, however, all protests
are not resolved, then the request is treated as a case-specific authorization request
under NGA § 7(c).
8
proposal was consistent with § 36 of Southern’s tariff, that Dalton had not shown
that it or its customers would be unfairly or unreasonably harmed by the bypass,
and that the proposal was justified by FERC’s policy of encouraging competition
between pipelines and local distribution companies (“LDC”).
Dalton moved the Commission for a rehearing based on the same objections
previously asserted, and complained that FERC’s initial order was arbitrary and
capricious, unjust and unreasonable, and unsupported by the record.
Subsequently, the Commission issued additional data requests to Southern and
Interconn, but, on November 13, 2000, it denied the request for rehearing. The
Commission again found that the proposal, and Southern’s actions, were consistent
with the intent behind § 36 of its tariff, and with FERC’s pro-competitive bypass
policy. The Commission rejected Dalton’s arguments.
Dalton filed a timely petition for review of both the April 3 and November
13 orders. Southern, Interconn and Beaulieu have not intervened or participated in
the proceedings before this Court. The authorized delivery point on Southern’s
pipeline has not yet been installed.
II. DISCUSSION
A. FERC’s Jurisdiction Over the Direct Delivery Pipeline Connection Sought
9
by Beaulieu
Although Dalton challenges the Commission’s actions with respect to
approving the bypass connection on numerous grounds, only one issue presented
by Dalton requires extended discussion. That is whether the Commission had
jurisdiction, pursuant to the NGA, to approve the direct delivery connection
facilities, or whether it intruded into areas reserved for state regulation by doing so.
Dalton notes that FERC’s jurisdiction is limited to the interstate transport of
natural gas and to sales of natural gas to distributors for resale, but does not include
regulation of direct sales to retail consumers. Because title to the natural gas
purchased by Beaulieu is to pass from Interconn to Beaulieu at the site of the
proposed new facility, and therefore the sale to Beaulieu arguably occurs at that
point, Dalton contends that the direct delivery connection constitutes a form of
local distribution within the jurisdiction of state regulators, rather than FERC.
Consistent with the other circuit courts that have considered this issue, we
conclude that the Commission was acting well within its jurisdictional mandate in
approving the direct delivery connection for Beaulieu.
“We review the Commission’s determination that construction of the facility
is jurisdictional to ascertain whether the decision has an adequate basis in law.”
Cascade Natural Gas Corp. v. FERC, 955 F.2d 1412, 1415 (10th Cir. 1992)
10
(citations, quotations and brackets omitted). As Dalton correctly points out,
FERC’s jurisdiction under the NGA is limited, and, in drafting that Act, Congress
intended to leave the states with authority to regulate certain aspects of the natural
gas industry. The jurisdictional provision in the NGA related to FERC’s authority
to regulate natural gas states:
The provisions of this chapter shall apply to the transportation of
natural gas in interstate commerce, to the sale in interstate commerce
of natural gas for resale for ultimate public consumption for domestic,
commercial, industrial, or any other use, and to natural-gas companies
engaged in such transportation or sale, but shall not apply to any other
transportation or sale of natural gas or to the local distribution of
natural gas or to the facilities used for such distribution or to the
production or gathering of natural gas.
15 U.S.C. § 717(b). Therefore, Congress began by granting FERC broad authority
over the interstate transport and sale of natural gas, but then carved out an
exclusion leaving states exclusive regulatory authority over intrastate
transportation and sales, and in particular over the “local distribution” of natural
gas to consumers.
Accordingly, in Panhandle Eastern Pipe Line Co. v. Public Serv. Comm. of
Ind., the Supreme Court stated:
Three things and three only Congress drew within its own regulatory
power, delegated by the Act to its agent, the Federal Power
Commission [FERC’s predecessor agency]. These were: (1) the
transportation of natural gas in interstate commerce; (2) its sale in
11
interstate commerce for resale; and (3) natural gas companies engaged
in such transportation or sale.
332 U.S. 507, 516, 68 S. Ct. 190, 195 (1947). The Court continued by noting that
“[t]he Act was drawn with meticulous regard for the continued exercise of state
power, not to handicap or dilute it in any way.” Id. at 517-18, 68 S. Ct. at 195-96.
The NGA left the states with authority to regulate “in-state retail sales of natural
gas” and “local distribution.” General Motors Corp. v. Tracy, 519 U.S. 278, 292 &
294, 117 S. Ct. 811, 821-22 (1997). The resulting regulatory system under the
NGA is, therefore, one of “complementary federal regulation of the interstate
market and congressionally approved state regulation of the intrastate gas trade.”
