United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 29, 2000 Decided March 28, 2000
No. 99-1113
Lomak Petroleum, Inc.,
Petitioner
v.
Federal Energy Regulatory Commission,
Respondent
Norse Pipeline, LLC and
Columbia Gas Transmission Corporation,
Intervenors
On Petition for Review of Orders of the
Federal Energy Regulatory Commission
Joseph D. Lonardo argued the cause for petitioner. With
him on the briefs was John W. Wilmer, Jr.
Judith A. Albert, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With her on
the brief were John H. Conway, Acting Solicitor, and Susan
J. Court, Acting Deputy Solicitor. Jay L. Witkin, Solicitor at
the time the brief was filed, entered an appearance.
Frederic J. George, Robin Nuschler, Randall S. Rich and
S. Dennis Holbrook were on the brief of intervenors Colum-
bia Gas Transmission Corporation and Norse Pipeline, LLC.
Betsy R. Carr entered an appearance.
Before: Edwards, Chief Judge, Tatel, and Garland,
Circuit Judges.
Opinion for the Court filed by Circuit Judge Garland.
Garland, Circuit Judge: In May 1998, Columbia Gas
Transmission Corporation requested authorization from the
Federal Energy Regulatory Commission (FERC) to abandon,
by sale to Norse Pipeline, LLC, Columbia's "Project Penny"
facilities.1 At the same time, Norse asked FERC to disclaim
jurisdiction over the Project Penny facilities once Columbia
conveyed them, on the ground that they would then constitute
facilities used for the "gathering" of natural gas. Such
facilities are exempt from FERC jurisdiction under section
1(b) of the Natural Gas Act (NGA), 15 U.S.C. s 717(b). On
November 4, 1998, FERC acceded to both requests. See
Columbia Gas Transmission Corp., 85 F.E.R.C. p 61,191
(1998).
FERC's order pleased Columbia and Norse, but displeased
petitioner Lomak Petroleum, Inc., a gas producer that trans-
ports gas on the Project Penny system. Lomak sought
rehearing, reasserting challenges both to the abandonment
and to the disclaimer of jurisdiction. After FERC denied
rehearing, see Columbia Gas Transmission Corp., 86
F.E.R.C. p 61,137 (1999), Lomak petitioned this court to
review the decision to disclaim jurisdiction. Lomak contends
that FERC's determination that the Project Penny facilities
primarily perform a gathering function was arbitrary and
__________
1 Section 7(b) of the Natural Gas Act, 15 U.S.C. s 717f(b),
prohibits a natural gas company from abandoning any portion of its
jurisdictional facilities without FERC approval.
capricious, inconsistent with a preexisting settlement agree-
ment, and made without affording Lomak due process.
I
The Project Penny facilities are located in western New
York and northwestern Pennsylvania. They are composed of
approximately 336 miles of 2- to 12-inch diameter pipeline,
seven compressor stations, and other related facilities, all of
which were the subject of certificates of public convenience
and necessity issued by FERC during the period of Colum-
bia's ownership. See 85 F.E.R.C. at 61,765. Columbia, a
natural gas company engaged in the business of transporting
natural gas in interstate commerce, constructed the facilities
in the 1970s and 1980s to access Appalachian gas supplies for
its customers. Because the facilities were not on its system,
Columbia initially entered into third-party transportation and
exchange agreements with other companies to bring the New
York and Pennsylvania gas to market. Columbia intended to
connect the Project Penny facilities to its main line, but
before the connections were constructed the Commission
implemented its major open-access orders, Order No. 436 and
Order No. 636.2 See id. As a consequence, Columbia
became a transporter rather than a merchant of natural gas
and no longer needed to operate Project Penny to access
system supplies. See id.
__________
2 See Order No. 436, Regulation of Natural Gas Pipelines After
Partial Wellhead Decontrol, FERC Stats. & Regs. p 30,665 (1985);
Order No. 636, Pipeline Service Obligations and Revisions to Regu-
lations Governing Self-Implementing Transportation Under Part
284 of the Commission's Regulations, and Regulation of Natural
Gas Pipelines After Partial Wellhead Decontrol, FERC Stats. &
Regs. p 30,939 (1992). Prior to these orders, pipelines like Colum-
bia provided bundled sales services, wherein the costs of all facili-
ties to move gas from the wellhead to the customer were reflected
in the pipeline's sales rates. Order 636 required the unbundling of
services including gathering. See Conoco Inc. v. FERC, 90 F.3d
536, 540-41 (D.C. Cir. 1996). See generally United Distribution
Cos. v. FERC, 88 F.3d 1105 (D.C. Cir. 1996).
