Decision of US Court Appeals 5th Circuit No. 10-60066

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IN THE UNITED STATES COURT OF APPEALS
United States Court of Appeals
FOR THE FIFTH CIRCUIT
Fifth Circuit

FILED
No. 10-60066

October 24, 2011
Lyle W. Cayce
Clerk

TEXAS PIPELINE ASSOCIATION; RAILROAD COMMISSION OF TEXAS,
Petitioners,
versus
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent.

On Petition for Review of Orders of
the Federal Energy Regulatory Commission
No. RM08-2

Before SMITH, BENAVIDES, and HAYNES, Circuit Judges.
JERRY E. SMITH, Circuit Judge:

The Texas Pipeline Association and the Railroad Commission of Texas
petition for review of Order Nos. 720 and 720-A of the Federal Energy Regulatory Commission (“FERC”). We grant review and vacate both orders because
they exceed the scope of FERC’s authority under the Natural Gas Act of 1938

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(“NGA”), 15 U.S.C. § 717.

I.
Congress regulates the natural gas industry primarily through the NGA,
which gives FERC extensive regulatory powers over the industry, including the
ability to fix rates and issue the certificates required for natural gas companies
to operate. See 15 U.S.C. §§ 717c(a), 717f(c)(1)(A). Yet, Congress deliberately
chose not to regulate “the entire natural-gas field to the limit of constitutional
power” but instead designated the areas to be regulated and the areas in which
FERC cannot regulate.1 Specifically, § 1(b) of the NGA states that the Act
applies “to the transportation of natural gas in interstate commerce [and] to the
sale in interstate commerce of natural gas for resale . . . but shall not apply to
any other transportation or sale of natural gas or to the local distribution of natural gas or to the facilities used for such distribution . . . .” 15 U.S.C. § 717(b)
(emphasis added).
As part of the Energy Policy Act of 2005, Congress amended the NGA by
adding § 23, Pub. L. No. 109-58, § 316, 119 Stat. 594, 691-92, which directs
FERC to “facilitate price transparency in markets for the sale or transportation
of physical natural gas in interstate commerce,” 15 U.S.C. § 717t-2(a)(1). To that
end, § 23 allows FERC to obtain and disseminate information about “the availability and prices of natural gas sold at wholesale and in interstate commerce”
from “any market participant.” Id. § 717t-2(a)(2)-(3). Pursuant to that grant of
authority, FERC issued Order No. 720, which adopted a rule (the “Posting Rule”)
that requires “major non-interstate pipelines . . . to post scheduled flow information and to post information for each receipt and delivery point with a design

1

Nw. Cent. Pipeline Corp. v. State Corp. Comm’n of Kan., 489 U.S. 493, 510 (1989)
(quoting FPC v. Panhandle E. Pipeline Co., 337 U.S. 498, 502-03 (1949)).

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capacity greater than 15,000 MMBtu per day.”2 “Major non-interstate pipelines,” according to the rule, are defined as “those natural gas pipelines that
deliver more than 50 million MMBtu per year.”3
After participating in notice and comment for Order No. 720, petitioners
applied for rehearing, contending that the proposed rule would exceed FERC’s
authority under the NGA. In Order No. 720-A, FERC clarified the rule and
reduced the number of non-interstate pipelines covered by it but ultimately
denied rehearing.4 Petitioners filed separate petitions for review as authorized
by 15 U.S.C. § 717r(b), arguing again that the Posting Rule exceeds FERC’s
authority under the NGA and seeking vacatur of Order Nos. 720 and 720-A. We
consolidated the petitions for review.

II.
Petitioners contend that the Posting Rule exceeds the authority granted
to FERC by the NGA, in violation of § 10(e) of the Administrative Procedure Act
(“APA”), which prohibits any agency action “in excess of statutory jurisdiction,
authority, or limitations.” 5 U.S.C. § 706(2)(C). FERC responds that its interpretation of the NGA, and specifically § 23, authorizes the Posting Rule. We
review FERC’s construction of the NGA under the familiar two-step framework
articulated in Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc.,
467 U.S. 837 (1984).5
2

Pipeline Posting Requirements Under Section 23 of the Natural Gas Act, 73 Fed. Reg.
73,494, 73,494 (Nov. 20, 2008) (codified at 18 C.F.R. pt. 284) [hereinafter Order No. 720].
3

Id.

