Mississippi Power & Light Co. v. United Gas Pipeline Co.

• Decision Date: 27 May 1976
• Docket Number: No. 75-2316,75-2316
• Citation: 532 F.2d 412
• Parties: MISSISSIPPI POWER & LIGHT COMPANY, Plaintiff-Appellant v. UNITED GAS PIPE LINE COMPANY et al., Defendants-Appellees, State of Mississippi, Plaintiff-Intervenor.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 412

532 F.2d 412

MISSISSIPPI POWER & LIGHT COMPANY, Plaintiff-Appellant v. UNITED GAS PIPE LINE COMPANY et al., Defendants-Appellees State of Mississippi, Plaintiff-Intervenor.

No. 75-2316.

United States Court of Appeals Fifth Circuit.

May 27, 1976.

Sherwood W. Wise, Joseph P. Wise, Jackson, Miss., Clayton L. Orn, Houston, Tex., for plaintiff-appellant.

W. DeVier Pierson, Peter J. Levin, Washington, D. C., E. L. Brunini, Jackson, Miss., for United Gas, etc.

Perry O. Barber, Jr., Alvin M. Owsley, Jr., Houston, Tex., Joe H. Daniel, Jackson, Miss., for Pennzoil Co. Giles W. Bryant, Sp. Asst. Atty. Gen., Marshall G. Bennett, Jackson, Miss., for State of Mississippi.

Appeal from the United States District Court for the Southern District of Mississippi.

Before THORNBERRY, COLEMAN and MORGAN, Circuit Judges.

LEWIS R. MORGAN, Circuit Judge:

This appeal involves another facet of the problems created by the national energy shortage. Specifically, this litigation was commenced by Mississippi Power and Light Co. (MP&L) for breach of contract against one of the major natural gas pipeline companies, United Gas Pipeline Co. (United) and its former parent, Pennzoil Co. Alleging failure to supply the amounts of gas provided by the contract and basing its action solely on state law, MP&L brought a diversity action against United and Pennzoil in the United States District Court for the Southern District of Mississippi. After filing their answers, United and Pennzoil asserted the primary jurisdiction of the Federal Power Commission. The district court granted a stay of all proceedings "to await the response of the Federal Power Commission as to its primary jurisdiction of this curtailment question . . . ." ¹ MP&L appeals ² the district court's order basically arguing that the Federal Power Commission does not have primary jurisdiction over any of the issues raised in this action. MP&L argues, moreover, that even if the FPC does have primary jurisdiction, the district court erred in not making its order more specific by stating which issues should be referred to the FPC. Finally, MP&L objects to the district court's stay of discovery. While we agree that the district court's order should be more specific, we hold that the court was correct in staying the proceedings in order that the Federal Power Commission may exercise primary jurisdiction in this matter.

I. THE CURTAILMENT CONTROVERSY:

In order to more clearly understand the issues presented by this complex litigation, a review of the natural gas shortage controversy and the litigation accompanying it is helpful. ³

By the spring of 1971, several pipeline companies, including United, had notified the Federal Power Commission that their supplies were inadequate to meet commitments to their customers. United, as well as other pipeline companies, proposed to meet this shortage situation by instituting curtailment plans that would allocate the available gas among their customers. Most of these plans had been adopted by the pipelines during a temporary shortage created by the Korean war. Needless to say, these plans were often unsuitable as a method of curtailing supplies during the present period of continual and severe shortage. The FPC, in Order No. 431, ⁴ Statement of General Policy, ordered the pipelines to institute all necessary steps to alleviate the shortage and to submit new tariffs which would incorporate revised curtailment plans. Under United's temporary curtailment plan filed pursuant to Order 431, MP&L, a utility who used natural gas as a fuel to generate electricity, was placed in the category to be curtailed first. ⁵ Therefore, MP&L has been receiving substantially less natural gas than it had before curtailment.

The necessity for curtailment gave rise to two distinct problems. The first question was how much of the available supply of natural gas each of the pipeline's customers would receive. The second question was who would bear the economic consequences of the shortage. Those customers who were curtailed in whole or in part would have to seek alternative sources of energy which would generally be available at significantly increased cost, and somehow this additional cost would have to be allocated. The various parties, therefore, sought to insure that others bore the financial burden of curtailment.

