Intermtn Muni Gas v. FERC

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued March 14, 2003 Decided April 29, 2003

No. 02-1141

INTERMOUNTAIN MUNICIPAL GAS AGENCY,

PETITIONER

v.

FEDERAL ENERGY REGULATORY COMMISSION,

RESPONDENT

QUESTAR GAS COMPANY,

INTERVENOR

On Petition for Review of Orders of the

Federal Energy Regulatory Commission

J. Craig Smith argued the cause for the petitioner. Scott

M. Ellsworth and Charles F. Wheatley, Jr. were on brief.

Lona T. Perry, Attorney, Federal Energy Regulatory

Commission, argued the cause for the respondent. Cynthia

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.

2

A. Marlette, General Counsel, and Dennis Lane, Solicitor,

Federal Energy Regulatory Commission were on brief. Lar-

ry D. Gasteiger, Attorney, Federal Energy Regulatory Com-

mission, entered an appearance.

David S. Andersen and C. Scott Brown were on brief for

the intervenor.

Before: SENTELLE, HENDERSON and TATEL, Circuit Judges.

Opinion for the court filed by Circuit Judge HENDERSON.

KAREN LECRAFT HENDERSON, Circuit Judge: Petitioner In-

termountain Municipal Gas Agency (Intermountain) is an

association of southern Utah and northern Arizona municipal-

ities. Intervenor Questar Gas Company (Questar), formerly

Mountain Fuel Supply Company (Mountain Fuel), operates a

pipeline that delivers natural gas to customers in southern

Utah, including members of Intermountain. In response to a

joint petition by Intermountain and Questar, the Federal

Energy Regulatory Commission (FERC or Commission) is-

sued an order declaring that Questar’s pipeline will lose its

exemption from FERC regulation under the Hinshaw

Amendment to the Natural Gas Act (NGA), 5 U.S.C. § 717(c),

if Intermountain transports gas received from Questar in

Utah across the state line into Arizona—either for delivery to

one or more member municipalities in northern Arizona or for

transportation through Arizona and back across the state line

to a municipality in southern Utah. Intermountain Mun.

Gas Agency, No. CP01–376–000 at 11 (Dec. 21, 2001) (Decl.

Ord.). Intermountain filed a petition for rehearing which the

Commission denied. Intermountain Mun. Gas Agency, No.

CP01–376–001 (Feb. 28, 2002) (Reh’g Ord.). Intermountain

has petitioned the court for review of the Commission’s

orders. As we explain infra, Intermountain has preserved

but a single ground for consideration in this court—that

Intermountain’s members’ status as municipalities exempts

them and Intermountain from FERC jurisdiction over the

proposed distribution—and we conclude this ground does not

warrant granting review.

3

I.

FERC’s regulatory jurisdiction under the Natural Gas Act,

15 U.S.C. § 717 et seq., generally extends ‘‘to the transporta-

tion 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.’’ 15 U.S.C. § 717(b). In 1954 the

Congress enacted the Hinshaw Amendment, which ‘‘carves

out an exception to FERC jurisdiction for natural and legal

persons engaged in the transportation of ‘natural gas received

by such person from another person within or at the bound-

ary of a State if all the natural gas so received is ultimately

consumed within such State.’ ’’ Pub. Utilities Comm’n of

Cal. v. FERC, 143 F.3d 610, 614 (D.C. Cir. 1998) (quoting 15

U.S.C. § 717(c)).1

Intermountain was formed for the purpose of securing

natural gas delivery for its member municipalities from Ques-

tar’s predecessor Mountain Fuel, which provided Hinshaw-

1 The amendment provides in full:

The provisions of this chapter shall not apply to any person

engaged in or legally authorized to engage in the transporta-

tion in interstate commerce or the sale in interstate commerce

for resale, of natural gas received by such person from another

person within or at the boundary of a State if all the natural

gas so received is ultimately consumed within such State, or to

any facilities used by such person for such transportation or

sale, provided that the rates and service of such person and

facilities be subject to regulation by a State commission. The

matters exempted from the provisions of this chapter by this

subsection are declared to be matters primarily of local concern

and subject to regulation by the several States. A certification

from such State commission to the Federal Power Commission

that such State commission has regulatory jurisdiction over

rates and service of such person and facilities and is exercising

such jurisdiction shall constitute conclusive evidence of such

regulatory power or jurisdiction.