4

Pipeline Posting Requirements Under Section 23 of the Natural Gas Act, 75 Fed. Reg.
5178, 5178-82 (Jan. 21, 2010) [hereinafter Order No. 720-A].
5

See, e.g., Pac. Gas & Elec. Co. v. FERC, 106 F.3d 1190, 1196 (5th Cir. 1997) (applying
the Chevron framework in assessing whether FERC had supplied a reasonable construction
(continued...)

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At step one, we examine de novo whether Congress has “directly spoken
to the precise question at issue.” Id. at 842 (citations omitted). If, using traditional tools of statutory construction, the intent of Congress is clear, then the
matter is at an end, and the challenged regulation will stand or fall in accordance with the unambiguous will of Congress. Id. at 842-43 & n.9. If, however,
the statute is genuinely ambiguous on the question at issue, then we proceed to
step two, at which we will defer to the agency’s construction of the statute so
long as it is a permissible one. See id. at 843.
The central question is whether § 23 permits FERC to compel owners and
operators of intrastate pipelines (or, as FERC has designated them, “noninterstate pipelines”) to post flow, capacity, and scheduling information on the
Internet. The relevant portions of § 23 direct FERC to promulgate rules that
facilitate transparency in the interstate market for natural gas:
(2) . . . The rules shall provide for the dissemination, on a timely
basis, of information about the availability and prices of natural gas
sold at wholesale and in interstate commerce to the Commission,
State commissions, buyers and sellers of wholesale natural gas, and
the public.
(3) The Commission maySS
(A) obtain the information described in paragraph (2) from any market participant . . . .
15 U.S.C. § 717t-2(a)(2)-(3).
In support of its position that it had the authority to promulgate the Posting Rule, FERC focuses on the language in § 23(3)(A) that includes“any market
participant” within the ambit of regulable entities. FERC argues that broad
phrase is ambiguous but can reasonably be interpreted to include major intra-

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(...continued)
of the NGA).

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state pipelines because they are so integrated with the interstate market, being
links between interstate pipelines and through participation in national market
hubs (which service both interstate and intrastate pipelines), that interstate and
intrastate markets functionally operate as one large interconnected market.
Thus, FERC contends it can fulfill Congress’s directive of facilitating price transparency in the interstate market only by requiring this information from major
intrastate pipelines, because “a complete picture of the interstate natural gas
market . . . require[s] information from non-interstate natural gas pipelines.”
Order 720-A at 73,496. In short, FERC argues that major intrastate pipelines
“participate” in the interstate market, so § 23(3)(A) can reasonably be interpreted to apply to themSSan interpretation that, urges FERC, warrants Chevron
deference.
Before we address deference to FERC’s interpretation of § 23 under step
two, we must first, under step one, determine whether Congress has unambiguously spoken to the question whether intrastate pipelines may be regulated
under § 23. As in all statutory-construction cases, we begin by examining the
text. See Barnhart v. Sigmon Coal Co., 534 U.S. 438, 450 (2002). Section 23 directs FERC to “facilitate price transparency in markets for the sale or transportation of physical natural gas in interstate commerce.” 15 U.S.C. § 717t-2(a)(1)
(emphasis added).6 Thus, the market referred to in the phrase “any market participant” is specifically the interstate market. FERC concedes this point but
argues that the term “any” is broad (or at least ambiguous) enough to include
major intrastate pipelines, because they also “participate” in the interstate
market.
Although sufficient ambiguity might exist to warrant moving to Chevron

6

Additionally, subsection 2 permits FERC to create rules “for the dissemination . . . [of]
information about the availability and prices of natural gas sold at wholesale and in interstate
commerce.” 15 U.S.C. § 717t-2(a)(2) (emphasis added).