Id. at 293, 117 S. Ct. at 821.
In 1978, the relationship between federal and state regulation of natural gas
began to undergo some changes, however, as “Congress took a first stop toward
increasing competition in the natural gas market by enacting the Natural Gas
Policy Act.” Id. at 283, 117 S. Ct. at 816. Prior to this shift in policy:
The . . . market structure virtually precluded competition between
LDC’s and other potential suppliers of natural gas for direct sales to
consumers, including large industrial consumers. The simplicity of
this dual system of federal and state regulation began to erode in
1978, however, when Congress first encouraged interstate pipelines to
provide transportation services to end users wishing to ship gas, and
thereby moved toward providing a real choice to those consumers
who were able to buy gas on the open market and were willing to take
12
it free of state-created obligations to the buyer. The upshot of
congressional and regulatory developments over the next 15 years was
increasing opportunity for a consumer in that class to choose between
gas sold by marketers and gas bundled with rights and benefits
mandated by state regulators as sold by LDC’s. But amidst such
changes, two things remained the same throughout the period
involved in this case. Congress did nothing to limit the States’
traditional autonomy to authorize and regulate local gas franchises,
and the local franchised utilities (though no longer guaranteed
monopolies as to all natural gas demand) continued to provide
bundled gas to the vast majority of consumers who had neither the
capacity to buy on the interstate market nor the resilience to forgo the
reliability and protection that state regulation provided.
Id. at 293-94, 117 S. Ct. at 821-22 (footnote omitted). Therefore, the current
regulatory framework still reserves for states the right to regulate local distribution,
while permitting pipelines, pursuant to FERC’s jurisdiction, to engage in the
interstate transport of natural gas purchased by end-users from other sources in
competition with LDCs.
It is against this backdrop that we are called on to decide whether the
Commission acted within its jurisdiction in approving the direct delivery
connection sought by Beaulieu. Several other courts, and the Commission, have
addressed this question and have consistently found that the Commission does not
unlawfully impinge on states’ regulatory authority by authorizing direct delivery
facilities permitting LDCs to be bypassed. See Cascade Natural Gas Corp. v
FERC, 955 F.2d 1412 (10th Cir. 1992) (holding that FERC had jurisdiction to
13
approve bypass connection because arrangement involved interstate sale and
transport) ;Michigan Natural Gas Co. v. Panhandle Eastern Pipe Line Co., 887
F.2d 1295, 1299-1300 (6th Cir. 1989) Michigan Consolidates Gas Co. v. FERC,
883 F.2d 117, 121 (D.C. Cir. 1989); cf. Midwestern Gas Transmission Co. v.
McCarty, 270 F.3d 536, 538 (7th Cir. 2001) (noting in dicta that bypass facilities
appeared to be within FERC’s jurisdiction given interstate transportation).
The Tenth Circuit in Cascade engaged in an extensive analysis of whether
FERC had jurisdiction to authorize bypass connections to end-users. See Id. 955
F.2d at 1414-21. As discussed above, the NGA reserves for states the authority to
regulate local distribution of natural gas. The Cascade Court stated that “local
distribution,” for purposes of the NGA, is comprised of “local retail sales to
consumers, whether these sales were made by the local distributing companies or
directly by the interstate pipelines.” Id. at 1418 (emphasis deleted). The Court
noted that a review of the legislative history of the jurisdictional provisions of the
NGA confirmed its view that “Congress cleanly adopted the bright line between
sales for resale and direct retail sales drawn by the earlier Commerce Clause
cases.” Id. at 1418-19.
Next, the Cascade Court considered the nature of the bypass transactions
involved in that case to determine whether FERC was intruding into local
14
distribution. The Court noted that the “Commission [had] approved construction
to enable [the pipeline] to transport gas interstate for hire, pursuant to out-of-state
third-party sales.” Id. at 1419. Noting that no sales were taking place by the
pipeline at the location of the bypass connection, the Court concluded that, “[q]uite
simply, the bypass transactions do not entail the realm of local retail sales that
Congress intended to reserve to the states. . . . [because] there is no evidence that
Congress intended to preserve state regulation over the interstate transportation for
hire pursuant to an out-of-state sale.” Id. The Court also rejected the notion that
FERC lacked jurisdiction because the “the bypass involves the ‘functional
equivalent’ of local distribution.” Id. at 1420.
