[00:00:01] Speaker 02:
Case number 15-1127 at L. Earth Reports, Inc.

[00:00:05] Speaker 02:
doing business as potential river keeper at L Petitioners versus Federal Energy Regulatory Commission.

[00:00:11] Speaker 02:
Ms.

[00:00:11] Speaker 02:
Goldberg for Petitioner Earth Reports, Inc.

[00:00:14] Speaker 02:
Ms.

[00:00:14] Speaker 02:
Malley for Petitioner BP Energy.

[00:00:16] Speaker 02:
Ms.

[00:00:16] Speaker 02:
Larson for The Respondent.

[00:00:18] Speaker 02:
Ms.

[00:00:18] Speaker 02:
Stetson for Intervenor Dominion Cove Point LNG LP and Mr. Norris for Intervenor American Petroleum Institute.

[00:00:26] Speaker 09:
Good morning.

[00:00:39] Speaker 08:
May it please the court?

[00:00:40] Speaker 08:
My name is Deborah Goldberg of Earthjustice, and with my colleague, Maneen Naismith, we are here today representing Earthjustice, sorry, Earthreports, doing business as the Jackson Riverkeeper Sierra Club, and also arguing on behalf of the Chesapeake Climate Action Network, which is separately represented by Anne Hafferman.

[00:00:57] Speaker 08:
I have reserved two minutes for rebuttal.

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In the very limited amount of time I have today, I want to focus on two of our clients.

[00:01:04] Speaker 08:
The Federal Energy Regulatory Commission violated the National Environmental Policy Act by failing to analyze the significant indirect impacts on water, air, land, and communities in the Marcellus Shale region, which will result from new production of gas needed to feed the Cove Point project,

[00:01:24] Speaker 08:
over a period of at least 20 years.

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The gas production impacts are often known as upstream impacts.

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The record shows that the project will induce new production of approximately 2.847 trillion cubic feet from the Marcell Shale.

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Perk's extremely conservative assumptions in the Constitution pipeline proceedings show that as many as 3,000 wells could be required to produce that gas for delivery.

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Every new well means 5 million gallons of water for hydraulic fracturing and up to 6,000 truck trips through rural communities in the Shale region.

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Second, Perk violated me but by failing to provide a life cycle analysis of the project's climate impacts, including upstream impacts, direct construction and operational impacts, and the downstream impacts from shipping and burning the fuel.

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FERC admits that the greenhouse gas emissions potentially emitted directly from the project will be more than two million tons per year, more than all but three of Maryland's largest industrial facilities.

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When upstream and downstream emissions are counted, the project will cause greenhouse gas emissions greater than those of the entire coal-fired power plant fleet in Maryland.

[00:02:45] Speaker 09:
So on your first issue, what do you say to the response of the Division of Responsibilities in terms of causation?

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NEPA does not allow the segmentation of the analysis between the liquefaction facility and the exports.

[00:03:03] Speaker 08:
And your site for that is?

[00:03:08] Speaker 08:
The Energy Policy Act of

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2005, signs the responsibility for the NEPA review of all federal authorizations to FERC.

[00:03:24] Speaker 09:
And the citation for that?

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What I'm getting at is certain responsibilities have been vested in the Secretary of Energy.

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Is that correct?

[00:03:32] Speaker 08:
That is correct, but not the NEPA responsibilities, Your Honor.

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And certain other responsibilities have been vested in FERC.

[00:03:40] Speaker 08:
Correct, Your Honor.

[00:03:41] Speaker 09:
So to the extent energy makes decisions that FERC can't overrule, doesn't that limit FERC's responsibility or at least support its analysis on causation?

[00:03:56] Speaker 09:
No, Your Honor.

[00:03:57] Speaker 09:
All right.

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It does not.

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So even though it has no authority to overrule the Secretary of Energy on exports,

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it still has the responsibility to do the total analysis.

[00:04:11] Speaker 08:
Absolutely, it does, Your Honor.

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In fact, the Department of Energy has acknowledged that.

[00:04:17] Speaker 09:
Well, the Department of Energy has said that FERC may be the lead, but it's reserved for itself responsibilities with respect to the determination of whether to grant the ultimate license on export.

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and the environmental impacts analysis, hasn't it?

[00:04:37] Speaker 08:
In the finding of no significant impact that was published by the Department of Energy, it said, all discussion and analyses related to the potential impacts of a grant of the export application are contained within the environmental assessment prepared by FERC.

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the environmental impact assessment for the Cove Point liquefaction project, which is herein adopted and incorporated by reference.

[00:05:07] Speaker 08:
So what are you quoting?

[00:05:09] Speaker 08:
I'm quoting from the finding of no significant impact, which I'm afraid is not currently in the record, but I do have copies for the court in all counsels.

[00:05:17] Speaker 09:
Are you going to put those in the record for us?

[00:05:19] Speaker 08:
Well, I can put them in the record, Your Honor, but they are government documents of which you can take judicial notice.

[00:05:27] Speaker 09:
Well, it's difficult for us to take notice of what's not in the record.

[00:05:31] Speaker 09:
And no one cites it to us.

[00:05:33] Speaker 09:
That's all I'm getting at.

[00:05:34] Speaker 08:
I understand.

[00:05:35] Speaker 09:
So if you haven't, why don't you make it available to the clerk?

[00:05:38] Speaker 09:
I will do so.

[00:05:38] Speaker 09:
Or putting it in the record.

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I will do so.

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But that's where your citation.

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So that is the clearest citation.

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What is important to understand is the difference between the separation of the public interest determination and the NEPA analysis.

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There is a separate determination for public interest and as the ultimate approval, but there is a united environmental analysis under NEPA, certainly if

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With a single project under a single ownership in a single location operating over the same period of time, if DOE and FERC had attempted to do separate environmental assessments, one for liquefaction and the other for the export, that surely would be considered to be segmentation under NEPA.

[00:06:29] Speaker 08:
That would have been an even more glaring segmentation than this court found in the Delaware Riverkeeper Network, where we had a long pipeline with multiple segments.

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Here, it's the very same outfit under the very same company.

[00:06:42] Speaker 09:
I thought you didn't win that argument totally in that case.

[00:06:46] Speaker 08:
Well, it wasn't my case, Your Honor.

[00:06:47] Speaker 09:
Well, the case you just cited.

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The case that I just cited, it was sent back after a finding of segmentation.

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Right.

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It wasn't all of the claims, but the segmentation claim was sustained.

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So the Federal Energy Regulatory Commission has the responsibility to consider the direct and indirect impacts of liquefaction facility, which is going to liquefy up to a billion cubic feet per day of gas for export.

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The indirect impacts are those that are caused by the action and are later in time, but still reasonably foreseeable.

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So the Commission gave an explanation as to why it concluded that the analysis that was requested would involve speculation and be unhelpful to the Commission in making the decisions it had to make.

[00:07:48] Speaker 08:
Yes, Your Honor.

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But it's far from speculative in this case with respect to the upstream impacts or even the climate impacts of this facility.

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There are both studies that have been done that show that when there is a new gas demand, there is upstream development typically of at least 60 to 80 percent depending upon the particular scenario that's considered.

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And in our particular situation, we actually have evidence in the record of precisely which producers are going to be delivering gas to Cove Point for liquefaction.

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So we know where they drill wells.

[00:08:27] Speaker 09:
Is that the contract that's not in the record?

[00:08:31] Speaker 08:
The contract is not in the record, Your Honor.

[00:08:33] Speaker 09:
Right, there's only a newspaper story.

[00:08:35] Speaker 08:
That is correct, but this is a typically privileged documents that are not available to petitioners, but are available to FERC.

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If FERC had any real question about whether or not this was legitimate, it could easily have requested a copy of that contract.

[00:08:50] Speaker 09:
Did you ask FERC to do that?

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Did your client ask FERC to do that?

[00:08:55] Speaker 08:
We did not ask FERC to put the contract into the record.

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Whether or not that information would be useful, however, should be clear because it can affect the agency's determination in four different ways.

[00:09:13] Speaker 08:
Based on the direct impacts, for example, of the facility and the up and downstream impacts, there's a very good question as to whether the significance determination could be sustained here.

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We are talking about moving from a situation with

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2 million tons of greenhouse gases directly from the facility to 26 million tons, metric million tons per year for the upstream and downstream impacts.

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Plainly an increase of more than 100 percent

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ought to, more than 1,000%, ought to affect the significance determination in this case.

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It also could very well affect whether or not the significant impacts are capable of mitigation.

[00:10:04] Speaker 09:
So what of the Commission's analysis that this particular Cove Point area, this is not the first time the Commission has looked at this.

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and the Commission was relying on previous environmental analyses and its previous orders allowing certain things to happen at the facility.

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Why was that impermissible?

[00:10:32] Speaker 08:
That is impermissible as to the export facilities, because those facilities have never been investigated in this case.

[00:10:42] Speaker 08:
This is a flip of an import facility to export facility, and all of the impacts.

[00:10:47] Speaker 09:
But I think what the commission is getting at is to the extent it previously approved the production of, say, X, whatever it is, now we're under X.

[00:11:01] Speaker 09:
even with this new facility.

[00:11:03] Speaker 09:
So it's unnecessary in terms of your argument about new production, et cetera, to go further, because it's already approved after an environmental impact statement.

[00:11:17] Speaker 08:
I do not believe that FERC is claiming that it has already approved the upstream and downstream impacts of the facility, or even the direct impacts of this facility.

[00:11:27] Speaker 08:
It has approved the shipping.

[00:11:29] Speaker 08:
It claims to have approved the shipping.

[00:11:31] Speaker 08:
But what do you mean?

[00:11:32] Speaker 08:
It's approved the ship it was it what it had claims it has already proved is is the the use of 200 vessels precisely right and they're claiming now that there are only 85 and therefore they need not investigate that but so you're saying there's still gaps in the analysis there are large gaps in the analysis which would affect the significance determination and the ultimate justification of this facility is this a collateral attack on

[00:12:00] Speaker 09:
the Commission's earlier decision to allow 200 vessels?

[00:12:05] Speaker 08:
We are not attacking the approval of 200 vessels, in fact.

[00:12:11] Speaker 08:
So it says here there are only 85.

[00:12:13] Speaker 08:
Correct.

[00:12:14] Speaker 08:
What we are concerned about are the emissions from those vessels, which have not been analyzed.

[00:12:20] Speaker 09:
So you know that from the previous environmental impact statement?

[00:12:25] Speaker 08:
Correct, Your Honor, because it was an import project.

[00:12:30] Speaker 08:
So for the import project, there was never any need to.

[00:12:35] Speaker 09:
But I don't understand that argument.

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If the commission has approved an operation up to 1,000 BTUs, and the facility has never operated at that level, and now it only wants to operate at 850 BTUs, why isn't its previous decision

[00:12:59] Speaker 08:
Because, Your Honor, did not make that finding as to the emissions from the liquefaction plant.

