GAS UTILITIES CO. OF ALA. v. SOUTHERN NATURAL GAS, CV-91-PT-00445-S.

• Citation: 825 F. Supp. 1551
• Decision Date: 12 August 1992
• Docket Number: No. CV-91-PT-00445-S.,CV-91-PT-00445-S.
• Parties: GAS UTILITIES COMPANY OF ALABAMA, INC. v. SOUTHERN NATURAL GAS COMPANY and Alabama Gas Corporation.
• Court: U.S. District Court — Northern District of Alabama

825 F. Supp. 1551

GAS UTILITIES COMPANY OF ALABAMA, INC. v. SOUTHERN NATURAL GAS COMPANY and Alabama Gas Corporation.

No. CV-91-PT-00445-S.

United States District Court, N.D. Alabama, S.D.

August 12, 1992.

Maston E. Martin, Jr., Hardin Tucker & Martin, Birmingham, AL, Fitz Barnett, Glickman & Barnett, Houston, TX, for plaintiff.

Thomas W. Thagard, III, Lee E. Bains, Jr., & George G. Lynn, Maynard Cooper Frierson & Gale, Birmingham, AL, Carl Alan Roth, John A. Donovan and Stephen J. McConnell, Skadden Arps Slate Meacher & Flom, Los Angeles, CA, for Southern Natural Gas Co.

Philip Joseph Carroll, III, and Joseph B. Mays, Jr., Bradley Arant Rose & White, Birmingham, AL, for Alabama Gas Corp.

MEMORANDUM OPINION

PROPST, District Judge.

Plaintiff Gas Utilities Company of Alabama (GUA) filed this suit against Southern Natural Gas Company (Southern) and Alabama Gas Corporation (Alagasco) alleging violations of the Sherman Antitrust Act as well as tortious interference with business relations. Pending before the court are defendants' motions for summary judgment filed on February 28 and deemed submitted on May 18, 1992.

FACTS

The following is a summary of the undisputed facts in this case. Defendant Southern owns and operates an interstate pipeline for natural gas which runs from Texas through Alabama to South Carolina. The company sells and transports the gas to local distribution companies (LDC) which distribute gas to individual customers as well as to industrial end users.¹

Defendant Alagasco is a local gas distribution company that provides natural gas service at retail to residential, commercial and industrial customers in Alabama. Alagasco obtains its gas from three sources. Southern is its principal supplier of natural gas. Alagasco also receives a portion of its gas supply from Transcontinental Gas Pipe Line Corporation ("Transco"). A portion of Alagasco's supply consists of gas produced in Alabama.

Plaintiff GUA is an Alabama corporation formed by Dan Tutcher and Ray Levier in 1989. Mr. Tutcher is president, secretary and treasurer of Midcoast Natural Gas, which engages in the business of natural gas pipelining and marketing. Tutcher Deposition at 22. Mr. Levrier is employed by Midcoast Marketing and REL Resources, Inc., which trades in heavy fuel oil as well as natural gas marketing. Levrier Deposition at 6-8. Tutcher and Levrier formed Gas Utilities to solicit direct connections between Magnolia interstate pipeline and industrial end users in Central Alabama. Tutcher Dep. at 57. The record does not specify when GUA made the decision to solicit direct connections between Southern's interstate pipeline and industrial end users. Essentially, GUA would function as an intrastate pipeline company which would build alternative pipelines to service industrial customers, including those of Alagasco, in Central Alabama. GUA's pipelines would lead directly from Southern's interstate pipeline to industrial customers. According to Tutcher, GUA sought to undercut the rates charged by LDC's such as Alagasco to industrial customers. Tutcher Deposition at 66.

The following facts are disputed by the parties. Tutcher and Levrier claim that, prior to forming their company, they performed a market study and personally contacted approximately forty potential customers to survey the market for the natural gas they expected to offer. Affidavit of Dan Tutcher at 3. The company then obtained two contracts with Gurney Industries and Tuscaloosa Steel. Id. Plaintiff asserts that GUA then attempted to secure two taps from Southern to service these potential clients. See Letter from Dan Tutcher to Mark Limbaugh, Manager, Market Development, Southern Natural Gas Co., November 16, 1989 and December 14, 1989. Mr. Tutcher claims that, in both cases, Southern referred to a company policy which prevented it from granting the taps to GUA. Plaintiff's Response at 3. Southern's letter to Tutcher indicated, however, that GUA should contact it if GUA decided to modify its request to provide for the use of an existing delivery point in the Tuscaloosa area. Letter from Mark Limbaugh to Dan Tutcher, December 5, 1989. GUA submitted a total of three requests for construction of new taps to Southern.

