Kentucky West Virginia Gas Co. v. Pennsylvania Public Utility Com'n
| Decision Date | 02 June 1986 |
| Docket Number | No. 85-5779,85-5779 |
| Citation | 791 F.2d 1111 |
| Parties | KENTUCKY WEST VIRGINIA GAS COMPANY, Equitable Gas Company, a division of Equitable Resources, Inc., American Gas Association (Amicus Curiae), v. PENNSYLVANIA PUBLIC UTILITY COMMISSION, Taliaferro, Linda C., Commissioner, Fischl, Frank, Commissioner, Shane, Bill, Commissioner, Federal Energy Regulatory Commission, Attorney General (Intervenor), Barasch, David M., Consumer Advocate (Intervenor), Appeal of KENTUCKY WEST VIRGINIA GAS COMPANY and Equitable Gas Company, a division of Equitable Resources, Inc. |
| Court | U.S. Court of Appeals — Third Circuit |
William A. Mogel (argued), William R. Mapes, Jr., Randall C. Smith, Ross, Marsh & Foster, Washington, D.C., for appellants Kentucky West Virginia Gas Co., et al.; Charles E. Thomas, Jr., Carroll F. Purdy, Thomas & Thomas, Harrisburg, Pa., of counsel.
Alphonso Arnold, Jr. (argued), Asst. Counsel, John F. Povilaitis, Deputy Chief Counsel, Daniel P. Delaney, Deputy Chief Counsel, Charles F. Hoffman, Chief Counsel, Pennsylvania Public Utility Com'n, Harrisburg, Pa., for appellee Pennsylvania Public Utility Com'n, et al.
William H. Satterfield, General Counsel, Jerome M. Feit, Solicitor, Joanne Leveque, Atty., F.E.R.C., Washington, D.C., for appellee F.E.R.C.
Leroy S. Zimmerman, Atty. Gen., Eugene F. Waye, Deputy Atty. Gen., Michael A. Finio (argued), Deputy Atty. Gen., Office of Atty. Gen., Harrisburg, Pa., for intervenor-appellee Atty. Gen. of Pennsylvania.
David M. Barasch, Consumer Advocate, H. Kay Dailey (argued), Asst. Consumer Advocate, Office of Consumer Advocate, Harrisburg, Pa., for intervenor-appellee Consumer Advocate of Pennsylvania.
David J. Muchow, Eric N. Wise, American Gas Ass'n, Arlington, Va., for amicus curiae American Gas Ass'n.
Before SEITZ, HIGGINBOTHAM, and BECKER, Circuit Judges.
The Kentucky West Virginia Gas Company ("Kentucky West") and the Equitable Gas Company ("Equitable Gas") appeal from a final order of the district court dismissing their complaint for declaratory and injunctive relief, 620 F.Supp. 1458. The district court held that Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943), and Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971), mandated that it abstain from reaching the merits of the companies' complaint. Subject matter jurisdiction in the district court was premised on 28 U.S.C. Secs. 1331 and 1337. 1 This court has jurisdiction by virtue of 28 U.S.C. Sec. 1291.
In 1984, Pennsylvania modified the procedures by which natural gas distribution companies establish rates for the retail sale of gas to Pennsylvania consumers. See Act of May 31, 1984, Act No. 1984-74 ("Act 74"), codified at 66 Pa.Cons.Stat.Ann. Secs. 1307(f), 1317-1318 (Purdon Supp.1985). Under the Act 74 framework, "[n]atural gas distributors with gross intrastate annual operating revenues in excess of $40,000,000 may file tariffs reflecting increases or decreases in their natural gas costs ..., but no such natural gas utility shall voluntarily file more than one such tariff in a 12-month period." Id. Sec. 1307(f)(1).
Before a proposed tariff can become effective, however, the PUC must conduct an investigation to determine whether the proposed rates are "just and reasonable." See id. Secs. 1307(f)(2), 1318. And "[n]o rates for a natural gas distribution utility shall be deemed just and reasonable unless the commission finds that the utility is pursuing a least cost fuel procurement policy, consistent with the utility's obligation to provide safe, adequate and reliable service to its customers." Id. Sec. 1318(a) (emphasis added). When making this determination, the PUC must make specific findings that:
(1) The utility has fully and vigorously represented the interests of its ratepayers in proceedings before the Federal Energy Regulatory Commission.
(2) The utility has taken all prudent steps necessary to negotiate favorable gas supply contracts and to relieve the utility from terms in existing contracts with gas suppliers which are or may be adverse to the interests of the utility's ratepayers.
(3) The utility has taken all prudent steps necessary to obtain lower cost gas supplies on both short-term and long-term bases both within and outside the [state of Pennsylvania]....
