B&J Oil & Gas v. Federal Energy Regulatory Commission

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United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 20, 2003 Decided January 13, 2004

No. 02-1306

B&J OIL AND GAS,
PETITIONER

v.

FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT

DOMINION TRANSMISSION, INC.,
INTERVENOR

On Petition for Review of Orders of the
Federal Energy Regulatory Commission

Edward W. Hengerer argued the cause and filed the briefs
for petitioner.
Laura J. Vallance, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With her on

Bills of costs must be filed within 14 days after entry of judgment.
The court looks with disfavor upon motions to file bills of costs out
of time.
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the brief were Cynthia A. Marlette, General Counsel, and
Dennis Lane, Solicitor.
H. Christopher Bartolomucci argued the cause for interve-
nor. On the brief were Kevin J. Lipson and Christopher A.
Schindler.

Before: GINSBURG, Chief Judge, and ROGERS and TATEL,
Circuit Judges.
Opinion for the Court filed by Circuit Judge TATEL.
TATEL, Circuit Judge: In this case, we consider an energy
producer’s challenge to the Federal Energy Regulatory Com-
mission’s decision to permit a neighboring natural gas pipe-
line operator to expand an underground gas storage facility
onto the producer’s property. Although we reject FERC’s
argument that the producer lacks standing to pursue this
challenge, because FERC’s orders are supported by substan-
tial evidence and are neither arbitrary nor capricious, we
deny the petition for review.

I.
Under section 7(c) of the Natural Gas Act (NGA), natural
gas companies seeking to construct new gas transportation or
storage facilities, or to expand existing ones, must obtain a
certificate of ‘‘public convenience and necessity’’ from the
Federal Energy Regulatory Commission. See 15 U.S.C.
§ 717f(c)(1)(A) (2000) (‘‘No natural-gas company TTT shall
engage in the transportation or sale of natural gas TTT, or
undertake the construction or extension of any facilities
therefor TTT, unless there is in force TTT a certificate of public
convenience and necessity issued by the Commission autho-
rizing such acts or operations TTTT’’); Schneidewind v. ANR
Pipeline Co., 485 U.S. 293, 295 n.1 (1988) (stating that ‘‘trans-
portation’’ within the meaning of the NGA includes storage).
Such certificates enable gas companies unable to purchase the
property rights needed to construct or operate their certifi-
cated facilities to acquire the property from unwilling owners
through eminent domain. 15 U.S.C. § 717f(h).
 3