In 1998, Columbia sought authorization to sell the Project
Penny facilities to Norse. The latter is not a natural gas
company, owns no facilities that come within FERC's jurisdic-
tion, and provides no jurisdictional services. See id. at
61,769. Norse operates exclusively in New York as the
owner of discrete gathering facilities. See id. FERC deter-
mined that after Norse acquired the Project Penny facilities,
it would continue to own exclusively gathering facilities, ex-
empt from FERC jurisdiction under the NGA. See 86
F.E.R.C. at 61,486; 85 F.E.R.C. at 61,679.
II
Lomak's first contention is that FERC arbitrarily and
capriciously determined that after Norse's acquisition,
the primary function of the Project Penny facilities would
be the juurisdictionally-exempt gathering, rather than the
jurisdictionally-covered transmission, of natural gas.
The NGA grants FERC jurisdiction over (inter alia) the
transportation of natural gas in interstate commerce, but
exempts from FERC's jurisdiction the production and gather-
ing of natural gas. See 15 U.S.C. s 717(b). The term
"gathering" is not defined in the NGA, but has been defined
by the Commission as "the collecting of gas from various
wells and bringing it by separate and several individual lines
to a central point where it is delivered into a single line."
Barnes Transp. Co., 18 F.P.C. 369, 372 (1957); see Northern
Natural Gas Co. v. State Corp. Comm'n, 372 U.S. 84, 90
(1963) (stating that "production" and "gathering" are terms
"narrowly confined to the physical acts of drawing the gas
from the earth and preparing it for the first stages of
distribution"). As we have previously remarked, "[t]he line
between jurisdictional transportation and nonjurisdictional
gathering is not always clear." Conoco Inc. v. FERC, 90 F.3d
536, 542 (D.C. Cir. 1996).
Since 1982, FERC has used the "primary function" test to
determine "whether a facility is devoted to the collection of
gas from wells--gathering--or to the further ('downstream')
long-distance movement of gas after it has been collected--
interstate transportation." Id. at 543. That test generally
employs the following six physical criteria:
(1) the length and diameters of the lines; (2) the exten-
sion of the facility beyond the central point in the field;
(3) the geographic configuration of the facility; (4) the
location of compressors and processing plants; (5) the
location of wells along all or part of the line facility; and
(6) the operating pressure of the lines.
85 F.E.R.C. at 61,768 (citing Farmland Indus., Inc., 23
F.E.R.C. p 61,063 (1983), and Amerada Hess Corp., 52
F.E.R.C. p 61,268 (1990)). In addition, FERC considers the
following "non-physical" criteria:
(1) the purpose, location and operation of the facility; (2)
the general business activity of the owner of the facility;
(3) whether a jurisdictional determination, i.e., gathering
versus transmission, is consistent with the objectives of
the NGA and the Natural Gas Policy Act (NGPA); and
(4) the changing technical and geographic nature of
exploration and production activities.
Id. (citing Amerada Hess, 52 F.E.R.C. at 61,844-45). No one
factor is determinative in the primary function test, and not
all factors apply in all situations. See Williams Field Servs.
Group, Inc. v. FERC, 194 F.3d 110, 116 (D.C. Cir. 1999);
Conoco, 90 F.3d at 543. The Commission "gives consider-
ation to all of the facts and circumstances of the case rather
than mechanically applying a facilities configuration stan-
dard." West Tex. Gathering Co., 45 F.E.R.C. p 61,386, at
62,219 n.4 (1988); see also Conoco, 90 F.3d at 543.
Lomak agrees that the primary function test is appropriate
for determining whether a facility engages in gathering, but
contends that FERC's application of the test to Project
Penny was arbitrary and capricious. As we have previously
held, "[i]n evaluating and balancing the several factors under
the primary function test, the Commission brings to bear its
considerable expertise about the natural gas industry." Co-
noco, 90 F.3d at 544. Accordingly, we will uphold the Com-
mission's application of the test as 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. Id.; see 15 U.S.C. s 717r(b) ("The finding of
the Commission as to the facts, if supported by substantial
evidence, shall be conclusive."); Williams Field Servs., 194
F.3d at 115.
