Exxon Mobil Corp. v. FEDERAL ENERGY REGULATORY COMMISSION

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued December 5, 2006 Decided July 27, 2007

No. 05-1299

EXXON MOBIL CORPORATION
PETITIONER

v.

FEDERAL ENERGY REGULATORY COMMISSION AND
UNITED STATES OF AMERICA,
RESPONDENTS

ANADARKO PETROLEUM CORPORATION, ET AL.,
INTERVENORS

Consolidated with
05-1300, 05-1301

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

Donald B. Craven argued the cause for petitioners. With
him on the briefs was C. Fairley Spillman. Frederick T. Kolb,
Douglas W. Rasch, and Bruce A. Connell entered appearances.

Judith A. Albert, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With her on the
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brief were John S. Moot, General Counsel, and Robert H.
Solomon, Solicitor.

Karol L. Newman argued the cause for intervenors
Anadarko Petroleum Corporation, et al. and amicus curiae
Legislative Budget and Audit Committee of the Alaska State
Legislature in support of respondent. With her on the brief were
Jason B. Tompkins, James C. Moffatt, Jonathan D. Simon, and
Donald C. Shepler, Jr.

Robert H. Loeffler, Edward J. Twomey, Seth M.
Galanter, and David W. Marquez, Attorney General, Attorney
General’s Office of the State of Alaska, were on the brief for
intervenor State of Alaska.

Before: GINSBURG, Chief Judge, and SENTELLE and
RANDOLPH, Circuit Judges.

Opinion for the court filed by Chief Judge GINSBURG.

GINSBURG, Chief Judge: The petitioners, which are
developing a proposal to build a natural gas pipeline from the
North Slope of Alaska to the contiguous United States, seek pre-
enforcement review of two regulations promulgated by the
Federal Energy Regulatory Commission, 18 C.F.R. §§ 157.36,
157.37. According to the petitioners, the Commission has
“asserted authority to condition a certificate of public
convenience and necessity on the project sponsor’s willingness
to allow the Commission to increase the capacity or
expandability of the project,” and that assertion is invalid on its
face because it contravenes the Alaska Natural Gas Pipeline Act
(ANGPA), Pub. L. No. 108-324, § 105, 118 Stat. 1258, 1258-59,
15 U.S.C. § 720c, and the Natural Gas Act (NGA), Ch. 556,
§ 7(a), 52 Stat. 821, 824, 15 U.S.C. § 717f(a). According to the
Commission, it has broad authority to condition a certificate of
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public convenience and necessity upon the sponsor of a
proposed pipeline making a “design change,” a term heretofore
applied not to a change in capacity but to such matters as
“routing, cost allocations, and the design of initial service rates.”

Preliminarily, we agree with the parties that this
controversy is ripe for review because the issues are purely legal
and delaying a decision would inhibit investment in a project the
construction of which the Congress has made a priority. As to
the merits, we note the Commission has not interpreted
§ 157.37, which provides that “[i]n reviewing any application
for an Alaska natural gas pipeline project, the Commission ...
may require changes in project design necess[ary] to promote
competition and offer a reasonable opportunity for access to the
project,” as authority to condition a Certificate upon increasing
the capacity of the proposed pipeline, and it may never do so.
Nor do we agree with the petitioners that 18 C.F.R. § 157.36,
which provides that “[i]n considering a proposed voluntary
expansion ... the Commission ... may require design changes to
ensure that some portion of the expansion capacity be allocated
to new shippers,” may reasonably be read to assert authority in
the Commission to condition a Certificate upon an increase in
the capacity above that proposed by the sponsor of the pipeline.
Therefore, we conclude neither § 157.36 nor § 157.37 is facially
invalid and accordingly deny the petitions for review.

I. Background

In 1976, the Congress enacted the Alaska Natural Gas
Transportation Act (ANGTA), in which it found there was a
“natural gas supply shortage” and encouraged the “expeditious
construction” of a pipeline to carry natural gas from Alaska to
the “contiguous States of the United States.” See Pub. L. No.
94-586, § 2, 90 Stat. 2903, 15 U.S.C. § 719. When, 28 years
later, the hoped for pipeline still had not been constructed, the
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Congress passed the ANGPA, which is meant to encourage
construction by offering certain government loan guarantees.
§ 116, 15 U.S.C. § 720n. The ANGPA also requires that we
expedite review of any final order of the Commission made
under the authority of that Act, § 107(a)(1), (c), 15 U.S.C.
§ 720e, and that the Commission expedite consideration of any
application for a Certificate, § 103(c), 15 U.S.C. § 720a. This
case concerns regulations the Commission promulgated to
govern its issuance of an initial Certificate to build and a
subsequent Certificate to expand an Alaska Pipeline.