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step two if § 23 floated solitary and free in the U.S. Code, “a reviewing court
should not confine itself to examining a particular statutory provision in isolation. The meaningSSor ambiguitySSof certain words or phrases may only become
evident when placed in context.” FDA v. Brown & Williamson Tobacco Corp.,
529 U.S. 120, 132 (2000) (citations omitted).
The context of § 23 is the NGA, codified in Title 15, Chapter 15B, which
commences, in § 1(b), with the scope of the chapter:
The provisions of this chapter shall apply to the transportation
of natural gas in interstate commerce, to the sale in interstate commerce of natural gas for resale . . ., and to the importation or exportation of natural gas in foreign commerce . . ., but shall not apply to
any other transportation or sale of natural gas or to the local distribution of natural gas or to the facilities used for such distribution or
to the production or gathering of natural gas.
15 U.S.C. § 717(b) (emphasis added). That provision unambiguously denies
FERC the power to regulate entities specifically excluded from Chapter 15B,
including wholly-intrastate pipelines, given that they either are involved solely
in the “local distribution of natural gas” or are otherwise involved in “other
transportation” of natural gas not in interstate commerce. The entirety of Chapter 15B is inapplicable to intrastate pipelines, so neither § 23 nor the phrase
“any market participant” can apply to those pipelines.
Nevertheless, FERC sees ambiguity in these otherwise-clear provisions,
using three principal arguments. First, it contends that the jurisdictional limitations of § 1(b) are not applicable to § 23; rather, Congress through § 23 intended
to create a new “transparency authority” separate and distinct from the ratemaking and certification authority delimited in § 1. Although finding no support
for this new, expanded jurisdiction in the text or legislative history, FERC posits
that Congress’s intent to grant this new “transparency authority” can be divined
from other entities more explicitly regulated by an expanded jurisdiction in § 23.
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As its prime example, FERC points to § 23(d)(2), which exempts “natural
gas producers . . . who have a de minimis market presence.” This means that,
FERC argues, natural gas producers who have a significant market presence are
subject to § 23 even though the “production” of natural gas is explicitly excluded
in § 1(b), lending weight to the conclusion that § 23 is not subject to the strictures of § 1(b).
Even assuming arguendo that expansion of jurisdiction in one area (gas
producers) implies expansion in others (intrastate pipelines), FERC’s argument
equates the natural gas “producers” of § 23 with the production of natural gas
exempted from regulation in § 1(b), overlooking the fact that producers of
natural gas are still within § 1(b)’s jurisdictional limits if they engage in interstate transportation or sale of the natural gas they produce, even if the production itself is not regulable.7 Accordingly, applying § 1(b) does not transform
§ 23’s de minimis clause into surplusage, nor does § 23 silently expand FERC’s
jurisdiction beyond the limits of § 1(b).
FERC advances a second surplusage argument, contending that because
existing regulations already require interstate pipelines to post capacity and
scheduling information, see 18 C.F.R. § 284.13, § 23 must have been enacted to
expand FERC’s authority to include intrastate pipelines, lest it be rendered
redundant.

But rather than believing that Congress intended us to read

between the statutory lines to ascertain that the goal of § 23 was to collect information from intrastate pipelines, we recognize that § 23 accomplishes many
things aside from the purported ability to regulate intrastate pipelinesSSsuch as
making availability on interstate pipelines more transparent, cementing the regulations FERC already has in place, and directing how that transparency is to

7

See Shell Oil Co. v. FERC, 566 F.2d 536, 539 (5th Cir. 1978) (“The producers are subject to the jurisdiction of the FERC when they engage in activities that can be classified as
sales or transportation rather than as production or gathering.”) (citation omitted).

