256 U.S. App. D.C. 376 806 F.2d 275

806 F.2d 275

CONSOLIDATED OIL & GAS, INC., Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Southern Union Gathering Company, Intervenor.

No. 85-1191.

United States Court of Appeals, District of Columbia Circuit.

Argued Feb. 13, 1986.

Decided Dec. 5, 1986.

*377Charles W. Garrison, with whom Richard G. Morgan and Peter C. Kissel, Washington, D.C., were on brief, for petitioner.

Andrea Wolfman, Atty., F.E.R.C., Washington, D.C., for respondent. William H. Satterfield, Gen. Counsel, Barbara J. Weller, Deputy Sol., and Leslie J. Lawner, Atty., F.E.R.C., Washington, D.C., were on brief for respondent.

Robert J. Haggerty, Washington, D.C., was on brief for intervenor. Bruce E. Henderson, Dallas, Tex., also entered an appearance for intervenor.

Before WALD, Chief Judge, SCALIA * and STARR, Circuit Judges.

Opinion for the Court filed by Chief Judge WALD.

WALD, Chief Judge:

Consolidated Oil & Gas, Inc. (Consolidated), an independent oil and gas producer, petitions in this case for review of orders by the Federal Energy Regulatory Commission (FERC or Commission) asserting jurisdiction over certain sales of natural gas. Consolidated contends that the FERC misapplied the “commingling” doctrine in finding that it had jurisdiction, lacked substantial evidence for reaching that conclusion, and deprived Consolidated of both procedural and substantive due process. We affirm the Commission in all respects.

Background

This case began with a state law contract dispute between Consolidated and Southern Union Gathering Company (Gathering Company) over favored nations pricing provisions. Gathering Company owns and operates gas gathering facilities in the San Juan Basin of New Mexico. It reports that it purchases gas from Consolidated and other New Mexico producers, commingles the gas from the various producers in its gathering facilities, and resells some of this gas intrastate and some of it interstate. In 1974, Consolidated sued Gathering Company in state court, arguing that gas purchase prices paid by Gathering Company to other producers activated favored nations clauses of contracts between Consolidated and Gathering Company. The parties settled their dispute in 1976 with regard to ten contracts in question. When Gathering Company refused to honor the settlement price with regard to four of these con*378tracts, Consolidated, in 1979, again brought suit. Gathering Company argued in this second state court lawsuit that the gas purchased by it from Consolidated under the four contracts in question was gas sold by Consolidated in interstate commerce for resale and thereby was subject to FERC jurisdiction over price under the Natural Gas Act (NGA), rendering the higher settlement price illegal. The state court referred the question of FERC jurisdiction to the Commission, Consolidated Oil & Gas, Inc. v. Southern Union Co., No. SF 79-2161(c) (N.M.Dist.Ct. Aug. 4, 1980), Joint Appendix (J.A.) at 97, 98, and Gathering Company also asked the FERC for a declaratory order regarding jurisdiction.1 The FERC entered an order declaring the gas sales in question to be subject to federal price ceilings under the NGA, 28 Fed. Energy Reg.Comm’n Rep. (CCH) 61,-424 (¶ 61,225) (Aug. 20, 1984), J.A. at 123, and affirmed this order on rehearing. 30 Fed.Energy Reg.Comm’n Rep. (CCH) 61,-708 (If 61,349) (Mar. 22, 1985), J.A. at 185. Because this assertion of federal jurisdiction would reduce the settlement price it could receive from Gathering Company, Consolidated petitioned this court for review of the FERC’s orders. We now affirm the Commission.

Natural Gas Act Jurisdiction

The Natural Gas Act provides, in part, for regulation of “the sale in interstate commerce of natural gas for resale for ultimate public consumption for domestic, commercial, industrial, or any other use.” 15 U.S.C. § 717(b). In California v. Lo-Vaca Gathering Co., 379 U.S. 366, 85 S.Ct. 486, 13 L.Ed.2d 357 (1965), Lo-Vaca, an intrastate gathering company, sold gas to El Paso Natural Gas Co., an interstate pipeline, under contracts restricting that gas to intrastate use. The pipeline mixed, or commingled, Lo-Vaca’s gas with gas purchased from other sources, and then sold some of the commingled gas interstate. The Federal Power Commission (FPC), the FERC’s predecessor agency, held that it had NGA jurisdiction over LoVaca’s sales to El Paso because “whether a transaction is in interstate commerce is determined by the essential character of the commerce, not necessarily by the contract.” 26 F.P.C. 606, 612 (1961). The FPC noted that were it not to assert jurisdiction in a commingling case like this,

[i]t would be possible for a pipeline to discriminate among producers by giving certain ones the privilege of selling to it the gas which by agreement would be deemed to be segregated from the interstate stream____ This may increase the cost to interstate customers and at the same time put them at a competitive disadvantage in obtaining additional supplies of gas.