Both the D.C. and the Sixth Circuits7 have reached the same conclusion – i.e.
on similar facts, holding that the Commission operated within its jurisdiction over
the interstate transportation of gas when it approved bypass arrangements. In
Michigan Consolidated Gas Co. v. FERC, the D.C. Circuit considered whether
7
In a recent decision, the Seventh Circuit also indicated in dicta that it
agreed with these Courts that “the transportation of natural gas bought and
produced out of state to [in-state] residents via [a] pipeline is interstate
transportation” subject to FERC’s jurisdiction. Midwestern Gas Transmission Co.
v. McCarty, 270 F.3d 536, 538 (7th Cir. 2001) (reversing district court’s Younger
abstention in case brought by FERC seeking to enjoin state regulators from acting
in manner that could have interfered with the Commission’s approval of direct
delivery connection).
15
FERC had authority to approve a bypass arrangement even if the direct connection
would have local effects on LDCs. 883 F.2d 117, 121-22 (D.C. Cir. 1989). The
Court stated that it had “no difficulty in holding that FERC [had] jurisdiction over
the [bypass] arrangement . . . . [because] [t]he arrangement in dispute involve[d]
merely interstate transportation of natural gas, a subject matter clearly within the
Commission’s jurisdiction.” Id. at 121. The Court concluded that “[t]he present
arrangement is the subject of federal regulation pursuant to the NGA because the
arrangement involves the transportation of natural gas in interstate commerce, not a
local sale. . . [and the pipeline’s] role under the arrangement is simply to transport
[the end-user’s] gas from one state to another across several intervening states.”
Id. The Court further acknowledged that the sale of natural gas to the end-user was
retail rather than wholesale, but found that fact to be of no consequence to the
jurisdictional issue before it because the bypass arrangement approved by FERC
involved only the interstate transport of the gas purchased by the end-user, rather
than any approval of the retail sale. Id. at 121-22.
The Sixth Circuit later adopted the D.C. Circuit’s approach, and found that
FERC acted within its jurisdiction in approving a bypass connection for an end-
user. See Michigan Natural Gas Co. v. Panhandle Eastern Pipe Line Co., 887 F.2d
1295, 1299-1300 (6th Cir. 1989). The Court concluded that the arrangement
16
involved interstate transport by the pipeline, and that if Congress intended to
exclude the “functional equivalent” of local distribution from FERC jurisdiction, it
could have done so explicitly. Id. at 1300.
In light of this precedent, we now consider whether the Commission had
jurisdiction to approve the bypass for Beaulieu. We agree with the approach taken
by the Sixth, Tenth and D.C. Circuits, and would follow those Courts without
much discussion, except that this case has one factual distinction. In each of those
cases, the end-user purchased the natural gas out of the state, and sought a direct
connection from the pipeline, with the natural gas being transported interstate over
the pipeline to the end-user at the new bypass tap facility. Consequently, it was
clear that none of those cases involved a local sale. In this case, however, it is
Interconn, rather than the end-user Beaulieu, who will purchase the natural gas out
of state and have it transported by the pipeline to the direct delivery connection
facility. The title to the natural gas will pass to Beaulieu at the new facility,
thereby arguably effecting a local sale.
Despite this factual distinction, we readily conclude that the Commission
had jurisdiction to approve the bypass arrangement at issue in this case. As with
the previous bypass cases, the only part of the arrangement approved by the
Commission is clearly related to the interstate transportation of natural gas.
17
Consequently, the approved facilities fall squarely within the Commission’s
jurisdiction. While the new facilities arguably facilitate a local retail sale from
Interconn to Beaulieu, and that sale may or may not be subject to state regulation,
the Commission clearly did not pass on that sale.8 Like the D.C. Circuit in
Michigan Consolidated, we do not believe that the existence of local effects which
may be subject to state regulation deprives the Commission of authority to regulate
the interstate transport of natural gas – an issue squarely within FERC’s
jurisdictional mandate. Michigan Consolidated, 883 F.2d at 121-22.
Further support for our determination comes from the Supreme Court’s
recent decision in New York v. FERC, ___ U.S. ___, 122 S. Ct. 1012 (2002),
addressing FERC’s jurisdiction over the transmission and sale of electricity.
