United States: FERC Holds That Removing Distinct Petroleum Products From Transportation Service Does Not Violate ICA

On May 19, 2016, FERC denied the request for limited rehearing of numerous shippers ("Complainants") of FERC's October 17, 2013 order granting in part Complainants' complaints and establishing a hearing on damages ("Complaint Order") against Enterprise TE Products Pipeline Company LLC ("Enterprise TE") relating to Enterprise TE's decision to abandon transportation service for distillate and jet fuel. FERC held that although Enterprise TE's decision to discontinue transportation service for distillate and jet fuel violated a settlement agreement executed by Enterprise TE and Complainants, among others, which required Enterprise TE not to change its rates for two years, FERC does not have authority under the Interstate Commerce Act ("ICA") to require a pipeline to provide a service that the pipeline proposes to abandon completely.

On May 31, 2013, FERC approved a settlement agreement between Enterprise TE and numerous shippers in which Enterprise TE agreed not to change its agreed-upon rates for transporting petroleum products for a period of two years. On the same date, FERC accepted Enterprise TE's tariff filing that stated that the pipeline would no longer accept nominations for interstate transportation of distillate and jet fuel. In addressing arguments from protesters that the tariff filing violated the settlement agreement, FERC stated that while the abandonment of transportation service of distillate and jet fuel was beyond FERC's jurisdiction, any violation of a FERC-approved settlement agreement was within FERC's authority to remedy in a complaint proceeding. On June 14, 2013, Complainants filed a complaint alleging that Enterprise TE's abandonment of transportation service for distillate and jet fuel violated the provision of the settlement agreement committing Enterprise TE not to change rates for two years. On October 17, 2013, FERC issued the Complaint Order, holding that, although Enterprise TE had violated the settlement agreement and FERC would establish a damages hearing to calculate the appropriate monetary remedy for the breach, FERC lacked the statutory authority to prevent Enterprise TE from discontinuing service. Specifically, FERC held that Enterprise TE's discontinuation of transportation service for jet fuel and distillate constituted an abandonment of a distinct service, and that FERC does not have the authority under the ICA to require a pipeline to provide a service that the pipeline proposes to abandon completely.

On November 18, 2013, Complainants requested limited rehearing of the Commission's rulings in the Complaint Order. Complainants argued that FERC has the authority to determine whether the discontinuation of certain services violates the ICA. Specifically, Complainants identified three provisions of the ICA that they argued provide FERC with the authority to prevent Enterprise TE from abandoning transportation service for jet fuel and distillate. First, Complainants argued that ICA section 1(4) requires transportation be provided upon reasonable request. Second, Complainants argued that Enterprise TE's discontinuation of service is actually a change in classification, which must be just and reasonable pursuant to section 1(6) of the ICA, and that FERC may review the change in classification for compliance with this standard. Third, Complainants argued that FERC has the statutory authority to determine whether Enterprise TE's discontinuation of transportation service of distillate and jet fuel, while continuing to offer transportation service for other petroleum products, violates the anti-discrimination provisions of section 3(1) of the ICA. Additionally, Complainants stated that FERC erred in limiting the remedies to monetary damages because, according to Complainants, FERC has the statutory authority to craft an equitable remedy in response to Enterprise TE's violation of the settlement agreement and to require specific performance of the settlement agreement.

In its order, FERC rejected Complainants' argument that Enterprise TE's removal of distillate and jet fuel from the products it will transport is a "classification" or "practice." Rather, FERC found that Enterprise TE's decision to discontinue such service is a complete abandonment of a distinct service and therefore beyond FERC's jurisdiction. In addition, FERC held that Complainants' request for service for distillate and jet fuel on Enterprise TE is not a "reasonable" request under section 1(4) of the ICA because Enterprise TE is only required to provide services that it holds itself out as offering, and that once Enterprise TE abandoned service, it no longer held itself out as offering those distinct services. Furthermore, FERC held that Enterprise TE's refusal to transport distillate and jet fuel does not constitute discrimination because it is refusing to transport those products for all potential shippers. Finally, FERC held that Enterprise TE's breach of the settlement agreement did not require FERC to make the equitable remedy of specific performance available. FERC explained that specific performance is only appropriate where a remedy at law is not adequate, and in this case monetary damages were an adequate remedy. Thus, FERC denied Complainants' request for rehearing.

A copy of the order is available here.

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