26 F.P.C. at 613-14. The Supreme Court affirmed both the FPC’s result and its reasoning, concluding that if the FPC could not assert jurisdiction in a case like this, an “attractive gap” would result in the regulatory scheme, because even if they had the power the producing states would “have little'incentive” to regulate sales that result in higher costs to interstate customers. 379 U.S. at 370, 85 S.Ct. at 488.

In finding jurisdiction in the case at bar, the FERC relied squarely on Lo-Vaca. 28 Fed.Energy Reg.Comm’n Rep. (CCH) 61,-424 (¶ 61,225) (Aug. 20, 1984), J.A. at 123. Indeed, the facts of the two cases are quite similar. In both cases, a number of suppliers sell gas to a middleman who commingles their gas and resells some in interstate commerce. In both cases, the litigating supplier asserts that its gas was intended by the parties to be used or resold only in intrastate commerce, thereby avoiding federal jurisdiction. Furthermore, contrary to Consolidated’s argument, the fact' that the *379middleman here is a gathering company that performs some functions (gathering) that cannot be federally regulated,2 whereas in Lo-Vaca the middleman was an interstate pipeline that performed only regulable functions (transportation and sales), is a distinction without relevance for this case: The issue here is whether the sale of gas from the supplier to the middleman is subject to NGA jurisdiction. Whether gathering company, interstate pipeline, or producer, an entity involved in a sale in interstate commerce of natural gas for resale is, with regard to that transaction, subject to NGA jurisdiction. See Phillips Petroleum Co. v. Wisconsin, 347 U.S. 672, 74 S.Ct. 794, 98 L.Ed. 1035 (1954) (despite statutory exemption for the “production ... of natural gas,” a natural gas producer engaged in a sale in interstate commerce of natural gas for resale is subject to NGA jurisdiction).

Consolidated’s other efforts to challenge the jurisdictional finding also fall short. First, Consolidated maintains that the Commission’s decision in Columbia Gas Transmission Corp., 10 Fed.Energy Reg.Comm’n Rep. (CCH) 61,230 (¶ 61,111) (Feb. 8, 1980), is in conflict with its order here. In Columbia Gas, the Commission failed to assert NGA jurisdiction over the sale of gas from a producer to a local distribution company (LDC) in the same state even though the gas was transported in an interstate pipeline in which it was commingled with gas bound interstate. The sale in Columbia Gas, however, was directly between the producer and the LDC, and could clearly be regulated locally. The FERC had jurisdiction over the transportation of the gas from the producer to the LDC, since it occurred in an interstate pipeline, but not over the sale. Here, the sales involved are between the producer and the gathering company, which in turn sells some gas interstate and some intrastate. New Mexico has no authority to regulate the initial producer-to-gathering company sales since the end-users are not definably local, and the gathering company possesses the same theoretical potential to favor intrastate over interstate channels in designating the destination of particular sources of gas that the Court seemed concerned about in Lo-Vaca.

Second, Consolidated claims that the Commission’s decisions declining NGA jurisdiction in City of Farmington v. Amoco, 31 Fed.Energy Reg.Comm’n Rep. (CCH) 61,599 (¶ 61,290) (June 7, 1985); 32 Fed.Energy Reg.Comm’n Rep. (CCH) 61,648 (¶ 61,280) (Aug. 21, 1985), are inconsistent with its order here. Since the Farmington ruling is currently on petition for review to. this court, City of Farmington v. FERC, No. 85-1680 (D.C.Cir. filed Oct. 18, 1985; argued November 3, 1986), we note only that Farmington presents a different factual situation from this case. The commingling in that case occurred in the producer’s own gathering facility; that is, the producer drew gas from various wells, stored the gas all together in one facility, and then sold some intrastate and some interstate. Whether the Lo-Vaca “commingling” doctrine must be extended to include a producer’s internal operations is at issue in that case but not in this one; the FERC has characterized Farmington as a split stream sale case, where the producer chooses how much gas to dedicate to the interstate market and sells it separately from the gas it sells intrastate. The intrastate portions of split stream sales are, of course, nonjurisdictional. See, e.g., Columbia Gas Transmission Corp. v. Allied Chemical Corp., 652 F.2d 503, 516 n. 11 (5th Cir.1981); Harrison v. FERC, 567 F.2d 308 (5th Cir.1978); Amoco Production Co., 23 Fed.Energy Reg.Comm’n Rep. (CCH) 61,429 (¶ 61,211) (May 9, 1983). Whatever the outcome in Farmington, it does not affect our decision that the sale of gas to an independent gathering facility that first commingles that gas with gas purchased from other suppliers and then sells the commingled gas both interstate *380and intrastate may be the subject of federal regulation under Lo-Vaca.

