Louisiana Power & Light v. United Gas Pipe Line

• Decision Date: 15 August 1986
• Docket Number: Civ. A. No. 84-5156.
• Court: U.S. District Court — Eastern District of Louisiana
• Parties: LOUISIANA POWER AND LIGHT COMPANY v. UNITED GAS PIPE LINE COMPANY.

642 F. Supp. 781

LOUISIANA POWER AND LIGHT COMPANY v. UNITED GAS PIPE LINE COMPANY.

Civ. A. No. 84-5156.

United States District Court, E.D. Louisiana.

August 15, 1986.

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Monroe & Lemann, Eugene G. Taggart, Kenneth P. Carter, Terrence G. O'Brien, New Orleans, La., for plaintiff.

Lemle, Kelleher, Kohlmeyer, Hunley, Moss & Frilot, C. Murphy Moss, Jr., New Orleans, La., Pierson, Semmes & Finley, Knox Bemis, Mark E. Greenwold, Paul Ryberg, Jr., Washington, D.C., for defendant.

FINDINGS AND CONCLUSIONS

LIVAUDAIS, District Judge.

This diversity case is brought by the Louisiana Power and Light Company ("LP & L"), a local utility, against United Gas Pipe Line Company ("United"), a gas supplier whose principle place of business is Houston, Texas, for breach of contract and for alleged violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq. It is the latest in a number of bitterly fought disputes between the parties, who have been litigating a number of matters for the better part of ten years.

The complaint in this case alleges that United violated the pricing provisions of a 1968 partial requirements contract between the parties. It alleges that United wrongly included certain costs in its price to LP & L, failed to credit LP & L with certain refunds properly, and failed to document adequately the charges it passed on to LP & L under the contract. The complaint also alleges that United wrongly priced deliveries made pursuant to a 1980 agreement to transfer volumes of gas originally allocated elsewhere to a local LP & L power plant. LP & L amended its complaint on November 25, 1985 to allege that the supposed contract violations of United were not the result of innocent mistakes, but rather, were intentional frauds committed by use of the mails and wire communication system, entitling it to the treble damages remedy provided by the RICO statute. 18 U.S.C. § 1964.

This matter was tried during the last two weeks in June. At trial, voluminous documents and depositions were introduced, and a great deal of testimony was taken, expert and otherwise. The parties have timely submitted their closing briefs and replies thereto. Now, after a review of the materials submitted by the parties, I find as follows.

FACTS

On May 6, 1968, LP & L and United signed a contract which provided that United would supply and LP & L receive all of the fuel required at LP & L's Ninemile power plant in Westwego, Louisiana, until such time as a new power producing unit was installed at the plant. After that time, the contract called for the supply and receipt of one third of all fuel requirements at the Ninemile plant, not to exceed a daily maximum delivery of 80,000 Mcf of gas, and an hourly maximum delivery of 4,000 Mcf.

The rates provision of the contract (Article XIV) provided that the rates charged to LP & L throughout the term of the contract would vary: from the signing of the contract until April 1, 1973, two fixed rates were charged; thereafter, a so-called step rate would be in effect, whereby the price of gas would fluctuate according to the amount taken by LP & L. The step rate would also fluctuate according to the weighted average purchase price of gas ("WAPPOG"),¹ in various areas where United bought gas to supply LP & L. The contract term providing that LP & L's rates should be tied to a series of geographically limited WAPPOGs is the focus of the parties' dispute. It is also quite complex, and I will address it in detail below.

The trouble started in the mid-1970's. By that time, LP & L's new unit was functioning at the Ninemile plant, and United was supplying a part of the Ninemile plant's requirements pursuant to the step rate and WAPPOG provisions of the 1968 contract. At first, things seemed to go well. But, with the heavy demand placed on the domestic petroleum industry in the mid-1970's, United found that it could not rely on locally supplied gas to fulfill its obligations to large consumers like LP & L.²

As a result, United began to go further and further afield to purchase the gas it supplied locally: it became a frequent purchaser of gas in places like Oklahoma and West Texas, and sometimes bought gas in places as far off as Wyoming and Colorado. It also entered into an agreement with Northwest Alaskan Pipeline Company to buy gas at the Canadian border in order to transport and trade that gas to Northern Natural Gas Pipe Line Company in Iowa. In return, United received gas owned by Northern Natural in the New Orleans area.

