Opposition Brief — K N Energy, Inc. v. Great Western Sugar Co.

No. 84-1746 HAY 23 1008

TEMAS

IN THE = nil

Supreme Court of the Anited States

OCTOBER TERM, 1984

KN ENERGY, INC.,

Petitioner,

V.

THE GREAT WESTERN SUGAR Co.,

Respondent.

On Petition For Writ Of Certiorari To The Supreme

Court Of The State Of Colorado

BRIEF IN OPPOSITION

OF

THE GREAT WESTERN SUGAR COMPANY

HARDIN HOLMES MELVIN RICHTER

KENNETH L. STARR 1050 i7th Street, N.W.

JEFFREY REIMAN Suite 600

HOLMES & STARR Washington, D.C. 20036

717-17th St., Ste. 2440 (202) 331-1194

Denver, CO 80202

(303) 292-1500

Attorneys for

The Great Western Sugar Company

May, 1985

Counsel of Record

BEST AVAILABLE COPY

QUESTIONS PRESENTED

1. Whether the Federal Energy Regulatory Commission

(Commission) has exclusive jurisdiction, such as to oust a

state court of jurisdiction, to adjudicate a suit for breach of

contract against a natural gas company subject to regula-

tion under the Natural Gas Act, arising from the gas com-

pany’s unilateral change in its method of interrupting deliv-

ery of gas, where the gas company was not suffering from a

gas supply shortage and had not implemented a curtailment

plan approved by the Commission.

2. Whether, in a suit for breach of contract brought

against a natural gas company subject to regulation under

the Natural Gas Act, the Colorado courts abused their

discretion in declining to refer any questions to the Commis-

sion under the doctrine of primary jurisdiction, where the

courts determined that they could interpret applicable cer-

_tificates of public convenience and necessity, Commission

policy orders, and the gas company’s tariffs solely as a

matter of law.

3. Whether an award of damages against a gas company

resulting from its breach of contract with a customer con-

stitutes a prohibited undue preference or a viclation of the

filed rate doctrine. '

'The statement required by Rule 28.1 is set out in the Appendix pp.

la-2a. Contrary to KN’s assertion (Pet., p. 1, fn. 2), neither the

Commission nor the Interstate Natural Gas Association of America

(INGAA) participated as parties in the Supreme Court of Colorado.

The Commission did not file a petition for a writ of certiorari; nor did

INGAA file a petition to intervene. Rather, both filed only amicus

briefs in support of certiorari. Neither filed a brief on the merits once

the Colorado Supreme Court excluded the primary jurisdiction ques-

tion from its grant of certiorari.

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED .......-0+ eee eeeeeeeeeeeees i

J

Crear REI na cok sas c cs cos ca akas kenge eres 1

bot eS Os arn Inn ENCE ere y tng rir. 1

QraTEMENT OF FACTS ......-.cccccsscccscsscssccss 2

I es kc ck bs decent tte eeae 2

PROCEEDINGS IN COLORADO COURTS .......... 5

DTN in ccdnas suk eons eee lensasns Rae’ 10

I. THE COMMISSION DoES NoT HAVE “EXCLUSIVE

AND CONTINUING JURISDICTION” OVER THIS

BREACH OF CONTRACT DISPUTE ..........---- 10

Il. THE COLORADO COURTS PROPERLY REFUSED TO

REFER ANY ISSUES TO THE COMMISSION ...... 13

A. The Doctrine of Primary Jurisdiction Does Not

pe 6 epee ey re tre ee 13

B. None Of The Commission Materials Relied On By

KN Operated To Relieve It Of Its Contract Obli-

gations To GSW ........ eee e eee ee eee eens 16

1. Commission Certificates Issued To KN .... 16

2. Commission Policy Statements .........-. 18

i te erate rire re mer hire 19

Ill. A DAMAGE AWARD FoR BREACH OF CONTRACT

NEITHER RESULTS IN AN UNLAWFUL UNDUE

PREFERENCE NoR VIOLATES THE FILED RATE

CE nc chk eee ua eecl eee eee 21

COMOEAIION Cs. ko. cakes en nee eae eee

ih paler A a Sa ta

iti

TABLE OF AUTHORITIES

CouRT CASES Page

Brown v. Gerdes, 321 U.S. 178, (1944) .............. 13

Cantor v. Detroit Edison Co., 428 U.S. 579 (1976) .... 14

Federal Power Commission v. Louisiana Power & Light

Ce OD cs sc ec de'ds scbaceus cs 11

Federal Power Commission v. Sierra Pacific Power Co.,

ER es a ree er Pee 20

Federal Power Commission v. Transcontinental Gas Pipe

Line Corp., 423 U.S. 326 (1976) .............05. 11

Great Northern Ry. Co. v. Merchant’s Elevator Co., 259

ERE SS AS GR ay ee eee en 13

Hercules Inc. v. Federal Power Commission, 552 F.2d 74

esis wlivn so N bees «a's Pb a 12

Kansas-Nebraska Natural Gas Co., Inc. v. Consumers

Public Power Dist., 179 Neb. 687, 140 NW.2d 10

NN A eae ee ee ee 1]

