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


LOMAK PETRO INC

v.

FERC


99-1113a

D.C. Cir. 2000


*	*	*


Garland, Circuit Judge: In May 1998, Columbia Gas  Transmission
Corporation requested authorization from the  Federal Energy
Regulatory Commission (FERC) to abandon,  by sale to Norse Pipeline,
LLC, Columbia's "Project Penny"  facilities.1 At the same time, Norse
asked FERC to disclaim  jurisdiction over the Project Penny facilities
once Columbia  conveyed them, on the ground that they would then
constitute  facilities used for the "gathering" of natural gas. Such 
facilities are exempt from FERC jurisdiction under section  1(b) of
the Natural Gas Act (NGA), 15 U.S.C. s 717(b). On  November 4, 1998,
FERC acceded to both requests. See  Columbia Gas Transmission Corp.,
85 F.E.R.C. p 61,191  (1998).


FERC's order pleased Columbia and Norse, but displeased  petitioner
Lomak Petroleum, Inc., a gas producer that trans- ports gas on the
Project Penny system. Lomak sought  rehearing, reasserting challenges
both to the abandonment  and to the disclaimer of jurisdiction. After
FERC denied  rehearing, see Columbia Gas Transmission Corp., 86 
F.E.R.C. p 61,137 (1999), Lomak petitioned this court to  review the
decision to disclaim jurisdiction. Lomak contends  that FERC's
determination that the Project Penny facilities  primarily perform a
gathering function was arbitrary and 




__________

n 1 Section 7(b) of the Natural Gas Act, 15 U.S.C. s 717f(b), 
prohibits a natural gas company from abandoning any portion of its 
jurisdictional facilities without FERC approval.


capricious, inconsistent with a preexisting settlement agree- ment, and
made without affording Lomak due process.


I


The Project Penny facilities are located in western New  York and
northwestern Pennsylvania. They are composed of  approximately 336
miles of 2- to 12-inch diameter pipeline,  seven compressor stations,
and other related facilities, all of  which were the subject of
certificates of public convenience  and necessity issued by FERC
during the period of Colum- bia's ownership. See 85 F.E.R.C. at
61,765. Columbia, a  natural gas company engaged in the business of
transporting  natural gas in interstate commerce, constructed the
facilities  in the 1970s and 1980s to access Appalachian gas supplies
for  its customers. Because the facilities were not on its system, 
Columbia initially entered into third-party transportation and 
exchange agreements with other companies to bring the New  York and
Pennsylvania gas to market. Columbia intended to  connect the Project
Penny facilities to its main line, but  before the connections were
constructed the Commission  implemented its major open-access orders,
Order No. 436 and  Order No. 636.2 See id. As a consequence, Columbia 
became a transporter rather than a merchant of natural gas  and no
longer needed to operate Project Penny to access  system supplies. See




__________

n 2 See Order No. 436, Regulation of Natural Gas Pipelines After 
Partial Wellhead Decontrol, FERC Stats. & Regs. p 30,665 (1985); 
Order No. 636, Pipeline Service Obligations and Revisions to Regu-
lations Governing Self-Implementing Transportation Under Part  284 of
the Commission's Regulations, and Regulation of Natural  Gas Pipelines
After Partial Wellhead Decontrol, FERC Stats. &  Regs. p 30,939
(1992). Prior to these orders, pipelines like Colum- bia provided
bundled sales services, wherein the costs of all facili- ties to move
gas from the wellhead to the customer were reflected  in the
pipeline's sales rates. Order 636 required the unbundling of  services
including gathering. See Conoco Inc. v. FERC, 90 F.3d  536, 540-41
(D.C. Cir. 1996). See generally United Distribution  Cos. v. FERC, 88


In 1998, Columbia sought authorization to sell the Project  Penny
facilities to Norse. The latter is not a natural gas  company, owns no
facilities that come within FERC's jurisdic- tion, and provides no
jurisdictional services. See id. at  61,769. Norse operates
exclusively in New York as the  owner of discrete gathering
facilities. See id. FERC deter- mined that after Norse acquired the
Project Penny facilities,  it would continue to own exclusively
gathering facilities, ex- empt from FERC jurisdiction under the NGA.
See 86  F.E.R.C. at 61,486; 85 F.E.R.C. at 61,679.