Even these measures proved insufficient to supply the demand experienced by United, however, and it found that it was forced to go before the Federal Energy Regulatory Commission ("FERC") in order to allocate its insufficient supply of gas among its customers throughout the 1970's and periodically during the early 1980's. In the natural gas industry, this is known as "curtailment." During this period, LP & L's other supplier of gas at the Ninemile plant, Texaco, also began to curtail deliveries. These actions left LP & L with a critical undersupply of gas.

When the amount of gas supplied by United and Texaco began to dwindle, LP & L had great difficulties in maintaining its takes of gas at levels acceptable to United. At this time, LP & L controlled the amount of gas it took from United, and very often exceeded the amount which was allotted to it during United's curtailment. In fact, on some days LP & L seems to have treated United's delivery pipe to Ninemile the way a 12-year old treats a straw in a Barq's Sasparilla on a day in late July: on those days, it slurped for all it was worth, and sometimes exceeded 80,000 Mcf in takes.

During United's curtailment, the lack of fuel supply at the Ninemile power plant continued to harm LP & L because the power producing units there (and particularly the new unit) were more efficient than those elsewhere in LP & L's power production system. Because of this, LP & L approached United with a request that it transfer gas which United's curtailment had allocated to LP & L's Sterlington power station from that station to the station at Ninemile. The price was understood to be that recited in the original agreement between the parties with regard to United's delivery of gas at Sterlington, rather than the 1968 contract price. Because the Sterlington price was less than the going rate (although more than the 1968 contract price), LP & L benefitted by the transfer, which was consummated by letter agreement dated February 13, 1980. In that agreement, LP & L makes a reservation of rights which was at least meant to reserve any legal claims it might have in the FERC litigation then pending between the parties. Whether it was to have any other effect is hotly disputed, and will be discussed below.

The relationship of the parties began to deteriorate significantly throughout this period, and culminated in litigation before FERC, the Louisiana State Courts, and here. Those were not the only legal proceedings faced by United, however. United was also sued by Mississippi Power & Light, another large utility company to which United delivered gas pursuant to a contract similar to the one sued upon here.

In connection with their various legal disputes, United permitted LP & L to audit its books as provided by section V of the 1968 contract. LP & L believed the audit showed that United included a number of impermissable items in the calculation of the WAPPOGs for Lafayette and New Orleans. After investigating its claim, LP & L also believed that the errors made in calculating the WAPPOGs were deliberate, and amounted to fraud accomplished by use of the mails and interstate telephone system. At the same time, LP & L felt badly used by the Sterlington agreement, which allowed United to charge a price in excess of the 1968 contract price at the same time it was curtailing gas deliveries it was obligated to make pursuant to the contract.

On October 23, 1984, LP & L filed suit in this Court, seeking a preliminary injunction and damages for alleged violations of the 1968 contract, and damages for payments made pursuant to the Sterlington transfer agreement. The preliminary injunction was never heard, and I now dismiss the prayer for it as moot. On November 25, 1985, LP & L amended its complaint to take account of what it believed was United's deliberate fraud by mail and wire, and stated a claim under 18 U.S.C. § 1964. I note for the record that United has stated a counterclaim against LP & L, seeking to recover damages for those volumes taken in excess of the maximum provided for in the 1968 contract. That counterclaim was severed, and is scheduled to be tried at a later date.

ISSUES

The evidence produced by the parties at trial raises a myriad of issues. In regard to the 1968 contract, the parties raise the issue whether the WAPPOGs for the Lafayette and New Orleans areas were inflated by: first, United's purchase of gas in areas outside those specified in Exhibit A to the contract; second, United's failure to credit LP & L with refunds it received from producers whose gas was used to supply LP & L; third, United's inclusion of certain transport costs associated with the purchase of offshore gas, and the allocation of those costs to areas specified in the contract; fourth, United's inclusion of charges for the use of offshore transport facilities in the WAPPOG; and fifth, United's inclusion of gas it acquired by virtue of the Northern Natural Exchange Agreement in its calculation of the New Orleans area WAPPOG.

The parties also raise an issue as to the delivery obligation of United under the 1968 contract. United insists that it was obligated to deliver only one third of LP & L's requirements, not to exceed 80,000 Mcf, at the Ninemile plant on any given day, and LP & L responds that United was obligated to deliver daily any amount LP &...