Transco Gas Pipel v. FERC

485 F.3d 1172
CourtCourt of Appeals for the D.C. Circuit
DecidedMay 11, 2007
Docket04-1234
StatusPublished

This text of 485 F.3d 1172 (Transco Gas Pipel v. FERC) is published on Counsel Stack Legal Research, covering Court of Appeals for the D.C. Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Transco Gas Pipel v. FERC, 485 F.3d 1172 (D.C. Cir. 2007).

Opinion

485 F.3d 1172

TRANSCONTINENTAL GAS PIPE LINE CORPORATION, Petitioner
v.
FEDERAL ENERGY REGULATORY COMMISSION, Respondent
Sunoco, Inc. (R&M), et al., Intervenors.

No. 04-1234.

No. 06-1143.

United States Court of Appeals, District of Columbia Circuit.

Argued January 23, 2007.

Decided May 11, 2007.

On Petitions for Review of Orders of the Federal Energy Regulatory Commission.

Gregory Grady argued the cause for petitioner. With him on the briefs were Michael Thompson and David A. Glenn.

Lona T. Perry, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With her on the brief were John S. Moot, General Counsel, and Robert H. Solomon, Solicitor.

Richard G. Morgan was on the brief for intervenor Sunoco, Inc. (R&M).

Before: GRIFFITH and KAVANAUGH, Circuit Judges, and EDWARDS, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge KAVANAUGH.

KAVANAUGH, Circuit Judge.

Transco owns a natural gas pipeline; Sunoco ships gas on Transco's pipeline. In 1992, to settle a lawsuit by Sunoco against Transco, Transco agreed to provide natural gas gathering and transportation services to Sunoco for 20 years. In 2000, Transco decided to sell facilities used to provide the gathering services covered in that agreement to a Transco affiliate, Williams Gas Processing. The Federal Energy Regulatory Commission approved the transfer to Williams, but also ruled that Transco breached its 1992 agreement with Sunoco. As a remedy, FERC ordered Transco to reimburse Sunoco for the extra amount that Sunoco has to pay to obtain gathering services from Williams.

Transco's principal contention is that FERC lacked jurisdiction to impose this remedy because the gathering services become non-jurisdictional once transferred to Williams. We disagree. At the time of the contract, FERC had authority to regulate the gathering services. FERC therefore had authority to order Transco to pay compensation for terminating those services in violation of the contract. Transco's remaining challenges also lack merit, and we therefore deny Transco's petitions for review.

* In 1991, Transco (formally known as Transcontinental Gas Pipe Line Corporation) divided its natural gas transportation services from its natural gas sales services. That "unbundling" enabled customers to purchase either gas or transportation from Transco, rather than requiring customers to buy both the gas and the transportation from Transco. See Exxon Mobil Corp. v. FERC, 430 F.3d 1166, 1169 (D.C.Cir.2005). Transco unbundled its transportation and sales services in preparation for FERC's issuance of Order 636. Issued in 1992, Order 636 promoted competition within the natural gas industry in two ways. It required pipelines to unbundle transportation services from sales services. And it permitted customers to access new sources of gas by abrogating their prior commitments to purchase gas from particular pipeline companies. See United Distribution Cos. v. FERC, 88 F.3d 1105, 1126 (D.C.Cir.1996).

As a consequence of Transco's unbundling, one of its customers, Sunoco, stopped purchasing natural gas from Transco (instead, Sunoco would purchase only the transportation services from Transco). The decision by Sunoco (and other Transco customers) to abrogate their agreements to purchase gas from Transco in turn caused Transco to incur liability to the producers from whom Transco had agreed to purchase natural gas. See id. at 1176-77. Under Transco's arrangement with its natural gas producers — a fairly typical arrangement for a natural gas pipeline — Transco had already agreed to "take or pay" for natural gas from those producers to satisfy the demands of Transco's customers. Therefore, after unbundling, Transco owed significant money to its natural gas producers — an amount for which Transco no longer received reimbursement from Sunoco and other customers. See id. Like other pipelines, Transco reached settlements with most of its former natural gas customers and divided the "take or pay" liability between Transco and those customers.

Unlike Transco's other customers, Sunoco objected to Transco's proposed recovery of "take or pay" costs from Sunoco, and five years of litigation ensued. Transco and Sunoco resolved that conflict on February 14, 1992, in a Settlement and Firm Transportation Service Agreement.

In the 1992 settlement, Sunoco agreed to terminate the litigation against Transco. In exchange, Transco agreed to provide Sunoco with 20 years of transportation service from numerous specified points along the Outer Continental Shelf to the Sunoco refinery in Pennsylvania. Transco agreed to provide the entirety of that service (including gathering and transportation) at a single rate — Transco's maximum firm transportation ("FT") rate, which is subject to periodic change by Transco. See J.A. 55 (Stipulation: "Appendix A to the Agreement contains the Form of Service Agreement under Rate Schedule FT to be effective between Transco and Sun at such time as the FERC has approved the Agreement. . . ."); id. at 98 (Art. V, Service Agreement: "Buyer shall pay Seller for natural gas delivered to Buyer hereunder in accordance with Seller's Rate Schedule FT and the applicable provisions of the General Terms and Conditions of Seller's FERC Gas Tariff . . . .").

On June 4, 1992, FERC approved the agreement. On August 1, 1992, the agreement became effective.

From August 1, 1992, to November 20, 2000, Transco provided Sunoco the transportation services as required by the 1992 agreement. Those transportation services included "gathering" in which Transco took natural gas from wellheads in Texas and transported the gas to a collection point for further movement through Transco's principal transmission system. See Williams Gas Processing — Gulf Coast Co. v. FERC, 331 F.3d 1011, 1013 (D.C.Cir.2003)(internal quotation omitted); see Transcon. Gas Pipe Line Corp., 96 FERC ¶ 61,115, at 61,429-30, 61,434-35, order on reh'g, 97 FERC ¶ 61,296 (2001), pets. denied, Williams Gas Processing, 331 F.3d at 1013, cert. denied, sub nom., Producer Coal. v. FERC, 540 U.S. 1141, 124 S.Ct. 1036, 157 L.Ed.2d 952 (2004)("Transco I").

On November 20, 2000, Transco applied to FERC for permission to sell facilities used to provide those gathering services to an affiliated company, Williams Gas Processing — permission that FERC granted. See Transco I, 96 FERC ¶ 61,115, at 61,429.

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