Valero Interstate Transmission Company, Petitioner, v. Federal Energy Regulatory Commission, Respondent, 804 F.2d 1406 (5th Cir. 1986)

This is an appeal from an order of the Federal Energy Regulatory Commission ("FERC") dismissing an application for abandonment of certain jurisdictional services under the Natural Gas Act ("NGA").

Valero Interstate Transmission Co. ("Vitco") is an interstate gas pipeline. Transcontinental Oil Co. ("Transco") purchased gas from Vitco. Vitco also transported gas for Transco that Transco purchased directly from small producers.

Under the NGA, Vitco was required to obtain certificate authority from the FERC to construct gas facilities and initiate sales. 15 U.S.C. § 717f. Vitco obtained the required FERC approval. As a purchaser, Transco was not required to obtain a certificate from FERC. However, Transco had constructed facilities to operate at two delivery points where the Transco and Vitco systems intersected. Transco obtained the required approval for such construction.

In December 1983, Transco, pursuant to the terms of the Vitco contract, terminated its purchases of gas from Vitco. In January 1984, Transco applied to FERC for an order, pursuant to Section 7(b) of the NGA, 15 U.S.C. § 717f(b),¹  granting Transco authority to abandon any jurisdictional service that Transco rendered through its purchases from Vitco.

FERC dismissed Transco's abandonment application because "the cessation of purchases by Transco will not result in abandonment of any facilities or any jurisdictional services rendered thereby."² 

The issue before this court is whether Transco's cessation of purchases from Vitco comes within the meaning of "any service" under Section 7(b) of the NGA. If purchasing gas constitutes a service under that section, then Transco's cessation of such purchases requires prior FERC approval.

Shortly after the court heard oral argument in this case, a panel of the District of Columbia Circuit issued an opinion on the precise question before this court today. In Panhandle Eastern Pipeline Co. v. Federal Energy Regulatory Commission, 803 F.2d 726 (D.C. Cir. 1986) the D.C. Circuit held that Mississippi River Transmission Corporation's ("MRT") cessation of gas purchases from Trunkline Gas Company ("Trunkline") required prior FERC approval. MRT's purchasing of gas amounted to a "service" within the meaning of the NGA. The court reversed a FERC order dismissing an abandonment application.

Panhandle is on all fours with the instant case. Although we are not bound by the conclusions of our sister circuit, we are persuaded that the District of Columbia Circuit reached a proper result.

The Panhandle court found the issue of whether the cessation of purchases required prior FERC approval squarely controlled by United Gas Pipeline v. Federal Power Commission, 385 U.S. 83, 87 S. Ct. 265, 17 L. Ed. 2d 181 (1966). Pursuant to a certificate issued by the Federal Power Commission ("FPC"), United constructed facilities for the purchase of gas from Continental Oil Co. United sought to cease purchasing gas from Continental after Continental obtained a rate increase from the FPC. United argued that its decision to cease purchasing did not require prior approval from the FPC since the NGA gave the Commission authority only over the transportation and sale of gas, not purchases. 15 U.S.C. § 717f(b).

The United Court held that the term "any service" within the meaning of section 7 of the NGA included both the transportation and sale of gas. Nonetheless, United's decision to cease purchasing gas was a "service" within the jurisdiction of the FPC. The Court noted that " [i]t could not be more clear that United has abandoned a 'service', the taking of Johnson Bayou Field gas and its transportation in interstate commerce." United, 385 U.S. at 88-89, 87 S. Ct. at 269. (emphasis supplied).

The Panhandle court found that United controlled the controversy before it. According to the court, "MRT has ceased purchasing and transporting the gas it received from Trunkline. Thus, MRT has abandoned a service within the meaning of section 7(b) because it has ceased 'taking' and 'transporting' the gas it previously purchased from Trunkline...." (803 F.2d at 729). As a result, FERC had jurisdiction pursuant to section 7 of the NGA to hear MRT's abandonment application.³ 

There can be little doubt that the Panhandle rationale applies with equal force in the instant case.⁴  Transco seeks to cease purchasing gas from Vitco. Transco applied to FERC for abandonment authorization. FERC dismissed the application for essentially the same reasons it dismissed the application in Panhandle. Under the unambiguous holding of Panhandle, FERC's dismissal of Transco's application was improper.

For the reasons stated above, we reverse the order dismissing the abandonment application and remand the case to FERC for further proceedings.

REVERSED.