Southern acknowledges that it has denied the taps to GUA and has set forth its rationale for denying the use of the taps to GUA. Essentially, Southern asserts that the construction of new taps to allow industrial end users of gas to bypass² LDC customers such as Alagasco is not in the company's business interest for two reasons. First, Southern claims that construction of new taps could result in its losing recovery of "take or pay" costs.³ Further, Southern asserts it cannot be held liable under the antitrust laws for this settlement because it was authorized by FERC a federal regulatory agency. In support of this contention, Southern points to Williams Elec. Co. Inc. v. Honeywell, Inc., 772 F.Supp. 1225, 1229 (N.D.Fla.1991) in which the court held that "private parties are shielded from federal antitrust liability where their actions were regulated by a federal regulatory agency acting pursuant to congressional authority." See also Medical Ass'n v. Schweiker, 554 F.Supp. 955, 966 (M.D.Ala.1983), aff'd per curiam, Medical Ass'n v. Heckler, 714 F.2d 107, 108 (11th Cir.1983) ("private parties, to the extent they are acting at the direction or with the consent of federal agencies also fall outside the pale of the Sherman act's prohibition.")

Second, Southern asserts that it had reason to believe that the residential and commercial markets for natural gas would be eroded if it allowed industrial customers to bypass the LDC's. Specifically, Southern was concerned that LDC's such as Alagasco would need to raise their rates to commercial and residential consumers to recover costs from a smaller customer base. This, in turn, could result in an overall decrease in demand for residential gas.⁴ In addition, Southern asserts that prices charged to industrial customers were used to subsidize residential and commercial customers. To avoid such a decrease, Southern claims that it unilaterally adopted a policy in 1988 that it would construct new delivery points for industrial end users only if the end user's load could not be served through an existing delivery point and if Southern had concluded that construction of such a new delivery point would be in Southern's best interests. Major Deposition at 111-112; Limbaugh Deposition at 11.⁵ Southern claims that, pursuant to this policy, it rejected GUA's requests for delivery points to be constructed, since all end-users which GUA had identified could be served through existing Southern delivery points which were already connected to Alagasco's system. Southern's Brief at 11. Southern asserts that it did not consult with Alagasco regarding this decision to deny GUA the taps and denies that Alagasco played any role in this decision.

GUA asserts that after Southern had denied it the new taps, a representative of Southern suggested to Tutcher that he contact Hunt Refining to request that Hunt permit GUA to use the tap that interconnected with Southern. After being contacted by Tutcher, Hunt responded that it could not do so without consulting with Alagasco. Alagasco subsequently refused to grant this permission. Plaintiff's Brief at 45. Deposition of Dan Tutcher at 276-278.

GUA maintains that a representative of Southern has indicated that the company denied the tap to service Tuscaloosa Steel because it did not provide Southern with additional volume. Plaintiff's Response at 14.⁶ According to GUA, this reasoning for denying the tap was specious since the gas provided to Tuscaloosa Steel would have meant additional volume transported through Southern's line.⁷ Tutcher Deposition at 533-534.

In addition, GUA contends that Southern's fears that it would have to allow all industrial customers to bypass the LDC's, should it grant one bypass, lacks foundation. GUA has not specifically explained the nature of these flaws in Southern's analysis, which it has termed the "death spiral theory" in its briefs. GUA also disputes Southern's presentation of its "bypass policy" argument. According to GUA, Southern prepared an analysis of bypass potential in 1987 in which it allegedly determined that bypass could be beneficial to the company. Plaintiff's Response at 17. Despite this determination, Southern announced a bypass policy which was never committed to writing and which did not mention this 1987 study.⁸ In their depositions, company officials stated that Southern would not grant a direct connection unless (1) the tap requested was not capable of being served through an existing delivery point; and (2) it was in the overall business interest of the company to provide the tap. Major deposition at 111.⁹ In 1991, Southern adopted a new policy regarding when it would bypass one of its LDC's. This policy, which was committed to writing, provided that Southern would not grant a direct connection for any industrial customer in an area presently served by a resale customer such as Alagasco. Major Deposition at 215-217; Plaintiff's Brief at 23-24.

GUA also discusses Alagasco's attempt to bypass Southern. According to GUA, in 1985 Alagasco allegedly applied for a tap at Transco. Warren Deposition, Volume II at 15-16. Southern intervened in the proceedings before the Alabama Public Service Commission to prevent the issuance to Alagasco of a Certificate of Public Need and Necessity. Major Deposition at 74-80. GUA maintains that Sonat Intrastate, Southern's intrastate affiliate, also reacted to Alagasco's actions by soliciting Alagasco's customers in the Tuscaloosa area to directly connect to them.¹⁰ Alagasco then allegedly reacted by filing a complaint against Sonat Intrastate before the Public Service Commission, alleging that Sonat Intrastate should be subject to the jurisdiction of the Commission. Warren Deposition at 22-25....