(4) The utility has not withheld from the market ... any gas supplies which should have been utilized as part of a least cost fuel procurement policy.
Id. Sec. 1318(a)(1)-(4). In addition, if the utility purchases all or part of its natural gas from an affiliated interest, the PUC must make specific findings with regard to the justness and reasonableness of such purchases, including findings:
(1) That the utility has fully and vigorously attempted to obtain less costly gas supplies on both short-term and long-term bases from nonaffiliated interests.
(2) That each contract for the purchase of gas from its affiliated interest is consistent with a least cost fuel procurement policy.
(3) That neither the utility nor its affiliated interest has withheld from the market any gas supplies which should have been utilized as part of a least cost fuel procurement policy.
Id. Sec. 1318(b)(1)-(3).
Finally, for purposes of an Act 74 determination, the fact that the Federal Energy Regulatory Commission ("FERC") has approved a contract or rate for interstate purposes is "not, in and of itself, ... adequate to satisfy the utility's burden of proof that gas prices and volumes associated with such contract or rate are just and reasonable for purposes of this section." Id. Sec. 1318(d).
Plaintiff Equitable Gas, a division of Equitable Resources, Inc. ("Equitable Inc."), is a Pennsylvania corporation engaged in the production, transportation, storage, distribution, and sale of natural gas. The company serves approximately 240,000 retail customers in the greater-Pittsburgh area. It obtains approximately eighty percent of the gas necessary to serve these customers from three interstate pipeline suppliers pursuant to tariffs approved by FERC. 2 The company obtains the remainder of its gas from one of two sources: its own wells in West Virginia and Pennsylvania, or independent producers under supply agreements either approved by FERC or exempted from such regulation by 15 U.S.C. Sec. 3431.
In March 1985, Equitable Gas initiated an Act 74 proceeding before the PUC in which the company sought to modify its retail sales tariff to reflect changes in its purchased-gas costs. In particular, the company sought to recover costs passed on to it by its interstate pipeline suppliers from July 1983 through December 1984, and for anticipated increases in the cost of purchased gas for the period from September 1985 through August 1986.
In response to this request, the PUC initiated an investigation of the justness and reasonableness of the rates proposed by Equitable Gas. This investigation culminated in an order (the "PUC Order") denying the relief sought by the company. First, as to the period from July 1983 through December 1984, the PUC concluded that Equitable Gas had not pursued a least cost fuel procurement policy. Specifically, the Commission found that the company should have taken more gas from its own wells and/or independent producers instead of gas it purchased from Kentucky West, which would have resulted in cost savings of approximately $14.3 million. As a result, the PUC refused the company's request to pass on these costs to its Pennsylvania ratepayers.
Second, with respect to the future period from September 1985 through August 1986, the PUC found that Equitable Gas should reduce its purchases from the Tennessee Gas Pipeline Company (its most expensive interstate supplier) and replace those amounts with increased purchases from the Texas Eastern Transmission Corporation (its least expensive interstate supplier). The PUC projected that such action by Equitable Gas would result in cost savings of approximately $3.0 million for Pennsylvania ratepayers.
Third, the PUC rejected the company's attempt to recover projected minimum-bill liability to Kentucky West for gas not actually taken under its contract with the pipeline, resulting in further cost savings of approximately $0.7 million.
Finally, the PUC ordered Equitable Gas, "in its next Section 1307(f) filing [to] certify that it has employed separate, independent legal counsel, with access to a technical staff separate and independent from its affiliated pipeline supplier, Kentucky West ..., to represent it before [FERC]."
Equitable Gas has pursued two avenues of relief from the PUC's order. Initially, it filed a Petition for Review in the Commonwealth Court of Pennsylvania pursuant to 42 Pa. Cons. Stat. Ann. Sec. 763(a)(1) (Purdon 1981) and Pa.R.App.P. 1512(a)(1) (Purdon 1985). 3 Shortly thereafter, Kentucky West and Equitable Gas filed suit against the PUC in the district court, seeking declaratory and injunctive relief. The complaint in the latter action challenges portions of both the PUC Order and Act 74, alleging, inter alia, that they are either preempted by the Natural Gas Act ("NGA") and the Natural Gas Policy Act ("NGPA"), or that they violate the commerce and equal protection clauses.
After a hearing on the companies' motion for entry of a preliminary injunction, the district court dismissed the action. The court concluded that although Kentucky West and Equitable Gas had properly invoked its jurisdiction, abstention was required by Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943). Alternatively, the court concluded that abstention was independently required by Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971). This appeal followed.
"Abstention is a judicially created doctrine under which a federal court will decline to exercise...
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