Although the jurisdictional provisions related to electricity are not the same as the
ones governing natural gas, they are similar in that they provide FERC with
8
We express no opinion on whether or how the State of Georgia may
regulate Interconn’s sale to Beaulieu, if in fact that sale takes place in Georgia. We
do note, however, that there appears to be no more of a local sale under the
proposed arrangement than under the current arrangement. In both cases, title
passes from Interconn to Beaulieu in Georgia. The only difference is that title
currently passes at Dalton’s city gates, and Dalton is able to collect a fee for
delivering the gas the rest of the way to the Beaulieu Plant, whereas under the
proposed arrangement, the natural gas would be diverted before it ever reaches
Dalton, thereby depriving Dalton of the opportunity to receive any fee. We have
no occasion to address whether this distinction matters, in that the Commission did
not seek to regulate any local sale, regardless of where it takes place.
18
regulatory authority over “the transmission of electric energy in interstate
commerce” and “the sale of electric energy at wholesale in interstate commerce,”
while leaving to states the regulation of local distribution and local retail sales.
Id. at 1017. Furthermore, similar to the natural gas industry, the electric energy
industry has undergone significant changes since the time that Congress undertook
to regulate it. The current system permits the “‘functional unbundling’ of
wholesale generation and transmission services,” thereby permitting consumers to
seek power generation, transmission, and ancillary services from multiple sources,
rather than just from one utility company. Id. at 1019-20. Therefore, a consumer
now may purchase electricity from an out-of-state wholesaler, and contract with a
another utility to have the electricity transmitted to its location, while bypassing a
local distributor.
At issue in New York was whether FERC properly asserted jurisdiction over
the interstate transmission of electricity to such retail consumers. In answering this
question, the Supreme Court concluded that the Commission’s exercise of
jurisdiction over the interstate transmission to an end-user of electricity was proper
in light of the “clear and specific grant of jurisdiction to FERC over interstate
transmissions,” even though it facilitated a retail sale that would otherwise be
outside of FERC’s jurisdiction. Id. at 1025 (quotations omitted). In reaching this
19
conclusion, the Supreme Court stated:
This statutory text thus unambiguously authorizes FERC to assert
jurisdiction over two separate activities – transmitting and selling. It is
true that FERC’s jurisdiction over the sale of power has been
specifically confined to the wholesale market. However, FERC’s
jurisdiction over electricity transmissions contains no such limitation.
Because the FPA authorizes FERC’s jurisdiction over interstate
transmissions, without regard to whether the transmissions are sold to
a reseller or directly to a consumer, FERC’s exercise of this power is
valid.
Id. at 1024.
Furthermore, the Court stated that the fact that retail sales are generally
subject to state regulation does not deprive FERC of jurisdiction over interstate
transmissions. Id. at 1026. The Court found significant the fact that the
Commission had expressly declined to consider the retail sale portion of the
arrangements, instead limiting its jurisdictional reach to issues related to the
interstate transmission of electricity pursuant to an unbundled, retail sale. Id. at
1026.
We find the New York case instructive as to the Supreme Court’s method of
determining the proper boundaries of FERC’s regulatory authority. This decision
clearly reveals the significance of unambiguous statutory language. See also CBS,
Inc. v. Primetime 24 Joint Venture, 245 F.3d 1217, 1222 (11th Cir. 2001) (noting
that plain meaning of statute controls its interpretation).
20
As was true in New York, the Commission in this case acted within the letter
of its statutory jurisdictional grant when it approved the facilities at issue because
those facilities related to the interstate transport of natural gas. Also similar to
New York, it is of no consequence that the Commission’s exercise of its
jurisdiction facilitates a retail sale, because the Commission did not attempt to
regulate any such sale. Simply put, states’ authority to regulate local retail sales
does not act as a limit on the Commission’s jurisdiction over interstate
transportation, even if that transportation might facilitate retail sales.
Following the approach of the Sixth Circuit, the Tenth Circuit, the D.C.
Circuit, and the Supreme Court, we conclude that the Commission had jurisdiction,
pursuant to its statutory grant of jurisdiction over the interstate transport of natural
gas, to approve the direct delivery connection facilities at issue in this case.