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The liquefaction plant in this case, unlike in some of the other cases that have been before this Court, is brand new.

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So it must evaluate the impacts, the new impacts of the liquefaction facility and it's the liquefaction facility that is responsible for the production upstream and for the ultimate ability to ship and burn downstream.

[00:13:33] Speaker 08:
There is a very big difference in impacts between an import facility, which simply receives gas and pipes it out, and a liquefaction facility, which receives the gas, liquefies it, loads it, so that it can be shipped and ultimately burned in India and Japan.

[00:13:50] Speaker 09:
And that encompasses your life cycle argument as well?

[00:13:53] Speaker 08:
Yes, Your Honor.

[00:13:54] Speaker 09:
All right.

[00:13:54] Speaker 09:
Do you want to save the rest of your time?

[00:13:56] Speaker 08:
Yes, I would.

[00:13:56] Speaker 09:
Thank you.

[00:14:17] Speaker 04:
Please the court.

[00:14:18] Speaker 04:
Erica Mailey, representing Petitioner BP Energy Company.

[00:14:22] Speaker 04:
First, BP clearly has standing here because FERC denied its request that it order Dominion Cove Point to give BP an opportunity to turn back unwanted services at Dominion's liquefied natural gas terminal.

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And so we have to accept that it's true that it had that right

[00:14:44] Speaker 09:
for purposes of determining whether it had standing?

[00:14:47] Speaker 04:
For purposes of determining standing, yes, Your Honor.

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Of course, the question of whether there was, in fact, an undue discrimination here goes to the merits.

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But BP has alleged that FERC's denial of its request violated its statutory rights under the Natural Gas Act.

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And that provides it with standing, particularly given that that denial here caused direct economic harm

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to BP by requiring it to continue to pay for costly and unwanted terminal services.

[00:15:22] Speaker 04:
So do you want to go to the mirror?

[00:15:24] Speaker 04:
Yes, Your Honor.

[00:15:25] Speaker 04:
FERC's order here cannot stand because it misinterprets the clear statutory text of the Natural Gas Act.

[00:15:32] Speaker 04:
Section 3E4.

[00:15:33] Speaker 04:
So you're at a step one argument?

[00:15:36] Speaker 04:
Yes, Your Honor.

[00:15:37] Speaker 04:
We raise both step one and step two arguments.

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We believe that FERC's interpretation in the orders below

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is both contrary to unambiguous text in Section 3E4, and is also an unreasonable and arbitrary and comprehensive... What's the unambiguous text in the statute?

[00:15:55] Speaker 07:
Is it terms and conditions of service?

[00:15:59] Speaker 04:
No, Your Honor.

[00:15:59] Speaker 04:
That argument, in fact, wasn't even raised as a basis for the order below, and so is not something this Court should consider in this appeal.

[00:16:09] Speaker 04:
FERC held that BP and StatOil were not similarly situated and therefore need not be treated equivalently on the ground that BP is an open access customer while StatOil is not.

[00:16:23] Speaker 04:
But Section 3E4 clearly prohibits undue discrimination in precisely those circumstances between... What's undue?

[00:16:33] Speaker 04:
Well, undue discrimination, Your Honor, is if you have two similarly situated customers and there's a significant disparity in their treatment that affects their substantive rights under prior FERC interpretations of the term undue discrimination, that would be undue.

[00:16:54] Speaker 04:
And here, stat line.

[00:16:56] Speaker 01:
It seems that the agency, the commission, has to have at least some discretion to assess what's undue.

[00:17:02] Speaker 01:
There's discrimination, so there's differential treatment of two similarly situated parties.

[00:17:10] Speaker 01:
And the question then becomes, what's undue discrimination?

[00:17:15] Speaker 01:
And it's hard in the abstract to define a bright line as to what's for us, I think, as to what's undue and what's not.

[00:17:25] Speaker 04:
Yes, of course, Your Honor.

[00:17:26] Speaker 04:
It is often a fact-intensive

[00:17:30] Speaker 04:
the commission has significant discretion.

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But what the commission actually held here was that BP and stat oil were not similarly situated.

[00:17:41] Speaker 01:
But part of that was because the regulatory benefits that flow to an open access

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shipper are not available for Statoil.

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And so when you take the package of benefits on the one hand that are available and consider this turn back on the other, you know, you kind of balance.

[00:18:08] Speaker 01:
They're not apples and apples, but you try to balance that and determine that it's not undue discrimination.

[00:18:14] Speaker 01:
What's wrong with doing it that way?

[00:18:16] Speaker 04:
Well, there were at least two things wrong with the commission's analysis below in that respect.

[00:18:22] Speaker 04:
And first of all, it didn't explain why it considered those regulatory rights to be relevant to a turn back.

[00:18:30] Speaker 04:
And they are not, in fact, relevant to a turn back.

[00:18:33] Speaker 04:
The right to extend one's contract is, in fact, the exact opposite of a turn back right.

[00:18:39] Speaker 04:
And they're not going to be.

[00:18:41] Speaker 01:
But that was something available to BP and not available to the commission.

[00:18:45] Speaker 04:
Well, that is the second issue with their analysis, Your Honor, is that they didn't in fact do an analysis of whether it is available to Statoil.

[00:18:55] Speaker 01:
Because they didn't look at the contracts?

[00:18:57] Speaker 04:
Yes, Your Honor, and they didn't inquire as to that.

[00:19:00] Speaker 04:
And there are in fact indications in the record that under those proprietary contracts, Statoil does have both contract extension rights

[00:19:09] Speaker 04:
and release rights, Dominion has represented that to the commission at various points, including back in the 2006 order when this contract was initially approved.

[00:19:21] Speaker 04:
And so at the very least, before concluding that those are a basis for finding BP and stat oil differently situated, the commission should have conducted an analysis of whether stat oil actually had

[00:19:35] Speaker 04:
equivalent, right?

[00:19:36] Speaker 01:
I know you're going to say this isn't discussed below and that's a separate issue and I understand that and the deal with that, but I just want to go into the statutory language.

[00:19:45] Speaker 01:
Terms or conditions of service at the facility as all of those terms are defined by the Commission.

[00:19:54] Speaker 01:
That's an unusual tail phrase there, as all of those terms are defined by the commission.

[00:20:00] Speaker 01:
Doesn't that suggest that the commission gets to figure out which terms are covered by this provision?

[00:20:11] Speaker 04:
Well, as you noted, Your Honor, apart from the question that that was not actually the basis of the commission's order below, that it still would be covered by a Chevron analysis.

[00:20:23] Speaker 04:
There's clearly some grant of authority to the commission to interpret that provision, but at the same time, the commission's interpretation has to be both within that delegation of authority

[00:20:36] Speaker 04:
And it also has to be a reasonable construction and one that's not arbitrary.

[00:20:40] Speaker 01:
They say, they say, okay, the statute gives us discretion to define those terms and we're going to define it to encompass on the operational terms.

[00:20:51] Speaker 04:
Yes, Your Honor, and one concern with that, of course, is that's not actually what happened in the order below.

[00:20:55] Speaker 04:
They did not define those terms, and they didn't say that they only include operational conditions, and thus, under the Chenery Doctrine, it's not a basis for upholding their order.

[00:21:06] Speaker 04:
Another concern that renders it arbitrary and capricious is that it's an unexplained departure from their prior precedent.

[00:21:13] Speaker 04:
in which they've held, for instance, in the Tennessee gas pipeline case.

[00:21:17] Speaker 07:
Is that a limitation here, given the tail clause that's in the statute?

[00:21:22] Speaker 07:
Congress has clearly told them here, you can go a different way here.

[00:21:28] Speaker 07:
That language wouldn't be there if Congress wasn't giving them authority to say something different than they had said before.

[00:21:34] Speaker 04:
Yes, Your Honor, but they still have the obligation to explain their reasoning and to explain the basis for their decision.

[00:21:42] Speaker 04:
And that, of course, was not done in the order below at all.

[00:21:45] Speaker 04:
And even in their briefs on appeal, they haven't explained why they are departing from their previous holding that turned back provisions are a term or condition of service and for that reason have to be offered to all customers

[00:22:00] Speaker 04:
on a not unduly discriminatory basis.

[00:22:03] Speaker 04:
And they also haven't made an attempt to square that with the purposes of the provision.

[00:22:10] Speaker 04:
And as this court has recognized, the purpose of anti-discrimination provisions in the Natural Gas Act is to prevent abuses of market power by LNG companies, which are naturally monopolistic.

[00:22:23] Speaker 07:
Financially, what's the Turnback Agreement do?

[00:22:27] Speaker 07:
What's its function?

[00:22:28] Speaker 07:
Doesn't it work somewhat similar to rate changes?

[00:22:33] Speaker 07:
I mean, it's all about the money that you're getting.

[00:22:36] Speaker 07:
How is it different than rate change?

[00:22:39] Speaker 04:
Well, what a turn back provision, Your Honor, does is it's essentially an early termination of the contractual agreement.

[00:22:45] Speaker 04:
These are long-term contracts.

[00:22:48] Speaker 07:
But why can't it be considered functionally the same way a rate change is considered?

[00:22:53] Speaker 04:
It's not functionally the same as a rate change as this is laid out in the commission's Tennessee gas pipeline order because it offers valuable flexibility to shippers to terminate a deal that is no longer economic due to changes in market conditions.

[00:23:13] Speaker 04:
which is precisely what occurred in this case.

[00:23:16] Speaker 04:
And rate provisions and release provisions aren't a substitute for that, because they don't give a shipper a way to simply end a deal early.

[00:23:26] Speaker 04:
And that is what BP has requested here, and that is the opportunity that it has not granted.

[00:23:34] Speaker 07:
Aren't there different ways of getting at the same thing?

[00:23:37] Speaker 07:
saving money for dominion.

[00:23:39] Speaker 04:
It is, of course, ultimately an economic issue, Your Honor.

[00:23:43] Speaker 04:
However, if the rate's not going to be zero, then a rate change is not going to be equivalent to an opportunity to simply terminate a contract early.

[00:23:54] Speaker 04:
And that is what a turn back does.

[00:23:56] Speaker 01:
But they can charge different rates to existing customers and new customers.

[00:24:02] Speaker 01:
Yes, Your Honor, Section 3E4 does not cover rates at all, which is clear if you compare the language with Section 3E3B, which refers to... But isn't it odd to think, I guess this is going to your broader purpose argument, odd to think that they can charge different rates, but can't have a turn back with one customer and not with another?

[00:24:27] Speaker 04:
Well, no, Your Honor, that is in line.

[00:24:29] Speaker 01:
What's the logic there?

