Mississippi Power & Light Co. v. United Gas Pipe Line Co.

Decision Date17 May 1985
Docket NumberNo. 84-4220,84-4220
PartiesMISSISSIPPI POWER & LIGHT CO. & Mississippi Public Service Commission, Plaintiffs-Appellees, v. UNITED GAS PIPE LINE CO., Defendant-Appellant.
CourtU.S. Court of Appeals — Fifth Circuit

John R. Hutcherson, Brunini, Grantham, Grower & Hewes, Holmes S. Adams, R. David Kaufman, John E. Wade, Jr., Jackson, Miss., W. DeVier Pierson, Peter J. Levin, Washington, D.C., Larry J. Gunn, Houston, Tex., for defendant-appellant.

Joseph P. Wise, Wise, Carter, Child & Caraway, Thomas G. Lilly, David W. Clark, Jerry L. Patton, Benett Smith, Ms Public Service Comm., Jackson, Miss., Clayton L. Orn, Houston, Tex., for plaintiffs-appellees.

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

Before BROWN, WILLIAMS and GARWOOD, Circuit Judges.

JERRE S. WILLIAMS, Circuit Judge:

This diversity case was brought by Mississippi Power & Light Co. ("MP&L") and by plaintiff-intervenor, Mississippi Public Service Commission (the "Commission") against gas supplier United Gas Pipeline Company ("United") for breach of contract. The complaint charges United with violating the pricing provisions of a contract between MP&L and United dated December 8, 1967, and amended in 1969. MP&L sought to recover money damages in excess of thirty-one million dollars for alleged overcharges under the contract, and preliminary and permanent injunctive relief to prohibit future overcharges. MP&L alleged that future overcharges, if continued, would range from 1 to 2 million dollars per month, or up to 120 million dollars during the remaining life of the pricing provisions of the contract through December 31, 1987. After a total of six days of hearings between October and December 1983, the district court granted the preliminary injunction, entering its order on April 2, 1984. The order enjoined United from continuing to charge MP&L monthly rates which included the costs of certain gas purchased by United and certain transportation charges incurred by United. We affirm.

I.

On December 8, 1967, United and MP&L entered into a contract under which United agreed to sell and deliver, and MP&L agreed to purchase and receive, large volumes of natural gas. Article XIV of the contract set out various base rates MP&L would pay for different blocks of gas purchased each month. Such rates were to be adjusted up or down based on the "weighted average purchase price" per 1,000 cubic feet (mcf) of gas which United paid monthly for gas purchased in the Jackson (Mississippi) Area and in United's five other "areas" in Louisiana and Texas described in the contract. On April 29, 1969, MP&L and United executed an amendment to the contract. The amendment provided that the price of gas sold to MP&L would be based on an average price United paid for the gas in only two areas--the "South Louisiana Area" and the "Jackson Area,"--instead of in all the "areas" in which United was purchasing gas.

The amendment specified that the price of gas sold by United to MP&L would be based upon United's "weighted average purchase price of gas for the preceding billing month in the Jackson Area." The "weighted average purchase price of gas in the Jackson Area", would be derived by:

(1) adding together all the volumes of gas which Seller purchased in the Jackson area and transferred into the area during the preceding billing month;

(2) adding together the cost payable by Seller for the gas it purchased in the area and the cost assignable to the gas transferred into the area during the preceding billing month; and (3) dividing the total of said costs payable by the total of said volumes purchased in and transferred into the area. The resulting quotient shall be the weighted average purchase price of gas in the area.

The amendment specified how "cost of gas" was to be assessed. As for gas purchased by Seller in the Jackson Area, the amendment provided:

(a) [t]he cost of gas purchased by Seller shall be the amount payable by Seller to the producer, pipeline or other seller; except that the cost of gas purchased on the seaward side of the shorelines of Florida, Alabama, Mississippi, Louisiana, and Texas ... shall be the amount payable to the producer, pipeline or other seller thereof, plus the amount, if any, by Seller to others for delivery of the gas onshore....

Thus, for gas purchased in the Jackson Area and obtained from the Gulf of Mexico, United could include both the purchase price and the delivery cost for bringing that gas to shore. No provision was made, however, for any transportation or delivery charges for gas purchased in the Jackson Area that was obtained anywhere other than from the Gulf of Mexico.