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be implemented. Indeed, as part of the very order being challenged, FERC
amended its preexisting regulations on interstate pipelines for the express purpose of coming into compliance with the transparency directives of § 23. See
Order No. 720, at 73,515.
Finally, FERC asserts that the congressional choice of “any market participant” over the statutorily defined term “natural gas company” evinces Congress’s intent for “any market participant” to be broadly construed. “Natural gas
company” is defined as “a person engaged in the transportation of natural gas
in interstate commerce, or the sale in interstate commerce of such gas for
resale.” 15 U.S.C. § 717a(6). But even if “any market participant” has a greater
scope than does “natural gas company,” that does not free the term from the limitations imposed by § 1(b), nor would applying § 1(b) render the two terms synonymous. The petitioners correctly point out that, for example, “any market participant” can be broader than “natural gas company” by including importers and
exporters of natural gas that were brought under FERC’s jurisdiction contemporaneously with § 23.8
In summary, all attempts by FERC to show that § 1(b) does not limit the
scope of § 23 of the NGA are unavailing, and the NGA unambiguously precludes
FERC from issuing the Posting Rule so as to require wholly intrastate pipelines
to disclose and disseminate capacity and scheduling information. Indeed, other
parts of the NGA, as well as its history, confirm our conclusion that Congress did
not intend to regulate “the entire natural-gas field to the limit of constitutional
power”9 but chose instead to leave regulation of certain entities, including intra-

8

See 15 U.S.C. § 717(b) (including “importation and exportation of natural gas in foreign commerce” under Chapter 15B through modification of § 1(b) by the Energy Policy Act of
2005, Pub. L. No. 109-58, 119 Stat. 594, § 311, at 685-88).
9

Nw. Cent. Pipeline, 489 U.S. at 510 (quoting FPC v. Panhandle E. Pipeline Co., 337
U.S. 498, 502-03 (1949)),

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state transactions and pipelines, to the states.
Section 1(c), for example, exempts natural gas transactions and the facilities used therewith between one person and “another person within or at the
boundary of a State if all the natural gas so received is ultimately consumed
within such State,” specifically adding that all exempted matters “are declared
to be matters primarily of local concern and subject to regulation by the several
States.”10 This distinction between interstate and intrastate natural gas transactions, historically, has always been recognized: “Three things and three only
Congress drew within its own regulatory power . . . . These were: (1) the transportation of natural gas in interstate commerce; (2) its sale in interstate commerce for resale; and (3) natural gas companies engaged in such transportation
or sale.” Panhandle E. Pipe Line Co. v. Pub. Serv. Comm’n, 332 U.S. 507, 516
(1947). Where Congress has decided to expand FERC’s jurisdiction, it has done
so explicitly and unambiguously, as it did with the inclusion, within FERC’s purview, the foreign importation and exportation of natural gas in the Energy Policy
Act of 2005SSthe very law that created § 23SSby modifying § 1(b). See Pub. L.
No. 109-58, 119 Stat. 594, § 311, 685-88.
Although the Chevron framework requires courts to give administrative
agencies a substantial amount of deference in interpreting the statutes they
administer, agencies cannot manufacture statutory ambiguity with semantics
to enlarge their congressionally mandated border. “Ambiguity is a creature not
of definitional possibilities but of statutory context.” Brown v. Gardner, 513 U.S.
115, 118 (1994) (citation omitted). The context provided by § 1(b) answers the
question whether this phrase includes intrastate pipelines with a definitive “No.”
Because congressional intent is clear, the question is answered at Chevron step

10

15 U.S.C. § 717(c); see also Gen. Motors Corp. v. Tracy, 519 U.S. 278, 284 n.3 (1997)
(noting that § 1(c) “exempts from FERC regulation intrastate pipelines that operate exclusively in one State and with rates and service regulated by the State”).

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one, and we need not proceed to step two. FERC has no statutory authority to
promulgate Order Nos. 720 and 720-A, so it has violated § 10(e) of the APA.11
For the foregoing reasons, the challenged orders unambiguously exceed
the authority granted to FERC under the NGA. The petitions for review are
GRANTED, and the orders are VACATED.

11

Texas Pipeline Association also argues that the Posting Rule in Order Nos. 720 and
720-A was promulgated in violation of the APA as “arbitrary, capricious, [or] an abuse of discretion.” 5 U.S.C. § 706(2)(A). Because the rule exceeded FERC’s statutory authority, we need
not reach that issue.

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