Nader v. Allegheny Airlines, Inc., 426 U.S. 290

whan enue bee 15, 16

Pacific Gas & Electric Co. v. Federal Power Commission,

a we Eo | a a 12, 16

Pan American Petroleum Corp. v. Kansas-Nebraska

Natural Gas Co., Inc., 297 F.2d 561 (8th Cir.) cert.

Gemted, 70 U.S. 987 (1962)... ..............5. 11, 22

Pan American Petroleum Corp. v. Superior Court, 366

ear has po aka ok Lb ska weer sods 4 11

Panhandle Eastern Pipe Line Co. v. Public Service Com-

mission of Indiana, 332 U.S. 507 (1947) ......... 13

Regents of U ..versity System of Georgia v. Carroll, 338

ee a nig oS din bas oan oo ke 0's 15

Testa v. Katt, 330 U.S. 386 (1947) ................05. 13

United Gas Pipe Line Co. v. Mobile Gas Service Corp.,

ee 11, 14-15, 16, 20

United States v. Western Pacific R. Co., 352 U.S. 59

I Oak ak os oka A cod conse ovens 13, 14

iv

Table of Authorities Continued

Page

W.R. Grace and Co. v. Local Union 759, 461 U.S. 757

Cas is chance RA wh ak a a 14

COMMISSION DECISIONS

Kansas-Nebraska Natural Gas Co., Inc., 30 FPC 356

EN ir RE cian ta eend os u0s t EMA dee dba 3

Kansas-Nebraska Natural Gas Co., Inc., 58 FPC 2890

NEE cig occas SEAS e aw detdaw had eanebees §, 12

Kansas-Nebraska Natural Gas Co., Inc., 59 FPC 854

(19t6), aff'd, SB FPC SOL (IGT!) ow. ccc cca ee es 8, 12

Kansas-Nebraska Natural Gas Co., Inc., 59 FPC 1776

ee ra irk kad hae aide ches hk ree 12

Kansas-Nebraska Natural Gas Co., Inc., 6 FERC

EE EE ed ina ovale anne bs eoRS oe 4, 8, 12, 20

Kansas-Nebraska Natural Gas Co., Inc., 17 FERC

& to |) ee ene e me ere ew rs et 4, 12

Kansas-Nebraska Natural Gas Co., Inc., 30 FERC

RE igs cir eebacwncsa ean eneeses 10, 12, 14

MISCELLANEOUS

Colo. R. Civ. P.

Eee CRSE Re eer ee es perce ere p 21

ea a vanhins (acu cdunee An Vae ANAS 21

ae Be Be Nii. TRF. och va cnsencasednnens 2

Section 7(a), 16 U.S.C. Ti7fla) .......... swe naw 16

Order No. 431, 45 FPC 570 (1971) ............. 16, 18, 19

Order No. 467B, 49 FPC 583 (1973) ............... 12, 19

Order No. 498, 50 FPC 1954 (1973) ............ 16, 18, 19

Be Fm PSSST eres TTT eee Cee eee ee 5

IN THE

Supreme Court of the United States

OCTOBER TERM, 1984

KN ENERGY, INC.,

Petitioner,

V.

THE GREAT WESTERN SUGAR Co.,

Respondent.

On Petition For Writ Of Certiorari To The Supreme

Court Of The State Of Colorado

BRIEF IN OPPOSITION

OF

THE GREAT WESTERN SUGAR COMPANY

OPINIONS BELOW

The opinion of the Colorado Supreme Court (Pet. App.,

pp. la-32a) is unreported. The opinion of the Colorado Court

of Appeals (Pet. App., pp. 33a-56a) is reported at 661 P.2d

684 (1982).

JURISDICTION

The opinion of the Colorado Supreme Court was issued

January 14, 1985 (Pet. App., p. la). Petitioner's timely ap-

plication for rehearing was denied on February 6, 1985. The

jurisdiction of this Court is invoked under 28 U.S.C.

§ 1257(3).

