Destec Energy, Inc. v. Southern California Gas Co.
| Citation | 5 F.Supp.2d 433 |
| Decision Date | 06 June 1997 |
| Docket Number | No. CIV. A. H-95-1639.,CIV. A. H-95-1639. |
| Parties | DESTEC ENERGY, INC.; Destec Holdings, Inc.; McKittrick Limited; McKittrick Power Associates, L.P., Plaintiffs, v. SOUTHERN CALIFORNIA GAS COMPANY, Defendant. |
| Court | U.S. District Court — Southern District of Texas |
David T Harvin, Vinson & Elkins, Houston, TX, for Southern California Gas Co.
Mark Fogelman, San Francisco, CA, for Public Utilities Com.
Sylvia M Goodrich, Liddell Sapp Zivley et al, Houston, TX, for Tannehill Electric Company Inc.
In this antitrust case, plaintiffs, who own and operate cogeneration facilities in Kern County, California, challenge the inclusion of transport-or-pay clauses in two long-term natural gas transportation contracts with the defendant utility company. The California Public Utility Commission approved both contracts in 1988; the contracts expire in the year 2012. Plaintiffs assert that by refusing to enter into contracts without transport-or-pay clauses, defendant monopolized or attempted to monopolize the natural gas transportation market in Kern County, California. Defendant has moved for summary judgment,1 asserting that as a matter of law, the state action doctrine, the filed rate doctrine, and the Noerr-Pennington2 doctrine preclude plaintiffs' antitrust claims.
This court has carefully considered the pleadings, the motions, the parties' submissions, the arguments of counsel, and the applicable law. Based on this review, this court GRANTS defendant's motion for summary judgment, for the reasons stated below.
Defendant Southern California Gas Company ("SoCalGas") is a California corporation providing natural gas and gas transportation services in parts of central and southern California. SoCalGas is subject to regulation by the California Public Utilities Commission ("CPUC"). As a regulated utility, SoCalGas is required to provide service to all customers within its service area and can do so only on the basis of tariffs or, as in this case, contracts, approved by the CPUC.
In the mid-1980s, SoCalGas was the only natural gas supply and transportation company in western Kern County, California, where plaintiffs McKittrick Limited ("McKittrick") and Chalk Cliff Limited ("Chalk Cliff") were each developing enhanced oil recovery cogeneration facilities. Plaintiffs Destec Energy, Inc., Destec Holdings, Inc., McKittrick Power Associates, L.P., CC CoGen, Inc., Galloway Power Corporation, McKittrick Power Generation I, Inc., Chalk Cliff Limited, Chalk Cliff Cogen, Inc., and Dominion Cogen CA, Inc., were, and are, direct and indirect owners and operators of cogeneration facilities in Kern County, California.3 (Docket Entry No. 1, ¶ 3).
In 1985, Kern River Gas Transmission Company ("Kern River"), a company based in Houston, Texas, and Mojave Pipeline Company ("Mojave Pipeline"), a company based in El Paso, Texas, sought certification from the Federal Energy Regulation Commission ("FERC") to build pipelines to transport natural gas into the Kern County, California market to serve the enhanced oil recovery ("EOR") steam generation and cogeneration markets.4
In the mid-1980s, while seeking investors' commitments to their proposed cogeneration facilities, plaintiffs McKittrick and Chalk Cliff began negotiating natural gas pipeline transportation contracts with SoCalGas. Plaintiffs sought long-term agreements without "transport-or-pay" provisions. Such provisions require shippers or purchasers to pay for the transportation of certain quantities of gas, regardless of whether that amount of gas is actually transported. In return, the transporter agrees to commit a certain pipeline capacity to that customer. Plaintiffs allege that SoCalGas, knowing that plaintiffs needed gas transportation service on competitive terms and could not endure delays because of their need to obtain financing for the proposed cogeneration plants, refused to agree to contract without transport-or-pay provisions. (Docket Entry No. 1, p. 10).
It is undisputed that on July 26, 1988, plaintiffs and SoCalGas entered into two fifteen-year transportation contracts containing transport-or-pay provisions. (Docket Entry No. 7, Exhibit A, Attachments 1 and 2, Art. 2). It is also undisputed that on September 14, 1988, following contested proceedings, the CPUC issued Resolutions G-2821 and G-2822, approving each contract and specifically noting the presence of the transport-or-pay requirements. (Docket Entry No. 6, Exhibits 7 and 8). Plaintiffs allege that they were "compelled to accept SoCalGas's contracts," with the transport-or-pay provisions, because they were unable to finance the construction of the cogeneration projects without long-term transportation contracts.
