UNITED STATES COURT OF APPEALS FOR THE D.C. CIRCUIT


WILLIAMS FIELD

v.

FERC


98-1241a

D.C. Cir. 1999


*	*	*


Edwards, Chief Judge: Numerous issues have been raised  in this case.
The principal issue before the court, however, is  whether a natural
gas compressor, the Chaco compressor  station, is a "gathering"
facility or a "transmission" facility.  A transmission facility is
subject to the regulatory jurisdiction  of the Federal Energy
Regulatory Commission ("FERC" or  "Commission"), whereas a gathering
facility is not. El Paso  Natural Gas ("El Paso") sought to transfer
all of its gathering  facilities to its subsidiary, El Paso Field
Services ("Field  Services"), but it did not transfer the Chaco
compressor  station. El Paso claims the Chaco compressor station is a 
transmission facility. Williams Field Services ("Williams"), a 


competitor of Field Services and a petitioner in this case,  disagrees.
FERC also now disagrees and, after initially  deciding otherwise, has
found that the Chaco compressor  station is a gathering facility
because its pressure is neces- sary both to process the natural gas
and to overcome the  pressure on the mainline to deliver the natural
gas. El Paso  argues that this decision was arbitrary and should be
over- turned. Because FERC's decision is consistent with its 
precedent and well-reasoned, we uphold it.


The related issue in this case is whether and how FERC's  decision that
the Chaco compressor station served a gather- ing function should have
affected El Paso's rates. Before  FERC rendered its decision regarding
the Chaco compressor  station, El Paso entered into a Rate Settlement
("Settle- ment") with various shippers. In s 15.2 of this Settlement, 
the parties agreed to treat the Chaco compressor as a trans- mission
facility for the purpose of the rates agreed to in the  Settlement.
FERC approved the Settlement.


As mentioned above, FERC initially decided that the Chaco  compressor
station served a transmission function. This  decision was consistent
with the Settlement. Its decision to  reverse that finding caused
problems. Williams argued that  because the Commission had determined
that the Chaco  compressor was a gathering facility, it was unfair to
allow El  Paso to include Chaco's costs in its transmission rates. 
Williams argued that FERC should remedy this inconsistency  by forcing
El Paso to remove the costs of the Chaco compres- sor from its
transmission rates. The Indicated Shippers, the  third set of
petitioners in this case, had the opposite com- plaint. (The Indicated
Shippers who appear before this court  are: petitioners Amoco Energy
Trading Corp., Amoco Pro- duction Co., Burlington Resources Oil & Gas
Co., and Conoco  Inc., and intervenor Marathon Oil Co). They argued
that  s 15.2 precluded FERC from adjusting any of El Paso's  rates,
including fuel rates, as a result of its decision that the  Chaco
compressor was a gathering facility.


FERC split the baby. It agreed with the Indicated Ship- pers that s
15.2 precluded any change to El Paso's rates as a 


result of the Chaco compressor's changed status. It found,  however,
that fuel charges were not part of the rates referred  to in s 15.2
and so could be adjusted to reflect the Chaco  compressor's new
status. In the meantime, this court re- manded FERC's order approving
the very Settlement that  justified FERC's decision regarding the rate
issues. See  Southern California Edison Co. v. FERC, 162 F.3d 116
(D.C.  Cir. 1999) ("Edison"). As a result of the remand, the status 
of the Settlement is unclear. Because FERC's orders are  dependent on
an interpretation of a Settlement that is no  longer settled, we
vacate those orders as they relate to El  Paso's Settlement and remand
the issues raised by Williams  and the Indicated Shippers.


I. Background


A. The Abandonment Proceeding and the Settlement


In January of 1994, pursuant to s 7(b) of the Natural Gas  Act ("NGA"
or the "Act"), El Paso applied to abandon all of  its
nonjurisdictional gathering, treating, and processing facili- ties.
See 15 U.S.C. s 717f(b) (1994). FERC has jurisdiction  over the
transmission of natural gas, but it does not have  jurisdiction over
the gathering, treating, or processing of  natural gas. See 15 U.S.C.
s 717(b) (1994). The line be- tween the two is not always clear, but
it is important. If a  facility is "functionalized" as transmission,
the regulated com- pany--in this case, El Paso--may incorporate the
cost of that  facility into its rates. If it is functionalized as