STATEMENT OF FACTS

Background: Petitioner, KN Energy, Inc. (KN),* trans-

ports and sells natural gas in interstate commerce and, as

such, is subject to regulation by the Federal Energy Reg-

ulatory Commission,’ under the Natural Gas Act, 15 U.S.C.

§ 717 et seg. Respondent, The Great Western Sugar Com-

pany (GW), has been engaged in the business of processing

sugar beets into sugar. GW purchased natural gas directly

from KN for its factories at Ovid and Sterling, Colorado and

Scottsbluff, Nebraska. For its plant at Goodland, Kansas,

GW purchased gas from the Peoples Division of Northern

Natural Gas Company (Northern) which, in turn, was sup-

plied by KN.

Pursuant to Commission certificates of public con-

venience and necessity (certificates) and contracts which

date back to 1955 and which were renewed throughout the

relevant time period without material change, KN sold

natural gas to GW under interruptible contract provisions

which provided in pertinent part:

KN . . . in its absolute discretion and without liability

to Buyer for damages or otherwise, shall have the right

to... interrupt ... delivery of gas to Buyer here-

under as and whenever from time to time KN is re-

quired to do so in order to meet the demands of domes-

tic and commercial users or other users having a higher

priority of service. (Pet. App., p. 3a).

*Formerly Kansas-Nebraska Natural Gas Company, Inc.

3We refer to the Federal Energy Regulatory Commission and its

predecessor the Federal Power Commission as the Commission.

Whenever service was “interrupted” under this provision,

GW was required to use more expensive fuel oil in its

factories.

From 1955 until November 7, 1973, KN determined

when to interrupt under these contract provisions by com-

paring its anticipated demand over the next 24 to 36 hours

with its anticipated supply, including all gas available from

its storage facilities.* As a result, from the time that its first

storage facility commenced operations in 1964 to November

7, 1973, KN used storage gas as well as flowing gas to meet

the needs of all of its customers, interruptible as well as

firm. Even when the comparison indicated a need for. some

interruption, KN would still deliver gas to as many inter-

ruptible customers as possible. The Colorado courts called

this KN’s “historical 24 to 36 hour analysis.” See Pet. App.,

p. 5a.

On November 7, 1973, KN abandoned its historical 24 to

36 hour analysis without seeking to amend its contracts

with GW and without seeking the approval or authorization

of the Commission. See Pet. App., p. 5a. KN unilaterally

embarked upon a new policy for delivering gas to interrupti-

ble customers (“the storage withdrawal inter1uption pol-

icy”), under which yas deliveries to interruptible customers

were cut off whenever, and for as long as, KN was withdraw-

ing gas from storage, even when KN could otherwise have

served those customers by drawing on all sources of supply

as it had traditionally done under the historical 24 t- 36 hour

analysis. |

Under the historical 24 to 36 hour analysis, KN had

interrupted service to GW on an average of about 5 days per

‘KN'’s first storage facility (Huntsman) was authorized by a Com-

mission certificate issued in 1963. Kansas-Nebraska Natural Gas

Co., Inc., 30 FPC 356 (1963).

“campaign,” the approximately four month period during

which sugar beets are processed into sugar. Under the

storage withdrawal interruption policy, those interruptions

increased dramatically to an average of about 50 per cam-

paign during the 6 year period at issue in the Colorado

lawsuit. KN readily admitted in the Colorado courts that

this increase resulted directly from its adoption of the stor-

age withdrawal interruption policy.

Almost two years after adopting the new policy, on Au-

gust 29, 1975, KN unilaterally filed with the Commission

tariff sheets which stated (Pet. App., pp. 23a-25a):

Seller shall not be required to remove gas from gas

storage reservoirs for delivery to consumers served by

Seller on an interruptible basis or under interruptible

service rate schedules in this Tariff.

The Commission suspended these tariff provisions for the

statutory period of five months and then permitted them to

become effective as of March 14, 1976, pending final Com-

mission approval. Pet. App., pp. 38a-39a.

A hearing on the lawfulness of these provisions (along

with further tariff sheets filed in December 1976 establish-

ing priorities of service) was conducted in Commission

Docket No. RP76-90. After extensive proceedings in that

Docket, including an Initial Decision of the Administrative

Law Judge finding KN’s tariff to be unlawful, 6 FERC

{ 63,055 (1979), the Commission by order issued November

2, 1981, 17 FERC 4 61,102 (1981), accepted a settlement by

the parties terminating the proceeding. In accepting the

settlement, the Commission twice expressly pointed out

that:

The approval of this Stipulation and Agreement shall

not constitute approval of or precedent regarding any

eee nt ap specced Ri

ee ee ee eet

principle or issue in these proceedings (17 FERC at pp.

61208-09, 61210).