[00:24:31] Speaker 04:
The logic there essentially was at that time, in 2005, there was a concern that the country needed greater imports of liquefied natural gas because at that time there was not a great deal of domestic production.

[00:24:46] Speaker 04:
And the commission found and Congress ultimately agreed that requiring cost-based rates was deterring LNG companies from investing

[00:24:56] Speaker 04:
in creating new LNG terminals, and they felt that allowing the companies to charge market-based rates instead was going to encourage more terminals, which would encourage greater production.

[00:25:08] Speaker 04:
And that's why there is no provision in the EPI.

[00:25:14] Speaker 07:
Well, doesn't your recitation of the history illustrate that we're at an interesting point where we have this intersection, this crossroads between the old way of doing things, Section 7, and the new way of doing things, Section 3.

[00:25:27] Speaker 07:
And as I read Section 3, Congress is telling FERC, you have a lot more flexibility here.

[00:25:34] Speaker 07:
You have a lot more flexibility to enter into market-based arrangements.

[00:25:38] Speaker 07:
And so why shouldn't we look at

[00:25:42] Speaker 07:
these sections with that understanding that FERC is supposed to be getting lots of flexibility here, provided the folks under Section 7 aren't disadvantaged in terms of their operations, in terms and operations of service.

[00:25:59] Speaker 04:
Well, Your Honor, first of all, as Judge Kavanaugh has mentioned, that's not something the court should consider here because that wasn't the basis of the order below, and that's under the Chenery Doctrine.

[00:26:10] Speaker 04:
It should not be considered on appeal.

[00:26:12] Speaker 04:
And second of all, as Your Honor noted,

[00:26:16] Speaker 04:
Congress did explicitly as well put a provision into the Energy Policy Act to protect those existing customers in the event that you have mixed terminals where some customers are locked into agreements.

[00:26:29] Speaker 07:
That's the key to the case, protect them from what?

[00:26:33] Speaker 04:
Well, it's to protect them from several things, Your Honor.

[00:26:35] Speaker 04:
It's to protect them from subsidizing agreements.

[00:26:42] Speaker 04:
It's to protect them from having their own service degraded, and it's also to protect them from undue discrimination under

[00:26:49] Speaker 04:
the explicit terms of the provision and the commission has previously recognized that it is unduly discriminatory to offer contract termination rights to certain customers and not others because that is a valuable right to shippers.

[00:27:08] Speaker 01:
What if they offer a turn back provision to one and a not as good turn back provision to another?

[00:27:15] Speaker 04:
Well, Your Honor, that would present a much closer question that would require a detailed factual analysis of, was there any factual basis for drawing the distinction?

[00:27:27] Speaker 04:
And even if there wasn't, is it a significant enough distinction to render the discrimination undue?

[00:27:34] Speaker 04:
But here you have an instance where

[00:27:36] Speaker 04:
Stat oil was offered a turn back, and BP was simply not offered a turn back at all.

[00:27:43] Speaker 04:
And that is a clear cut instance, Your Honor, where the rights are very significantly different, and it is unduly discriminatory against BP.

[00:27:54] Speaker 09:
All right.

[00:27:54] Speaker 09:
Why don't we hear from respondents?

[00:28:10] Speaker 05:
Good morning.

[00:28:11] Speaker 05:
May it please the court?

[00:28:12] Speaker 05:
Karen Larson for the Federal Energy Regulatory Commission.

[00:28:15] Speaker 05:
Before I turn to the issues raised by Earth Reports, I'd like to just continue the discussion you just had with BP Energy with respect to undue discrimination.

[00:28:26] Speaker 01:
First- We can just knock the standing thing out, right?

[00:28:30] Speaker 05:
Yes.

[00:28:31] Speaker 01:
There is- Yes, that's so weak.

[00:28:34] Speaker 05:
Turning to the merits, Your Honor.

[00:28:37] Speaker 05:
Turning to the merits.

[00:28:40] Speaker 05:
Burke's interpretation of Section 3E4 of the Natural Gas Act is entitled to deference, and indeed here is entitled to a high degree of deference because the Congress... Would you address the Channery problem?

[00:28:53] Speaker 07:
Your opposing counsel, I think, referred to that four or five times.

[00:28:56] Speaker 05:
It should, FERC has FERC's orders, both in the authorization order and the rehearing order, address the subject and it was interpreting Section 3E4.

[00:29:08] Speaker 05:
Specifically, I would draw your attention to

[00:29:12] Speaker 05:
Paragraph of the authorization order, paragraph 46, which is at JA 632, is where the commission right before that sets out the statutory language of section 3E4.

[00:29:27] Speaker 01:
It doesn't explain.

[00:29:28] Speaker 01:
Paragraph 46 doesn't explain anything.

[00:29:33] Speaker 01:
It just says it's described in more detail below.

[00:29:36] Speaker 01:
The vignette is not proposed to change the terms and conditions of service for EPM in this proceeding.

[00:29:41] Speaker 05:
That's correct.

[00:29:43] Speaker 05:
So what the Commission is saying there is that it's acknowledging that the operational terms and conditions of service at the facility have not changed, and it is signaling that that is the relevant scope of terms and conditions for... Signaling?

[00:30:00] Speaker 07:
Is that the best you can do?

[00:30:01] Speaker 07:
They signal?

[00:30:03] Speaker 07:
I think the trick was more explicit... Don't you have to show that it was a basis for the decision?

[00:30:07] Speaker 05:
FERC was more explicit in the hearing order at paragraph 14, JA 840, where again, the commission was interpreting, is interpreting terms and conditions of service at the facility to again, be limited to operational terms and conditions such as nominations, scheduling, and anything that would affect the quality of service.

[00:30:34] Speaker 05:
FERC's interpretation of the statute is consistent with its prior order.

[00:30:40] Speaker 05:
The only relevant precedent on this issue is the co-point orders.

[00:30:45] Speaker 05:
Co-point terminal is the only mixed-use, mixed-service facility out there.

[00:30:52] Speaker 05:
And so the only relevant precedent that we have arises from co-points.

[00:30:58] Speaker 01:
Just back on paragraph 14 again.

[00:31:02] Speaker 01:
Is that your best paragraph from the re-hearing order?

[00:31:05] Speaker 05:
With respect to FERC's interpretation of the specific statutory language, yes.

[00:31:11] Speaker 05:
FERC's orders do focus more on determining that BP Energy is not a similarly situated customer.

[00:31:19] Speaker 05:
But on paragraph 14 of the rehearing order and 46 of the authorization order is where FERC is indicated.

[00:31:28] Speaker 01:
That's a pretty thin read on which to address the fairly important statutory interpretation, which is we're drawing the line, terms and conditions will not encompass turn back.

[00:31:39] Speaker 01:
I think that's what you're saying this says.

[00:31:42] Speaker 05:
Correct.

[00:31:43] Speaker 01:
We're saying that that commission has found that terms or conditions of service at the facility and there's no grappling prior decisions that have suggested at least the turn back is the term or condition.

[00:31:57] Speaker 01:
You want to deal with those because by counsel cited those two.

[00:32:00] Speaker 05:
The case that the opposing council said it was a Tennessee gas pipeline, which is in opposite here.

[00:32:08] Speaker 05:
Tennessee gas pipeline was a case predated, Energy Policy Act of 2005, which codified.

[00:32:16] Speaker 01:
Why does that matter though?

[00:32:17] Speaker 01:
It's talking about what turn back is, right?

[00:32:20] Speaker 05:
It's talking about what Turnback capacity, what Turnback is in the context of a Section 7 open access transportation service.

[00:32:31] Speaker 05:
And that, and we are in an entirely different regulatory regime here.

[00:32:35] Speaker 01:
But it was a term, it was a problem, I think, in Tennessee Gas, was that there was undue discrimination in a term or condition of service.

[00:32:44] Speaker 05:
In Tennessee Gas, again, looking strictly in the NGA Section 7 context, where all aspects of service are regulated by the Commission, which is entirely different than service under Section 3.

[00:33:01] Speaker 05:
But in that context, in Tennessee Gas,

[00:33:04] Speaker 05:
The pipeline did, the commission did explain that it has repeatedly held that terms and conditions of service that may never be individually negotiated because of the risk of undue discrimination include provisions that result in a customer receiving different quality of service.

[00:33:24] Speaker 05:
It then went on to then noting that

[00:33:29] Speaker 05:
that a turn back right is outside of something that would be an operational term or condition service, the commission analyzed in the section seven context whether provision of a turn back right could result in undue discrimination if the customers are similarly situated.

[00:33:48] Speaker 05:
Again, we're in a completely different context here.

[00:33:50] Speaker 05:
That section.

[00:33:51] Speaker 01:
I understand your point about the context, but it does seem that the language there

[00:33:56] Speaker 01:
from Tennessee did suggest that turn back rates were

[00:34:02] Speaker 01:
a negotiated term or condition of service.

[00:34:05] Speaker 01:
Did it not say that?

[00:34:08] Speaker 05:
Correct, but what it didn't say.

[00:34:10] Speaker 05:
It did say that.

[00:34:11] Speaker 05:
It's saying that, yes, a term back right is a contract term.

[00:34:17] Speaker 05:
It's something that can be written into the contract.

[00:34:20] Speaker 05:
But I would say, I would point to Tennessee at 60.

[00:34:24] Speaker 01:
Then when Congress comes in and legislates what is a term or condition of service, presumably it

[00:34:29] Speaker 01:
This is pretty too much probably into the congressional head here, but it's thinking about the fur of precedence on point, or at least there's no reason to assume Congress meant to disturb the category of things covered by the prior precedent when it uses the phrase

[00:34:47] Speaker 01:
term or condition of service?

[00:34:50] Speaker 05:
I think if Congress was looking at anything, Congress was looking at the FERC precedent in Hackberry LNG, which is where the Commission for the first time decided to have a more hands-off approach to the economic regulation for LNG terminals in order to encourage further development of LNG import terminals, which was

[00:35:15] Speaker 05:
deemed to be much needed at the time.

[00:35:18] Speaker 01:
This whole provision is odd, I think.

[00:35:21] Speaker 01:
Odd's probably the wrong word, but there's a transition, right, from open access regime to a more market-based regime.

[00:35:29] Speaker 05:
I agree.

[00:35:30] Speaker 01:
It's a very unique... But there are going to be some losers in that transition, and the losers potentially are the existing customers, right, who are no longer, or at least the terminals are the winners, because they can now, they now have the

[00:35:45] Speaker 01:
more of an upper hand in the negotiations than they did before under an open access regime, right?

[00:35:52] Speaker 01:
And to protect some of the existing customers, this provision's inserted to make sure, okay, you can go out and negotiate market deals with new customers, but to the extent you need to negotiate market deals with new customers, you have to cut the same kind of deal, and I guess kind of deal is a loaded term there, but the same kind of deal with the existing customers.