El Paso intended to abandon all of its nonjurisdictional  facilities by
transferring them to its wholly owned subsidiary,  Field Services. The
Chaco plant, located in the San Juan  basin, was one of the systems
that El Paso intended to  transfer to Field Services. The Chaco plant
consists of liquid  extraction, dehydration, and compression
facilities. El Paso  transferred most of these facilities to Field
Services. But one  of the compressor stations, the Chaco compressor
station, was  not transferred to Field Services. The Chaco compressor 
station consists of 16 compressor units that have a total of 


77,960 hp and that generate more than 800 pounds of pres- sure. See El
Paso Natural Gas Co., 81 F.E.R.C. p 61,209, at  61,890 (1997). The
Chaco compressor pressurizes gas coming  in from the fields before it
enters a liquid extractor. Liquid  extraction is a part of natural gas
processing and the extrac- tor is a nonjurisdictional facility. El
Paso did not transfer  the Chaco compressor station to Field Services
because it  believed that Chaco was necessary to preserve mainline ca-
pacity and so served a jurisdictional transmission function.  Williams
argued that the Chaco compressor was a gathering  facility and should
have been transferred to Field Services.


In September 1995, FERC approved El Paso's application  to abandon its
gathering facilities. See El Paso Natural Gas  Co., 72 F.E.R.C. p
61,220 (1995). In that same order, howev- er, FERC also required El
Paso to show cause why it did not  abandon the Chaco compressor. See
id. at 62,020. After El  Paso transferred the Chaco plant facilities
to Field Services,  Field Services replaced the liquid extractor,
which used a  "lean oil" method, with a new cryogenic liquid
extractor. The  relevant difference between the two is that, to
function effi- ciently, the cryogenic extractor needs the large
amounts of  pressure produced by the Chaco compressor station.


Meanwhile, before the show cause proceeding regarding  the Chaco
compressor was completed, El Paso sought a rate  increase in an
entirely separate proceeding. In 1996, El Paso  submitted a Settlement
in that rate proceeding, which con- tained a provision relating to the
pending dispute over the  Chaco compressor. This provision, s 15.2,


15.2 Refunctionalization Issues. In consideration of  the other
provisions of this Stipulation and Agreement,  all El Paso facilities
underlying the rates in Docket No.  RP95-363-000, are properly
functionalized as transmis- sion facilities solely for the term of
this Stipulation and  Agreement. Accordingly, (i) the show cause
proceeding  in Docket No. CP94-183-002 shall be terminated without 
prejudice to later filings after the term of this Stipulation  and
Agreement; (ii) during the term of the Stipulation  and Agreement, no
party shall contest, in any Commis- sion proceeding, the


ties; and (iii) regardless of any actions taken by the  Commission or
by non-consenting parties to this Settle- ment Agreement, the
settlement rates established herein  will not be subject to change
during the term of this  Stipulation and Agreement based on any
refunctionaliza- tion issue.


Stipulation and Agreement in Settlement of Rate and Related 
Proceedings, reprinted in Joint Appendix ("J.A.") 661.  Williams
objected to s 15.2, arguing that if the Chaco com- pressor was later
found to be nonjurisdictional, this provision  would improperly allow
El Paso to continue to incorporate  Chaco's costs into its
transmission rates. Williams com- plained that the effect of this
provision is to subsidize Field  Services because Field Services would
not have to pay the  compressor's costs.


Despite Williams' objections, FERC approved the Settle- ment on April
16, 1997, finding that it was a "fair and  reasonable resolution of
difficult issues." El Paso Natural  Gas Co., 79 F.E.R.C. p 61,028, at
61,131 (1997), reh'g denied,  80 F.E.R.C. p 61,084 (1997). With regard
to the pending  show cause proceeding, the Commission noted that was
"issu- ing an order in that docket concluding that El Paso appropri-
ately did not include the Chaco facilities among the facilities  to be
transferred to its gathering affiliate because the pri- mary function
of that facility is jurisdictional transmission."  Id. Soon after,
FERC issued an order in the show cause  proceeding finding that the
Chaco compressor functioned as a  transmission facility and was
therefore properly functional- ized as jurisdictional by El Paso. See
El Paso Natural Gas  Co., 79 F.E.R.C. p 61,079 (1997). This order was
consistent  with FERC's order approving the Settlement: Both orders 
provided that the Chaco compressor was a jurisdictional  facility.