Lomak contends that while purporting to apply the primary
function test, FERC in fact employed a "pipeline-always-
wins" test. Lomak Br. at 14. We see no sign of such
duplicity here.3 In the challenged orders, FERC set forth
the primary function test's factors and, after analysis, con-
cluded that four of the physical factors indicated that the
Project Penny facilities were primarily engaged in "gather-
ing." It found that the mostly small diameters and short
lengths of the project's lines were consistent with the conclu-
sion that Project Penny serves to gather gas from wells for
delivery to a jurisdictional transportation system. The Com-
mission noted that there was no processing plant on the
system; that the lines formed a web-like geographic configu-
ration, with the longer lines forming backbones that collect
gas from feeding lines along their lengths; and that the low
wellhead and pipeline pressures were consistent with gather-
ing rather than transmission. In the past, FERC has relied
on these same factors to determine that a system primarily
performs a gathering function. See, e.g., NorAm Gas Trans-
mission Co., 75 F.E.R.C. p 61,127, at 61,429-30 (1996) (citing
small diameters, low pipeline pressures and web-like configu-
ration); Arkla Gathering Servs. Co., 67 F.E.R.C. p 61,257, at
61,868-69 (1994) (noting short length, small-diameter pipe-
lines, web-like configuration, and that there were "no gather-
__________
3 Lomak's contention that pipelines have prevailed in a large
majority of the cases in which FERC has applied the primary
function test does not prove the company's thesis. Without evaluat-
ing the merits of each of those cases, we cannot determine whether
their dispositions were justified. Nor can we evaluate the merits of
those cases here, as none of the relevant evidence is before us. All
we have is the record of the Project Penny decision and, as
discussed below, it is a record that justifies the result reached by
the Commission with respect to that facility.
ing facilities downstream of any processing plants"); Panhan-
dle E. Pipe Line Co., 59 F.E.R.C. p 61,108, at 61,405-06
(1992) (citing small diameter lines and "network of small lines
appending an array of wells"); Dorchester Gas Producing
Co., 32 F.E.R.C. p 61,409, at 61,917 (1985) (noting geographic
configuration, location "behind the processing plant," and
small diameter lines).
In making its findings regarding Project Penny, FERC
further relied on one of the primary function test's non-
physical factors: "the general business activity of the owner
of the facility." FERC emphasized that, unlike Columbia,
Norse operates only gathering facilities, "is not a natural gas
company," provides no transmission services, and is not affili-
ated with a jurisdictional pipeline. See 86 F.E.R.C. at 61,486;
85 F.E.R.C. at 61,769. FERC further noted that the Project
Penny facilities do not deliver gas off the system to city or
farm taps. See 86 F.E.R.C. at 61,486-87. Rather, "[t]he
lines gather gas produced from local wells and transport it
directly to the interstate lines of Tennessee Gas Pipeline
Company," an unaffiliated entity. Id. at 61,487. These, too,
appear to be reasonable indices that Project Penny is primar-
ily a gathering rather than transmission facility.
Lomak contends that FERC's resolution of this case is
inconsistent with its determinations in others, where it classi-
fied facilities as primarily performing a transmission function
despite the presence of some of the same factors relied upon
here. Lomak's effort to focus on the presence or absence of
specific factors in individual cases is not persuasive, however,
in the context of an explicitly multifactor test which necessari-
ly involves a balancing of those factors that are present and
those that are not. Moreover, FERC has reasonably distin-
guished the cases Lomak cites for support. For example,
although Lomak contends that FERC has found that small
diameter pipelines can perform transmission functions,
FERC notes that in those cases, "other indicia of gathering,
such as wells and/or feeder lines along their length, were
absent." 85 F.E.R.C. at 61,768 n.20. Lomak specifically
observes that FERC classified Columbia's Miley facility,
which utilized 8-, 10-, and 12-inch pipe, as a transmission
facility. But as FERC notes, unlike Project Penny, the Miley
facility was "located between jurisdictional compressor sta-
tions [and] used primarily to balance transmission loads,
maximize throughput, and provide storage services." Colum-
bia Gas Transmission Corp., 86 F.E.R.C. p 61,223, at 61,799-
800 (1999); see FERC Br. at 24.4
"[T]he party challenging an agency's action as arbitrary
and capricious bears the burden of proof." San Luis Obispo
Mothers For Peace v. United States Nuclear Regulatory
Comm'n, 789 F.2d 26, 37 (D.C. Cir. 1986) (en banc). Lomak
has failed to establish convincing inconsistencies between
FERC's treatment of Project Penny and other facilities, and
has offered no affirmative evidence supporting its contention
that the Project Penny facilities are primarily engaged in
transmission. Accordingly, Lomak has not met its burden,
and we reject its first challenge to FERC's orders.