[00:36:14] Speaker 01:
Isn't that the basic,

[00:36:16] Speaker 01:
idea here?

[00:36:17] Speaker 05:
No, that would, as you just... As to certain things.

[00:36:24] Speaker 05:
I would assert that as you just described it, that would just put us back into the NGA Section 7 context where transportation service providers are allowed to negotiate market-based rates, provided that all of the other tariff terms and conditions of service are the same.

[00:36:45] Speaker 05:
Here, Section 3 of the Natural Gas Act went beyond just allowing for market-based rates.

[00:36:53] Speaker 05:
Market-based rates were already allowed in the Section 7 context.

[00:36:56] Speaker 05:
So this is something new, larger, and more deregulated than

[00:37:03] Speaker 05:
just simply allowing for market-based rates.

[00:37:06] Speaker 05:
So we need to look at it in that context.

[00:37:09] Speaker 07:
Which underscores why 717BE4 is so important.

[00:37:14] Speaker 07:
This is the provision that's going to offer whatever protection there's going to be for existing customers.

[00:37:19] Speaker 07:
This is the provision.

[00:37:21] Speaker 07:
And so that's why I'm curious as to why FERC didn't make more clear below

[00:37:27] Speaker 07:
that its decision was turning on a careful reading of this provision and a determination that the turn back agreement was not covered by this provision.

[00:37:40] Speaker 07:
I just don't see it anywhere.

[00:37:42] Speaker 07:
And the best that you can come up with is vague language that signals an intention to treat it differently.

[00:37:52] Speaker 07:
But don't we need more than that under generating?

[00:37:56] Speaker 05:
What FERC did do is determine that the BP energy and stat oil are not similarly situated customers.

[00:38:06] Speaker 05:
FERC recognized and cited precedent for the fact that not all discrimination is undue discrimination and determined here that because the two classes of customers are not similarly situated,

[00:38:19] Speaker 05:
And because of the protections guaranteed that preserve the same quality of service, that there is no undue discrimination.

[00:38:26] Speaker 01:
The big picture of the orders seemed to me was just that, well, BP was a customer under a different regime.

[00:38:33] Speaker 01:
And that seems, to Judge Griffith's point, to be inconsistent with the whole point of this paragraph.

[00:38:41] Speaker 01:
I mean, their main argument is that the commission below just basically said, well, BP is Section 7 and Statoil is Section 3, and therefore they're not similarly situated, and therefore

[00:38:58] Speaker 01:
there's no undue discrimination, but that would seem to destroy the whole point of this provision if we just accepted that.

[00:39:04] Speaker 01:
Now, I take your point that they go on and elude or signal or whatever verb we want to use other rationales, but the main things seem to be they're just differently situated because of the different statutory structures, regulatory structures, no?

[00:39:22] Speaker 05:
Well, the commission went on to explain the impact of being under the different regulatory regimes and noting that the particular guaranteed regulatory rights that a BP Energy as a Section 7 customer has, and recognizing those are valuable rights that a Section 3 customer would not have unless they negotiate and presumably pay for.

[00:39:46] Speaker 09:
I'd like to- So your response is not only paragraph 46.

[00:39:51] Speaker 09:
about paragraph 47 and the cases that are cited there.

[00:39:57] Speaker 09:
And if you read those cases, then you come to the conclusion that you're talking about where FERC ultimately says we're not concerned with the fact that in addition to relinquishing section three terminal service, that'll also turn back section seven.

[00:40:16] Speaker 09:
That's consistent with your view that FERC is focusing on operational discrimination.

[00:40:23] Speaker 09:
Yes, that's correct.

[00:40:25] Speaker 09:
It's succinct.

[00:40:27] Speaker 05:
Yes.

[00:40:28] Speaker 05:
At the commission, like I would, would like to, I think, reserve most of its time and energy on the environmental issues.

[00:40:40] Speaker 01:
I saw some more on this, which is, when you were just talking about the change by, it was a good effort, but the 2005 Act, in plain language, as best you can,

[00:40:55] Speaker 01:
without reference to this provision, what was its mission in this field?

[00:41:01] Speaker 05:
In this field was to completely deregulate the LNG contracts between a terminal customer and whoever they may decide to contract for.

[00:41:13] Speaker 01:
It was already deregulated some, right?

[00:41:16] Speaker 01:
You said that before.

[00:41:18] Speaker 05:
Yes, in the sense that if under Section 7, if a terminal operator could demonstrate that it did not have market power, something that was subject to the FERC's review over constant oversight, then they could engage in market-based rate negotiations, just with respect to the economic term.

[00:41:41] Speaker 01:
So this could act, was designed to?

[00:41:44] Speaker 05:
Completely remove

[00:41:47] Speaker 05:
LNG terminal service for a finite period of time.

[00:41:51] Speaker 05:
There's a sunset provision attached to this from the traditional Section 7 FERC regulation of transportation service.

[00:42:02] Speaker 01:
but then someone got concerned about that and stuck in this paragraph four.

[00:42:06] Speaker 05:
They got concerned about how the practical implications at the facility, how the tankers would come in, scheduling, who got first right at that pier if you had two competing tankers, and the commission, and that's where is the area where there could result in discrimination.

[00:42:26] Speaker 01:
Looks to me like someone got concerned about what was happening in the transition,

[00:42:30] Speaker 01:
and then someone got concerns in response to the concerns and then the tail phrase as all those terms are defined by the commission was potential saving provision.

[00:42:43] Speaker 01:
Do we have any legislative history on how this all came about?

[00:42:46] Speaker 05:
No, not that I'm aware of, other than the fact that it did arise out of Hackberry, but I don't have a site to a congressional record.

[00:42:56] Speaker 05:
If there are no further questions on the B2.

[00:43:00] Speaker 09:
So there may be some legislative history since the 2005 Act.

[00:43:03] Speaker 09:
It was a fairly major enactment by Congress.

[00:43:08] Speaker 05:
Yes, there is legislative history on the 2005 Act.

[00:43:11] Speaker 05:
But with respect to section 3E4 and the preceding section,

[00:43:21] Speaker 05:
Yeah, I don't think there's nothing out there.

[00:43:24] Speaker 01:
Outside the usual process, would be my guess.

[00:43:28] Speaker 05:
Maybe something that you got stuck in.

[00:43:30] Speaker 05:
But turning to the environmental issues on indirect impacts of upstream natural gas production.

[00:43:41] Speaker 09:
So let's just, if you stick with DP for just half a moment.

[00:43:47] Speaker 09:
Sure.

[00:43:49] Speaker 09:
I just need to be clear what your answer is.

[00:43:52] Speaker 09:
When FERC says on rehearing, it starts off by saying the fact

[00:44:05] Speaker 09:
that BP is arguing the fact that state stat oil has this relinquishing opportunity, and BP doesn't, is on due discrimination.

[00:44:17] Speaker 09:
And the commission's response is simply, as discussed above, Dominion had no obligation to offer BP an open access.

[00:44:28] Speaker 09:
Section 7 customer, the same opportunity to turn back terminal service that it offered to its customer,

[00:44:35] Speaker 09:
receiving non-open access, Section 3.

[00:44:38] Speaker 09:
So the commission really is just sticking with this Section 3, Section 7 distinction and not reading 3E4 to provide any additional protection or the tail that Judge Kavanaugh refers to, providing any additional protection to an existing customer.

[00:45:00] Speaker 05:
The commission's orders

[00:45:04] Speaker 05:
clearly determined that the BP energy and stat oil are not similarly situated and there is no undue discrimination because they're receiving the same quality of service.

[00:45:15] Speaker 09:
What about the argument that the Commission has never told us that the stat oil contract doesn't give them it all the rights

[00:45:29] Speaker 09:
that BP has under the regulatory scheme as a Section 7.

[00:45:37] Speaker 09:
Just hypothetically, suppose they were the same.

[00:45:41] Speaker 05:
If they were the same, Statoil had to negotiate for all those rights, and presumably in arms-length negotiations between two non-affiliated parties, that they had to then pay for those rights, rights that were just automatically given to BP Energy.

[00:46:02] Speaker 05:
or automatically accessible to BP energy, Statoil would have had to have negotiated, bargained for, and paid for.

[00:46:09] Speaker 01:
But that really does collapse it then into just they're under a different statutory regime.

[00:46:15] Speaker 01:
Because you're saying even if the contract gave them exactly the same rights that the regulations gave BP, it doesn't matter.

[00:46:23] Speaker 01:
That's what I think you just said.

[00:46:25] Speaker 05:
That's what I wanted to be clear about.

[00:46:27] Speaker 05:
I'm saying, you know, while the contract, you know, line by line, perhaps the terms read the same, the price would be different.

[00:46:38] Speaker 05:
It's reflected the difference between the two customers are reflected in the price.

[00:46:43] Speaker 05:
The price that BP Energy pays is the regulated cost of service price unless it

[00:46:49] Speaker 05:
to the market-based thing.

[00:46:51] Speaker 05:
And then the price that Stat Oil paid is the price that it was able to negotiate given all the terms it felt it would have needed in its contract.

[00:47:03] Speaker 09:
So we know in the record here that there is a significant price differential.

[00:47:09] Speaker 05:
We do not know.

[00:47:10] Speaker 05:
And the statute is clear that with respect under Section 3E3,

[00:47:19] Speaker 05:
B, Roman numeral two, one, prohibits FERC from conditioning its orders on any aspect of the rates, charges, terms, and conditions of service at the LNG terminal.

[00:47:35] Speaker 05:
Congress clearly took it outside of FERC's sphere, these section three contracts.

[00:47:47] Speaker 05:
Now I'd like to turn to Judge Rogers' concerns on environmental issues.

[00:47:53] Speaker 05:
No questions.

[00:47:57] Speaker 05:
That's distinct from concerns.

[00:47:59] Speaker 05:
Questions regarding the, yes, thank you.

[00:48:02] Speaker 01:
One more on the on the last issue.

[00:48:06] Speaker 01:
What exactly does this section prohibit the meeting from going on?

[00:48:12] Speaker 05:
Section 3E3B prohibits from, in plain English, I would say interfering with a contract between the terminal operator and its customer.

[00:48:30] Speaker 01:
No, the provision that preserves says there's no undue discrimination.

[00:48:34] Speaker 05:
3E4?

[00:48:34] Speaker 05:
Yeah.

[00:48:36] Speaker 05:
3E4

[00:48:38] Speaker 05:
protects customers from... Protects existing customers from what?

[00:48:45] Speaker 05:
From receiving, from differing terms and conditions at the facility.

[00:48:52] Speaker 01:
What's that encompass though?

[00:48:53] Speaker 05:
That encompass things that would affect the quality of service provided at the facility.

[00:48:59] Speaker 01:
Isn't that actually covered under degradation of service, the prior clause?