B. The Refunctionalization of Chaco and the Ensuing Dis- putes


Subsequently, in response to objections from Williams and  others, FERC
requested more information from El Paso  about the functions of the
Chaco compressor. On November  14, after receiving that new
information, FERC granted a  rehearing of its April 23 order, reversed
its position, and 


declared that the Chaco compressor performed a nonjurisdic- tional
gathering function. See El Paso Natural Gas Co., 81  F.E.R.C. p
61,209. FERC based this decision on two  grounds: (1) the Chaco
compressor station's compression "is  required to increase the
pressure of the natural gas stream  ... to ensure an efficient
cryogenic liquids extraction pro- cess," id. at 61,891, a process that
all agree is nonjurisdiction- al; and (2) Chaco's compression is
necessary to overcome the  pressure in the mainline, which, pursuant
to El Paso's tariffs,  is the gatherer's (in this case, Field
Service's) responsibility.  See id. at 61,892. FERC rejected El Paso's
contention that  the Chaco compressor was necessary to maintain
capacity on  the pipeline. See id. FERC noted that, because high com-
pression "is required to satisfy the delivery pressure to El  Paso's
system, pursuant to El Paso's effective tariff, reclassi- fication of
the Chaco Compressor Station from transmission  to gathering would not
reduce the capacity of the San Juan  Triangle System ..." Id.


This order failed to satisfy anyone. While Williams agreed  with the
refunctionalization of Chaco, it was not satisfied with  FERC's
failure to address this order's impact on El Paso's  rates. Williams
requested a clarification, or a hearing, ad- dressing its claim that
the Chaco compressor should be  removed from El Paso's transmission
rates. See Request for  Clarification, or Alternatively Rehearing, of
Williams Field  Services Group, Inc., reprinted in J.A. 818. Williams
argued  that "the Commission should clarify that El Paso must now 
include the Chaco compressor station among the facilities  transferred
to Field Services and completely remove those  facilities from El
Paso's jurisdictional transmission services  and rates." Id. at 822.
In a footnote, Willliams noted that  the Commission had the "authority
and the responsibility" to  remedy the discrepancy under s 5 of the
NGA. Id. at 822  n.3 (citing 15 U.S.C. s 717d (1994)).


El Paso and the Indicated Shippers objected to the refunc-
tionalization of the Chaco compressor and requested a rehear- ing. In
addition, El Paso understood FERC's order to mean  that the location
of or operation at the cryogenic plant did not  impact the Chaco
compressor's jurisdictional status. El Paso 


asked FERC to clarify this point. The Indicated Shippers  requested
clarification on the rate issue. Specifically, they  asked FERC to
clarify that the settlement rates embodied in  the Settlement,
including transportation and fuel, would not  change as a result of
the refunctionalization. The Indicated  Shippers were particularly
concerned about possible modifica- tions to fuel rates and emphasized
that fuel charges are part  of the settlement rates covered in Section
15.2 of the parties'  Settlement.


On rehearing, FERC affirmed its decision to functionalize  the Chaco
compressor station as a nonjurisdictional gathering  facility. See El
Paso Natural Gas Co., 82 F.E.R.C. p 61,337  (1998). In response to El
Paso's request for clarification,  FERC noted that its "decision that
the Chaco compression  performs a gathering function is affected by
both the location  of and the operations at the cryogenic plant." Id.
at 62,336.  With regard to the rate issue, FERC determined that it 
would not upset the Settlement and that settlement rates  would not
change despite the Chaco refunctionalization. See  id at 62,340. It
also found, however, that the fuel charges are  not part of the
settlement rates and would be adjusted to  reflect the
refunctionalization of Chaco during the next modi- fication period.
See id. FERC determined that "there will  be no fuel costs associated
with the Chaco facilities to include  in the calculation of the fuel
charges to take effect January 1,  2001 and thereafter." Id.