When the issue of KN’s storage withdrawal interruption

policy arose in Docket No. RP76-90, the Administrative

Law Judge concluded that the Commission had not pre-

viously authorized the policy and that the courts would have

to resolve its propriety:

As for the pipeline’s claim that it has been cutting off

service to some customers for substantial periods of

time even before now, it has certainly not done this

pursuant to authority granted by the FPC. Instead,

the pipeline apparently has proceeded on the basis of

contracts or a tariff on file with a state agency allowing

it to cut off service to “interruptible” customers. It

remains for the Courts to decide whether these con-

tracts or the state tariff actually give the pipeline un-

limited authority, as it seems to claim, to cut off service

indefinitely to these interruptible customers. Cer-

tainly on one occasion, at least, it was ruled that the

pipeline lacked such authority.

58 FPC 2899, 2905-06 (1977) (footnote and citation omitted).

Although exceptions were taken from this Initial Decision,

see 5 U.S.C. $557, KN, GW, and the Commission’s Staff did

not take issue with the findings quoted above; and although

the Commission reversed other portions of that Decision, 58

FPC 2890 (1977), the Commission, which had the power to

reverse or modify those findings on its own motion, 5 U.S.C.

$557(b), did not do so. GW accordingly sued KN in the

Colorado courts.

F roceedings In Colorado Courts: GW filed its complaint

against KN in January 1978, claiming that KN’s unilateral

abandonment of its historical 24 to 36 hour analysis in favor

of the storage withdrawal interruption policy constituted a

breach of KN’s contracts with GW. Pet. App., p. 6a.° On May

2, 1978, KN moved the trial court to refer portions of the

dispute to the Commission under the doctrine of primary

jurisdiction. Pet. App., p. 6a. The trial court denied this

motion on August 11, 1978, and subsequently also denied

KN’s motions to reconsider.

Thereafter, GW moved for partial summary judgment on

the ground that KN’s November 1973 unilateral adoption of

the storage withdrawal interruption policy constituted a

breach of KN’s contracts for service to GW’s Ovid, Sterling,

and Scottsbluff factories. Pet. App., p. 6a. KN also moved

for summary judgment, asserting that certain Commission

tariffs, certificates, and orders required KN’s change of

policy. Pet. App., p. 7a.’ The trial court granted GW’s mo-

tion but denied KN’s motion, ruling that the applicable

°Although GW’s complaint as filed also alleged fraud and named

Northern as a defendant, the issues before the Colorado Supreme

Court involved only contract claims by GW against KN.

SKN filed motions for reconsideration of the primary jurisdiction

issue in February and April 1979. The Commission filed an amicus

brief supporting the latter motion. However, the trial court denied

both motions. In June 1979, two weeks before the scheduled trial

date, KN sought a writ of prohibition from the Colorado Supreme

Court, arguing that the trial court erred in failing to refer the matter

to the Commission. This petition was denied. Also in June 1979, KN

sued GW in the United States District Court for the District of

Nebraska, Docket No. CV 79-L-164, seeking to enjoin trial by virtue

of the trial court’s alleged error on the primary jurisdiction issue.

KN’s Motion for a Temporary Restraining Order was denied shortly

thereafter, and the case went to trial as scheduled on July 2, 1979.

"Despite having argued previously that only the Commission could

interpret these tariffs, certificates, and orders, KN advanced no

reason (either its motion for summary judgment or in its memoran-

dum opposing GW’s motion) why the trial court was incapable of

reviewing those agency directives and interpreting their plain lan-

guage as a matter of law.

contracts did not allow KN unilaterally to withhold any

sources of supply from service to GW and that this obliga-

tion was not modified in any way by the various Commission

tariffs, certificates, and orders cited by KN. Pet. App., p.

=

A jury trial was held on the issue of GW’s damages after

that summary judgment ruling, as well as a second ruling

affecting GW’s Goodland plant. Pet. App., pp. 7a, 46a-48a.°

The jury awarded GW damages in excess of $1,000,000 for

its four plants. Pet. App., p. 8a."

Although KN has suggested that it was simply protecting

its high priority customers by adopting the storage with-

8As a separate basis for holding that KN had breached its con-

tracts, the trial court also determined that KN was obligated to

employ the same method it had used for 18 years before November

1973 in.determining when to interrupt. Pet. App., p. 44a. This ruling

was based in part on depositions of KN’s personnel as to how they

historically had acted under contract with GW, and in part on KN’s

express representations to GW about using storage gas in serving

GW’s needs.