II


Lomak's first contention is that FERC arbitrarily and  capriciously
determined that after Norse's acquisition,  the primary function of
the Project Penny facilities would  be the juurisdictionally-exempt
gathering, rather than the  jurisdictionally-covered transmission, of
natural gas.


The NGA grants FERC jurisdiction over (inter alia) the  transportation
of natural gas in interstate commerce, but  exempts from FERC's
jurisdiction the production and gather- ing of natural gas. See 15
U.S.C. s 717(b). The term  "gathering" is not defined in the NGA, but
has been defined  by the Commission as "the collecting of gas from
various  wells and bringing it by separate and several individual
lines  to a central point where it is delivered into a single line." 
Barnes Transp. Co., 18 F.P.C. 369, 372 (1957); see Northern  Natural
Gas Co. v. State Corp. Comm'n, 372 U.S. 84, 90  (1963) (stating that
"production" and "gathering" are terms  "narrowly confined to the
physical acts of drawing the gas  from the earth and preparing it for
the first stages of  distribution"). As we have previously remarked,
"[t]he line  between jurisdictional transportation and
nonjurisdictional  gathering is not always clear." Conoco Inc. v.


Since 1982, FERC has used the "primary function" test to  determine
"whether a facility is devoted to the collection of  gas from
wells--gathering--or to the further ('downstream')  long-distance
movement of gas after it has been collected--


interstate transportation." Id. at 543. That test generally  employs
the following six physical criteria:


(1) the length and diameters of the lines; (2) the exten- sion of the
facility beyond the central point in the field;  (3) the geographic
configuration of the facility; (4) the  location of compressors and
processing plants; (5) the  location of wells along all or part of the
line facility; and  (6) the operating pressure of the lines.


85 F.E.R.C. at 61,768 (citing Farmland Indus., Inc., 23  F.E.R.C. p
61,063 (1983), and Amerada Hess Corp., 52  F.E.R.C. p 61,268 (1990)).
In addition, FERC considers the  following "non-physical" criteria:


(1) the purpose, location and operation of the facility; (2)  the
general business activity of the owner of the facility;  (3) whether a
jurisdictional determination, i.e., gathering  versus transmission, is
consistent with the objectives of  the NGA and the Natural Gas Policy
Act (NGPA); and  (4) the changing technical and geographic nature of 
exploration and production activities.


Id. (citing Amerada Hess, 52 F.E.R.C. at 61,844-45). No one  factor is
determinative in the primary function test, and not  all factors apply
in all situations. See Williams Field Servs.  Group, Inc. v. FERC, 194
F.3d 110, 116 (D.C. Cir. 1999);  Conoco, 90 F.3d at 543. The
Commission "gives consider- ation to all of the facts and
circumstances of the case rather  than mechanically applying a
facilities configuration stan- dard." West Tex. Gathering Co., 45
F.E.R.C. p 61,386, at  62,219 n.4 (1988); see also Conoco, 90 F.3d at


Lomak agrees that the primary function test is appropriate  for
determining whether a facility engages in gathering, but  contends
that FERC's application of the test to Project  Penny was arbitrary
and capricious. As we have previously  held, "[i]n evaluating and
balancing the several factors under  the primary function test, the
Commission brings to bear its  considerable expertise about the
natural gas industry." Co- noco, 90 F.3d at 544. Accordingly, we will
uphold the Com- mission's application of the test as long as it gives


consideration to each of the pertinent factors" and articulates 
factual conclusions that are supported by substantial evidence  in the
record. Id.; see 15 U.S.C. s 717r(b) ("The finding of  the Commission
as to the facts, if supported by substantial  evidence, shall be
conclusive."); Williams Field Servs., 194  F.3d at 115.


