Farmland Indus., Inc. v. Kansas-Nebraska Nat. Gas Co., Inc.

Decision Date17 October 1972
Docket NumberNo. CV71-L-300.,CV71-L-300.
Citation349 F. Supp. 670
PartiesFARMLAND INDUSTRIES, INC., Plaintiff, v. KANSAS-NEBRASKA NATURAL GAS COMPANY, INC., Defendant.
CourtU.S. District Court — District of Nebraska

COPYRIGHT MATERIAL OMITTED

Leonard O. Thomas, Kansas City, Kan., and Flavel A. Wright, Lincoln, Neb., for plaintiff.

Richard Jones, Wichita, Kan., James D. Conway, Robert A. Miller, Jr. and J. Robert Wilson, Hastings, Neb., for defendant.

MEMORANDUM OF DECISION

URBOM, Chief Judge.

Compensatory and injunctive relief are sought by an industrial user of natural gas from a natural gas company for an alleged abandonment of service in violation of 15 U.S.C. § 717f(b), a provision of the Natural Gas Act. A claim for punitive damages was withdrawn during trial. Trial has been completed and briefs of eminent quality have been provided by counsel of both parties.

Jurisdiction is conferred upon this court by 15 U.S.C. § 717u. A memorandum of this court, filing No. 11, deals more extensively with the disputed issue of whether the court has jurisdiction over the person of the defendant and the subject matter of the action, concluding that it does.

THE FACTS

The plaintiff was originally incorporated under the laws of Kansas as "Consumers Cooperative Association." This name was changed to Farmland Industries, Inc. and the corporation is duly authorized to do business in Kansas and Nebraska.

The plaintiff, during and before the year 1960, considered the purchase of land and the erection of a facility within the State of Nebraska for the purpose of producing anhydrous ammonia, a fertilizer widely used by farmers and others engaged in agricultural pursuits. The raw materials for anhydrous ammonia are water, air, and natural gas.

Air, and in most places water, are readily available, but such a facility must be constructed in a place where natural gas is available in large volume for two purposes. First, the manufacturing plant producing anhydrous ammonia must have as the raw product a continuous and steady flow of natural gas. Second, a plant such as that subsequently erected by the plaintiff near Hastings, Nebraska, requires gas to be used for creating steam and high temperature as a part of the manufacturing process, as well as for ordinary space heater use.

The defendant, incorporated under the laws of Kansas, is authorized to do business in Nebraska and has been and is engaged in the transporting of natural gas in interstate commerce. The defendant, a public utility, is and has been, since the plaintiff's facility at Hastings, Nebraska, was begun, the sole natural gas pipeline supplier from which the plaintiff could obtain pipeline natural gas at its Hastings plant.

The defendant is now and has been at all times material to this action subject to the provisions of the Natural Gas Act with regard to its transportation in interstate commerce of natural gas. The transportation of all natural gas sold to plaintiff for its Hastings, Nebraska, facility has been subject to the provisions of the Natural Gas Act.

Prior to the location of a plant near Hastings, Nebraska, for the purpose of producing anhydrous ammonia, the plaintiff consulted with the president and other officials of the defendant with regard to the supply of natural gas and made other surveys concerning costs as well as the market for anhydrous ammonia. Following the plaintiff's investigation, it began construction in July of 1961 and it expended approximately $7,693,000 in building an anhydrous ammonia plant near Hastings, Nebraska; in 1963 the plant was expanded at an additional cost of approximately $6,393,000. The plant, as enlarged, went into operation in 1963 and has since been at all times, except during routine maintenance shutdowns, in continuous operation in the production of anhydrous ammonia.

In this proceeding, the term "firm gas" refers to the natural gas which is used as the raw product; the term "process gas" is synonymous with firm gas. Firm gas must be furnished without interruption in order for the plant to operate. In this proceeding, the term "interruptible gas," also sometimes referred to as "boiler gas," refers to gas furnished for the purpose of providing heat, both in the creation of the high temperature necessary to produce anhydrous ammonia and for ordinary heating purposes. This boiler gas is provided upon an interruptible basis. An alternate fuel is used when natural gas is not available. The plaintiff utilizes fuel oil as its alternate fuel at its plant.