Dominion Transmission, Inc., intervenor in this case, owns
and operates an interstate gas transmission system that
transports and stores natural gas for customers in several
east coast states. As part of this system, Dominion runs an
underground storage facility in central West Virginia called
the Fink–Kennedy/Lost Creek Storage Reservoir. FERC’s
predecessor, the Federal Power Commission, certificated the
Fink Reservoir in 1956. See Dominion Transmission, Inc.,
97 F.E.R.C. ¶ 61,344, 62,598 (2001) (relying on Hope Natural
Gas Co., 16 F.P.C. ¶ 955 (1956)). The Fink Reservoir spans
nearly 50,000 acres within the Gantz Formation, a geologic
formation located approximately 1600 to 2600 feet under-
ground. According to Dominion, the Fink Reservoir is one of
the country’s largest natural gas storage facilities.
Petitioner B&J Oil and Gas operates fourteen oil and gas
wells, ten of which are located within the Gantz Formation
adjacent to the current boundary of Dominion’s Fink storage
field. In these proceedings, B&J acts ‘‘on behalf of the
working interest owners and royalty interest owners that it
represents as the operator of [these] fourteen wells.’’ Pet’r’s
Br. at 2.
In February 2001, Dominion asked FERC to revise the
Fink Reservoir’s certificated boundary. In its application
filed pursuant to NGA section 7(c), Dominion asserted that
data acquired and analyses performed after the field’s initial
certification indicated that gas could easily migrate out of the
reservoir area and that third-party wells located outside the
current boundary likely were ‘‘producing,’’ i.e., extracting, gas
from Dominion’s storage field. To prevent this loss, Domin-
ion asked FERC to amend the Fink Reservoir’s certificated
boundary to encompass an additional 3063 acres, which would
enlarge the storage area to the reservoir’s actual geologic
border. This proposed expansion would incorporate neigh-
boring private property, including B&J’s.
To protect its property interests, B&J intervened and
objected to Dominion’s application. Claiming that Dominion
had failed to present sufficient engineering and geologic
information to justify boundary expansion, B&J submitted its
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own expert report challenging the accuracy of some of Do-
minion’s data. Staff from FERC’s Office of Energy Projects
subsequently sent ‘‘deficiency letters’’ to both Dominion and
B&J requesting more information about their filings. In
response, Dominion submitted additional materials, request-
ing confidential treatment for five documents on the ground
that they contained sensitive or proprietary information.
B&J promptly filed a Freedom of Information Act request to
obtain one of the five assertedly privileged documents, ex-
plaining that the other four appeared on a publicly accessible
FERC information management system. After determining
that it had mistakenly posted Dominion’s confidential docu-
ments, FERC removed the materials from its information
system, ordered parties who had downloaded them to destroy
the documents and not to use them in any way, and denied
B&J’s FOIA application. See Dominion Transmission, Inc.,
96 F.E.R.C. ¶ 61,238, 61,955 (2001) (document destruction
order); Dominion Transmission, Inc., 97 F.E.R.C. ¶ 61,120,
61,584 (2001) (denying rehearing of the document destruction
order and noting that the Commission’s Office of External
Affairs had denied B&J’s FOIA request). Concluding that
the public record contained sufficient information for it to
decide Dominion’s boundary revision application, FERC also
rejected B&J’s request to stay the Dominion certificate pro-
ceedings until after the agency resolved B&J’s FOIA appeal,
see Dominion, 97 F.E.R.C. at 61,584, and later affirmed the
denial of B&J’s FOIA application, see Dominion Transmis-
sion, Inc., 100 F.E.R.C. ¶ 61,168, 61,601 n.3 (2002).
In December 2001, FERC approved Dominion’s application
to expand the Fink Reservoir. Dominion, 97 F.E.R.C. at
62,598. Relying only on publicly available information,
FERC found that the Gantz Formation was larger than the
Fink Reservoir’s currently certificated boundary and that
Dominion storage gas was in fact migrating toward B&J’s
wells. Id. at 62,601. FERC thus found it ‘‘in the public
convenience and necessity to expand the storage boundary for
the Fink Reservoir as proposed, in order to maintain the
operational integrity of the storage field and to enable Domin-
ion to continue to provide reliable natural gas storage ser-
 5

vice.’’ Id. Balancing the need to ensure the storage field’s
integrity against B&J’s interests, FERC concluded that pre-
venting gas migration outweighed B&J’s property interests
because B&J would be compensated for the loss of its oil and
gas wells through eminent domain proceedings. Id. In
addition, the Commission rejected B&J’s proposal to allow
the company to continue producing oil and return any Domin-
ion storage gas that it extracted. According to the Commis-
sion, permitting third-party drilling in the area could inter-
fere with storage operations and encourage other producers
to poach Dominion gas. Id. at 62,601–02. In a second order,
FERC denied B&J’s petition for rehearing. Dominion, 100
F.E.R.C. at 61,603.
B&J now petitions for review, challenging both FERC
orders. It claims that FERC acted arbitrarily and capri-
ciously in granting Dominion’s application and that the Com-
mission’s decision is unsupported by substantial evidence.