*The trial court held that by interrupting service pursuant to the

storage withdrawal interruption policy, KN had breached the service

agreement under which KN supplied gas to Northern for ultimate

distribution, among others, to the Goodland plant, and that GW could

be a third party beneficiary of that service agreement, Pet. App., pp.

7a, 46a. The jury specifically found that KN and Northern intended to

confer benefits on GW among others. Pet. App., p. 46a. KN does not

contend here that these factual findings were erroneous.

Contrary to KN’s assertion (Pet., pp. 15-16), the trial court (as

well as the Colorado appellate courts) recognized KN’s contractual

discretion to interrupt service to GW under appropriate circum-

stances, and permitted KN to present evidence justifying any inter-

ruption of service in an effort to reduce GW’s damages (see Pet. App.,

pp. 54a-55a). KN, however, did not introduce any evidence justifying

any interruption. /d.

drawal interruption policy, the evidence presented to the

trial court and jury—out of the mouths of KN’s own ex-

ecutives and directors—overwhelmingly showed that de-

spite some declines in reserves and deliverability, KN had

ample gas supplies to continue operating under the histor-

ical 24 to 36 hour analysis; but that “economics were a

factor” in KN’s unilateral adoption of the new policy because

interruptible sales were “thin-margin sales” and storage

gas was “expensive gas.”"

Following denial of their post-trial motions, both KN and

GW took appeals to the Colorado Court of Appeals. Pet.

App., pp. 33a-56a. In its opinion, the Court of Appeals inter

alia rejected KN’s contention, supported by the amicus

brief filed by the Commission, that the trial court had

abused its discretion by failing to refer certain issues to the

Commission under the doctrine of primary jurisdiction. The

Court reasoned that the issues presented were common law

contract claims, and that the agency directives cited by KN

could be interpreted as a matter of law. Pet. App., p. 42a.

The Court of Appeals also affirmed the trial court’s hold-

ing that in switching from the historical 24 to 36 hour

analysis to the storage withdrawal interruption policy, KN

“See also Kansas-Nebraska Natural Gas Co., Inc., 59 FPC 854,

858-59 (1976), aff'd, 59 FPC 851 (1977) (precluding KN from abandon-

ing service to its lowest priority customers because it “had the

unquestioned ability to meet the full requirements of all its customers

for many years to come.” The Administrative Law Judge there con-

cluded that KN’s abandonment application was no more than a thinly

disguised effort to reduce sales with a low profit margin); Kansas-

Nebraska Naturul Gas Co., Inc., 6 FERC 4 63,055 at 65,322 (1979)

(KN’s standby curtailment plan found unlawful in that KN had ample

gas supplies and was using the plan to discriminate against its inter-

ruptible customers. The Administrative Law Judge, alluding to the

fact that interruptible customers furnish less revenue to KN than the

firm users, concluded that the plan was “motivated by Kansas-

Nebraska's pocketbook”).

tants iii Se actin LE a ial

had breached its contracts with GW. Pet. App., pp. 48a-45a.

Further, it ruled that none of the Commission directives

relied on by KN authorized or required KN’s change in

policy. Pet. App., pp. 37a-38a, 45a.”

Following the Court of Appeals’ denial of KN’s application

for rehearing on July 15, 1982, KN on September 16, 1982

filed a petition for a writ of certiorari with the Supreme

Court of Colorado urging error by the Court of Appeals in

declining to direct a reference to the Commission under the

doctrine of primary jurisdiction and in making certain sub-

stantive rulings. The Commission and INGAA filed amicus

briefs supporting certiorari on the primary jurisdiction

question. See n.1, supra. The Colorado Supreme Court on

March 21, 1983 denied certiorari on the primary jurisdiction

question, but granted certiorari on the substantive ques-

tions raised in KN’s petition.

By opinion issued January 14, 1985, Pet. App., pp. la-32a,

the Colorado Supremie Court affirmed the decision of the

Court of Appeals, holding inter alia that the various Com-

mission directives relied on by KN neither imposed an

obligation requiring the storage withdrawal interruption

policy nor immunized KN from contract liability. Pet. App.,

pp. 15a-25a."*

“On GW’s own appeal, the Court of Appeals held that KN did not

present any evidence justifying any of its interruptions to GW (see

n.10 supra), and that GW was therefore entitled to a directed verdict

on the issue of its damages for each of the roughly 250 days on which

interruptions occurred during the relevant time period. Pet. App.,

pp. 54a-56a.