Williams filed the instant appeal arguing that FERC did  not provide an
adequate remedy for the refunctionalization of  the Chaco compressor.
El Paso and the Indicated Shippers  requested another rehearing. El
Paso contested FERC's  finding that the relationship between the
cryogenic liquid  extractor and the Chaco compressor supported
functionalizing  the compressor as a gathering facility. The Indicated
Ship- pers contested FERC's finding that the fuel costs could be 
adjusted to reflect the refunctionalization of the Chaco com- pressor.
They noted that the Settlement stipulated that the  show cause
proceeding was to be terminated for the settling  parties, so FERC's
decision in the show cause proceeding  cannot impact the fuel rates


On July 20, FERC denied these requests for rehearing.  See El Paso
Natural Gas Co., 84 F.E.R.C. p 61,048 (1998).  In this order, FERC
reiterated its view that because "fuel  charges are not a part of the
settlement rates," fuel rates  could be adjusted. Id. at 61,203. FERC
found that this  decision was consistent with the stipulation in s
15.2 that the  show cause proceeding was to be terminated. It reasoned
 that the purpose of terminating the show cause proceeding  was to
ensure that settlement rates did not change as a result  of any
refunctionalization; and because settlement rates did  not change as a
result of the refunctionalization, its order in  the show cause
proceeding was consistent with the Settle- ment. See id at 61,204.
With regard to the functionalization  of Chaco, FERC reaffirmed its
prior decision noting that the  "location and operation of the
cryogenic plant were two of a  number of factors that weigh against a
finding that the  compression performs a transmission function." Id.
at  61,205. El Paso and the Indicated Shippers filed their peti- tions


In the meantime, this court remanded FERC's April 1997  order approving
El Paso's Settlement. See Edison, 162 F.3d  116. The court in Edison
found that FERC had failed to  provide for the interests of indirect
consumers in the Settle- ment and remanded the case to FERC for
reconsideration.  As a result of this remand, the Settlement, which
underlies  the rate disputes in this case, is no longer settled. It
has  come to the court's attention that the parties involved in the 
Edison case have reached a tentative agreement resolving the  issues
that concerned the Edison court. The court is also  aware that
Williams is pursuing another complaint with  FERC regarding the same
rate concerns addressed in this  case.


II. Analysis


A. The Functionalization of the Chaco Compressor


In the orders under review, FERC found that the Chaco  compressor
station was a nonjurisdictional gathering facility. 


We review FERC's orders under the Administrative Proce- dure Act's
arbitrary and capricious standard. 5 U.S.C.  s 706(2)(A) (1994). See
Sithe/Independence Power Partners  v. FERC, 165 F.3d 944, 948 (D.C.
Cir. 1999). El Paso argues  that FERC's decision was arbitrary
because: (1) FERC  misapplied the primary function test; (2) FERC was
wrong  to consider the operation at the cryogenic processor; (3)  FERC
misapprehended the relationship between mainline  capacity and the
Chaco compression; and (4) this decision is  inconsistent with FERC's
precedent functionalizing similar  compressors. El Paso's arguments
fail. FERC applied the  primary function test as well as it could have
in this situation,  properly considered the operation of the cryogenic
processor,  made a reasonable decision regarding the relationship be-
tween Chaco's compression and mainline capacity, and cor- rectly
distinguished this case from the precedents El Paso  cites. We
therefore uphold FERC's decision to functionalize  the Chaco
compressor station as a gathering facility.


El Paso argues that FERC misapplied the primary func- tion test. Under
the NGA, the Commission has jurisdiction  over the transportation, but
not the processing or gathering  of, natural gas. See 15 U.S.C. s
717(b) (1994). However,  "[t]he line between jurisdictional
transportation and nonjuris- dictional gathering is not always clear.
To draw that line, the  Commission employs the 'primary function
test,' which exam- ines various factors to determine whether a
facility is primari- ly devoted to gathering or to interstate
transportation."  Conoco Inc. v. FERC, 90 F.3d 536, 542 (D.C. Cir.
1996). No  single factor of the primary function test is
determinative,  and not all factors apply in every situation. See id.
at 543.  This is especially true here where the facility at issue is a
 compressor station. As El Paso itself noted, "[m]any if not  most of
these factors typically are present when the facility in  question is
a pipeline. They have less direct application,  however, when the
facility is a compressor." Joint Initial Br.  of Petitioners at 12.
The six factors of this test include: (1)  the length and diameter of
the relevant lines; (2) the exten- sion of the facility beyond the
central point in the field; (3)  the lines' geographic configuration;


pressors and processing plants; (5) the location of wells along  all or
part of the facility; and (6) the operating pressure of  the lines.
Conoco, 90 F.3d at 544 n.16. FERC considered  the test, but found only
the fourth factor to be truly weighty.