II.
Before considering the merits of B&J’s petition, we must
address FERC’s argument—supported by Dominion—that
B&J lacks standing. See Steel Co. v. Citizens for a Better
Env’t, 523 U.S. 83, 94–102 (1998) (holding that federal courts
must ensure that they have jurisdiction before considering
the merits of a case). To establish Article III standing, B&J
must demonstrate that it has suffered an injury-in-fact, that
FERC’s action caused its injury, and that a favorable order
would likely redress its harm. See Lujan v. Defenders of
Wildlife, 504 U.S. 555, 560–61 (1992); Idaho Power Co. v.
FERC, 312 F.3d 454, 459–60 (D.C. Cir. 2002).
FERC and Dominion insist that B&J is not ‘‘aggrieved’’
within the meaning of the Natural Gas Act because subse-
quent eminent domain proceedings will fully remedy any
harm that FERC’s orders may cause B&J. See 15 U.S.C.
§ 717r(b) (2000) (providing that only ‘‘aggrieved’’ parties may
seek judicial review of FERC decisions). Absent such ‘‘ag-
grievement,’’ they claim, B&J has suffered no injury and
therefore cannot establish constitutional standing to petition
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this court for review. Acknowledging that it found no legal
authority supporting its theory, Dominion contends that its
standing claim presents a ‘‘novel’’ issue of ‘‘first impression.’’
See Mot. of Intervenor Dominion Transmission, Inc. for
Leave To Share Oral Argument Time with Resp’t at 3.
We think the standing argument is not so much ‘‘novel’’ as
it is wholly without merit. Because FERC’s approval of
Dominion’s application will eliminate B&J’s ownership inter-
est in its property, B&J unquestionably suffers from an
injury-in-fact. As a result of the Commission’s orders, B&J,
whether or not it wishes to continue operating its oil and gas
wells, must either sell its land to Dominion or allow Dominion
to take its property through eminent domain. See Idaho
Power, 312 F.3d at 460 (finding an injury-in-fact where a
FERC order would compel a company to enter into a short-
term, instead of a long-term, contract even though the two
contracts had equivalent monetary value). That Dominion
ultimately will compensate B&J for its property does nothing
to erase B&J’s legally cognizable injury. See Consumer
Fed’n of Am. v. FCC, 348 F.3d 1009, 1012 (D.C. Cir. 2003)
(‘‘[T]he inability of consumers to buy a desired product may
constitute injury-in-fact even if they could ameliorate the
injury by purchasing some alternative product.’’ (internal
quotation marks omitted)). Indeed, if FERC’s and Domin-
ion’s theory were correct, homeowners would be unable to
challenge construction of a road through their homes, no
matter how arbitrary or unjust the decision. The public
entity building the road would simply argue, as here, that the
homeowners lack Article III standing because eminent do-
main proceedings will fully compensate them for the value of
their homes. No wonder neither FERC nor Dominion cites
any supporting authority.
B&J easily satisfies the other requirements for Article III
standing: FERC’s orders cause B&J’s injury because they
effectively extinguish B&J’s ownership interests, and a favor-
able decision here would redress B&J’s harm, for absent
FERC’s approval, Dominion would have no right to take over
B&J’s property. We thus turn to the merits.
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III.
We evaluate FERC’s orders under familiar and highly
deferential standards of review. We will sustain the Commis-
sion’s decision unless it is ‘‘arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law.’’ 5
U.S.C. § 706(2)(A) (2000); see also Midcoast Interstate
Transmission, Inc. v. FERC, 198 F.3d 960, 967 (D.C. Cir.
2000) (applying the arbitrary and capricious standard of
review to a challenge to a FERC order). If supported by
substantial evidence, the Commission’s findings of fact are
conclusive. 15 U.S.C. § 717r(b). Moreover, when agency
orders involve complex scientific or technical questions, as
here, we are particularly reluctant to interfere with the
agency’s reasoned judgments. See City of Waukesha v. EPA,
320 F.3d 228, 247 (D.C. Cir. 2003) (per curiam) (‘‘[W]e will
give an extreme degree of deference to the agency when it is
evaluating scientific data within its technical expertise.’’ (in-
ternal quotation marks omitted)).
B&J first argues that FERC acted arbitrarily and capri-
ciously by failing to recognize the ‘‘sui generis nature’’ of the
Fink Reservoir, Pet’r’s Br. at 13—namely, that Dominion’s
facility stores natural gas in a non-depleted oil field (a field
that still contains producible oil) rather than in the more
typical, depleted natural gas field (a field emptied of produci-
ble natural gas). In missing this distinction and in mechani-
cally applying FERC precedent relating to storage reservoirs
in depleted gas fields, B&J argues, FERC improperly disre-
garded two key issues: (1) the adverse impact that boundary
revision would have on domestic oil production, and (2) the
unique difficulties associated with storing gas in an active oil
field. As B&J sees it, FERC erred in ignoring these factors
because the public convenience and necessity standard ‘‘that
forms the basis of FERC’s responsibility under the NGA is
not completely static TTT and is meant by Congress to be
broad and flexible enough to address current conditions that
differ significantly from the original certificate context.’’
Pet’r’s Br. at 17 (citation omitted). We are unconvinced.
 8