Under the ANGPA, the Commission is required to
promulgate regulations for the conduct of an “open season”
designed to “promote competition in the exploration,
development, and production of Alaska natural gas.”
§ 103(e)(2)(B). A potential Alaska Pipeline project sponsor
must, during the “open season,” allow potential gas producers to
bid for the right to ship a specified quantity of gas through the
proposed pipeline. 18 C.F.R. § 157.33. The sponsor then may
seek a “certificate of public convenience and necessity” under
the NGA, which Certificate the Commission is to issue if it finds
the sponsor “able and willing” to perform a service “required by
the present or future public convenience or necessity[.]” NGA
§ 7(c), (e). The Commission may attach “such reasonable terms
and conditions [to the Certificate] as the public convenience and
necessity may require.” NGA § 7(e). Of particular relevance
here, the Commission may require a “natural-gas company” to
“extend or improve” or to “establish physical connection of its
transportation facilities” with another’s facilities but may not
“compel the enlargement of transportation facilities for such
purposes.” NGA § 7(a).
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The petitioners, which lease from the State of Alaska
land with about 90 to 95 percent of that State’s proven natural
gas reserves, intend jointly to apply for a Certificate to build and
operate an Alaska Pipeline. Before doing so, however, the
petitioners seek review of two regulations promulgated by the
Commission pursuant to ANGPA § 103(e)(2), namely, 18
C.F.R. §§ 157.36 and 157.37, that the petitioners read as
asserting an authority they say the Commission does not have,
to condition the issuance of a Certificate upon the project
sponsor increasing the capacity of its proposed pipeline or of a
later proposed expansion thereof.

II. Analysis

Before we reach the merits of this facial challenge to the
validity of §§ 157.36 and 157.37, we consider whether the issue
is ripe for judicial review. Though the Commission did not raise
the issue, “The question of ripeness goes to our subject matter
jurisdiction, and thus we can raise the issue sua sponte at any
time.” Duke City Lumber Co. v. Butz, 539 F.2d 220, 221 n.2
(D.C. Cir. 1976).

A. Ripeness

To determine whether a controversy is ripe, we must
consider both the “fitness of the issues for judicial decision and
the hardship to the parties of withholding court consideration.”
Abbott Labs. v. Gardner, 387 U.S. 136, 149 (1967). At oral
argument the Commission agreed with the petitioners that the
issue whether the regulations are within the Commission’s
statutory authority is fit for judicial review. We agree as well,
because “the issue tendered is a purely legal one: whether the
statute was properly construed.” See id.

With respect to the hardship to the parties, we agree with
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the petitioners that delaying resolution of the issue will tend to
inhibit or delay investment in the Alaska Pipeline, contrary to
the twice expressed intent of the Congress. The petitioners
would remain uncertain whether the Commission may condition
the Certificate for which they plan to apply upon their building
a pipeline with greater capacity than they will propose. If the
petitioners nevertheless seek a Certificate and the Commission
deems the capacity for their proposed pipeline too small,
resolution then of the issue now before the court will delay the
process of certification for at least an additional year. The delay
and its attendant cost will be a hardship to the petitioners and, in
the unusual circumstances of this case, will also be a cognizable
hardship to the Nation as a whole.

The Congress has made unmistakably clear its intention
to speed construction of an Alaska Pipeline, starting with its
determination in 1976 that “expeditious construction” of a
pipeline was in the national interest, ANGTA § 2, followed by
its determination in 2004 to provide loan guarantees in order to
get the project moving, ANGPA § 116, 15 U.S.C. § 720n, its
directive that the court expedite review of regulations issued
pursuant to the ANGPA, § 107(a)(1), (c), and its requirement
that the Commission expedite consideration of an application for
a Certificate to build the pipeline, ANGPA § 103(c).
Accordingly, we conclude this matter is ripe for decision.