In particular, FERC noted that "the compression's location  upstream of
the processing plant" was the factor under the  primary function test
that weighed heavily in favor of finding  that the Chaco compressor
was a gathering facility. 82  F.E.R.C. p 61,337, at 62,336. This is a
reasonable determina- tion: The Commission's precedent establishes
that a facility  located behind a processing plant is more likely to
perform a  gathering function. See Williams Natural Gas Co., 71 
F.E.R.C. p 61,115, at 61,375 (1995) (noting that the fact that  the
facilities are located behind the plant "strongly supports a  finding
that they are gathering").


Significantly, El Paso challenges FERC's application of the  primary
function test, but it offers no counter analysis. Thus,  this is not a
case where FERC has ignored applicable parts of  the primary function
test. Cf. Louisiana Intrastate Gas  Corp. v. FERC, 962 F.2d 37, 42-43
(D.C. Cir. 1992) (remand- ing consideration of a facility because FERC
failed to apply  the primary function test, which was indisputably
applicable  to that facility). Rather, "the Commission here gave rea-
soned consideration to each of the pertinent factors of the  primary
function test ..." Conoco, 90 F.3d at 544. However,  because most of
the factors of the primary function test do  not apply to the Chaco
compressor station, FERC's decision  properly rests on additional
considerations.


El Paso next argues that to the extent that FERC relied on  the
operation of the cryogenic liquid extractor to determine  the
jurisdictional status of the Chaco compressor station, it  was wrong
to do so. The cryogenic liquid extractor is a  nonjurisdictional
processing facility that prepares the gas to  go into El Paso's
mainline. It replaced a lean-oil extractor in  1996, long after the
Chaco compressor was built. It requires  the high pressure produced by
the Chaco compressor in order  to operate efficiently. El Paso argues
that the Chaco com- pressor was operating before the cryogenic liquid
extractor  was installed and therefore installing the cryogenic


cannot change the function of the Chaco compressor. "Selec- tion of the
cryogenic method played no role whatsoever in  determining the amount
of compression to be constructed,  because the compression was
constructed long before the  cryogenic plant was built, in an amount
determined solely by  the needs of mainline transmission." Joint
Initial Br. of  Petitioners at 22.


As FERC notes, what El Paso misses is the point that the  cryogenic
liquid extractor changed the purpose of the Chaco  compressor. Prior
to the installation of the cryogenic extrac- tor, the Chaco compressor
simply pressurized the gas to  enter the mainline. After the
installation of the cryogenic  processor, the Chaco compressor's
purpose changed to in- clude assisting in the efficient
(nonjurisdictional) processing  of gas. Thus, because the cryogenic
liquid extractor changed  the purpose of the Chaco compressor station,
it was reason- able for FERC to determine that the operation of the
cryo- genic processor weighs in favor of finding that the Chaco 


El Paso argues in the alternative that the Commission did  not rely on
the operation of the cryogenic extractor in making  its decision about
Chaco. El Paso noted that "it is far from  clear that consideration of
the cryogenic plant ... has any  material impact on the Commission's
jurisdictional analysis."  Joint Reply Brief of Petitioners at 14.
Admittedly, the  Commission has been less than clear on this point. In
the  first rehearing before FERC, the Commission noted that the 
operation of the cryogenic liquid extractor "weighs against a  finding
that the compression performs a transmission func- tion." 82 F.E.R.C.
p 61,337, at 62,336. And while it reiterat- ed that point in the
second rehearing, noting that the opera- tion of the cryogenic plant
is one of a "number of factors that  weigh against a finding that the
compressor performs a  transmission function," it also stated that
"the Chaco Com- pression would be nonjurisdictional gathering
regardless of  whether the cryogenic plant or any other
nonjurisdictional  processing facilities were located immediately
downstream of  the compression facilities." 84 F.E.R.C. p 61,048, at
61,205.  Despite this language, in the three orders under review, 


FERC has explained extensively that the operation of the  cryogenic
liquid extractor impacts the jurisdictional status of  the Chaco
compressor. Thus, although some language in  FERC's last order
suggests otherwise, it is this court's  understanding that the
functionalization of Chaco as a gather- ing facility relies in part on
the operation of the cryogenic  liquid extractor.