To begin with, we do not agree that FERC applied an
erroneous public convenience and necessity standard. In
deciding to grant Dominion’s application, FERC followed
established precedent. Specifically, when the Commission
evaluates an application to enlarge a storage field boundary,
it considers whether expansion is necessary to preserve the
integrity of the storage field, and its ‘‘material consideration
is whether the storage reservoir has expanded and whether
the company’s estimations of the reservoir and protective
boundaries are reasonable.’’ Dominion, 97 F.E.R.C. at 62,-
600; see also Nat’l Fuel Gas Supply Corp., 88 F.E.R.C.
¶ 61,129, 61,134–44 (1999); ANR Pipeline Co., 76 F.E.R.C.
¶ 61,263, 62,346 (1996), reh’g denied, 78 F.E.R.C. ¶ 61,122
(1997). B&J cites no authority to support its claim that
FERC could not apply this precedent here simply because
Dominion’s storage reservoir is housed in an active oil field
and not a depleted gas field. Moreover, B&J’s argument that
FERC’s public convenience and necessity analysis should
have incorporated a broader range of factors based on this
court’s precedent fundamentally misapprehends the two cases
on which the company relies, Koch Industries, Inc. v. Federal
Power Commission, 554 F.2d 1158 (D.C. Cir. 1977), and
Consolidated Gas Supply Corp. v. Federal Power Commis-
sion, 520 F.2d 1176 (D.C. Cir. 1975). In those cases, we
observed—unremarkably—that agencies may change their
policies as long as they engage in reasoned decisionmaking
and explain their breaks with precedent. The Commission is
not ‘‘impotent,’’ we explained in Koch Industries, ‘‘to appro-
priately reshape policies in its continuing endeavor to solve
the Nation’s critical gas shortage.’’ 554 F.2d at 1162. Nor
does ‘‘[t]he legal system TTT compel rigidity, or bureaucratic
inflexibility, least of all in an area like energy policy where
flexibility may be essential in the public interest.’’ Consol.
Gas, 520 F.2d at 1185. Thus, although these cases certainly
authorize FERC to shift course in response to evolving
circumstances, they do not permit us to compel FERC to
consider the factors that we believe are in the public interest
as B&J would have us do. Indeed, such a result would be
 9