‘SKN alludes (Pet., p. 10, fn.12) toa declaratory judgment proceed-

ing which it initiated with the Commission on August 5, 1982, after

the Colorado Court of Appeals’ denial of rehearing and before KN

filed its certiorari petition with the Colorado Supreme Court. Since

KN has alluded to that proceeding, it is only appropriate to note that

10

ARGUMENT

No question of general importance is presented. This is a

common law breach of contract dispute between a gas com-

pany and one of its customers. While the gas company

invoked federal law in its defense, the Colorado courts were

competent to apply and interpret that federal law, and did so

correctly. The petition for a writ of certiorari should be

denied.

I. The Commission Does Not Have “Exclusive And Con-

tinuing Jurisdiction” Over This Breach Of Contract

Dispute.

Despite KN’s conclusory argument (Pet., pp. 13-15) about

the Commission's “exclusive and continuing jurisdiction”,

this Court has already held that state courts have jurisdic-

tion to resolve breach of contract disputes involving the sale

of natural gas:

The rights as asserted by [the plaintiff] are traditional

common law claims. They do not lose their character

because it is common knowledge that there exists a

scheme of federal regulation of interstate transmission

of natural gas.

based on the separate record there made, the Administrative Law

Judge on February 27, 1985 issued his Initial Decision agreeing in

every substantive respect with the findings and conclusions of the

Colorado courts. 30 FERC 4 63,049 (1985). But both because the

agency record is distinct from the record made in the Colorado

proceeding and because the Colorado courts correctly exercised their

discretion not to refer any aspect of the dispute to the Commission,

GW submits that the ongoing Commission declaratory judgment

proceeding, regardless of its outcome, is of no moment for purposes of

this Court’s consideration of KN’s Petition.

11

Pan American Petroleum Corp. v. Superior Court, 366

U.S. 656, 663 (1961)."*

In the natural gas industry, arrangements are “estab-

lished initially by contract,” United Gas Pipe Line Co. v.

Mobile Gas Service Corp., 350 U.S. 332, 339 (1956), the

terms of which cannot be abrogated unilaterally by the gas

company. /d., at 339-40. The Commission's power to »odify

a gas companys contractual obligations (and thereby frus-

trate “the integrity of contracts”) is limited to those special

circumstances where it is “necessary in the public interest.”

Id., at 344.

To be sure, curtailment is one situation where the courts

have considered it “necessary in the public interest” for the

Commission to abrogate inconsistent contractual obliga-

tions. Federal Power Commission v. Louisiana Power &

Light Co., 406 U.S. 621 (1972). When a gas company is

experiencing curtailment, it is suffering from an “inade-

quate supply of natural gas”, id., at 623; Federal Power

Commission v. Transcontinental Gas Pipe Line Corp., 423

U.S. 326 (1976), and the Commission therefore had the

4See also Pan American Petroleum Corp. v. Kansas-Nebraska

Natural Gas Co., Inc., 297 F.2d 561, 567-68 (8th Cir.), cert. denied,

370 U.S. 937 (1962), where KN convinced the courts that the Com-

mission did not have “exclusive jurisdiction” but, rather, that the

courts had jurisdiction over breach of contract disputes involving the

sale of natural gas because “the Natural Gas Act does not give the

right to gas companies to abrogate their contract obligations.” More-

over, despite its current claim that the Commission has “exclusive

and continuing jurisdiction” over all issues involving the transporta-

tion of natural gas, KN invoked the courts in suing one of its interrup-

tible customers to obtain a declaratory judgment as to its rights and

obligations in transporting gas to that customer. Kansas-Nebraska

Natural Gas Co., Inc. v. Consumers Public Power Dist., 179 Neb.

687, 140 NW.2d 10 (1966).

12

authority to devise a reasonable way to ration those limited

gas supplies. /d.; see also Order 467B, 49 FPC 583 (1973).

In contrast, the Commission has, time and again, recog-

nized that KN did not experience any gas supply shortage

during the relevant time period. E'.g., Kansas-Nebraska

Natural Gas Co., Inc., Docket No. CP74-299, 59 FPC 851,

852-53 (1977); Kansas-Nebraska Natural Gas Co., Inc.,

Docket No. RP76-90, 59 FPC 1776, 1780-81 (1977); see also

59 FPC 854 (1976); 58 FPC 2899 (1977); 6 FERC { 63,055

(1979); and 30 FERC 4 63,049 (1985) (holding that KN had

adequate gas supplies, that indeed KN had perhaps the best

gas supply of any gas company in the Nation, and that KN

was not experiencing curtailment at any time during the

relevant time period).’°

Nor is the Commission's jurisdiction over this dispute

somehow “exclusive” merely because it issued certain direc-

‘5 Although KN did file a curtailment plan in 1976, that plan was

never approved by the Commission. Kansas-Nebraska Natural Gas

Co., Inc., 17 FERC 4 61,102 (1981); 6 FERC { 63,055 (1979), Pet.

