New Orleans Public Service, Inc. v. United Gas Pipe Line Co.

Decision Date21 May 1984
Docket NumberNo. 82-3194,82-3194
Citation732 F.2d 452
PartiesNEW ORLEANS PUBLIC SERVICE, INC., Plaintiff, Ernest Morial, et al., Individually and As Representatives of a Class, Applicants for Intervention-Appellants, v. UNITED GAS PIPE LINE COMPANY, Defendant-Appellee.
CourtU.S. Court of Appeals — Fifth Circuit

McGlinchey, Stafford & Mintz, Donald R. Mintz, Constance Charles Willems, New Orleans, La., for Ernest Morial et al.

Lemle, Kelleher, Kohlmeyer & Matthews, C. Murphy Moss, Jr., Robert G. McIver, Victoria L. Knight, New Orleans, La., James M. Costan, Kevin W. McLean, Douglas Knox Bemis, Jr., W. DeVier Pierson, Washington, D.C., for defendant-appellee.

Appeal from the United States District Court for the Eastern District of Louisiana.


GARWOOD, Circuit Judge:

This diversity case brings to our en banc consideration questions pertaining to the entitlement of third parties to intervene as plaintiffs in a contract action brought by a local electric utility against its major fuel supplier. The district court denied all requested intervention. The decision of the panel, as modified on rehearing, though declining to disturb both the denial of intervention to the electricity consumers and the determination that officials of the city which franchised the electric utility were not entitled to intervene as of right, held that the district court abused its discretion in denying the city officials permissive intervention. 690 F.2d 1203, modified on rehearing, 694 F.2d 421 (5th Cir.1982). This court en banc, disagreeing with the latter determination, now holds that the city officials were properly denied intervention.

NOPSI and United

New Orleans Public Service, Inc. ("NOPSI"), a Louisiana corporation, plaintiff in this action, is an investor-owned utility providing natural gas and electricity to residential, business, industrial and other end use consumers in New Orleans, Louisiana. NOPSI is a subsidiary of Middle South Utilities, Inc., a much larger concern having other electric utility subsidiaries in the region. United Gas Pipe Line Company ("United"), defendant below and appellee here, a Delaware corporation headquartered in Texas, owns and operates an interstate natural gas transmission system, and transports and sells natural gas in interstate commerce in Texas, Louisiana, and other states to gas distribution concerns which resell the gas to local residential and other gas consumers. United also sells directly to industrial customers which use the gas in their own operations, and to other interstate pipeline systems. NOPSI purchases gas from United both for resale to its gas consumer customers ("Resale Gas"), and for NOPSI's own use as boiler fuel to generate the electricity which NOPSI sells to its electricity consumer customers ("Power Plant Gas"). Though initially NOPSI's purchases from United of both Power Plant Gas and Resale Gas were covered by a single contract, subsequently the Power Plant Gas came to be covered by a separate contract between those parties. The instant litigation relates solely to the Power Plant Gas contract, particularly its pricing provisions.

United is a principal supplier--perhaps the principal supplier--of boiler fuel used in NOPSI's three electric generation plants. NOPSI acquires some Power Plant Gas from suppliers other than United, but these sources apparently are not able to furnish more than a fraction of NOPSI's total fuel requirements. 1 NOPSI's plants, or at least the two larger ones, are also capable of burning all grades of fuel oil, and NOPSI has from time to time used fuel oil for the boiler fuel in these plants, when it was cheaper than gas and when gas deliveries were curtailed. However, NOPSI prefers to use gas, as it is cleaner and more efficient.

In 1952 NOPSI and United entered into a contract for NOPSI to purchase from United, during a term expiring on June 1, 1975, all NOPSI's Resale Gas, and Power Plant Gas to the extent of all the fuel requirements of NOPSI's electric power plants. 2 The contract contained provisions for maximum daily amounts of Power Plant Gas, and of all gas, which United would be required to deliver, as well as provisions for increasing these maximums, and in general allowing NOPSI to acquire its power plant fuel elsewhere to the extent that United would not meet requested deliveries over the maximums. A clause was also included generally providing for ratable curtailment, first of Power Plant Gas and then of Resale Gas, "in the event a shortage of gas renders Seller unable to supply the full gas requirements of all its customers, including Buyer ...." Power Plant Gas was priced at 13 cents per thousand cubic feet (mcf) until 1960, with provision for increases at five-year intervals thereafter, to be determined by negotiation based on United's estimated increased costs. Resale Gas was priced according to rate schedules filed and to be filed with the Louisiana Public Service Commission (initially listing 19 cents per mcf for "domestic" gas). When the contract was executed the gas all came from a Louisiana intrastate system then operated by United, and was hence not subject to federal regulation under the Natural Gas Act. Thereafter, United apparently caused this system to become a part of its interstate system. As a result, in 1973 the Federal Power Commission ("FPC," now the Federal Energy Regulatory Commission, "FERC") granted United a "certificate" under the Natural Gas Act covering its furnishing of gas to NOPSI, and the price at which United sold NOPSI Resale Gas became and remains regulated by that federal agency. However, the price of United's Power Plant Gas sales to NOPSI is not and was not regulated under either federal or state law. 3