B. Dalton’s Requests for Discovery
Having found that the Commission had jurisdiction under the NGA to
consider the direct delivery connection sought by Beaulieu, we now turn to
Dalton’s arguments concerning the procedures employed by the Commission in
connection with its consideration of the request for the new facilities. Dalton
maintains that the Commission erred by denying Dalton’s request that it conduct an
21
evidentiary hearing and require Southern to provide discovery concerning the
proposed bypass arrangement. It contends that such procedures were necessary in
order for the Commission to determine whether the arrangement might have anti-
competitive or other negative effects. Dalton also suggests that such proceedings
were necessary to determine whether there was underlying anti-competitive
agreement between Southern, Beaulieu, Interconn, or any other parties. Dalton
maintains that the lack of an evidentiary hearing, or related discovery, rendered the
proceedings unfair.9
In Atlanta Gas Light, we rejected a similar contention by a party who
complained about the Commission’s decision to proceed without an evidentiary
hearing, stating:
The Commission’s regulations pertaining to settlements allow FERC
to decide the merits of contested issues only “if the record contains
substantial evidence upon which to base a reasoned decision or the
Commission determines that there is no genuine issue of material
fact.” 18 C.F.R. § 385.602(h)(1)(i). In considering the arguments of
9
With respect to the request for discovery, it is not at all clear to us that the
Commission’s regulations provided Dalton with any entitlement to discovery in the
first place in this case. As Southern pointed out to Dalton in its response to
Dalton’s data requests, the Commission’s regulations providing for discovery only
apply to “proceedings set for hearing under Subpart E of this part, and to such
other proceedings as the Commission may order.” 28 C.F.R § 385.401. Because
the Commission did not set the proceedings for a hearing, the discovery provisions
never came into play. Therefore, the issue of the denial of discovery is subsumed
into our review of the denial of an evidentiary hearing.
22
Atlanta Gas in its petition for rehearing of the 1992 Order, the
Commission found that the record, which included an oral argument
as well as the same affidavits that Atlanta Gas submitted for the 1991
and 1992 Orders, was extensive and that there were no material facts
in dispute requiring resolution by a trial-type hearing. We review
FERC’s decision not to hold a hearing for an abuse of discretion, and
find no abuse of discretion.
FERC’s conclusion that live testimony by either affiant at an
evidentiary hearing would not have efficiently furthered the inquiry
was within its broad discretion to structure its own proceedings.
Indeed, even if the affidavits had presented material factual disputes,
FERC need not conduct such a hearing if [the disputes] may be
adequately resolved on the written record. We cannot say that the
Commission abused its discretion in considering Atlanta Gas’s
arguments based on the ample record before it.
Atlanta Gas Light, 140 F.3d at 1400.
Similarly, in Cascade, the Tenth Circuit rejected a party’s contention that an
evidentiary hearing should have been held by the Commission prior to approving a
bypass arrangement. 955 F.2d at 1425-26. The Court stated that in order for a
hearing to be necessary, a party must: (1)make material allegations of fact, (2)
supported by an adequate proffer of evidence, (3) that are material to the dispute.
Id. The Court noted that “[a]bsent more specific guidance from the statute,
common sense dictates that the Commission be given flexibility in deciding how it
will use its resources to achieve the purposes of the hearing.” Id. at 1425.
We conclude that the Commission did not abuse its discretion by denying
Dalton’s request for an evidentiary hearing or for related discovery. Most of
23
Dalton’s arguments really are directed at the Commission’s bypass policy, and an
evidentiary hearing would not have been helpful as to those issues. To the extent
that Dalton argues there were anti-competitive or otherwise nefarious intentions
underlying the proposed arrangement, it has proffered no evidence supporting that
allegation. Nor do its unsupported allegations, such as the possible existence of
some unspecified, anti-competitive agreement between Interconn and Beaulieu,
appear plausible. Moreover, it appears to us that much of the information which
Dalton sought through discovery in the FERC proceeding could have been
obtained publicly or through other methods. Therefore, we conclude that the
Commission did not abuse its “broad discretion” by structuring its proceedings in
the way that it did or by denying Dalton the discovery that it sought.
C. FERC’s Interpretation of Southern’s Tariff and Authorization of the Bypass
Conection
Finally, we turn to Dalton’s remaining challenges to the propriety of the
Commission’s decision to grant Southern’s request and authorize the new facilities.
Dalton challenges this decision on several bases, including that: (1) Beaulieu,
Interconn and Southern did not comply with the technical terms of § 36 of
Southern’s tariff concerning requests for direct delivery connections; (2) Section
36 of the tariff violates §§ 4(a) and (b) of the NGA and is unduly discriminatory or
24
otherwise unlawful; and (3) FERC’s approval of the connection to Beaulieu was
arbitrary and capricious.