El Paso's third argument is that because the Chaco com- pression is
necessary to maintain its jurisdictional mainline  capacity, the Chaco
compression station is necessarily a juris- dictional facility. El
Paso contends that "the Chaco compres- sion is absolutely required as
a matter of physics if the San  Juan Triangle capacity is going to
remain available to El  Paso's jurisdictional transmission customers."
Joint Initial  Br. of Petitioners at 16. As a matter of physics, and a
matter  of fact, FERC does not disagree. As a legal matter, however, 
FERC comes to a different conclusion. Under FERC's view,  the Chaco
compressor is a gathering facility because it is  necessary to
"overcome" the pressure of El Paso's mainline  system to deliver the
natural gas. 81 F.E.R.C. p 61,209, at  61,892. In other words, FERC
never directly disputes that  the compression is necessary for
capacity, it simply finds that  the compression will be there because
the natural gas gather- er, in this case Field Services, will supply


El Paso argues that this cannot be the basis for finding  that the
Chaco compressor is nonjurisdictional because that  puts the
responsibility for maintaining certified, jurisdictional  mainline
capacity in nonjurisdictional, i.e., unregulated hands.  FERC has two
responses. First, it notes that some of El  Paso's mainline capacity
is already in the hands of nonjuris- dictional facilities. See 82
F.E.R.C. p 61,337, at 62,336. Sec- ond, it notes that El Paso's tariff
requires the producer to  deliver the gas to the pipeline at a
pressure high enough to  overcome the pressure in the pipeline. See 81
F.E.R.C.  p 61,209, at 61,892. FERC reasons that because this respon-
sibility rests with the producer, the facility that enables the 
producer to meet it, here, the Chaco compressor, is necessari- ly a
part of the production process, which is nonjurisdictional. 


Thus, FERC argues, the Chaco compressor is nonjurisdic- tional.


This is a line-drawing problem for which there is no easy  answer. The
Chaco compressor sits at the very edge be- tween gathering and
transmission. In such a situation, it is  not this court's role to
interpose its judgment. As this circuit  has noted, "the Commission
brings to bear its considerable  expertise about the natural gas
industry" when deciding  whether a facility is jurisdictional or
nonjurisdictional. Cono- co, 90 F.3d at 544. El Paso has pointed to no
significant  evidence or reasoning that undermines FERC's decision
here.  This decision is further supported because it is consistent 
with recent cases in which FERC has decided that the  pressure
necessary to overcome mainline capacity is the last  stage of the
gathering process. See GPM Gas Corp. v. El  Paso Natural Gas Co., 81
F.E.R.C. p 61,208, at 61,888 (1997)  ("In addition, a significant
boost in pressure is often neces- sary to enable gas to move from the
lower pressure gathering  system into transmission lines. The
Commission has stated  that this type of compression is also integral
to the gathering  function."). Thus, the Commission's reasoning here


As a final matter, El Paso argues that FERC's decision  here is
inconsistent with its precedent. This argument has no  weight for the
reason FERC gives: All of the cases El Paso  cites can be
distinguished from this one. The compressors in  those cases fed
directly into a pipeline without going through  or assisting a
nonjurisdictional processor, see Colorado Inter- state Gas Co., 75
F.E.R.C. p 61,324, at 62,039 (1996); Pan- handle Eastern Pipe Line
Co., 70 F.E.R.C. p 61,178, at 61,583  (1995); Amerada Hess Corp., 52
F.E.R.C. p 61,268, at 62,012- 13 (1990); Williston Basin Interstate
Pipeline Co., 33  F.E.R.C. p 61,211, at 61,439 (1985); United Gas Pipe
Line  Co., 29 F.E.R.C. p 61,164, at 61,345 (1984), or were part of an 
outer continental shelf facility, which the Commission has  determined
to be different from on-shore facilities. See Sea  Robin Pipeline Co.,
87 F.E.R.C. p 61,384, at 62,428 (1999).  Thus, FERC's
functionalization of the Chaco compressor as a  nonjurisdictional


B. The Rate Issues


Both the Indicated Shippers and Williams argue that  FERC has
improperly addressed the effect of the refunction- alization on El
Paso's rates. The Indicated Shippers argue  that FERC has gone too far
by modifying the fuel charges;  Williams argues that FERC has not gone
far enough because  it has not modified the remaining costs. In
response, FERC  relies on an interpretation of El Paso's Settlement.
Because  the status of that Settlement is no longer clear after this 
court's remand in Edison, FERC's orders under review are  vacated
insofar as they rely on an interpretation of the  Settlement.