Next, the amendment provided that the "cost assignable to gas transferred into the Jackson Area," was to be the average price paid by United for gas which it purchased in only one specific area, the "South Louisiana Area." Additionally, the cost of delivery onshore to the South Louisiana Area would be included in the weighted average for gas obtained in the Gulf of Mexico:

(c) Cost assignable to gas transferred into the Jackson Area shall be the result obtained by multiplying the weighted average price paid by Seller for gas purchased in its South Louisiana Area ..., and in the Gulf of Mexico for delivery onshore in the South Louisiana Area, by the volume of gas transferred into the Jackson Area.

In summary, the amendment based the price of gas to MP&L on the purchase price paid by United for gas which it purchased only in the "South Louisiana Area" and its "Jackson Area". The only exception to this pricing system was the allowance of costs for delivery for gas purchased by United originating in the Gulf of Mexico--namely, the cost of getting the Gulf gas onshore.

Except for the Gulf of Mexico gas, United purchased all of its gas from these two "areas" until the mid-1970's. At that time, United began to purchase from other areas and began to include such purchases in rates billed to MP&L. There is no evidence that United notified MP&L of its intent to include in the price of gas billed to MP&L the cost for gas purchased outside the areas specified in the contract.

In 1978, United entered into an agreement to purchase 450,000 mcf of Canadian gas per day from Northwest Alaskan Pipeline Company. The gas was purchased at the Canadian border and transported to Iowa by Northern Border Pipeline Company. It was there delivered to Northern Natural Gas Pipeline Company. 1 Pursuant to an exchange agreement with Northern Natural, United was to exchange that gas in Iowa for equivalent volumes of gas that Northern Natural would deliver to points designated by United in Louisiana, Mississippi, and Texas. Canadian gas began to flow through the Northern Border Pipeline in September 1982. It was the most expensive gas in United's system. 2 Rates charged to MP&L began to include the cost of the Canadian gas as well as the transportation charges incurred by United in delivering the Canadian gas to Northern Natural.

Of particular importance is the fact that in February 1979, shortly after United contracted to purchase Canadian gas from Northwest Alaskan Pipeline Company, United sought to amend its contract with MP&L so that the rates billed to MP&L would be calculated on a system-wide basis rather than on the limited geographic basis provided in the 1969 amendment. MP&L did not agree to the proposed amendment. In the summer of 1982, when MP&L learned of United's Canadian Gas agreement, MP&L conducted an audit of United's books pursuant to a provision in the agreement. MP&L conducted the audit primarily to ascertain whether United was including the cost of the Canadian gas in United's calculation of MP&L rates. The audit revealed that United had included not only the cost of Canadian gas in its rates, but also the cost of gas purchased in several other states outside of the area specified in the amendment agreement. 3

MP&L auditors projected overbillings by United to MP&L of $6,583,822 for the period of September 1983 through December 1983. The auditors further projected an average annual overbilling of $21,145,205 for the years January 1, 1984 through December 31, 1987, when the current pricing provision expires. Assuming MP&L purchased only the minimum amount of gas required under the contract, the projected overbilling for the four year period, according to MP&L, would be $84,576,820.

The district court enjoined United from including in their calculation of rates billable to MP&L:

(a) the cost of gas and associated transportation charges for Canadian gas and other purchases made outside of the Jackson Area, the South Louisiana Area or the Gulf of Mexico for delivery onshore in the South Louisiana Area;

(b) the cost of gas and associated transportation charges for gas purchased by United in the Gulf of Mexico and delivered onshore outside of the South Louisiana Area; and

(c) transportation charges incurred by United for transporting gas from one point on land to another point on land.

United appeals from the preliminary injunction. 28 U.S.C. Sec. 1292(a)(1). In this appeal we are not concerned with refunds for past overcharges. All that is before us is an injunction against future violations of the pricing provisions in the contract.

II.

The criteria for determining whether a preliminary injunction will be granted are set out in Canal Authority of State of Florida v. Callaway, 489 F.2d 567 (5th Cir.1974). Callaway established that the following requirements must be shown before a party will be entitled to preliminary injunctive relief:

(1) a substantial likelihood that plaintiff will prevail on the merits, (2) a substantial threat that irreparable injury will result if the injunction is not granted, (3) that the threatened injury outweighs the threatened harm to defendant, and (4) that granting the preliminary injunction will not disserve the public interest.

Id. at 572. The decision to grant or deny a...

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