B. Facial Validity of the Regulations

The petitioners contend the two regulations* exceed the

*
Section 157.36 of Title 18 of the Code of Federal
Regulations provides:

Any open season for capacity exceeding the initial
capacity of an Alaska natural gas transportation
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Commission’s authority under the NGA and the ANGPA and
are arbitrary and capricious in that, if the Commission
conditions a Certificate upon the building of a pipeline with
capacity greater than that proposed by the sponsor of the project,
then the sponsor will bear the additional cost of building a larger
pipeline in order to transport gas that has not been and may
never be discovered. The petitioners, which as of April 2002

project must provide the opportunity for the
transportation of gas other than Prudhoe Bay or Point
Thomson production. In considering a proposed
voluntary expansion of an Alaska natural gas pipeline
project, the Commission will consider the extent to
which the expansion will be utilized by shippers other
than those who are the initial shippers on the project
and, in order to promote competition and open access
to the project, may require design changes to ensure
that some portion of the expansion capacity be
allocated to new shippers willing to sign long-term
firm transportation contracts, including shippers
seeking to transport natural gas from areas other than
Prudhoe Bay and Point Thomson. [Emphases
added.]

Section 157.37 of the same title provides:

In reviewing any application for an Alaska natural
gas pipeline project, the Commission will consider
the extent to which a proposed project has been
designed to accommodate the needs of shippers who
have made conforming bids during an open season,
as well as the extent to which the project can
accommodate low-cost expansion, and may require
changes in project design necessity [sic] to promote
competition and offer a reasonable opportunity for
access to the project. [Emphasis added.]
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had already spent $ 125 million on preliminary feasibility
studies, anticipate it will cost hundreds of millions of dollars to
prepare an application for a Certificate. They argue that
uncertainty over the possibility of footing the bill now to provide
capacity for those who might later wish to ship gas on the
pipeline could make the project too risky for them or any
potential sponsor to undertake, thus thwarting the purpose of the
Congress to encourage the construction of an Alaska Pipeline.

The Commission, joined by the Intervenors and the
Amicus,* argue the Commission has “broad conditioning
authority to support findings of public convenience and
necessity” per NGA § 7(e), including authority to condition a
Certificate upon the sponsor making a “design change.” The
Commission further contends any such condition would not be
“mandatory” because an applicant for a Certificate could simply
decline to accept a Certificate so conditioned. Regulations
Governing the Conduct of Open Seasons for Alaska Natural Gas
Transp. Projects (Order 2005-A), 70 Fed. Reg. 35,011, 35,015
¶ 31. More to the point, the Commission represents that in
promulgating §§ 157.36 and 157.37, it “merely codif[ied] ...
existing authority and practice,” id. at 35,015 ¶ 33, which is,
where necessary in the public interest, to require “design
changes” involving “routing, cost allocations, and the design of

*
Intervenor Anadarko Petroleum Corporation has leased
millions of acres of land for gas exploration in the North Slope of
Alaska. Intervenor TransCanada Pipelines Limited is the parent of
Alaskan Northwest Gas Transportation Company, which will
construct and operate the Alaska segment of the Pipeline if a sponsor
ever receives a Certificate to build it. Amicus Legislative Budget and
Audit Committee of the Alaska State Legislature is responsible for
commenting upon contracts proposed by the Governor of Alaska
pursuant to the Alaska Stranded Gas Development Act, Alaska Stat.
§§ 43.82.010-43.82.990 (2006).
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initial service rates.”

The Commission believes “there will be only one ...
Alaska pipeline for the foreseeable future,” which intensifies the
“unique and complex competitive conditions” facing an Alaska
Pipeline project. Order 2005-A, 70 Fed. Reg. at 35,016 ¶ 36. In
§ 157.37, therefore, the Commission clearly asserts authority to
“require changes in project design necess[ary] to promote
competition and offer a reasonable opportunity for access to the
project.” At oral argument, however, Commission counsel
claimed the regulation also authorizes the Commission to
require design changes in order to “accommodate low-cost
expansion” and thereby promote future competition, but that is
not at all clear on the face of the regulation.

In the view of the State of Alaska, authority to ensure the
pipeline can “be expanded easily” to accommodate future
shippers follows necessarily from the directive of the Congress
to the Commission, in ANGPA § 103(e)(2)(B), to promulgate
regulations for the conduct of an open season in such a way as
to “promote competition in the exploration, development, and
production of Alaska natural gas.” These objectives are all the
more important, we are told by the State, because the Alaska
Pipeline will likely pass near areas with large unexplored
reserves of natural gas, which may not be brought into
production in the future if the pipeline cannot readily be
expanded.

At oral argument, Commission counsel conceded, as she
could hardly deny, that § 157.36 “does not state the expansion
will be increased,” and allowed as how the regulation could be
read to allow only the “allocation” of such “expansion capacity”
as is voluntarily proposed by the sponsor of an extant pipeline.
With respect to § 157.37, however, counsel muddied the waters,
arguing the Commission could “under certain circumstances”
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condition an initial Certificate upon an increase in the capacity
of the proposed pipeline in order to ensure the project serves the
public convenience and necessity and “promote[s] competition”
— though we do not understand the Commission itself to claim
authority to order an increase in the initial capacity of the Alaska
Pipeline. Commission counsel, like the state of Alaska,
nonetheless contends such a reading would be authorized by
§ 103(e)(2) of the ANGPA.