Many of Dalton’s arguments really amount to a challenge to the
Commission’s policy of approving direct delivery connections to pipelines in order
to encourage competition in the natural gas industry. Dalton also protests the
Commission’s conclusion that the approval of the particular connection at issue in
this case would increase competition or otherwise be in the public interest. In
support of these arguments, Dalton put forth evidence that, according to its
calculations, Beaulieu’s natural gas costs would increase as a result of the direct
connection as compared to the costs it currently pays Dalton. Dalton also
maintains that the Commission paid insufficient attention to the effect of the
bypass connection on Dalton and its captive customers who might incur increased
costs as a result of Dalton’s loss of revenue from Beaulieu. Based in part on these
contentions, Dalton challenges the Commission’s finding of public convenience
and necessity and argues that the Commission’s approval of the transport of natural
gas and related facilities was improper under both Southern’s tariff and applicable
provisions of the NGA.
In Atlanta Gas Light Co. v. FERC, 140 F.3d 1392 (11th Cir. 1998), this
Court explained that:
25
The standard of review of FERC decisions is governed by § 19(b) of
the NGA, which makes the Commission's findings of facts
“conclusive” if supported by “substantial evidence.” 15 U.S.C.
§717r(b). This standard is no more than a recitation of the application
of the “arbitrary and capricious” standard to factual findings. The
“arbitrary and capricious” standard hails from the Administrative
Procedure Act, 5 U.S.C. § 706(2)(A), which requires us to uphold the
Commission's actions, findings, and conclusions unless they are
“arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with law.”
The scope of our “arbitrary and capricious” review is narrow; we must
not ... substitute [our] judgment for that of the agency, but rather
determine whether there was a rational connection between the facts
found and the choice made, and examine whether the decision was
based on a consideration of the relevant factors and whether there has
been a clear error of judgment.
Id. at 1397 (citations and quotations omitted).
In addition to limiting our review of FERC’s decisions under the arbitrary
and capricious standard, we have also held that the Commission is entitled to
substantial deference in interpreting tariffs. In Southern Natural Gas Co. v. FERC,
we stated:
The construction of the minimum bill tariff is within the primary
jurisdiction of the Commission. As the Supreme Court has
emphasized, Congress has entrusted the regulation of the natural gas
industry to the informed judgment of the Commission, and not to the
preferences of reviewing courts. A presumption of validity therefore
attaches to each exercise of the Commission’s expertise. The
Commission’s interpretation of the tariff need not be the only
reasonable one or even the one that we would necessarily reach if we
were to decide the issue initially; if the Commission’s interpretation of
the tariff is reasonable, it must be upheld.
26
780 F.2d 1552, 1558 (11th Cir. 1986) (citations and quotations omitted).
Moreover, we have held that when reviewing the Commission’s application and
interpretation of the provision’s of a tariff, the Court will not “elevate form over
substance,” but instead will allow the Commission some leeway in applying tariff
provisions in such a way as to effectuate their intent. Atlanta Gas Light, 140 F.3d
at 1400-01.
Based on our review of the record, we must reject all of Dalton’s challenges
to the Commission’s interpretation of Southern’s tariff and to the propriety of the
requested direct delivery connection. We cannot conclude that the decision of the
Commission was arbitrary and capricious.10 Furthermore, the Commission’s
interpretation of Southern’s tariff was reasonable, and its decisions complied with
that tariff and with the applicable provisions of the NGA. In particular, we believe
that FERC’s policy of encouraging competition in the natural gas industry by
approving direct delivery connections, and its practice of deferring to end-users
determinations of what arrangements are in their economic best interest, are
10
Dalton argues that the Commission failed adequately to take account of the
fact that costs will be shifted to other Dalton customers as a result of the loss of
revenue from Beaulieu. After reviewing the record, we cannot conclude that the
Commission acted arbitrarily or capriciously by dismissing Dalton’s arguments as
overly speculative, and as subject to the ability of either Dalton or other state
agencies to take steps to limit any negative impact on captive consumers.
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reasonable. See Midcoast Interstate Transmission, Inc. v. FERC, 198 F.3d 960,
968 (D. C. Cir. 2000) (noting that “FERC was entitled to rely on . . . general
economic theory”). Therefore, the Commission’s decisions are due to be affirmed.
III. CONCLUSION
For these reasons, we conclude that FERC had jurisdiction pursuant to the
NGA to consider Southern’s request to establish a direct delivery pipeline
connection for Beaulieu because the proposed arrangement involved the interstate
transport of natural gas. We also conclude that the Commission did not abuse its
discretion in structuring its proceedings as it did, and that the Commission’s
decision to approve the new facilities was supported by substantial evidence and
was not otherwise arbitrary or capricious. Therefore, we affirm the Commission’s
decisions in all respects.
AFFIRMED.
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