App., pp. 23a-25a. Moreover, in light of KN’s ample gas supply, the

Commission accepted the filing of the plan on only a standby basis, to

be available should KN suffer a gas supply deficiency at some future

time. See Kansas-Nebraska Natural Gas Co., Inc., 58 FPC 2890,

2892 (1977); 59 FPC 1776, 1780-81 (1977); see also Pet. App., p. 25a, n.

14. The Commission in those rulings expressly distinguished be-

tween KN’s “filing” of a curtailment plan on a standby basis and KN’s

“implementation” of that plan, which never validly occurred. /d.; see

also Pacific Gas & Electric Co. v. Federal Power Commission, 506

F.2d 38, 42 (D.C. Cir. 1974); Hercules Inc. v. Federal Power Commis-

sion, 552 F.2d 74, 87-88 (8rd Cir. 1977) (both holding that a curtail-

ment plan cannot serve to override inconsistent contractual obliga-

tions until the gas company is experiencing curtailment and its

curtailment plan has been approved by the Commission); 6 FERC

{ 63,055 at 65,320 (1979) (distinguishing between “interrupting”

service where there is an adequate gas supply but not enough

pipeline capacity, which was the situation faced by KN, and “curtail-

ing” service because of inadequate gas supplies, which KN never did).

Sh ro a at A ai 2 END eh ie 6 Es A RT

13

tives affecting KN’s service to GW. The power to issue a

directive has never carried with it, without more, the ex-

clusive power to interpret it. See United States v. Western

Pacific R. Co., 352 U.S. 59, 65-66 (1956); Great Northern

Ry. Co. v. Merchant’s Elevator Co., 259 U.S. 285 (1922)

(both holding that courts are competent to interpret an

agencys directives when the issues do not involve the agen-

cys special expertise and involve solely questions of law).

That is because the issuance of a law or directive, 7.e., a

legislative function, has historically been considered dif-

ferent from the interpretation of it, 7.e., an adjudicative

function. Cf Brown v. Gerdes, 321 U.S. 178, 188 (1944)

(Frankfurter, J., concurring).*®

Thus, although Lowisiana Power & Light held that the

Natural Gas Act gave the Commission jurisdiction to devise

curtailment plans, such jurisdiction is not so broad as to be

primary or exclusive in the sense that, in the absence of

curtailment, it ousts a court of jurisdiction to entertain a

damage action for breach of contract.

II. The Colorado Courts Properly Refused To Refer Any

Issue To The Commission.

A. The Doctrine of Primary Jurisdiction Does Not As-

sist KN.

Although KN speaks in terms of the Commission's “exclu-

sive jurisdiction”, it argues (Pet., p. 17) that certain issues

‘6Moreover, the fact that a federal regulation overrides a conflicting

state regulation under tne Supremacy Clause (as this Court held in

Panhandle Eastern Pipe Line Co. v. Public Service Commission of

Indiana, 332 U.S. 507 (1947), relied on by KN (Pet., pp. 13-14)) does

not deprive the state courts of jurisdiction. It simply means the state

courts must apply the federal directive in resolving the dispute. See

Testa v. Katt, 330 U.S. 386 (1947) (state courts obligated to enforce

federal law).

14

“ought to have been referred to the agency”, thereby sug-

gesting that it is actually relying on the doctrine of primary

jurisdiction. But since that latter doctrine is premised upon

the notion that GW’s contract claim is “originally cognizable

in the courts”, United States v. Western Pacific R. Co., 352

U.S. 59, 64 (1956), KN’s reliance on that doctrine undercuts

its contention that the Commission has “exclusive jurisdic-

tion” over this dispute.

KN argues (Pet., pp. 17-18) that the Colorado courts used

a “mistaken approach” of inquiring into whether the Com-

mission's directives were “inconsistent” with KN’s contract

obligations. According to KN, a correct approach—and the

one which the Commission would presumably use if the

matter were referred to it'—is to inquire whether the

Commission's directives merely permitted the storage with-

drawal interruption policy. In fact, it is KN’s approach, not

that of the Colorado courts, which is “mistaken”: this Court

has consistently held that a regulated company cannot abro-

gate its common law and other obligations merely by com-

plying with a regulatory directive where compliance is not

required or where the company could have avoided the

directive’s issuance or effect. E.g., W. R. Grace and Co. v.