[00:49:07] Speaker 01:
Degradation of service to existing customers?

[00:49:10] Speaker 05:
I think that they should be read together.

[00:49:13] Speaker 05:
I mean, degradation of service, that would be less, yeah, it's a lesser quality.

[00:49:21] Speaker 05:
But I think the latter part, the undue discrimination, it's concerning, it's ensuring that all operational aspects are

[00:49:35] Speaker 05:
are the same for both classes of customers.

[00:49:53] Speaker 05:
Judge Rogers, you asked us some questions about what the Commission's role is as the lead agency for purpose of the NEPA.

[00:50:03] Speaker 05:
And PERP's role as a lead agency doesn't change the scope

[00:50:08] Speaker 05:
of what the commission must consider to fulfill its own NEPA obligations.

[00:50:15] Speaker 05:
When I look at this issue, I see a Venn diagram where FERC has its circle of environmental issues that it must consider for purposes of it authorizing the construction and operation of the terminal.

[00:50:32] Speaker 05:
And then there's several other agencies such as Department of Transportation,

[00:50:36] Speaker 05:
Department of Energy, Coast Guard, several other agencies out there that also have their own NEPA obligations with respect to the authorizations that that agency is issuing.

[00:50:47] Speaker 05:
And so you draw in the circles and there's overlapping parts.

[00:50:51] Speaker 09:
So what about Council's statement that we learned today that in Energy's statement, it simply adopted FERCs

[00:51:04] Speaker 09:
environmental analysis and did not do any of its own.

[00:51:09] Speaker 05:
I think that misrepresents what Department of Energy did.

[00:51:13] Speaker 05:
Department of Energy as a cooperating agency is required to review, before it would adopt the environmental assessment of the lead agency, a cooperating agency such as Department of Energy is required to independently review the FERC's environmental assessment and determine whether FERC's environmental assessment satisfies

[00:51:38] Speaker 05:
its own needs and the Department of Energy in its 2015 order that authorized the export to non-free trade countries

[00:51:52] Speaker 05:
specifically stated that it independently reviewed FERC's environmental assessment and determined that it covered all of the issues that the Department of Energy needed.

[00:52:03] Speaker 05:
And even backing up, as a cooperating agency, they are to participate at the earliest possible time in the environmental review process so that they can, through the scoping process, identify issues that they may

[00:52:18] Speaker 05:
need to be included in the environmental analysis.

[00:52:22] Speaker 05:
And then it's supposed to participate and continue along in the process as a joint partner in this.

[00:52:31] Speaker 05:
And FERC's role, it does not ultimately change FERC's role with respect to FERC's obligations under NEPA for authorizing the construction and operation of the liquefaction facilities.

[00:52:45] Speaker 05:
And the lead agency responsibilities are set out in, as well as the cooperating agency's responsibilities, are set out in the regulations implementing NEPA in several different areas.

[00:53:02] Speaker 09:
So let me just be clear.

[00:53:03] Speaker 09:
As you know, we've had several cases involving this export facility issue.

[00:53:11] Speaker 09:
And my understanding was that given the Secretary's decision as to what the Secretary would do versus what the Commission would do, therefore, the Commission's responsibility, as you put it, was sort of a narrower concentric circle.

[00:53:32] Speaker 09:
that the environmental issues, greenhouse gases, all those sorts of things, beyond the facility itself, or rather beyond the project being constructed itself, was something that energy was going to look at.

[00:53:47] Speaker 09:
So council this morning tells us that energy's statement of no significant environmental impact says, well, we're just going to, you know, we're satisfied with what FERC did.

[00:54:01] Speaker 05:
We know from the Department of Energy's order, we've had a lengthy environmental review section.

[00:54:09] Speaker 05:
The Department of Energy came to its own independent determination that, like FERC, they agreed that these upstream induced

[00:54:24] Speaker 05:
additional production of natural gas were not causally related, sufficiently causally related or reasonably foreseeable such that they needed to examine them under NEPA.

[00:54:38] Speaker 05:
The Department of Energy did take the additional extra step outside of NEPA

[00:54:44] Speaker 05:
of commissioning and producing two reports, the environmental addendum and the greenhouse gas reports, which were very broad nationwide looks at possible impacts.

[00:54:59] Speaker 05:
And the Department of Energy itself concluded, with respect to these reports that it developed, that they were still too general to be of use for it for any specific

[00:55:14] Speaker 05:
Export authorization.

[00:55:15] Speaker 09:
Alright, so as you know this FOMSI is not in the record so I haven't seen it, but I gather from what you're telling me is it's not a complete recounting of what energy did in the NEPA area.

[00:55:31] Speaker 05:
no, not at all.

[00:55:32] Speaker 05:
I would encourage the court to look at the Department of Energy's May 2015 order, final order, with respect to Code Point and the lengthy environmental section in it, where the Department of Energy describes all of the documents and information that it looked at, one of which was

[00:55:55] Speaker 05:
the commission's environmental assessment, amongst other things, and then it contains the Department of Energy's analysis and thinking and its ultimate conclusion that with respect to induced natural gas, that the impacts are just not reasonably foreseeable or sufficiently causally related such that they need to be included in a NEPA document.

[00:56:25] Speaker 05:
Just a few other points I want to make in response to what Petitioner Earth's reports stated.

[00:56:33] Speaker 05:
They brought up Constitution Pipeline.

[00:56:38] Speaker 05:
And Constitution Pipeline is a project that recently got authorized by the commission.

[00:56:45] Speaker 05:
And it's very similar to the pipeline that

[00:56:52] Speaker 05:
that was reviewed by the Second Circuit in 2012.

[00:56:56] Speaker 05:
It's a pipeline that traverses the Marcellus Shale region and then interconnects to other interstate gas pipelines to ultimately take gas to market, particularly the Northeast market.

[00:57:09] Speaker 05:
And in the 2012 Coalition for Responsible Growth case, the Second Circuit found that with respect to

[00:57:22] Speaker 05:
the petitioners urging in that case that the commission needed to look at natural gas production and development activities that they believed were going to be induced by the existence of this new pipeline.

[00:57:37] Speaker 05:
The court found that there was not a sufficient causal relationship such that FERC, it warrant further analysis by FERC.

[00:57:48] Speaker 05:
And I would say Constitution Pipeline is in lockstep with that.

[00:57:52] Speaker 05:
And yeah, I would just note that with respect to the

[00:58:08] Speaker 05:
FERC's obligation under NEPA regulations have instructed FERC to focus on high quality information and issues that are truly significant to the project.

[00:58:19] Speaker 05:
And FERC's environmental assessment here reflects those principles.

[00:58:24] Speaker 05:
And here FERC recently determined that because of the significant amount of speculation that would be required to estimate potential environmental impacts of upstream production, that it just would not provide useful or meaningful information for

[00:58:38] Speaker 05:
the commission's determination of whether to authorize the construction and operation of the liquefaction facilities.

[00:58:46] Speaker 05:
If there are no further questions.

[00:58:47] Speaker 05:
All right, thank you.

[00:58:50] Speaker 09:
All right, Council for Intervener Dominion Cove Point.

[00:59:00] Speaker 03:
Good morning, Your Honor.

[00:59:00] Speaker 03:
It's Kate Stetson representing Cove Point.

[00:59:03] Speaker 03:
I'd like to go briefly once more into the breach on BP and then close with the environmental issues, if I could.

[00:59:11] Speaker 03:
The first item to report is that there is no legislative history associated with these particular provisions.

[00:59:16] Speaker 03:
So that leaves us with the statute and with what FERC said below.

[00:59:20] Speaker 01:
So we don't even know.

[00:59:21] Speaker 03:
Go ahead.

[00:59:23] Speaker 01:
Why do you think that is?

[00:59:25] Speaker 03:
Oh, I can't even hazard a guess about the legislative history.

[00:59:28] Speaker 03:
But I'm actually quite comfortable relying on what we've got.

[00:59:32] Speaker 09:
We don't even know the source of the provision.

[00:59:37] Speaker 03:
No, we don't.

[00:59:38] Speaker 03:
But here's what we do know.

[00:59:40] Speaker 03:
Just in terms of what FERC said and how it said it, there are several different elements, of course, to this particular provision.

[00:59:50] Speaker 03:
There has to be discrimination.

[00:59:52] Speaker 03:
It has to be undue.

[00:59:53] Speaker 03:
And it has to pertain to the terms and conditions of service at the facility as defined by the commission.

[00:59:59] Speaker 03:
And that is an unusual phrase.

[01:00:01] Speaker 03:
And I suggest that it gives the commission a lot of latitude to decide what is and is not a term of condition or condition of service at the facility.

[01:00:10] Speaker 03:
So in this very, with respect to this very- I'm sorry to interrupt.

[01:00:16] Speaker 01:
They didn't really do what you just said.

[01:00:18] Speaker 01:
And that would be a good theory to spell out.

[01:00:20] Speaker 01:
They didn't rely on, for example, that last clause

[01:00:23] Speaker 01:
and explaining, oh, we have lots of authority to define what terms and conditions are, and here's why we think our precedent saying Tennessee, saying this is not operative anymore, and just giving us a little bit on this other than the sentence or two.

[01:00:39] Speaker 01:
I'm not sure in the end we'd have to decide whether we agree with that, but I don't even see it in the order.

[01:00:44] Speaker 03:
Right.

[01:00:44] Speaker 03:
I actually think they gave a lot more than that, though, Your Honor.

[01:00:48] Speaker 03:
The first is with respect to the two paragraphs that were previously under discussion, which are paragraphs 13 and 14 of the rehearing orders.

[01:00:57] Speaker 03:
This is Joint Appendix 839.

[01:00:59] Speaker 03:
What the Commission first does is essentially turn to the question about whether these two shippers, which BP and Statoil, are similarly situated to begin with.

[01:01:08] Speaker 03:
And it wasn't some kind of facile distinction just based on the fact that one was Section 3 and the other was Section 7, which would, I think, collapse back onto itself.

[01:01:18] Speaker 03:
It was far more specific, because what Ferck said is when you are talking about the return of capacity, paying capacity in exchange for an exit fee,

[01:01:28] Speaker 03:
BP has protections on account of being a Section 7 shipper that Statoil doesn't have.

[01:01:34] Speaker 01:
That is the reason that he's... We actually don't know whether they had them by contract, though.

[01:01:39] Speaker 03:
No, but the Commission actually deals with that as well.

[01:01:42] Speaker 03:
The Commission deals with that as well in that very paragraph.

[01:01:44] Speaker 03:
It says that the fact that there are market conditions that might render this right more or less valuable to BP doesn't really matter.

[01:01:51] Speaker 03:
The fact that Statoil could also, I would wager,

[01:01:55] Speaker 03:
that doesn't mean anything when what you've got is a statutory guarantee to BP that it can do something with that capacity.