The 1952 contract was amended on at least one occasion, a 1965 amendment having increased the price of Power Plant Gas to 23 cents per mcf.

On January 31, 1975 United and NOPSI entered into two separate agreements. One, a "Service Agreement," pertained only to Resale Gas, expressly superseded and canceled the 1952 agreement so far as it covered Resale Gas, and was to "become effective on such date as allowed by the Federal Power Commission" and to remain in effect until June 1, 1985. 4 The other that pertinent here, was a January 31, 1975 letter agreement dealing with Power Plant Gas. This letter states that it is an "interim agreement with respect to Power Plant Gas." It recites that the 1952 contract, as amended, will expire on June 1, 1975, has been replaced as to Resale Gas by the Service Agreement, and will not be renewed as to Power Plant Gas. The letter then makes essentially two sets of substantive provisions. First, it amends parts of the 1952 contract so far as it pertains to Power Plant Gas sold from January 1, 1975 until its June 1, 1975 expiration, principally by fixing the price during that period at United's Weighted Average Cost of Gas ("WACOG," apparently then about 50 cents per mcf). The second set of provisions are those with which we are concerned. They deal with the sale of Power Plant Gas after June 1, 1975, when the 1952 agreement expires. In this connection, it is recognized that United may apply to the FPC for abandonment of its Power Plant Gas service to NOPSI "effective on or after June 1, 1975," and the "parties agree that any controversy over whether Power Plant Gas service should continue after the expiration of the [1952] Contract will be resolved solely in the abandonment proceedings before the Federal Power Commission." No obligation is imposed on NOPSI to take Power Plant Gas after June 1, 1975. United is authorized, without liability to NOPSI, to curtail deliveries after June 1, 1975 "pursuant to Seller's Impairment of Deliveries provisions from time to time in effect under Seller's Federal Power Commission Gas Tariff." 5

Paragraph 4 of the 1975 letter agreement deals with the price of Power Plant Gas delivered from June 1, 1975 "until Seller is authorized to abandon Power Plant Gas service." Under paragraph 4A1, this price is initially fixed at 61.84 cents per mcf in excess of United's WACOG for each respective billing month. 6 That price was to remain in effect until June 1, 1976, or the date on which United instituted a "redetermined rate," whichever was later. The present controversy particularly relates to paragraph 4A2 of the 1975 letter, providing that United could, at any time or times after June 1, 1976, unilaterally "institute a redetermined rate," to remain in effect not less than one year, by giving NOPSI sixty days' notice of the specified new rate. If NOPSI did not within thirty days notify United that it agreed to that rate, then NOPSI would "cease taking gas on the date such rejected redetermined rate was to be instituted."

The WACOG plus 61.84 cent per mcf price remained in effect until the January 31, 1975 letter agreement was amended by another letter agreement dated August 22, 1978. 7 This amendment apparently came about because the price of available fuel oil dropped below that of United's Power Plant Gas on an equivalent Btu basis, and NOPSI accordingly reduced its Power Plant Gas purchases from United and began burning fuel oil instead. 8 The August 1978 amendment modified paragraph 4A1 of the 1975 agreement, dealing with the price of Power Plant Gas sold after June 1, 1975, by providing that, from August 1, 1978 "until Seller is authorized [by FERC] to abandon Power Plant Gas Service," the price for Power Plant Gas furnished each month would be the cost to NOPSI of the # 6 fuel oil with equivalent Btu content used that month as boiler fuel at NOPSI's Michoud electric generating station. However, the price per mcf would in no event be greater than 71.84 cents, nor less than 51.84 cents, in excess of United's WACOG for the same...

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