Opinion ID: 541767
Heading Depth: 2
Heading Rank: 2

Heading: Retroactive Abandonment Authorization

Text: 32 Vitco argues that even if FERC had jurisdiction to modify its May 5, 1987 order in its July 11, 1988 order, the decision authorizing Transco's abandonment of service retroactive to December 12, 1983 was arbitrary, capricious, and unsupported by substantial evidence. 33 Section 16 of the NGA authorizes FERC to perform all acts and to issue, amend, and rescind all orders it finds necessary or appropriate to carry out the provisions of the NGA. 15 U.S.C. Sec. 717o. Because section 16 gives FERC the authority to consider equitable principles in fashioning remedies, the Commission's broad discretionary authority under section 16 extends in appropriate equitable circumstances to the granting of retroactive abandonment authorizations so as to carry out the provisions of the NGA. Northern Natural Gas Co. v. FERC, 785 F.2d 338, 341 (D.C.Cir.1986). Moreover, section 7(b) of the NGA, requiring Commission authorization for abandonment of jurisdictional service, does not prohibit retroactive abandonment authorizations. See id. at 342. Although section 7(b)'s language does not affirmatively grant authority for retroactive abandonment authorizations, it does not prohibit retroactive action under other provisions such as section 16. Thus, FERC may issue retroactive abandonment authorizations at its discretion, and courts review such orders for abuse of discretion. Id. However, the Commission must clearly express its reasons so that a reviewing court can determine that the action was not arbitrary. Id. 34 Vitco contends that Northern Natural is not applicable to this case because in Northern Natural the parties all agreed that abandonment should be made retroactive. The D.C. Circuit, however, did not restrict its holding in Northern Natural to cases in which all parties support retroactive abandonment. Agreement as to retroactivity was merely one of the particular circumstances in that case that could have justified a discretionary grant of retroactivity. Northern Natural, 785 F.2d at 343. We do not think the statutory discretion given to FERC is limited to cases in which all parties support retroactive abandonment. 35 In its July 11, 1988 order, FERC based its decision to make the abandonment retroactive on two grounds: (1) that it previously had not granted Transco retroactive abandonment because it had erroneously understood that such action was unnecessary under the Vitco-Transco settlement, and (2) that there was no basis on equitable grounds to treat Transco differently from the Mississippi River Transmission Corporation (MRT), to which FERC granted retroactive abandonment in the May 5, 1987 order. The Commission elaborated upon this second reason in its November 17, 1988 order denying rehearing: 36 Transco filed a timely request [for] abandonment authorization, indicating that it no longer desired to receive gas. Clearly, it would be inequitable to force Transco to pay demand charges to Vitco for gas which it did not want or take under the circumstances of this case. 37 45 FERC p 61,238 at 61,705. Vitco argues that neither of these reasons justifies FERC's decision. 38 Vitco notes that there is no indication in the May 5, 1987 order that FERC issued the order based on a misunderstanding of the settlement terms. Indeed, the few comments in that order concerning the settlement approved by FERC on August 2, 1985 are correct: 39 [T]he same order that dismissed Transco's application also approved a limited-term settlement which has allowed Vitco, and the producers selling gas to Vitco for resale to Transco, to abandon temporarily their sales to Transco and make new interruptible sales to other pipelines. 40 39 FERC p 61,113 at 61,430. But the settlement approved in August 1985 did not involve Transco; it was a settlement between Vitco and its principal producers. The November 1984 letter agreement between Transco and Vitco was never approved by the Commission. 4 Additionally, in the February 5, 1988 order denying rehearing, FERC said the May 5, 1987 order does not in any way constitute a prejudgment regarding the pipelines' liability to the former sellers for costs incurred by them in reliance on the certificates. 42 FERC p 61,171 at 61,611. 