The petitioners’ facial challenge to §§ 157.36 and 157.37
is based upon a misreading of these regulations. They misread
§ 157.37 as asserting the Commission has authority to condition
the issuance of an initial Certificate upon the project sponsor’s
agreement to build a pipeline capable of carrying more gas than
the project sponsor proposes. Even Commission counsel,
drawing upon the last clause of the regulation, maintained at oral
argument that the regulation could be interpreted to authorize
such a condition only in the interest of “promot[ing]
competition.” The Commission itself has not adopted the
reading of § 157.37 the petitioners oppose — which is highly
strained — and it may never do so, particularly in view of the
prohibition in NGA § 7(a) upon the Commission’s authority to
“compel the enlargement of transportation facilities.” Nor has
the Commission adopted their lawyer’s less expansive view.
Indeed, Commission counsel herself tells us the Commission has
never conditioned a Certificate for a non-Alaskan pipeline upon
an increase over the capacity proposed, and in promulgating the
challenged regulations, the Commission clearly represented that
it was “merely codify[ing] [its] existing authority and practice,”
Order 2005-A, 70 Fed. Reg. at 35,015 ¶ 33, and making them
applicable to the Alaska Pipeline. Thus, the Commission
appears to have interpreted § 157.37 as authority to condition
the issuance of a Certificate only upon the types of design
change the Commission has imposed in the past — to wit,
changes in routing, cost allocation, and initial rates, 70 Fed. Reg
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at 35,015 ¶¶ 31, 33 — which the petitioners do not challenge.
Because § 157.37 is capable of several valid applications, i.e.,
may be invoked to require a design change of the
aforementioned sorts, it obviously is not invalid on its face. See
Amfac Resorts, L.L.C. v. U.S. Dep’t of the Interior, 282 F.3d
818, 826-28 (D.C. Cir. 2002) (“That there might be one invalid
application is ... far from enough to make the regulation
unlawful”).

The petitioners misread § 157.36 as asserting the
Commission may order an increase in the capacity of a proposed
voluntary expansion to an extant Alaska Pipeline. The text of
the regulation simply does not support the petitioners’ reading.
As Commission counsel acknowledged at oral argument,
§ 157.36 purports only to allow the Commission, in order to
introduce new competitors into the market, to allocate such
capacity as the sponsor itself proposes to add. So understood,
the regulation ensures that a new shipper willing to sign a long-
term contract may gain access to a portion of any proposed
expansion capacity. Indeed, it would not make sense for the
Commission to rely upon § 157.36 to order an increase in
expansion capacity above that proposed by the sponsor:
ANGPA § 105, 15 U.S.C. § 720c, specifically allows the
Commission to order an “expansion of the Alaska natural gas
project” when one or more parties so requesting has “execute[d]
a firm transportation agreement” with the operator of the
pipeline, and the Commission, after notice and the opportunity
for a hearing, finds the expansion satisfies eight specific criteria
and is, in addition, “required by the present and future public
convenience and necessity.” This section of the statute would
be set to naught if the Commission could order an increase in a
proposed expansion upon the strength solely of the regulation.

In sum, the petitioners have not offered any textually
supported interpretation of § 157.36 that would exceed the
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Commission’s authority under the NGA or the ANGPA.
Accordingly, we do not find § 157.36 invalid on its face. Cf.
Amfac Resorts, 282 F.3d at 826-28.

III. Conclusion

The issues presented in this case are purely legal and ripe
for decision. Delaying their resolution would only increase the
petitioners’ costs and hence diminish the likelihood they will
pursue a certificate of public convenience and necessity for an
Alaska Pipeline, the construction of which is a priority of the
Congress.

On the merits, we hold §§ 157.37 and 157.36 are not
facially invalid. The former, by its terms, does not — except in
the petitioners’ highly strained reading, and in Commission
counsel’s apparently extempore assertion at oral argument —
assert authority to condition approval of a proposal to build an
Alaska Pipeline upon an increase in capacity above that
proposed by the sponsor. The latter authorizes the Commission
to condition approval of a voluntarily proposed expansion upon
a different allocation of the added capacity, not upon an increase
in that capacity. Accordingly, the petitions for review are

Denied.