15 U.S.C. § 717(c).

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exempt distribution to various Utah municipalities through its

southern pipeline.2 On July 21, 1995 Intermountain peti-

tioned FERC for a declaratory order determining whether

FERC would acquire jurisdiction over Mountain Fuel’s south-

ern pipeline if the pipeline distributed natural gas to Inter-

mountain’s members. On March 4, 1996 FERC issued an

order declaring that Mountain Fuel could retain its Hinshaw

exemption from FERC jurisdiction for the proposed service

to Intermountain’s Utah members but that Mountain Fuel

would require an NGA certificate from FERC to provide

service to the Arizona members. Intermountain Mun. Gas

Ass’n, 74 F.E.R.C. 61,254 (1996). Mountain Fuel subsequent-

ly began providing service to Intermountain’s Utah members,

its Hinshaw exemption intact.

Intermountain remained eager to secure distribution to its

unserved members, while Mountain Fuel adamantly declined

to provide service that would subject it to FERC jurisdiction.

On May 25, 2001 Intermountain filed a joint petition, with

Questar, seeking a declaration from FERC of the regulatory

consequences of seven possible pipeline operations. Two of

the scenarios are relevant here. The petition asked if Ques-

tar would lose its Hinshaw exemption, first, if it delivered gas

to Hildale, Utah for transportation by a municipally owned

pipeline across the border into Arizona and back into Utah

for use in Kanab, Utah and, second, if it delivered gas to

Hildale either for immediate distribution to and consumption

in adjoining Colorado City, Arizona3 or for delivery to another

municipal pipeline that would transport the gas to Colorado

City and thence southeast to Fredonia, Arizona and finally

2 Mountain Fuel also operated a non-Hinshaw northern pipeline

serving northern Utah and southern Idaho.

3 Colorado City had previously sought a declaration from FERC

that the city could file a request pursuant to Section 7(a) of the

NGA, 15 U.S.C. § 7117f(a), for an order requiring Questar to

transport interstate natural gas to Colorado City. In a decision

issued January 15, 1999 FERC denied the petition on the ground

that the Hinshaw Amendment precluded its exercising jurisdiction

over Questar. Town of Colo. City, Ariz., 86 F.E.R.C. 61,043 (1999).

5

four miles north to Kanab, Utah, for consumption in each of

the three cities.

On December 21, 2001 FERC issued an order declaring

that under either of the two scenarios Questar would lose its

Hinshaw exemption and would require a ‘‘blanket certificate’’

from FERC under 18 C.F.R. § 284.224 to operate the pipe-

line.4 Preliminarily, FERC determined that, although munic-

ipalities are generally exempt from NGA regulation, the

municipal status of Intermountain’s members’ did not fore-

close jurisdiction in this instance because a municipality is

authorized to act as a municipality only within its state of

incorporation. FERC concluded that, if a municipality oper-

ates outside the state, it is subject to federal regulation by

FERC like any other entity. Otherwise, FERC noted, mu-

nicipalities would be able to avoid regulation of all manner of

interstate activity. FERC then examined the various scenar-

ios presented.

On the first proposal—to transport gas from Hildale, Utah

through northern Arizona to Kanab, Utah—FERC declared:

‘‘Once the gas has been received by the pipeline within the

state, it is our interpretation of the statute that [the] tests for

exemption are not met if, instead of being consumed in the

state, the gas is once again transported beyond the state

border—even if it is later transported back into the state for

consumption.’’ Decl. Ord at 11. In FERC’s view, ‘‘it is

inconsistent with the spirit and plain meaning of the exemp-

tion if gas is transported beyond the regulatory control of the

state before being consumed.’’ Id. at 11. FERC rejected the

second scenario—transportation of the gas delivered in Utah

to the Arizona cities—‘‘[f]or the same reasons set out in

response to the first scenario,’’ namely, because the pipeline

4 Section 284.224 provides for a ‘‘blanket certificate’’ permitting a

‘‘local distribution company’’ or ‘‘Hinshaw pipeline’’ ‘‘to engage in

the sale or transportation of natural gas that is subject to the

Commission’s jurisdiction under the Natural Gas Act, to the same

extent that and in the same manner that intrastate pipelines are

authorized to engage in such activities.’’ 18 C.F.R. § 284.224(b).

6

‘‘will cross the state line after it receives gas from Questar’s

Hinshaw facility.’’ Decl. Ord. at12.

On January 22, 2002 Interstate petitioned for rehearing,

arguing that municipalities are exempt from regulation under

the NGA and that FERC therefore lacks jurisdiction over the

proposed delivery of natural gas to Intermountain’s member

municipalities. FERC denied the petition in an order issued

February 28, 2002, iterating its jurisdiction over Intermoun-

tain’s interstate service and concluding, in any event, that

‘‘Intermountain’s jurisdictional status has no bearing on how

the ultimate consumption requirement affects Questar’s sta-

tus as a Hinshaw pipeline for the purposed [sic] of NGA

section 1(c).’’ Reh’g Ord. at 8.

II.