III
Lomak's second claim is that FERC's determination re-
garding Project Penny conflicts with a settlement agreement
approved by the agency in a separate proceeding. See Co-
lumbia Gas Transmission Corp., 79 F.E.R.C. p 61,044 (1997).
As Lomak was not itself a party to that agreement, its
interpretation of the agreement carries little weight. More-
over, "[b]ecause 'Congress explicitly delegated to FERC
broad powers over ratemaking, including the power to ana-
lyze relevant contracts,' and because the Commission has
__________
4 Lomak also complains that although FERC noted that Project
Penny lacks a processing plant, the Commission recently found that
a facility with a processing plant can still perform a gathering
function. See Kentucky-West Va. Gas Co., No. CP99-321-000, 1999
WL 549651 (FERC July 29, 1999). Depending upon its location,
the presence of a processing plant may be a factor indicating
transmission. See Williams Field Servs., 194 F.3d at 116. Never-
theless, the fact that the presence of a processing plant may not
disqualify a facility from being classified as gathering (where other
factors typical of gathering exist) does not mean that the absence of
a processing plant signals transmission or that the Commission is
acting inconsistently.
greater technical expertise in this field than does the Court,
we accord deference to the Commission's interpretation of
... Settlement Agreement[s]." Amerada Hess Pipeline
Corp. v. FERC, 117 F.3d 596, 604 (D.C. Cir. 1997) (quoting
Tarpon Transmission Co. v. FERC, 860 F.2d 439, 441-42
(D.C. Cir. 1988)) (other citations omitted); see Northern
Mun. Distribs. Group v. FERC, 165 F.3d 935, 943 (D.C. Cir.
1999). "To be sure, we need not accept 'an agency interpre-
tation that black means white. However, if the choice lies
between dark grey and light grey, the conclusion of the
agency, unmistakably possessed as it is of special expertise, in
favor of one or the other will have great weight.' " Western
Resources, Inc. v. FERC, 9 F.3d 1568, 1576 (D.C. Cir. 1993)
(quoting National Fuel Gas Supply Corp. v. FERC, 811 F.2d
1563, 1572 (D.C. Cir. 1987)).
The relevant portions of the settlement at issue here read
as follows:
ARTICLE I
DISTANCE-SENSITIVE RATE ISSUE
The distance-sensitive rate issue ... shall be settled
for the periods described below and upon the following
terms and conditions:
A. Postage Stamp Rate Design.
....
(2) In addition, prior to April 1, 2002, neither Colum-
bia, nor any party or other person shall raise or advo-
cate any issue related to functionalization, classifica-
tion, allocation or direct assignment of any Columbia
facilities ... so as to directly charge the costs of such
facilities or associated costs to any individual customers
served under a generally applicable rate schedule, either
(a) because of physical or operational differences ... on
different parts of Columbia's system ... or (b) for any
other reason. Nothing in this Stipulation shall prevent
Columbia or any party from: (a) proposing or challeng-
ing the proposed rate and accounting treatment of a sale
and/or transfer of facilities by Columbia....
Settlement, Article I (emphasis added). Lomak contends
that the sentence italicized above, which states in part that no
party may raise "any issue related to functionalization," pro-
hibits FERC from "refunctionalizing" the Project Penny facil-
ities from transmission to gathering. FERC disagrees, stat-
ing that "[i]nstead of prohibiting refunctionalization, the
above-referenced subparagraph precludes parties and others
from departing from Columbia's rate design during the
locked-in period of the settlement." 86 F.E.R.C. at 61,486.