The Indicated Shippers argue that FERC's orders on  review are
inconsistent with its order approving the Settle- ment, specifically s
15.2. The Shippers argue that FERC  was wrong to find that fuel
charges could be adjusted to  reflect the refunctionalization of the
Chaco compressor be- cause s 15.2 stipulated otherwise. As an initial
matter, we  note that FERC's interpretation of the Settlement is ques-
tionable. Section 15.2 stipulated that "all El Paso facilities 
underlying the rates in Docket No. RP95-363-000," which  includes the
Chaco compressor, "are properly functionalized  as transmission
facilities." Stipulation and Agreement, re- printed in J.A. 661.
Section 15.2(i) emphasized that the show  cause proceeding for the
Chaco compressor was to be termi- nated. Given these provisions, it is
not clear that FERC  could adjust the fuel charges with that
Settlement in place.  We need not decide the issue, however, because
that Settle- ment may no longer be in place.


In 1998, this court remanded FERC's order approving the  Settlement
that underlies the disputes here. See Edison, 162  F.3d 116. As a
result, the status of that Settlement is no  longer clear. As FERC
counsel noted,


if on remand, the Commission determines to modify the  settlement
agreement--the interpretation of which un- derpins [the Indicated
Shippers'] arguments here--based  on the Edison Court's mandated areas
of factual inquiry, 


litigation over the terms of the settlement agreement  would yield
nothing but an advisory opinion.


Br. for Respondent at 50. FERC's decisionmaking must be  "reasoned,
principled, and based upon the record." Western  Resources, Inc. v.
FERC, 9 F.3d 1568, 1572 (D.C. Cir. 1993)  (citation and quotation
marks omitted). Without the Settle- ment in place, FERC's decisions
relying on that Settlement  have no reasoned, principled basis. Thus,
insofar as FERC's  orders depend on an interpretation of that
Settlement, they  are vacated. In other words, FERC's orders finding
that the  fuel charges can be modified at El Paso's next adjustment 
period are vacated and remanded to FERC.


Likewise, FERC's order denying Williams' request for a  remedy is also
vacated because it depends on an interpreta- tion of the Settlement.
Williams argues that FERC failed to  order an adequate remedy after it
refunctionalized Chaco  from a transmission facility to a gathering
facility. Specifical- ly, Williams argues that FERC should have
ordered El Paso  "to remove the Chaco 'gathering' costs from El Paso's
juris- dictional 'transmission' rates." Reply Br. of Petitioner 
Williams at 3. FERC denied Williams' request because it  had approved
El Paso's rate in the order approving the  Settlement and it
determined it would not upset that Settle- ment. First, it noted that
the cost-of-service underlying the  settlement rates is a "black box"
number making it impossible  to determine what costs of a particular
facility were reflected  in the settlement cost of service. See 82
F.E.R.C. p 61,337, at  62,340. FERC then noted that settlements like
this "involve  a complex exchange of risks and benefits among the
parties"  and that it would "respect these quid pro quos because the 
results are in the public interest." Id. The very Settlement  that
FERC is purporting to respect is no longer settled, so  FERC's
justifications no longer hold weight. In addition, we  note that at
the time when FERC approved the Settlement,  the Commission had
decided to functionalize the Chaco com- pressor as a jurisdictional
facility. Williams did not have a  chance to challenge that Settlement
because at that time it  was not injured. Now that FERC has
refunctionalized the  Chaco compressor, Williams should be allowed to


the Settlement. Thus, the order denying Williams full con- sideration
of its claims is vacated.


On remand, FERC must consider, in light of Williams'  challenges,
whether to again approve s 15.2. If it does  uphold s 15.2, FERC must
then consider the challenges  raised by the Indicated Shippers. FERC
is already in the  process of reexamining these issues in the context
of the  remand in Edison. The parties in Edison have proposed a  new
settlement that specifically relies on the approval of the 
Settlement. Obviously FERC cannot simply rubberstamp  this new
settlement without reconsidering the issues raised  by the parties in
this case. Indeed, Williams apparently has  filed a complaint against
El Paso, raising some of the same  issues raised before this court.


On remand, it would be well for FERC to consolidate all  these related
matters to reach a single, coherent disposition  of the outstanding
issues. We vacate those portions of  FERC's order that rely on an
interpretation of the Settle- ment and remand the case to the agency
to reconsider these  issues in light of our opinion. We deny the
petitions for  review in all other respects.


So ordered.