Intermountain offers three arguments to support reading

the National Gas Act to permit Questar to retain its Hinshaw

exemption if it delivers natural gas to Intermountain that

Intermountain then either transports by pipeline through

northern Arizona to Kanab, Utah or distributes directly from

Hildale, Utah to Colorado City, Arizona. ‘‘Our analysis of the

Commission’s interpretation of the Natural Gas Act is con-

trolled by Chevron U.S.A. Inc. v. Natural Resources Defense

Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694

(1984).’’ Nat’l Fuel Gas Supply Corp. v. FERC, 899 F.2d

1244, 1247 (D.C. Cir. 1990). Chevron directs:

If TTT ‘‘ ‘Congress has directly spoken to the precise

question at issue,’ ’’ we ‘‘must give effect to Congress’s

‘unambiguously expressed intent.’ ’’ Secretary of Labor

v. [Fed. Mine Safety & Health Review Comm’n], 111

F.3d 913, 917 (D.C. Cir. 1997) (quoting Chevron USA,

Inc. v. Natural Resources Defense Council, Inc., 467

U.S. 837, 842–43, 104 S.Ct. 2778, 2781, 81 L.Ed.2d 694

(1984)). ‘‘If ‘the statute is silent or ambiguous with

respect to the specific issue,’ we ask whether the agen-

cy’s position rests on a ‘permissible construction of the

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statute.’ ’’ Id. (quoting Chevron, 467 U.S. at 843, 104

S.Ct. at 2782, 81 L.Ed.2d 694).

Beverly Health & Rehab. Servs., Inc. v. NLRB, 317 F.3d 316,

321 (D.C. Cir. 2003) (quotations omitted). With these princi-

ples in mind, we discuss each of Intermountain’s arguments

in turn.

First, Intermountain challenges FERC’s interpretation of

the Hinshaw Amendment to preclude exempting a system

which delivers gas that is subsequently transported tempo-

rarily out of state but returned for ultimate consumption

within the state of delivery—as in Intermountain’s Kanab

proposal. We conclude that the court lacks jurisdiction to

address this contention because Intermountain did not raise it

in the petition for rehearing before FERC. NGA section

19(b) flatly states: ‘‘No objection to the order of the Commis-

sion shall be considered by the court unless such objection

shall have been urged before the Commission in the applica-

tion for rehearing unless there is reasonable ground for

failure so to do.’’ 15 U.S.C. § 717r(b). Intermountain con-

tends it sufficiently raised its objection on rehearing when it

‘‘argued that ‘by providing gas to [Intermountain] for trans-

portation to its constituents, Questar will not be violating the

Hinshaw exemption.’ ’’ Reply Br. at 13 (quoting Intermoun-

tain’s Req. for Reh’g at 7 (filed Jan. 22, 2002)). But so

general and vague a statement—which could apply to any of

the Hinshaw scenarios raised in Intermountain’s initial brief

before the agency—does not satisfy section 19(b) which re-

quires that ‘‘[a]n ‘objection’ must be ‘specifically urge[d],’ ’’

Louisiana Intrastate Gas Corp. v. FERC, 962 F.2d 37, 41

(D.C. Cir. 1992) (quoting Office of the Consumers’ Counsel v.

FERC, 914 F.2d 290, 295 (D.C. Cir. 1990)), so as ‘‘to ‘put the

Commission on notice of the ground on which rehearing was

being sought,’ ’’ id. at 41–42 (quoting City of Farmington v.

FERC, 820 F.2d 1308, 1311 n.1 (D.C. Cir. 1987)).5 Inter-

5 At oral argument Intermountain also cited the first page of its

rehearing request which recites that Intermountain ‘‘contemplates

receipt of interstate gas supplies, transported by interstate pipe-

lines to Questar’s Utah system to Hildale’s municipal pipeline,

thence by IMGA to municipalities within Utah, Hildale and Kanab,

as well as to two municipalities just within the Arizona border,

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mountain’s failure to specifically urge its Kanab argument in

the rehearing petition is doubtless the reason FERC did not

address the issue in its rehearing denial. Cf. id. at 41–42

(that petitioner adequately raised argument in rehearing peti-

tion was ‘‘evidenced by the fact that FERC responded on the

merits’’).6

Second, Intermountain contends that the proposed direct

distribution of gas by Hildale to Colorado City is exempt from

the NGA because it is ‘‘local distribution,’’ which is expressly

exempted from regulation by NGA § 1(b). Because Inter-

mountain failed to raise this argument in its rehearing peti-

tion, we are foreclosed from considering it as well.7

Colorado City and Fredonia.’’ Req. for Reh’g at 1. This isolated

reference to Kanab in the factual recitation cannot be characterized

as an ‘‘objection’’ to FERC’s declaratory order.

