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Vol. 11, No. 52 Week of December 24, 2006
Providing coverage of Alaska and northern Canada's oil and gas industry

Judges query lawyers in FERC case regarding Alaska gas line regs

Rose Ragsdale

For Petroleum News

Oral arguments in an appeal of Federal Energy Regulatory Commission rules guiding development of the Alaska gas pipeline took twice as long in a federal appeals court Dec. 5 as the 30 minutes judges set aside to hear them.

That suggests the three-judge panel that will decide the case in the U.S. Circuit Court of Appeals for the District of Columbia Circuit were interested in the issues and very engaged in the argument, according to an attorney who attended the proceedings.

The hour-long session, however, provided no indication how the judges will decide the case or how long it will take them to reach a decision.

Gas producers Exxon Mobil Corp., BP and ConocoPhillips Inc. filed the appeal in ExxonMobil v. FERC last summer, challenging the authority of the Federal Energy Regulatory Commission to require design changes or expansions of the gas line project as a condition of granting a certificate in its Order No. 2005.

The order outlines the FERC’s oversight of the proposed Alaska gas pipeline, a project expected to cost $20 billion and transport 4.5 billion cubic feet per day of natural gas from Alaska’s North Slope to the Midwest.

Two open season rules challenged

The two rules being challenged are part of FERC’s blueprint for conducting open seasons for the mammoth project, including procedures for allocating capacity on the proposed 48-inch-diameter pipeline.

Open seasons are held to allow shippers to bid for space on pipelines to transport their oil, gas or other products to market. Pipeline owners then build or expand a line to meet the demand it attracts during the open season period.

The producers, which own rights to market about 35 trillion cubic feet of gas reserves on the North Slope, argued in their appeal that the commission has no authority to order design changes to the pipeline and the new rules are unreasonable and will discourage construction of the pipeline.

Chief Judge Douglas H. Ginsburg and Circuit Judges David B. Sentelle and A. Raymond Randolph heard the oral arguments and will decide the case.

The producers and FERC were given 15 minutes each to present their arguments, but both sides went over their limit in order to respond to questions from the panel. The FERC also granted three minutes of its time to TransCanada, Anadarko Petroleum Corp. and the Alaska Legislature. They also submitted a joint brief in support of the FERC.

Donald Craven of the law firm of Akin Gump Strauss Hauer & Feld LLP argued for the producers, while Judith Albert from the FERC’s Solicitor’s office argued for the commission and Karol Lyn Newman of the law firm of Morgan Lewis & Bockius LLP argued for the intervenors/amicus.

Proceedings summarized for Legislature

Donald C. Shepler, an attorney with Greenberg Taurig summarized the proceedings in a report to the Legislature.

Very early in the producers’ argument, Judge Sentelle interrupted to ask whether the case was actually “ripe” for judicial review. Craven said the case was, in fact, ripe, but Sentelle probed further, asking whether there was a FERC certificate on file at this point.

Hearing that there is no FERC certificate on file, Sentelle then described the appeal as a “facial attack” on the final agency regulations. A “facial attack” on regulations challenges the lawfulness of the regulations as issued and is distinct from an “as-applied attack” which challenges how the regulations are applied in a specific situation, Shepler wrote.

Judge Randolph asked whether there weren’t circumstances where design changes mandated by FERC, such as those due to environmental reasons, would be lawful. The producers’ attorney conceded this point.

Then Sentelle cited a Supreme Court case (Reno v. Flores) which he characterized as holding that in a “facial attack” the agency has to be affirmed unless “in all circumstances” to which the regulations might be applied they would be unlawful.

The focus of the discussion shifted when Sentelle asked whether the imposition of design changes in the initial certification process wasn’t distinguishable from the circumstances in which the Federal Power Commission (FERC’s predecessor agency) was found to have exceeded its authority in ordering a modification of facilities that were already in existence. These facts arose in a case relied upon by the producers, Central West Utility Co. v. FPC, 295 F.2d 300 (3d Cir. 1957), Shepler wrote.

The producers’ attorney said there was no case that prohibited design changes being ordered in the context of an initial certificate proceeding, according to Shepler.

Randolph asked where, specifically, the FERC had said in its orders that its regulation (Sec. 157.36) purported to order an expansion (presumably of already constructed facilities) without complying with the limits imposed by Sec. 105 of the Alaska Natural Gas Pipeline Act (the “mandatory expansion” section), the summary said.

The producers’ attorney did not identify such a claim.

FERC’s argument

During FERC’s arguments, Chief Judge Ginsburg asked several questions, including whether FERC was or had ever ordered the construction of more capacity than the applicant had proposed.

Randolph then asked specifically where what is now Sec. 157.36 was discussed in FERC’s NOPR.

FERC’s Albert said she didn’t know, but it should be recalled that FERC’s NOPR was a very “bare bones” proposal that was substantially expanded in Order No. 2005. Then Ginsburg called FERC’s order “a poor drafting job.”

Albert then noted that NGA Sec. 7(e) requires FERC to address the present and future public convenience and necessity in a certificate proceeding. This prompted Judge Ginsburg to comment that NGA Sec. 7(a) prohibits FERC from ordering an enlargement of facilities.

Albert said that in the initial certificate stage, no facilities exist and that FERC was merely codifying its longstanding practice of imposing certificate conditions in circumstances where it might otherwise have to deny a certificate. She also made the point that if the FERC has the power to approve or to deny a certificate, it clearly has the power to require changes to a proposal as a means of “fixing problems” that the commission has with the as-filed application.

Intervenors/amicus weigh in

Newman, attorney for the intervenors/amicus, opened her argument by responding to Sentelle and Randolph that, while her legal team had not briefed the point of “facial” vs. “as applied” challenges to agency rules, the judges were indeed correct that a facial challenge can only be sustained if there are no circumstances in which the rules could lawfully be applied.

She also drew the court’s attention to a D.C. Circuit opinion (a City of Pittsburgh case cited by Legislative Budget and Audit in its response to the producers’ request for rehearing at FERC) that holds that if a pipeline’s proposal would result in more costly future expansion, that fact must be considered in the initial certificate process and not ignored until later. She also noted that only the producers appealed the FERC’s orders. She stated that TransCanada is an independent pipeline company familiar with working with FERC certificate proceedings and conditions and did not object to these rules.

Producers make rebuttal

Randolph asked Craven whether the producers had a certificate application on file at FERC. He said “no,” but that they were putting a project together and FERC’s rules under review increased the risk of that project.

There were a few other questions from the judges and an interesting response from Craven at the end of the argument. He was asked by one of the judges whether the producers anticipated “competing applications.” Craven said they did anticipate competing applications. There was, however, no follow-up on this response, Shepler wrote.

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