[01:02:04] Speaker 03:
That's the distinction.

[01:02:05] Speaker 01:
And on top of that, what you have with respect to... Of course, you don't need... I want to just make sure my logic's correct here.

[01:02:11] Speaker 01:
You don't even need to get to this stuff.

[01:02:13] Speaker 01:
terms and conditions doesn't encompass turn back.

[01:02:16] Speaker 03:
That's correct, and that's where I was next turning.

[01:02:18] Speaker 03:
So with respect to terms and conditions of service at the facility, here is what I would point you to.

[01:02:23] Speaker 03:
It's in the joint appendix at page 43.

[01:02:26] Speaker 03:
It's paragraph 108 of the commission's 2006 order.

[01:02:33] Speaker 03:
And it's an order pertaining, among other things, to a settlement that Dominion reached with, among others, BP and Statoil.

[01:02:42] Speaker 03:
And what that paragraph that I just referred to you to 108 says is, with respect to the general terms and conditions of section 30 of this particular tariff, we find no undue discrimination as to the terms and conditions of service at the facility.

[01:02:58] Speaker 03:
So yes, can the path be, is the path floodlit?

[01:03:01] Speaker 03:
No, but can the path be reasonably discerned?

[01:03:03] Speaker 03:
Yes, because if you look at the very last item now- But they wouldn't have needed this.

[01:03:09] Speaker 01:
Yeah.

[01:03:09] Speaker 01:
In paragraph 13, for example, if they agreed with your main statutory argument.

[01:03:15] Speaker 01:
And they don't say, OK, the statute just has no application here.

[01:03:20] Speaker 01:
And even if it did, in the alternative, how you would structure something like that, that's not really how this.

[01:03:26] Speaker 09:
Paragraph, that's talking about subsidization and degradation.

[01:03:30] Speaker 03:
At the very end of that paragraph, are you looking at 108, Judge Rogers?

[01:03:34] Speaker 03:
Yeah, page 43.

[01:03:35] Speaker 03:
At the very end of paragraph 108, there's a statement about.

[01:03:38] Speaker 09:
We find that the proposal will result in no degradation of service to Code Point.

[01:03:43] Speaker 09:
LGs, existing customers, or undue discrimination against existing customers.

[01:03:49] Speaker 09:
But I mean, it's just a conclusion, doesn't explain it.

[01:03:51] Speaker 03:
That's correct.

[01:03:52] Speaker 03:
But the fact is, what it's talking about there is as to the terms and conditions of service.

[01:03:57] Speaker 03:
Those terms and conditions of service are those that are captured in section 30 of those general terms and conditions.

[01:04:03] Speaker 03:
And to your point, Judge Kavanaugh, I think it was just a question of ordering.

[01:04:06] Speaker 03:
What the commission chose to address first in its rehearing order was whether there was discrimination.

[01:04:11] Speaker 03:
But on paragraph 14,

[01:04:13] Speaker 03:
pertaining to your question, what it says is the terminal service that it receives from Dominion, EP receives, is fundamentally the same as that provided to Statoil.

[01:04:23] Speaker 03:
Statoil receives no preference in nominating, scheduling, or the quality of the terminal service provided.

[01:04:29] Speaker 03:
That is the kicker as far as terms and conditions of service is concerned.

[01:04:34] Speaker 03:
The commission chose to deal with discrimination first and terms and conditions second could equally have done it the other way around.

[01:04:41] Speaker 03:
But I think with respect to both of those points, the commission's path is pretty clear.

[01:04:47] Speaker 03:
You asked a question also of Ms.

[01:04:50] Speaker 03:
Larson regarding what is essentially undue discrimination.

[01:04:53] Speaker 03:
Here would be an example.

[01:04:55] Speaker 03:
If Dominion were to have a contract with Statoil and subsequently contract with BP, and in that subsequent contract with BP say, you know, we like you, we're going to let you come first to our docs, we're going to let you have first preference every time and when you unload or load your LNG.

[01:05:14] Speaker 03:
We're going to let you nominate your capacity with not as much paperwork requirement.

[01:05:19] Speaker 03:
We're going to let you give special treatment to your particular vessels.

[01:05:23] Speaker 03:
All of that is a term and condition of service at the facility.

[01:05:26] Speaker 03:
That's what they can't do.

[01:05:27] Speaker 03:
What we're talking about here is an exit fee, money for capacity.

[01:05:31] Speaker 03:
That's an economic term, and it's not subject to this.

[01:05:34] Speaker 01:
So if I could have... Isn't that already prohibited, though, even without this provision?

[01:05:39] Speaker 01:
In other words, wouldn't that be under discrimination under some other provision?

[01:05:43] Speaker 01:
This is giving something special.

[01:05:45] Speaker 01:
You don't think it's covered by any other provision?

[01:05:47] Speaker 03:
No, it's not, because this goes directly to Section 3 service.

[01:05:51] Speaker 03:
In fact, I think the opposite of your point is true, which is if this provision is read the way that BP would like it to be read, it's an exact match for Section 4 and Section 5, which are the discrimination provisions later in Section 717

[01:06:06] Speaker 03:
that go into shall not discriminate in any way as to any term or in any other respect, et cetera, et cetera.

[01:06:14] Speaker 01:
But this allows, this provision doesn't prohibit discrimination against new customers.

[01:06:20] Speaker 01:
It doesn't, it prohibits discrimination against a new customer, I think.

[01:06:25] Speaker 03:
No, I was only flipping the plot.

[01:06:28] Speaker 03:
I was saying favoritism toward a new customer and discrimination against existing.

[01:06:33] Speaker 01:
Favoritism towards an existing customer is permissible under this provision.

[01:06:38] Speaker 03:
I was wondering if there's some other provision that would... No, the hypothetical that I gave was discrimination against one who was already a customer by someone coming in and getting a more favorable term, a more favorable arrangements with respect to loading or unloading and so forth.

[01:06:52] Speaker 01:
So it has to be that kind of

[01:06:55] Speaker 01:
operational is the term that you used.

[01:06:56] Speaker 03:
Yes, exactly.

[01:06:58] Speaker 03:
And you can find all of the root of that in this case with respect to this very tariff provision in the joint appendix at the very end.

[01:07:06] Speaker 03:
The last document in volume two of the JA specifies what these terms and conditions of service are in some detail.

[01:07:14] Speaker 03:
So with respect to the environmental issues, if I could just make one or two points.

[01:07:19] Speaker 03:
The overarching point is this.

[01:07:23] Speaker 03:
Earth reports in this case is attempting to have NEPA do something that NEPA isn't designed to do.

[01:07:29] Speaker 03:
That is why I think there is the struggle with who is responsible for what, what effects are upstream, what effects are downstream.

[01:07:35] Speaker 03:
NEPA asks the question, what effects are caused

[01:07:39] Speaker 03:
by this action that you are proposing, not what effects are associated with it, not what effects are happening elsewhere in the industry.

[01:07:47] Speaker 03:
What is this facility going to cause in the way of environmental effects?

[01:07:51] Speaker 03:
And the Commission spent over 200 pages examining and answering that question.

[01:07:56] Speaker 03:
NEPA is not

[01:07:58] Speaker 03:
some kind of a policy-making statute.

[01:08:00] Speaker 03:
It doesn't ask for a referendum about national natural gas policy.

[01:08:06] Speaker 09:
I take their point to be a little different and a little more subtle.

[01:08:09] Speaker 09:
And I think you understand that.

[01:08:13] Speaker 09:
You can write 215 pages, but if you leave out the key analysis, it's really not worth anything.

[01:08:20] Speaker 09:
And their position is that, and since I keep sitting on these cases,

[01:08:27] Speaker 09:
that every time there's a new project, Burke says, no causation, cite public citizen, end of discussion.

[01:08:36] Speaker 09:
So the question that the environmental groups keep raising is, well, you look at all that's going on, there has to be some cause and effect.

[01:08:45] Speaker 09:
It's not as though we're just planting flowers.

[01:08:50] Speaker 03:
Judge Rogers, I actually think that's faulty logic for a couple different reasons.

[01:08:55] Speaker 03:
The first is, with respect to causation, what the Commission actually found in this case with respect to this facility, and this is a finding that is owed considerable deference, is that this facility did not cause anything to happen in the Marcellus Shale.

[01:09:11] Speaker 03:
The Marcellus Shale

[01:09:12] Speaker 03:
and its capacity was discovered, you know, back in the early 2000s.

[01:09:16] Speaker 03:
There was no cause that this facility is producing something in the Marcellus Shale.

[01:09:21] Speaker 03:
That's not how it works.

[01:09:22] Speaker 03:
That was the finding.

[01:09:24] Speaker 03:
Same with foreseeability.

[01:09:25] Speaker 03:
What the Commission found, again, in a finding entitled to deference, is that nothing in the operation of this single liquefaction train

[01:09:35] Speaker 03:
in Maryland is going to have a foreseeable effect on upstream or downstream consumption.

[01:09:40] Speaker 03:
It just can't be foreseen.

[01:09:42] Speaker 03:
Now, what you heard today is something actually a little bit different that I have never heard before.

[01:09:47] Speaker 03:
And I attempted to look back in my brief while others were talking.

[01:09:52] Speaker 03:
What you heard today was the concept of segmentation.

[01:09:54] Speaker 03:
That is not something that Earth Reports ever argued.

[01:09:57] Speaker 03:
And with respect to segmentation, this is no more segmentation than it was segmentation for the Motor Carrier Safety Administration to approve safety of trucks and for the President to approve whether the trucks got to drive across the border.

[01:10:11] Speaker 03:
That's not segmentation either, and neither is this.

[01:10:15] Speaker 03:
FERC found in this case insufficient causation and insufficient foreseeability.

[01:10:20] Speaker 03:
It based it on its assessment of what was available to it at the time.

[01:10:25] Speaker 03:
What DOE now has done, just to sharpen the point that Ms.

[01:10:28] Speaker 03:
Larson also made,

[01:10:30] Speaker 03:
is that it took FERC's findings of no causation and no foreseeability.

[01:10:34] Speaker 03:
It agreed with them.

[01:10:36] Speaker 03:
It need not have, but it did.

[01:10:37] Speaker 03:
But what it also did is to say, look, I know that this issue is of policy concern.

[01:10:43] Speaker 03:
This isn't the place for it in a NEPA analysis.

[01:10:46] Speaker 03:
But as to that policy concern, we're going to look at the environmental addendum

[01:10:50] Speaker 03:
and the greenhouse gas report, we're going to see what they say.

[01:10:53] Speaker 03:
To the extent that they give something useful with respect to the public interest question that is DOE's charge, we'll take a look at it.

[01:11:00] Speaker 03:
And that addendum and the report are included in DOE's papers.