Pursuant to the provisions of the Natural Gas Act, and before the plaintiff actually began the construction of its facility near Hastings, Nebraska, the defendant made an application to the Federal Power Commission for a certificate of convenience and necessity authorizing the defendant to construct facilities necessary to deliver gas and to deliver to the plaintiff the gas, both firm and interruptible, necessary for operation of the plaintiff's facility as originally contemplated. (Docket No. CP61-142) Such certificate was issued. However, because the plaintiff desired to enlarge its facilities, it was necessary to file a second application for a certificate of public convenience and necessity. The defendant made application to the Federal Power Commission for such second certificate of convenience and necessity (Docket No. CP63-28), which certificate was issued on December 10, 1962, and which has been received in evidence as Exhibit 1. Amended in 1963 in details not material to this action, the certificate remains in full force and effect. No application to alter or amend has been filed. By the certificate the defendant is authorized to transport and deliver to the plaintiff a maximum of 10,000 MCF per day of firm gas and a maximum of 8,000 MCF per day of in terruptible gas.

The plaintiff, before beginning the construction of its facility, entered into a contract dated October 25, 1960, to purchase firm gas from the defendant, subject to the defendant's obtaining, before beginning construction, of a requisite certificate of convenience and necessity from the Federal Power Commission. Thereafter, because of the enlargement of the facility, the parties cancelled this contract effective December 31, 1962, and entered into a new contract effective January 1, 1963, received in evidence as Exhibit 5. Rates provided in Exhibit 5 remained in effect without attempt to modify until the defendant mailed and the plaintiff received a letter dated November 23, 1970, Exhibit 6, by which the defendant in accordance with the contract, Exhibit 5, requested a conference with the plaintiff to discuss an increase of rates. With the letter was tendered a proposed contract whereby the rates in Exhibit 5 would have been increased.

Negotiations ensued but the parties were not able to agree upon a rate for gas to be used as raw material. On February 16, 1971, the defendant mailed and the plaintiff subsequently received a letter, Exhibit 8, which accompanied a notification of cancellation of the contract, Exhibit 5, effective at midnight, April 30, 1971.

On April 23, 1971, the defendant, by application to the district judge for Adams County, Nebraska, obtained a temporary injunction, to become effective May 1, 1971, whereby the plaintiff herein, Farmland, was enjoined "from interfering with the cancellation of the contract dated January 1, 1963," and from "taking raw material gas from Kansas-Nebraska subsequent to April 30, 1971, except at the rate of 10.3¢ per MCF demand charge and 30.1¢ per MCF commodity charge until further order of this court," upon the filing of a surety bond in the amount of $25,000. On the same day, Farmland, by application to the district judge for Pawnee County, Kansas, obtained a temporary restraining order, restraining Kansas-Nebraska "from discontinuing service to Farmland Industries, Inc. at its Hastings, Nebraska, plant and . . . from decreasing below the level of the Farmland Industries, Inc.'s normal use . . . natural gas . . . at the . . . Hastings plant," effective upon the posting of a $100,000 bond. Neither the injunction nor restraining order has been modified or set aside. Farmland unsuccessfully moved to set aside the injunction.

On January 1, 1963, the parties entered into a contract for interruptible industrial service (boiler gas), which contract was terminated by the defendant effective December 31, 1970. On January 2, 1971, at 7:00 p. m., following the termination of the contract, gas deliveries of boiler gas were interrupted on account of a shortage of supply due to usage created by weather conditions, such shortage, due to such circumstances, being such as authorized the defendant, Kansas-Nebraska, to curtail service under the interruptible industrial service contract. In accordance with such curtailment, the plaintiff began on January 3, 1971, using fuel oil as a substitute for boiler gas. Service of interruptible or boiler gas could have been restored under the weather conditions existing on January 8, 1971, but was not restored because the parties had not reached agreement regarding price, and Kansas-Nebraska refused to restore service of gas until agreement had been reached as to price and a contract reflecting that price executed. Negotiations continued. On January 11, 1971, Farmland filed a declaratory judgment action in the District Court of Adams County, Nebraska, asking that Kansas-Nebraska be required to abide by the terms of the interruptible industrial service contract of 1963 and requesting a temporary injunction to restrain Kansas-Nebraska from refusing to deliver boiler gas in accordance with that contract. Subsequently, the District Court of Adams County, Nebraska, refused to issue a restraining order or injunction and held that the 1963 contract for boiler gas had properly been cancelled as of December 31, 1970. That ruling has become final. Service of boiler gas was resumed by Kansas-Nebraska to Farmland sometime on January 23,...

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