United feared liability on two separate theories. First, a curtailed customer might bring a general breach of contract action alleging failure to deliver the amounts of gas stated in the contract. Second, a customer could bring an action under a specific clause the substitute fuel clause contained in many of United's contracts, including its agreement with MP&L. That provision arguably requires United to compensate a customer for the additional cost of obtaining other types of fuel to meet the customer's energy needs. While United contended that the substitute fuel clause did not apply in a general curtailment situation and if it did the language of the clause limited liability to the amount of fuel purchased by the customer for only a few days, should these contentions fail, United faced a possibility of over a billion dollars in liability.

Even before suit was instituted, United sought by means of proceedings before the Federal Power Commission to insure that it would not bear the financial cost of curtailment. In 1970, United sought a declaratory order from the Commission which would hold that § 12.1 of its tariff on file with the Commission immunized United from liability. ⁶ That section provided that curtailment could be instituted "without liability." United also sought to file with the Commission proposed § 12.3 of the tariff that stated in relevant part,

. . . nor shall seller (United) be obligated to pay or credit such customers any sums with respect to substitute fuels burned by such customers during such a period of proration or interruption.

The Commission rejected United's proposal in Opinion 606 ⁷ and stated that implementation of the curtailment plan itself, pursuant to our procedures, would be an absolute defense for United against all claim for specific performance, damages, or other requests for relief under these contracts affected by curtailment that may be initiated in the courts.

In International Paper Co. v. Federal Power Commission, 476 F.2d 121 (5th Cir. 1973), however, this court vacated that statement in Opinion 606 as "mere dicta" totally lacking evidentiary support. Id. at p. 125.

Subsequently, United resubmitted § 12.3, but in Opinion 647-A ⁸ the Commission again rejected United's proposed exculpatory language. This time, the Commission reasoned that United would only be vulnerable under a general breach of contract theory if the curtailment had resulted from its own negligence, bad faith, or other wrongful conduct. The Commission had found, however, that United had not acted "improvidently" and that it would not therefore be held liable for damages. Next, the Commission stated that substitute fuel clauses required United at most to reimburse its customers the extra costs of substitute fuels for only "a maximum of seven days." Then, the Commission opined that if a court found that the clause created "open ended" liability, the FPC would be "compelled to find such clauses are unduly preferential." The Commission reasoned that the prospect of open ended liability might cause United to disobey FPC orders and in some way favor customers who had substitute fuel clauses in their contracts.

Once again, in State of Louisiana v. Federal Power Commission, 503 F.2d 844 (5th Cir. 1974), this court vacated the FPC's findings. The court pointed out that the proper determination of whether United was liable for breach of contract absent an exculpatory tariff such as § 12.3 would be decided by a court in the contract actions. Then, the court found the FPC's interpretation of the substitute fuel clauses to be an "assertion (which) cannot stand without supporting reasons." Id. at 868. Furthermore, the court instructed the FPC not to assume that United was not liable for breach of contract but to evaluate the proposed § 12.3 in light of possible contract liability. The court stated at page 867:

We think the Commission should have determined what would happen with the proposed change in effect. Can a tariff provision remove general contractual liability? If the provision would remove liability, would the unavailability of damages subject United's curtailed customers to 'any undue prejudice or disadvantage?' In short, since the Commission cannot adjudicate contract liability, it should evaluate section 12.3 on the assumption that United faces possible liability not on the assumption it is immune.

In State of Louisiana, the court also reversed the Commission's decision on various other aspects of United's curtailment plan. On remand, the FPC established procedures to meet the objections of this court. ⁹ Part of these procedures, delineated Phase III by the Commission, were specifically designed to determine the advisability of adopting § 12.3 as a part of United's tariff. At present, hearings are being conducted as a part of these Phase III proceedings.

United also filed with the Commission on March 3, 1975, a petition requesting a declaratory order. Under United's request, the Commission would determine, inter alia, (1) whether the availability of damages to some of United's curtailed customers would create an undue preference in violation of the Natural Gas Act, (2) whether § 12.1 of United's tariff would preclude liability to certain customers such as MP&L and (3) whether the shortage was caused by the negligence or willful misconduct of United. The Commission has not clearly articulated what, if any, its action will be on United's petition. ¹⁰

On August 5, 1974, Mississippi Public Service Commission (MPSC) filed a petition for extraordinary relief before the Commission on behalf of MP&L and other Mississippi...