Lomak contends that while purporting to apply the primary  function
test, FERC in fact employed a "pipeline-always- wins" test. Lomak Br.
at 14. We see no sign of such  duplicity here.3 In the challenged
orders, FERC set forth  the primary function test's factors and, after
analysis, con- cluded that four of the physical factors indicated that
the  Project Penny facilities were primarily engaged in "gather- ing."
It found that the mostly small diameters and short  lengths of the
project's lines were consistent with the conclu- sion that Project
Penny serves to gather gas from wells for  delivery to a
jurisdictional transportation system. The Com- mission noted that
there was no processing plant on the  system; that the lines formed a
web-like geographic configu- ration, with the longer lines forming
backbones that collect  gas from feeding lines along their lengths;
and that the low  wellhead and pipeline pressures were consistent with
gather- ing rather than transmission. In the past, FERC has relied  on
these same factors to determine that a system primarily  performs a
gathering function. See, e.g., NorAm Gas Trans- mission Co., 75
F.E.R.C. p 61,127, at 61,429-30 (1996) (citing  small diameters, low
pipeline pressures and web-like configu- ration); Arkla Gathering
Servs. Co., 67 F.E.R.C. p 61,257, at  61,868-69 (1994) (noting short
length, small-diameter pipe- lines, web-like configuration, and that




__________

n 3 Lomak's contention that pipelines have prevailed in a large 
majority of the cases in which FERC has applied the primary  function
test does not prove the company's thesis. Without evaluat- ing the
merits of each of those cases, we cannot determine whether  their
dispositions were justified. Nor can we evaluate the merits of  those
cases here, as none of the relevant evidence is before us. All  we
have is the record of the Project Penny decision and, as  discussed
below, it is a record that justifies the result reached by  the
Commission with respect to that facility.


ing facilities downstream of any processing plants"); Panhan- dle E.
Pipe Line Co., 59 F.E.R.C. p 61,108, at 61,405-06  (1992) (citing
small diameter lines and "network of small lines  appending an array
of wells"); Dorchester Gas Producing  Co., 32 F.E.R.C. p 61,409, at
61,917 (1985) (noting geographic  configuration, location "behind the
processing plant," and  small diameter lines).


In making its findings regarding Project Penny, FERC  further relied on
one of the primary function test's non- physical factors: "the general
business activity of the owner  of the facility." FERC emphasized
that, unlike Columbia,  Norse operates only gathering facilities, "is
not a natural gas  company," provides no transmission services, and is
not affili- ated with a jurisdictional pipeline. See 86 F.E.R.C. at
61,486;  85 F.E.R.C. at 61,769. FERC further noted that the Project 
Penny facilities do not deliver gas off the system to city or  farm
taps. See 86 F.E.R.C. at 61,486-87. Rather, "[t]he  lines gather gas
produced from local wells and transport it  directly to the interstate
lines of Tennessee Gas Pipeline  Company," an unaffiliated entity. Id.
at 61,487. These, too,  appear to be reasonable indices that Project
Penny is primar- ily a gathering rather than transmission facility.


Lomak contends that FERC's resolution of this case is  inconsistent
with its determinations in others, where it classi- fied facilities as
primarily performing a transmission function  despite the presence of
some of the same factors relied upon  here. Lomak's effort to focus on
the presence or absence of  specific factors in individual cases is
not persuasive, however,  in the context of an explicitly multifactor
test which necessari- ly involves a balancing of those factors that
are present and  those that are not. Moreover, FERC has reasonably
distin- guished the cases Lomak cites for support. For example, 
although Lomak contends that FERC has found that small  diameter
pipelines can perform transmission functions,  FERC notes that in
those cases, "other indicia of gathering,  such as wells and/or feeder
lines along their length, were  absent." 85 F.E.R.C. at 61,768 n.20.
Lomak specifically  observes that FERC classified Columbia's Miley
facility,  which utilized 8-, 10-, and 12-inch pipe, as a transmission


facility. But as FERC notes, unlike Project Penny, the Miley  facility
was "located between jurisdictional compressor sta- tions [and] used
primarily to balance transmission loads,  maximize throughput, and
provide storage services." Colum- bia Gas Transmission Corp., 86
F.E.R.C. p 61,223, at 61,799- 800 (1999); see FERC Br. at 24.4


"[T]he party challenging an agency's action as arbitrary  and
capricious bears the burden of proof." San Luis Obispo  Mothers For
Peace v. United States Nuclear Regulatory  Comm'n, 789 F.2d 26, 37
(D.C. Cir. 1986) (en banc). Lomak  has failed to establish convincing
inconsistencies between  FERC's treatment of Project Penny and other
facilities, and  has offered no affirmative evidence supporting its
contention  that the Project Penny facilities are primarily engaged in
 transmission. Accordingly, Lomak has not met its burden,  and we
reject its first challenge to FERC's orders.