flatly inconsistent with fundamental principles of judicial def-
erence to agency expertise.
Furthermore, despite B&J’s claims to the contrary, FERC
did consider the effect of Dominion’s application on domestic
oil production—it simply rejected B&J’s position that oil
supply in the area justified rejecting Dominion’s application.
In its rehearing order, the Commission concluded that B&J’s
projections of crude oil recovery were ‘‘overstated’’ and that
B&J currently produces only fifty barrels of oil per day from
its Gantz Formation wells. Dominion, 100 F.E.R.C. at 61,-
602. In light of the limited oil deposits at issue, we find
nothing unreasonable about FERC’s conclusion that ‘‘the
benefits of maintaining the operational integrity of the stor-
age field so that Dominion could continue to provide reliable
natural gas storage service outweighed any adverse [e]ffect to
B&J’s interests.’’ Id. B&J’s argument that FERC should
not only have reevaluated the technical premises underlying
the original decision to certificate the Fink Reservoir for gas
storage but also considered requiring Dominion to resume its
own oil production in the Fink Reservoir makes little sense in
the context of this proceeding. Dominion’s application only
sought permission to expand an existing gas storage pool—
not permission to convert the field from oil production into
gas storage as an original matter.
B&J’s contention that the Commission failed to consider
the difficulties associated with storing natural gas in an active
oil field likewise provides no basis for setting aside FERC’s
approval of Dominion’s application. According to B&J, hous-
ing natural gas in an oil field is problematic because the oil
mixes with and thus taints the storage gas. Even if this is so,
B&J offers no evidence to show that extending the Fink
Reservoir’s certificated boundary, the only question at issue
here, will result in greater gas loss or cost to Dominion’s
customers than if the boundary were left unchanged.
Finally, we reject B&J’s claim that FERC’s orders are
unsupported by substantial evidence. Although the substan-
tial evidence standard ‘‘requires more than a scintilla,’’ it ‘‘can
be satisfied by something less than a preponderance of the
 10

evidence.’’ FPL Energy Me. Hydro LLC v. FERC, 287 F.3d
1151, 1160 (D.C. Cir. 2002). Here, FERC based its findings
on: (1) isopach maps demonstrating that the Gantz Forma-
tion extends beyond the currently certificated area, (2) a
structural map of the Gantz Formation, (3) isobaric maps
demonstrating that pressure variations would tend to cause
Dominion’s storage gas to migrate, and (4) the production
history of B&J’s wells showing Dominion storage gas likely
entering B&J’s energy production area. Dominion, 97
F.E.R.C. at 62,601. This data-rich evidentiary record easily
satisfies our ‘‘more than a scintilla, less than a preponder-
ance’’ standard. Moreover, FERC’s decision rests on just the
type of highly technical evidence that this court is least
equipped to second-guess. See City of Waukesha, 320 F.3d
at 247.
B&J nevertheless contends that FERC’s orders lack sub-
stantial evidence because the Commission failed to consider
the confidential documents that Dominion submitted in re-
sponse to agency ‘‘deficiency letters,’’ which, according to
B&J, prove that FERC itself viewed the public record as
insufficient. As B&J sees it, because the ignored documents
might contain information supporting its position, FERC
should have granted B&J access to them and considered
them before approving Dominion’s application.
B&J’s arguments do not justify remand to the agency.
For one thing, just because agency staff sought additional
information in no way undermines FERC’s ultimate determi-
nation that the public record was adequate to decide the case.
Indeed, the public record, which comprises not only Domin-
ion’s and B&J’s pleadings but also Dominion’s non-
confidential responses to staff data requests, contains ample
evidence on the key issues relevant to FERC’s inquiry—
whether the Gantz Formation is larger than the currently
certificated area, whether gas is migrating, and whether
Dominion’s estimates of the actual border are reasonable.
FERC, moreover, gave B&J an opportunity to refute Domin-
ion’s data and to challenge FERC’s findings with B&J’s own
geologic or engineering reports. See Dominion, 97 F.E.R.C.
at 62,599 (stating that the Commission had permitted B&J to
reply to Dominion’s answer to B&J’s protest). Having failed
 11

to do so, B&J leaves us with no basis for concluding that
FERC’s decision is unsupported by substantial evidence.
Finally, in light of this extensive public record, not only is
B&J’s argument that it needed access to Dominion’s confiden-
tial documents that ‘‘might’’ support its position far too
speculative to provide a basis for setting aside FERC’s
judgment, but also, in substantial evidence cases, ‘‘[t]he ques-
tion we must answer TTT is not whether record evidence
supports [the petitioner’s] version of events, but whether it
supports FERC’s.’’ Fla. Mun. Power Agency v. FERC, 315
F.3d 362, 368 (D.C. Cir.), cert. denied, 124 S. Ct. 386 (2003).
Having found FERC’s decision supported by substantial
evidence and neither arbitrary nor capricious, we deny the
petition for review.
So ordered.