[01:11:04] Speaker 03:
That doesn't mean that FERC's analysis was faulty.

[01:11:08] Speaker 03:
FERC confined itself to the NEPA question that was in front of it, which is, what environmental effects are this facility going to cause?

[01:11:16] Speaker 03:
and it found no causation and no foreseeability.

[01:11:19] Speaker 03:
I submit those were entitled to deference.

[01:11:21] Speaker 03:
If there are no questions on that, I will leave it there.

[01:11:24] Speaker 03:
Thank you.

[01:11:24] Speaker 03:
Thank you.

[01:11:26] Speaker 09:
All right, Council, Brandemeanor API.

[01:11:37] Speaker 00:
Good morning.

[01:11:38] Speaker 00:
Ben Norris for the American Petroleum Institute.

[01:11:40] Speaker 00:
I'd like to pick up on Ms.

[01:11:42] Speaker 00:
Stetson's last point regarding causation and simply underscore not only is there sort of a lack of foreseeability in terms of where upstream impacts might be seen to be caused by a single liquefaction train in Maryland, but as we briefed for the Court, the arrow of causation that petitioners attempt to point you to is exactly in the other direction, that not only is this

[01:12:04] Speaker 00:
a phenomenon in the natural gas markets in the Marcellus Shale in Pennsylvania, Ohio, and West Virginia, but is indeed a nationwide phenomenon that predates the authorization of the construction of this facility by about a decade.

[01:12:16] Speaker 00:
And the fact that this gas is being produced really all over the United States and will feed the liquefaction tray at the Cove Point facility is borne out in the EA prepared by the FERC in which they say that natural gas will come from anywhere.

[01:12:31] Speaker 00:
And presumably they're thinking specifically about the three

[01:12:34] Speaker 00:
interconnected major natural gas pipelines that go into the facility.

[01:12:38] Speaker 00:
I'd like to also just briefly touch on some of the arguments raised with respect to the Constitution pipeline proceeding, some of the environmental impacts you heard about regarding water withdrawals, well construction, and truck traffic.

[01:12:50] Speaker 00:
Understand, as we also talk about in our brief, that these impacts are already regulated not just at the state level, not just at the interstate level, but at the federal level.

[01:12:59] Speaker 00:
Impacts related to well drilling and construction are regulated, if we're looking just in Susquehanna County, Pennsylvania, by the Pennsylvania Department of Environmental Protection.

[01:13:08] Speaker 00:
Water withdrawals from the Susquehanna River are regulated by the Interstate Susquehanna River Basin Commission, and air emissions from the construction and drilling of these wells are regulated by the United States EPA.

[01:13:18] Speaker 00:
The very last point that I'd like to make on environmental impacts is related to the issue raised by petitioners regarding studies that foresee a 60 to 80% increase in natural gas production.

[01:13:29] Speaker 00:
Understand that I believe the study referred to by petitioners is a 2014 EIA study, which examined an export scenario for LNG of 20 billion cubic feet a day.

[01:13:41] Speaker 00:
We are talking about a fraction of that amount in the context of the Cove Point facility.

[01:13:47] Speaker 00:
And I think it's also worth pointing out that even if the Department of Energy prepares a study like this outside of the NEPA process, that says nothing about the foreseeability of either upstream or downstream impact.

[01:13:59] Speaker 09:
Thank you.

[01:14:00] Speaker 00:
Thank you.

[01:14:01] Speaker 09:
All right, Council for Petitioner.

[01:14:09] Speaker 09:
Petitioner Earth reports.

[01:14:19] Speaker 08:
Thank you, Your Honor.

[01:14:20] Speaker 08:
I'd like to begin with a point I think we agree with the respondents.

[01:14:25] Speaker 08:
We agree that the question in this case is, what effect will this project cause?

[01:14:31] Speaker 08:
They are arguing that there's no causality, because even though this project is going to export 1 billion cubic feet per day, it's going to have absolutely no effect whatsoever on supply.

[01:14:44] Speaker 08:
The whole purpose of this project is to liquefy gas for export.

[01:14:48] Speaker 08:
There isn't a shred of evidence in the record, and it is FERC's burden to provide a convincing case for its FONSI.

[01:14:55] Speaker 08:
that the effects of this project will be exactly the same regardless of whether it goes into place.

[01:15:04] Speaker 08:
Indeed, Ford cannot say that there is a need for the project that will not be satisfied by the no-action alternative, and then turn around and say that the facility will make no difference.

[01:15:13] Speaker 08:
This is a 20-year facility.

[01:15:16] Speaker 08:
It is true.

[01:15:16] Speaker 08:
There is a glut of gas in the Marsalis Shale, and there may be a few years' worth of gas backed up that could be sent to Cove Point.

[01:15:24] Speaker 08:
We are not arguing.

[01:15:25] Speaker 08:
that every drop of gas is induced by this project.

[01:15:29] Speaker 08:
But all of the evidence in the record suggests that approximately 60 percent of it will be induced by this project, and moreover, that it is predictable where it's going to be and what the impacts will be.

[01:15:42] Speaker 08:
The FERC and Constitution pipeline case in which we cited, and we have the pages from the addendum, was able to

[01:15:53] Speaker 08:
predict what impacts would be based on the volume of gas.

[01:15:58] Speaker 08:
They looked only at the land use, but you can predict a wide array of impacts beyond the land use as long as you know how much gas is going to be used.

[01:16:06] Speaker 08:
We know how much gas will be used.

[01:16:08] Speaker 08:
Moreover, FERC itself, in the Jordan Cove case, did a downstream combustion analysis.

[01:16:14] Speaker 08:
Now, if it can do it in the Constitution Pipeline case, it can do it here.

[01:16:17] Speaker 08:
If it can do it in the Jordan Cove case,

[01:16:19] Speaker 08:
It can do it here and it must do it here underneath because this facility is the crucial link between the upstream development that will be induced by the project and the downstream shipping and combustion that will not occur unless this project go forward.

[01:16:35] Speaker 08:
Finally, as to public citizen, public citizen does not really apply in this case because public citizen held

[01:16:41] Speaker 08:
that an action could not be considered a legally relevant cause if the agency could not prevent the effects.

[01:16:50] Speaker 08:
FERC can prevent the effects.

[01:16:52] Speaker 08:
FERC can deny this project.

[01:16:54] Speaker 08:
FERC has denied LNG terminal projects in the past.

[01:16:58] Speaker 08:
If it denies the project, all the upstream impacts, all the downstream impacts will not happen.

[01:17:04] Speaker 08:
nor will the direct impacts.

[01:17:05] Speaker 08:
And I want, again, to focus the Court's attention one more time on the direct impacts.

[01:17:11] Speaker 08:
The direct greenhouse gas impacts of this project are the equivalent of the fourth largest industrial facility in Maryland.

[01:17:20] Speaker 08:
There is nothing in the record that explains why that is not a significant impact.

[01:17:26] Speaker 08:
And it is FERC's burden to review that.

[01:17:28] Speaker 08:
It is FERC's burden to explain why there is no significant impact in this case in context.

[01:17:35] Speaker 08:
That's what NEPA requires.

[01:17:36] Speaker 08:
Significance determination requires consideration of context.

[01:17:40] Speaker 08:
And in the Maryland context, this is enormous.

[01:17:43] Speaker 08:
We're not asking the FERC here to do anything

[01:17:48] Speaker 08:
Extraordinary.

[01:17:49] Speaker 08:
This is what EPA has been asking it to do.

[01:17:51] Speaker 08:
This is what CEQ recommends that it does.

[01:17:54] Speaker 08:
This is what other agencies are doing.

[01:17:56] Speaker 08:
There are state agencies even that are doing full life cycle greenhouse gas impact analysis.

[01:18:03] Speaker 08:
FERC can do it if it will use the tools that are available to it, and it will pay attention to the facts that are presented before it.

[01:18:11] Speaker 08:
It can't simply throw up its hands and say, it's just too hard for us.

[01:18:16] Speaker 08:
We just can't figure it out.

[01:18:19] Speaker 08:
The modeling tools are out there.

[01:18:22] Speaker 08:
We have spoon-fed them the resources that will show exactly where these wells are going to be drilled.

[01:18:29] Speaker 08:
We have a map of where the Cabot wells are going to be drilled.

[01:18:33] Speaker 08:
FERC cannot turn a blind eye to the evidence before it and refuse to acknowledge it.

[01:18:37] Speaker 08:
If it had any doubts about it, it is FERC's obligation to clarify that under the CEQ records.

[01:18:44] Speaker 08:
It cannot simply claim that it doesn't have information.

[01:18:48] Speaker 08:
It must, unless it is exorbitantly expensive, collect the information.

[01:18:53] Speaker 08:
And what's more, that is what an EIS is for.

[01:18:56] Speaker 08:
If there are concerns about lacking information that it can find in a reasonable way, which it plainly can since it's done it before in the Constitution in Jordan Cove, then it must go out and get that information.

[01:19:07] Speaker 08:
It has absolutely refused to do anything of the sort.

[01:19:10] Speaker 08:
It has sit back on its heels and told us,

[01:19:14] Speaker 08:
that it's just completely impossible to predict.

[01:19:18] Speaker 08:
So in conclusion, Your Honor, we would ask this Court to vacate the decision of the agency and to remand this proceeding

[01:19:31] Speaker 08:
to the commission for preparation of an environmental impact statement that examines the full direct and indirect impacts of the project, including the impacts on the people who have to live through intensive shale gas development.

[01:19:45] Speaker 08:
And this is extremely intensive new development.

[01:19:48] Speaker 08:
We're talking about 3,000 wells.

[01:19:50] Speaker 08:
3,000 wells in Susquehanna County is more than three times the number of wells that were developed between 2009 and 2014.

[01:20:00] Speaker 08:
That is, and all of that gas has to be ready on day one to ship.

[01:20:06] Speaker 08:
And certainly, the information about that would be important to consider in any balancing of the benefits and costs in this case.

[01:20:17] Speaker 08:
All right.

[01:20:17] Speaker 09:
I think we have your argument.

[01:20:24] Speaker 09:
Council for Petitioner BP Energy.

[01:20:27] Speaker 04:
Thank you, Your Honor.

[01:20:28] Speaker 04:
I'd like to first address FARC's contention that they interpreted the phrase terms or conditions of service at the facility to exclude turn back provisions in the orders below.

[01:20:40] Speaker 04:
And Your Honor, it is simply not set forth in the order.

[01:20:44] Speaker 04:
They point to section 46 of the initial order

[01:20:51] Speaker 04:
in the statement that the turn back does not change the terms and conditions of service for BP.

[01:20:57] Speaker 04:
That is simply a way of saying that there is no degradation of service.

[01:21:01] Speaker 04:
It doesn't change the terms or conditions of service for BP.