We find FERC's reading of the sentence, as applying to
rates rather than jurisdiction, to be reasonable. As the
Commission noted, the sentence does not bar a party from
raising "any issue related to the refunctionalization of any
Columbia facilities" per se, but only from raising such an
issue "so as to directly charge the costs of such facilities ...
to any individual customers served under a generally applica-
ble rate schedule." See id. Indeed, the sentence is contained
in an article entitled "Distance-Sensitive Rate Issue"; the
introductory sentence of the article states that "the distance-
sensitive rate issue ... shall be settled ... upon the following
terms and conditions"; and the specific subheading in which
the sentence is found is entitled "Postage Stamp Rate De-
sign." Moreover, the sentence following that cited by Lomak
states that "[n]othing in this Stipulation shall prevent Colum-
bia or any party from: (a) proposing ... rate and accounting
treatment of a sale and/or transfer of facilities by Columbia,"
thus plainly contemplating that a sale like that at issue here
might occur.
To protect Columbia's existing customers, the settlement
does provide that "purchasers of Columbia's abandoned gath-
ering facilities will continue to provide gathering service for
two years on a non-discriminatory open-access basis at rates
not to exceed the applicable maximum rates shown on Appen-
dix F of the settlement." 86 F.E.R.C. at 61,486. But Norse
agreed to assume that obligation, and FERC concluded that
"Norse's agreement to hold rates steady in accordance with
the settlement agreement is sufficient to address Lomak's
concerns about a potential rapid increase in gathering rates."
Id. Because FERC reasonably interpreted the settlement as
posing no impediment to the jurisdictional reclassification of
the Project Penny facilities, we reject Lomak's second attack
on FERC's orders.
IV
Lomak's final contention is that FERC deprived it of due
process by failing to hold a technical conference before con-
cluding that the Project Penny facilities primarily involved
gathering. This court "has repeatedly held that the Commis-
sion 'is required to hold hearings only when the disputed
issues may not be resolved through an examination of written
submissions.' " Conoco, 90 F.3d at 543 n.15 (quoting Envi-
ronmental Action v. FERC, 996 F.2d 401, 413 (D.C. Cir.
1993)). In its initial order, FERC denied Lomak's request
for a technical conference, finding "the record to be complete
and no issues of material fact which cannot be resolved on the
record." 85 F.E.R.C. at 61,767 n.11. In its order denying
rehearing, the Commission again concluded that a technical
conference was unnecessary because "[t]here are no material
issues of fact in dispute which cannot be resolved on the basis
of the existing record." 86 F.E.R.C. at 61,485.
Lomak's briefs make only two, vague references to the kind
of information it wished to present at a technical conference.
First, Lomak states that such a conference would have given
it the opportunity "to demonstrate the devastating effect"
Norse's rates would have on Lomak after the two-year transi-
tion period ended. Lomak Br. at 8. Yet, while such evidence
might arguably be relevant to the question of whether Colum-
bia should have been permitted to abandon the Project Penny
facilities, Lomak has not challenged abandonment on this
appeal. Rather, its challenge is to FERC's decision to "relin-
quish" jurisdiction on the ground that the facilities primarily
involve gathering. See Lomak Br. at 2 (statement of issues
presented). Economic impact, however, is not one of the
factors in the primary function test for FERC jurisdiction.
More important, even if economic impact were relevant,
Lomak offers no reason why evidence of such impact could
not have been submitted in written form.
Second, Lomak contends in a footnote that: "One of the
reasons a Technical Conference was requested was the fact
that production associated with the Project Penny system is
classified as Appalachian Basin production and, as such, has
unique characteristics unlike those found in any other gas-
producing region of the country." Lomak Br. at 21 n.34.
But at oral argument, Lomak conceded that FERC is familiar
with the unique attributes of the Appalachian region,5 and
offered no specifics as to which it wished to enlighten the
agency. Nor did Lomak give any reason why it could not
have adequately depicted those unique attributes in a written
submission. We therefore find no error in FERC's decision
to dispense with a technical conference. See Woolen Mill
Assocs. v. FERC, 917 F.2d 589, 592 (D.C. Cir. 1990) ("[M]ere
allegations of disputed fact are insufficient to mandate a
hearing; a petitioner must make an adequate proffer of
evidence to support them.").
V
For the foregoing reasons, we reject Lomak's challenges to
FERC's orders and deny the company's petition for review.
__________
5 See, e.g., National Fuel Gas Supply Corp., 71 F.E.R.C.
p 61,031, at 61,138 (1995) (noting "the unique circumstances in the
Appalachian region").