Finally, Consolidated attempts.to resurrect the argument rejected in Lo-Vaca that the intent of the parties regarding the destination of the gas in question is dispositive of the jurisdictional issue. The teaching of Lo-Vaca, however, is that because sales to a middleman, who commingles gas of several suppliers and then resells the gas to both the intrastate and interstate markets, are not themselves regulable by the states, federal jurisdiction is required to avoid the creation of a regulatory gap.

In sum, we find this case sufficiently similar to Lo-Vaca to affirm the Commission’s jurisdiction.

Substantial Evidence

Consolidated maintains that the FERC’s orders were not based on substantial evidence on the record, because the record on which the FERC based its jurisdictional finding contains only Gathering Company’s allegations that Consolidated’s gas was commingled in its gathering facility with gas from other producers and that some of this commingled gas was sold interstate. Petition of Southern Union Gathering Co. for the Institution of a Proceeding and for a Declaratory Order, filed March 25, 1980, J.A. at 2. Consolidated argues that an agency may not base its findings on mere allegations, and further contends that an agency especially may not do so when those allegations are contradicted.

Under the substantial evidence test, we can uphold the Commission’s decision only if it relies on such “relevant evidence as a reasonable mind might accept as adequate to support [the] conclusion.” Universal Camera Corp. v. NLRB, 340 U.S. 474, 477, 71 S.Ct. 456, 477, 95 L.Ed. 456 (1951) (quoting Consolidated Edison Co. v. NLRB, 305 U.S. 197, 229, 59 S.Ct. 206, 216, 83 L.Ed. 126 (1938)). It is clear, however, that “an agency may dispose of a controversy on the pleadings without an evidentiary hearing when the opposing presentations reveal that no dispute of fact is involved____” Municipal Light Boards v. FPC, 450 F.2d 1341, 1345 (D.C.Cir.1971), cert. denied, 405 U.S. 989, 92 S.Ct. 1251, 31 L.Ed.2d 455 (1972). This route may be taken when the movant’s pleadings are unrebutted. 450 F.2d at 1346. In this case, Consolidated never did deny that its gas had been commingled and some of it sold interstate, as Gathering Company asserts. Consolidated instead argued to the FERC that the sale of the gas in question was not jurisdictional, and now claims that this argument constituted a denial of Gathering Company’s factual assertions about commingling and interstate sale.3 Consolidated’s points regarding the jurisdictional status vel non of the sales in question, how*381ever, were and are legal ones, not factual ones. While findings of- fact need be based on substantial evidence, conclusions of law from uncontradicted facts need only be right. We hold that the FERC’s reliance on Gathering Company’s undenied assertions satisfied its burden under the substantial evidence test.

Due Process

Consolidated claims that the Commission failed to hold a hearing and thereby denied it procedural due process.4 This claim suffers the same fate as Consolidated’s substantial evidence argument. Since no material factual dispute exists, the FERC was not required to hold a hearing. See, e.g., City of Ukiah v. FERC, 729 F.2d 793, 799-800 (D.C.Cir.1984); Cerro Wire & Cable Co. v. FERC, 677 F.2d 124, 129 (D.C.Cir.1982); Cities of Batavia v. FERC, 672 F.2d 64, 91 (D.C.Cir.1982).5

We can also dispense quickly with Consolidated’s contention that by holding *382the sales in question to be jurisdictional, the FERC denied it substantive due process, by depriving it of "the settlement price. If, as we hold, the Commission was correct in finding that the sales in question were jurisdictional, then Consolidated was entitled only to the lawful sale price under the NGA and not any higher settlement price; thus, it was not deprived of any legal right by the FERC’s refusal to approve the contract price.

Accordingly, the petition for review is

Denied.

Consolidated Oil & Gas, Inc. v. Federal Energy Regulatory Commission
256 U.S. App. D.C. 376 806 F.2d 275

Case Details

Name
Consolidated Oil & Gas, Inc. v. Federal Energy Regulatory Commission
Decision Date
Dec 5, 1986
Citations

256 U.S. App. D.C. 376

806 F.2d 275

Jurisdiction
District of Columbia

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