III


Lomak's second claim is that FERC's determination re- garding Project
Penny conflicts with a settlement agreement  approved by the agency in
a separate proceeding. See Co- lumbia Gas Transmission Corp., 79
F.E.R.C. p 61,044 (1997).  As Lomak was not itself a party to that
agreement, its  interpretation of the agreement carries little weight.
More- over, "[b]ecause 'Congress explicitly delegated to FERC  broad
powers over ratemaking, including the power to ana- lyze relevant
contracts,' and because the Commission has 




__________

n 4 Lomak also complains that although FERC noted that Project  Penny
lacks a processing plant, the Commission recently found that  a
facility with a processing plant can still perform a gathering 
function. See Kentucky-West Va. Gas Co., No. CP99-321-000, 1999  WL
549651 (FERC July 29, 1999). Depending upon its location,  the
presence of a processing plant may be a factor indicating 
transmission. See Williams Field Servs., 194 F.3d at 116. Never-
theless, the fact that the presence of a processing plant may not 
disqualify a facility from being classified as gathering (where other 
factors typical of gathering exist) does not mean that the absence of 
a processing plant signals transmission or that the Commission is 


greater technical expertise in this field than does the Court,  we
accord deference to the Commission's interpretation of  ... Settlement
Agreement[s]." Amerada Hess Pipeline  Corp. v. FERC, 117 F.3d 596, 604
(D.C. Cir. 1997) (quoting  Tarpon Transmission Co. v. FERC, 860 F.2d
439, 441-42  (D.C. Cir. 1988)) (other citations omitted); see Northern
 Mun. Distribs. Group v. FERC, 165 F.3d 935, 943 (D.C. Cir.  1999).
"To be sure, we need not accept 'an agency interpre- tation that black
means white. However, if the choice lies  between dark grey and light
grey, the conclusion of the  agency, unmistakably possessed as it is
of special expertise, in  favor of one or the other will have great
weight.' " Western  Resources, Inc. v. FERC, 9 F.3d 1568, 1576 (D.C.
Cir. 1993)  (quoting National Fuel Gas Supply Corp. v. FERC, 811 F.2d 
1563, 1572 (D.C. Cir. 1987)).


The relevant portions of the settlement at issue here read  as
follows:


ARTICLE I


DISTANCE-SENSITIVE RATE ISSUE


The distance-sensitive rate issue ... shall be settled  for the periods
described below and upon the following  terms and conditions:


A. Postage Stamp Rate Design.


....


(2) In addition, prior to April 1, 2002, neither Colum- bia, nor any
party or other person shall raise or advo- cate any issue related to
functionalization, classifica- tion, allocation or direct assignment
of any Columbia  facilities ... so as to directly charge the costs of
such  facilities or associated costs to any individual customers 
served under a generally applicable rate schedule, either  (a) because
of physical or operational differences ... on  different parts of
Columbia's system ... or (b) for any  other reason. Nothing in this
Stipulation shall prevent  Columbia or any party from: (a) proposing


ing the proposed rate and accounting treatment of a sale  and/or
transfer of facilities by Columbia....


Settlement, Article I (emphasis added). Lomak contends  that the
sentence italicized above, which states in part that no  party may
raise "any issue related to functionalization," pro- hibits FERC from
"refunctionalizing" the Project Penny facil- ities from transmission
to gathering. FERC disagrees, stat- ing that "[i]nstead of prohibiting
refunctionalization, the  above-referenced subparagraph precludes
parties and others  from departing from Columbia's rate design during
the  locked-in period of the settlement." 86 F.E.R.C. at 61,486.