[01:21:04] Speaker 01:
What about 14 of the rehearing order?

[01:21:06] Speaker 01:
That seems to be...

[01:21:08] Speaker 01:
The best.

[01:21:10] Speaker 04:
14 of the re-hearing order, Your Honor, they state that there will be no discrimination in the critical tariff areas, such as nominations and scheduling, as well as... Well, it's a sentence before that.

[01:21:26] Speaker 01:
Indeed, as BP acknowledges, the terminal service that it receives from Dominion is fundamentally the same as that provided the stat oil.

[01:21:32] Speaker 01:
Stat oil receives

[01:21:36] Speaker 01:
no preference in nominating, scheduling, or the quality of the terminal service provided.

[01:21:41] Speaker 04:
Yes, Your Honor, but there is.

[01:21:42] Speaker 01:
So if you kind of put that up against the light, you can see them saying, I think, this is the argument, I'm not sure I agree with this, but they say you can see them saying the statute doesn't cover things outside the bounds of discrimination in nominating, scheduling, or the quality of the terminal service provided.

[01:22:05] Speaker 04:
Well, that is the argument they have made in this appeal, Your Honor, but that is certainly a great deal to try and unravel from that sentence, which simply says that BP has fundamentally the same terminal service from StatOil, and it offers no explanation as to why it would not also, likewise, be undue discrimination for StatOil to receive a preferential turn back.

[01:22:31] Speaker 04:
And now they say it's because it's simply not within the meaning of the statute at all.

[01:22:36] Speaker 04:
But that sentence doesn't say anything about the meaning of the statute, much less purport to offer a definition of the phrase terms or conditions of service.

[01:22:47] Speaker 09:
And if you look a couple pages back, Your Honor, at... But you agree, would you not, that the Commission is responding to the petition for rehearing?

[01:22:59] Speaker 09:
Yes, Your Honor.

[01:23:00] Speaker 09:
All right, so it's addressing its interpretation.

[01:23:07] Speaker 04:
Well, Your Honor.

[01:23:08] Speaker 04:
It's stating, it's a response to the argument that a holding that Statoil and BP are not similarly situated would render the provision effectively meaningless.

[01:23:22] Speaker 04:
And they say, well, it wouldn't render the provision meaningless because you still have the protections that are contained in section 30 of the tariff.

[01:23:30] Speaker 04:
which provides you certain protections, such as in nominating and scheduling.

[01:23:36] Speaker 04:
But there isn't an explanation there for... And operating conditions.

[01:23:39] Speaker 01:
That's the nomination, scheduling, and operating conditions.

[01:23:42] Speaker 01:
And operating conditions.

[01:23:43] Speaker 01:
So they pointed to that, too, to turn to that sentence as being a further indication that they're drawing a line in the statute.

[01:23:51] Speaker 01:
And again, this phrase is important to me, I think, as all of those terms are defined by the commission.

[01:23:58] Speaker 01:
And again, this is not as clear as it could be.

[01:24:00] Speaker 01:
I agree with that.

[01:24:01] Speaker 01:
But they do seem to be suggesting nominations, scheduling, and operating conditions are terms covered and everything else is not.

[01:24:12] Speaker 04:
Well, Your Honor, I think that sentence actually is inconsistent with the interpretation that they've advanced here, that terms and conditions of service simply refers to operational terms and conditions, because it states that what's required to be protected is terms and conditions of service in critical tariff areas, and then they give three examples, such as, and one of those

[01:24:39] Speaker 04:
is operating conditions.

[01:24:40] Speaker 04:
So that sentence clearly is referring to terms and conditions of service protected as being something broader than simply operating conditions.

[01:24:50] Speaker 04:
And if you look on page 838 of the rehearing order, that is where FERC actually explains what it believes it held

[01:25:01] Speaker 04:
in its initial order, and that's at the bottom of paragraph 10, and they state, the September 29th order found that BP and Statoil were not similarly situated for the purposes of relinquishing terminal service because Statoil was an expansion customer

[01:25:19] Speaker 04:
receiving non-open access service under Section 3, while BP was an LTD-1 shipper receiving open access terminal service under Section 7.

[01:25:29] Speaker 04:
All right.

[01:25:29] Speaker 04:
So go to the next paragraph.

[01:25:31] Speaker 09:
No, I'm serious about this.

[01:25:32] Speaker 09:
Yes, Your Honor.

[01:25:33] Speaker 09:
It says, on rehearing, BP renews its arguments, contending that the two are similarly situated customers, because, and FERC responds,

[01:25:48] Speaker 09:
in there and the next couple of paragraphs I mean you may not agree with it but isn't that what

[01:25:56] Speaker 09:
the agency is doing here.

[01:25:58] Speaker 04:
They are responding, yes, runner.

[01:25:59] Speaker 04:
And again, they respond that they reaffirm their holding.

[01:26:04] Speaker 04:
This is at the bottom of paragraph 13 on JA 839, that section three and section seven terminal services are distinguishable, and the conclusion that BP and stat oil are not similarly situated.

[01:26:16] Speaker 09:
And then it goes on in 14 to talk about the terminal service is fundamentally the same.

[01:26:25] Speaker 04:
Yes, Your Honor, it does state that, but what is missing from there is the interpretation of the statute that they now seem to make.

[01:26:32] Speaker 01:
But isn't that reasonably, I'm sorry, Your Honor, isn't that reasonably discernible, the path reasonably discernible there that they wouldn't be talking about those things unless that were

[01:26:44] Speaker 01:
the premise of their discussion there, namely that the statute allows discrimination in things outside the fields of nominating, scheduling, quality of terminal service, operating conditions.

[01:26:59] Speaker 04:
Well, Your Honor, I think you can fairly discern... Because otherwise this discussion doesn't make sense, right?

[01:27:04] Speaker 01:
Well, you can fairly discern that they thought it had some relevance to the question at hand, but what it is... But am I right that this discussion doesn't make sense unless their premise was that the statute is going to be interpreted not to apply outside the bounds of nominating, scheduling,

[01:27:23] Speaker 04:
Well, no, Your Honor.

[01:27:24] Speaker 04:
It could be relevant in any different number of ways, none of which are explained.

[01:27:29] Speaker 04:
And as Your Honor addressed earlier, in fact, there's no explanation for why they would have that lengthy

[01:27:38] Speaker 04:
discussion of whether stat oil and BP are similarly situated and in fact they were holding that turn back was not a term or condition of service at all.

[01:27:46] Speaker 01:
You mean paragraph 13 would be entirely unnecessary?

[01:27:49] Speaker 04:
Yes, it would be entirely superfluous and they could be saying for instance in paragraph 14 that there is discrimination but no discrimination would be undue because

[01:28:00] Speaker 04:
the turn back services simply aren't as important as nominating, scheduling, and operating conditions.

[01:28:06] Speaker 09:
So, do you agree that in paragraph 11, JA 838, the commission accurately summarizes the arguments that VP presented in seeking re-hearing?

[01:28:20] Speaker 04:
I believe so, yes, Your Honor.

[01:28:22] Speaker 09:
And my only comment is, what argument hasn't the agency responded to?

[01:28:29] Speaker 09:
I understand they could have written it differently.

[01:28:32] Speaker 09:
But what argument didn't they respond to?

[01:28:36] Speaker 04:
Well, it's not so much, Your Honor, that they didn't respond to BP's.

[01:28:40] Speaker 09:
But it is, isn't it?

[01:28:41] Speaker 09:
Because it's your client's burden on rehearing to tell FERC why it's wrong in its previous order.

[01:28:50] Speaker 09:
And then FERC's responsibility is to give us the answers to your objections.

[01:28:56] Speaker 04:
Yes, Your Honor, and our argument on rehearing was essentially you can't rely simply on the fact that BP is an open access customer while StatOil is not because the statute is clearly intended to prohibit discrimination against open access customers in favor of non-open access customers.

[01:29:14] Speaker 04:
So they respond to that argument in the rehearing order.

[01:29:18] Speaker 09:
Your Honor, but the response is contrary to the statute, and it's... So, could your argument succeed even if, so far as FERC has identified a meaning for undue discrimination, that may be an interpretation to which the court should defer, but it doesn't necessarily mean

[01:29:48] Speaker 09:
that it has exhausted the meanings of the statutory phrase, ignoring for the moment the tale that we discussed earlier.

[01:30:00] Speaker 04:
Well, Your Honor, the only interpretation that is offered in the orders below is the interpretation that stat oil and BP are not similarly situated

[01:30:13] Speaker 04:
due to the difference in the regulatory regimes.

[01:30:16] Speaker 04:
And that is not an interpretation that this court can defer to because it is clear from the statutory text itself that the statute is intended to prohibit discrimination.

[01:30:32] Speaker 01:
exercising our authority to define the terms covered, we conclude that the only terms covered are nominating, scheduling, quality of terminal service, and operating conditions.

[01:30:45] Speaker 01:
Let's just suppose they said that, okay?

[01:30:49] Speaker 01:
They would be wrong as a matter of law because

[01:30:53] Speaker 04:
They would be wrong as a matter of law, first of all, because the statute doesn't draw that distinction.

[01:31:00] Speaker 04:
It refers generally to terms and conditions of service at the facility and terms.

[01:31:06] Speaker 01:
As all of those terms are defined by the commission.

[01:31:09] Speaker 01:
So they say we hereby define

[01:31:12] Speaker 01:
those terms to mean the four things I just read.

[01:31:18] Speaker 04:
Yes, if they had done that, that would be a very different matter for us.

[01:31:24] Speaker 04:
However, we still think in light of

[01:31:27] Speaker 04:
the statute's use of the broad phrase and in light of the broad purpose to prevent abuses of market power from harming existing open access customers, to draw such a narrow definition may still be unreasonable, particularly if done without any explanation.

[01:31:45] Speaker 01:
Well, on your broad purpose, I just don't know how we could

[01:31:49] Speaker 01:
take that out and put that into this provision seems to be the best way to figure out this provision is just stick with the terms of it rather than trying to superimpose the broader purpose on it because this provision quite clearly is a double compromise.

[01:32:04] Speaker 04:
Well, Your Honor, to be clear, we don't believe the court should address this interpretation at all under the Channery rule, because it's not the basis for the order below.

[01:32:14] Speaker 04:
And therefore, the agency can't raise it.

[01:32:18] Speaker 01:
That's a good argument.

[01:32:20] Speaker 01:
I mean, if they're going to do something that's important, they shouldn't do it by a bank shot.

[01:32:24] Speaker 01:
That's a fair argument.

[01:32:25] Speaker 04:
Yes, Your Honor.

[01:32:27] Speaker 04:
All right.

[01:32:27] Speaker 09:
No further questions.

[01:32:29] Speaker 09:
We'll take the case under advisement.