41 But since FERC also distinguished between the situations of Transco and MRT on the ground that the settlement in the Transco case appeared to preclude the kinds of damages that MRT incurred by not making alternative arrangements, it is evident that FERC was confused about how the settlement it approved in August 1985 affected Transco. FERC erroneously believed that the settlement it approved in August 1985 would afford adequate relief to Transco; by contrast, in the MRT case FERC found that retroactive abandonment was needed to afford adequate relief to MRT, which had made no alternative arrangements while awaiting action on its application. FERC later recognized this confusion when Transco informed it that Vitco had brought a separate lawsuit demanding large minimum bill charges for gas that Transco did not take after the contract had terminated. FERC tried to redress the effects of its confusion by issuing the July 11 order. 42 On appeal, the Commission provides additional explanations of the equitable grounds for its decision: 43 First, Transco was not responsible for the delay in the resolution of the abandonment proceeding, which resulted instead from FERC's initial conclusion on August 2, 1985, that Transco did not have to seek abandonment authorization. This court reversed and remanded because that legal conclusion was erroneous. In Northern Natural, one of the principal circumstances mentioned in support of retroactive abandonment was that delay was not the fault of the party seeking abandonment. Northern Natural, 785 F.2d at 343. 44 Second, Transco's failure to request retroactive abandonment in its initial January 1984 application was understandable because at that time FERC had taken the position that section 7(b) of the NGA did not allow retroactive abandonment. See Midwestern Gas Transmission Co., 23 FERC p 61,180 (1983). Only in 1986 did an appellate court hold that FERC had the authority in appropriate circumstances to grant retroactive abandonment authorizations. Northern Natural, 785 F.2d at 341. 45 Third, Vitco contributed to the Commission's misunderstanding of the settlement by representing that the November 1984 letter agreement partially resolved the minimum bill problem. In its May 17, 1985 pleading, Vitco said the Transco-Vitco interim settlement agreement provided that Transco would have no further liability to Vitco for sales prior to January 1, 1985. Consequently, Transco would no longer be liable for take-or-pay claims made by Vitco's producers or for Vitco's minimum bill. 46 We think the Commission sufficiently addresses Vitco's arguments against retroactive abandonment in this case. To Vitco's argument that Transco's situation was different from MRT's because Transco filed its application for abandonment authorization after the contract had expired, the Commission responds that it has granted retroactive abandonment on other occasions even when the application for authorization was filed after contracts had expired. E.g., Transcontinental Gas Pipe Line Corp., 45 FERC p 61,178 (1988) (application filed February 24, 1988; abandonment granted retroactive to December 31, 1984); Transcontinental Gas Pipe Line Corp., 37 FERC p 61,111 (1986) (application filed March 28, 1986; abandonment granted retroactive to January 1, 1986). The date of the application is just one of various equitable considerations impinging on retroactive abandonment. 47 Vitco also claims that the delay caused by FERC's misinterpretation of the law requiring abandonment authorization hurt all parties, including Vitco. The delay prolonged uncertainty surrounding the long-term availability of the gas dedicated to Transco; the settlement allowed Vitco to make other arrangements only in the short term. Retroactive abandonment relieved Transco of potential charges by Vitco for Transco's refusal to take any more gas, but did nothing to relieve Vitco's burdens caused by the delay. Vitco says its demand charges were specifically designed to compensate Vitco for being ready, willing, and able to meet Transco's demands, regardless of actual takes, and complains that retroactive abandonment takes that compensation away from Vitco. Although this is an important consideration, we think FERC acted within its discretion in finding that other factors carried more weight. 48 We think the Commission did not abuse its discretion in granting retroactive abandonment to Transco. The primary factor weighing in favor of retroactivity is that FERC would have granted Transco retroactive abandonment in the May 5, 1987 order if it had not believed that the settlement it approved in August 1985 solved all disputes between Transco and Vitco regarding Transco's obligations to take certain amounts of gas. But for this misconception, FERC would have granted retroactive abandonment in the May 5, 1987 order, as it granted to MRT. This reasoning is adequately set forth in the July 11, 1988 and November 17, 1988 orders. 49 Based on the foregoing, the orders of the Commission challenged by Vitco are AFFIRMED.