We find FERC's reading of the sentence, as applying to  rates rather
than jurisdiction, to be reasonable. As the  Commission noted, the
sentence does not bar a party from  raising "any issue related to the
refunctionalization of any  Columbia facilities" per se, but only from
raising such an  issue "so as to directly charge the costs of such
facilities ...  to any individual customers served under a generally
applica- ble rate schedule." See id. Indeed, the sentence is contained
 in an article entitled "Distance-Sensitive Rate Issue"; the 
introductory sentence of the article states that "the distance-
sensitive rate issue ... shall be settled ... upon the following 
terms and conditions"; and the specific subheading in which  the
sentence is found is entitled "Postage Stamp Rate De- sign." Moreover,
the sentence following that cited by Lomak  states that "[n]othing in
this Stipulation shall prevent Colum- bia or any party from: (a)
proposing ... rate and accounting  treatment of a sale and/or transfer
of facilities by Columbia,"  thus plainly contemplating that a sale
like that at issue here  might occur.


To protect Columbia's existing customers, the settlement  does provide
that "purchasers of Columbia's abandoned gath- ering facilities will
continue to provide gathering service for  two years on a
non-discriminatory open-access basis at rates  not to exceed the
applicable maximum rates shown on Appen- dix F of the settlement." 86
F.E.R.C. at 61,486. But Norse  agreed to assume that obligation, and
FERC concluded that 


"Norse's agreement to hold rates steady in accordance with  the
settlement agreement is sufficient to address Lomak's  concerns about
a potential rapid increase in gathering rates."  Id. Because FERC
reasonably interpreted the settlement as  posing no impediment to the
jurisdictional reclassification of  the Project Penny facilities, we
reject Lomak's second attack  on FERC's orders.


IV


Lomak's final contention is that FERC deprived it of due  process by
failing to hold a technical conference before con- cluding that the
Project Penny facilities primarily involved  gathering. This court
"has repeatedly held that the Commis- sion 'is required to hold
hearings only when the disputed  issues may not be resolved through an
examination of written  submissions.' " Conoco, 90 F.3d at 543 n.15
(quoting Envi- ronmental Action v. FERC, 996 F.2d 401, 413 (D.C. Cir. 
1993)). In its initial order, FERC denied Lomak's request  for a
technical conference, finding "the record to be complete  and no
issues of material fact which cannot be resolved on the  record." 85
F.E.R.C. at 61,767 n.11. In its order denying  rehearing, the
Commission again concluded that a technical  conference was
unnecessary because "[t]here are no material  issues of fact in
dispute which cannot be resolved on the basis  of the existing


Lomak's briefs make only two, vague references to the kind  of
information it wished to present at a technical conference.  First,
Lomak states that such a conference would have given  it the
opportunity "to demonstrate the devastating effect"  Norse's rates
would have on Lomak after the two-year transi- tion period ended.
Lomak Br. at 8. Yet, while such evidence  might arguably be relevant
to the question of whether Colum- bia should have been permitted to
abandon the Project Penny  facilities, Lomak has not challenged
abandonment on this  appeal. Rather, its challenge is to FERC's
decision to "relin- quish" jurisdiction on the ground that the
facilities primarily  involve gathering. See Lomak Br. at 2 (statement
of issues  presented). Economic impact, however, is not one of the 


factors in the primary function test for FERC jurisdiction.  More
important, even if economic impact were relevant,  Lomak offers no
reason why evidence of such impact could  not have been submitted in
written form.


Second, Lomak contends in a footnote that: "One of the  reasons a
Technical Conference was requested was the fact  that production
associated with the Project Penny system is  classified as Appalachian
Basin production and, as such, has  unique characteristics unlike
those found in any other gas- producing region of the country." Lomak
Br. at 21 n.34.  But at oral argument, Lomak conceded that FERC is
familiar  with the unique attributes of the Appalachian region,5 and 
offered no specifics as to which it wished to enlighten the  agency.
Nor did Lomak give any reason why it could not  have adequately
depicted those unique attributes in a written  submission. We
therefore find no error in FERC's decision  to dispense with a
technical conference. See Woolen Mill  Assocs. v. FERC, 917 F.2d 589,
592 (D.C. Cir. 1990) ("[M]ere  allegations of disputed fact are
insufficient to mandate a  hearing; a petitioner must make an adequate


V


For the foregoing reasons, we reject Lomak's challenges to  FERC's
orders and deny the company's petition for review.




__________

n 5 See, e.g., National Fuel Gas Supply Corp., 71 F.E.R.C.  p 61,031,
at 61,138 (1995) (noting "the unique circumstances in the  Appalachian
region").