Plaintiffs allege that in August 1989, SoCalGas further enlarged and entrenched its monopoly by settling litigation with Kern River and Mojave Pipeline over their efforts to obtain FERC certification for interstate pipeline service into Kern County. Under the settlement, SoCalGas agreed to stop resisting Kern River's and Mojave Pipeline's efforts to obtain FERC certification. In exchange, Kern River and Mojave Pipeline agreed to provide SoCalGas options to buy the California portions of their pipelines in the year 2012. That date coincides with the expiration of the long-term contracts between plaintiffs and SoCalGas. Plaintiffs allege that if SoCalGas exercises these options in 2012, SoCalGas will once again have an exclusive monopoly over the natural gas transportation market in Kern County, California.
In 1992, Kern River and Mojave Pipeline had received FERC certification, completed construction, and begun interstate commercial gas transportation service in Kern County, California. Plaintiffs allege that they could not use the competitive advantages of such service because the "transport-or-pay" provision in the SoCalGas contracts made it economically infeasible for them to do so. SoCalGas notes that plaintiffs could have obtained gas transportation services from SoCalGas at higher tariffs or rates, without transport-or-pay clauses, rather than negotiating individual long-term contracts with transport-or-pay clauses. By entering the long-term contracts, the plaintiffs obtained cheaper rates in the years before the competitors' service became available. (Docket Entry No. 5, p. 4 and No. 38, p. 8).
On May 26, 1995, plaintiffs filed this suit, alleging that SoCalGas monopolized and attempted to monopolize and/or restrain trade in the market for the transportation of natural gas to the cogeneration facilities owned by McKittrick and Chalk Cliff, by refusing to negotiate long-term contracts without transport-or-pay provisions. Plaintiffs also allege that SoCalGas's challenge to FERC certification of the competitors' proposed pipelines and SoCalGas's acquisition of options to purchase the competitors' California pipeline operations were further attempts to monopolize the natural gas transportation markets in Kern County, California. Plaintiffs allege violations of the Sherman Act, 15 U.S.C. § 2, and the Texas Free Enterprise and Antitrust Act, TEX. BUS. & COM. CODE ANN. § 15.05 (West 1987). Plaintiffs seek a declaratory judgment that the transport-or-pay provisions of their contracts with SoCalGas are void and unenforceable, damages for violations of the antitrust laws, and an injunction against further antitrust violations.
SoCalGas argues that the state action doctrine and the filed rate doctrine preclude plaintiffs' antitrust claims based on the transport-or-pay provisions; that ripeness issues, a lack of antitrust injury, and the state action doctrine preclude plaintiffs' claims based on the options to purchase the California portions of the Texas-based pipelines; and that the Noerr-Pennington doctrine precludes plaintiffs' claims based on SoCalGas's opposition to Kern River's and Mojave Pipeline's FERC certification application. (Docket Entry No. 5).
SoCalGas filed suit against plaintiffs in California state court, asserting breach of contract for plaintiffs' refusal to pay amounts due under the transportation contracts. Plaintiffs asserted antitrust challenges as affirmative defenses to that suit. The state court dismissed those defenses; the breach of contract suit is proceeding in that forum.
On February 23, 1996, plaintiffs moved for discovery in this case under Rule 56(f). (Docket Entry No. 39). Following a hearing, this court granted that motion in part, allowing plaintiffs to depose Stanley Hulett and Donald Vial, CPUC commissioners during the relevant time period, and Frederick John, former senior vice president of SoCalGas's parent company and vice-president of regulatory affairs for SoCalGas. (Docket Entry No. 53). The summary judgment record includes excerpts from those depositions. The summary judgment record also includes the following:
• copies of the two contracts at issue (Docket Entry No. 60, Exhibits 15 and 17);
• the relevant California statutes, CPUC regulations, and CPUC agency decisions (Docket Entry Nos. 6, 42, 57, and 60);
• the affidavit of John Van Noord, an employee of another CPUC regulated utility, Pacific Gas & Electric Co. (Docket Entry No. 15, Exhibit 1, Tab A);
• the affidavit of Donald Asher, an employee of the predecessor of Destec Energy, Inc. (id., Tab B);
• the affidavit of Stanley Hulett, a former CPUC commissioner (id., Tab C);
• the affidavit of John R. Scalp, rate design manager for SoCalGas (Docket Entry No. 42, Exhibit D);
• the...
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