6 We do not mean to suggest Intermountain would necessarily

prevail on the Kanab challenge were it properly preserved. Assum-

ing the Hinshaw Amendment is ‘‘silent,’’ as Intermountain proposed

at oral argument, on the question whether it exempts gas that is

transported outside the delivery state for ultimate consumption

within the delivery state, FERC’s denial of the exemption might

well be reasonable under Chevron in light of the NGA’s underlying

policy of subjecting interstate transportation to FERC regulation,

see 15 U.S.C. § 717(b), and the narrow intent of the Hinshaw

Amendment ‘‘to exempt TTT persons from FERC regulation only

for the purposes of their involvement in intrastate gas transport,

not for the purposes of their involvement in interstate or other

regulated activities,’’ Pub. Utilities Comm’n of Cal., 143 F.3d at

615; see also General Motors Corp. v. Tracy, 519 U.S. 278, 284 n.3

(1997) (‘‘[T]he Hinshaw Amendment to the NGA, 5 U.S.C. § 717(c),

exempts from FERC regulation intrastate pipelines that operate

exclusively in one State and with rates and service regulated by the

State.’’) (citing ANR Pipeline Co. v. FERC, 71 F.3d 897, 898 n.2

(D.C. Cir. 1995)). ‘‘A Hinshaw pipeline can unquestionably come

under FERC authority when it engages in activities that go beyond

the intrastate transport of gas.’’ Pub. Utilities Comm’n of Cal., 143

F.3d at 615.

7 Intermountain contends it ‘‘adequately raised its objection TTT

when in its Petition for Rehearing, [it] stated that the transporta-

tion ‘proposed by [Intermountain] is of primary local concern,

9

Third, Intermountain asserts that, because municipalities

are specifically excluded from the NGA’s definition of ‘‘per-

son,’’8 they are exempt from FERC jurisdiction and FERC is

therefore powerless to regulate the proposed transportation

or distribution of natural gas by the member municipalities.

Whether or not FERC may regulate municipalities, however,

it has indisputable authority to regulate Questar if its Hin-

shaw exemption is lost.9 That FERC’s potential exercise of

jurisdiction over Questar may affect Intermountain’s member

focusing as it does entirely on municipal conveyance in an area

isolated from all other such serviceTTTT There will be no effect on

interstate commerce, since there is no other source of natural gas

with which [Intermountain] will be competing.’ ’’ Reply Br. at 14

(quoting Req. for Reh’g at 10). We disagree. Intermountain’s

rehearing request did not even cite the statute or use the statutory

phrase (‘‘local distribution,’’ 15 U.S.C. § 717(b)) on which it now

relies. FERC understandably missed this camouflaged argument.

In any event, Intermountain’s second argument is no more com-

pelling than its first. See supra note 6. It is true that section 1(b)

expressly exempts from regulation ‘‘the local distribution of natural

gas’’ but at the same time it also expressly confers jurisdiction over

‘‘the transportation of natural gas in interstate commerce,’’ which is

precisely what the proposed distribution to Colorado City would be.

See Federal Power Comm’n v. Panhandle Eastern Pipe Line Co.,

337 U.S. 498, 503–04 (1949); see also United Distribution Cos. v.

FERC, 88 F.3d 1105, 1154 (D.C. Cir. 1996) (NGA § 1(b) ‘‘local

distribution’’ proviso ‘‘does not withdraw from FERC’s jurisdiction

any aspect of the interstate transportation of natural gas’’).

8 The NGA defines ‘‘person’’ to ‘‘include[ ] an individual or a

corporation’’ but expressly excludes ‘‘municipalities’’ from its defini-

tion of ‘‘corporation’’ and defines ‘‘municipality’’ to ‘‘mean[ ] a city,

county, or other political subdivision or agency of a State.’’ 15

U.S.C. § 717a(1)-(3).

9 We express no opinion on whether FERC may regulate the

interstate transportation of natural gas by a municipality. See

United Distribution Cos. v. FERC, 88 F.3d at 1153 & n.63 (noting

FERC had ‘‘twice rejected the suggestion that it should invoke its

transportation jurisdiction over municipalities’’ but cautioning that

court’s ‘‘opinion should not be read to either approve or disapprove

the Commission’s reading of the Natural Gas Act’’).

10

municipalities does not defeat the agency’s jurisdiction. Cf.

N.Y. State Elec. & Gas Corp. v. FERC, 638 F.2d 388, 393–96

(2d Cir. 1980) (upholding FERC jurisdiction under Federal

Power Act to modify contract between utility company and

state agency, despite exemption of states and their subdivi-

sions from act’s provisions, where modification ‘‘d[id] not

require [state agency] to take or to refrain from taking

action’’ or ‘‘place any limitations on [its] powers or preroga-

tives’’).

For the foregoing reasons, the petition for review is

Denied.