Local Union 759, 461 U.S. 757 (1983) (conciliation agree-

ment with EEOC does-not abrogate an employer's con-

tractual obligations under a collective bargaining agree-

ment); Cantor v. Detroit Edison Co., 428 U.S. 579 (1976)

(tariff which obligates public utility to distribute free light

bulbs does not exempt the utility from antitrust liability

where utility was actively involved in drafting tariff);

"Unfortunately for KN, the Commission’s Administrative Law

Judge presiding over the pending declaratory judgment proceeding,

in rejecting all of KN’s substantive contentions, see n. 13, supra,

analyzed these issues in the same “mistaken” way as did the Colorado

courts. See 30 FERC 4 63,049 (1985).

Mo oa fo cas NAIA ie nh EN la :

15

United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350

U.S. 332 (1956) (gas company cannot abrogate contractual

obligations by unilaterally filing inconsistent tariff provi-

sion); Regents of University System of Georgia v. Carroll,

338 U.S. 586 (1950) (FCC licensee who repudiates a con-

tract at the specific behest of Commission as a prerequisite

to obtaining renewal of broadcasting license is still liable for

contract breach).

The division of court and agency responsibility, which the

doctrine of primary jurisdiction is designed to foster, is

graphically illustrated in Nader v. Allegheny Airlines, Inc.,

426 U.S. 290 (1976). Noting that the plaintiff was seeking to

recover damages incurred as a result of an airline’s failure to

disclose its overbooking practices, this Court set aside an

agency referral directed by the Court of Appeals, finding

that none of the issues involved related to the reason-

ableness of the airline practices and, therefore, the issues

involved were within the conventional competence of the

courts. Jd., at 305-6.

Here as well, no agency input was needed to resolve the

issues involved. GW’s complaint in the Colorado litigation

was that KN had breached its contracts by unilaterally

switching the basis on which it interrupted service to GW.

There was no question presented as to the reasonableness of

KN’s underlying obligations. To the contrary, the basic

question presented involved construction of the contract

language dealing with interruption of service. Indeed, GW

was directed to the courts by the Administrative Law Judge

in RP76-90 to resolve this very issue.

Likewise, agency input was not required by the fact that

KN invoked various Commission directives by way of de-

fense. Again, whatever the Commission's jurisdiction may

be with regard to the promulgation or reasonableness of

16

such agency directives, the questions here, as KN admits

(Pet., p. 17), related solely to their interpretation and ap-

plicability to the instant situation as a legal matter. Here, as

in Nader, the Colorado courts were competent to decide

these questions without agency assistance.

B. None of the Commission Materials Relied On By

KN Operated To Relieve It Of Its Contract Oblig=-

tions To GW. 7

KN claims (Pet., pp. 17-24) that its storage withdrawal

interruption policy was proper in light of certain of the

Commission's orders and certificates, as well as KN’s tariffs.

Even if those directives authorized that policy—and it is

clear that they do not as discussed below—they do not

protect KN under the facts of this case. The “orders” were

by their own terms non-binding statements of general pol-

icy;** the certificates—the issuance of which KN actively

obtained—could not protect KN since, under the Natural

Gas Act, the Commission has “no authority” to issue a

certificate “when to do so would impair [the gas company’s]

ability to render adequate service to its customers”, 15

U.S.C. § 717f(a); and the courts specifically found that the

tariffs were consistent with the contracts and in any case did

not override the contracts because they were filed uni-

laterally, Pet., App., pp. 22a-24. see United Gas Pipe Line

Co. v. Mobile Gas Service Corp., 350 U.S. 332 (1956), factual

findings which KN does not contest.

KN’s argument (Pet., pp. 3, 17-24) that the holdings of the

Colorado courts conflicted with its obligations under the

Natural Gas Act does not withstand a review of the Com-

mission directives that KN cites.

See Order No. 431, 45 FPC 570 (1971); Order No. 498, 50 FPC

1954 (1973); see also Pacific Gas & Electric Co. v. Federal Power

Commission, 506 F.2d 33, 35-38 (D.C. Cir. 1974) (discussing the non-

binding nature of these general statements of policy).

17

1. Commission Certificates Issued To KN: KN contends

(Pet., pp. 15, 18) that the holdings of Colorado courts in

effect convert its interruptible service to GW to firm service

and therefore violate the condition, in the certificate issued

by the Commission for service to GW’s Ovid plant, prohibit-

ing firm service to interruptible customers without further

Commission authorization.

But in so arguing, KN misstates the rulings of the Colo-

rado courts. As noted by the Colorado Supreme Court (Pet.

App., p. 16a):

The dispute in the case focuses not on whether the

contract permits interruptible service but rather on

the manner in which interruptions are to be

implemented.

In other words, prior to the adoption of the storage with-

drawal interruption policy, KN provided service to GW’s

plants under the historical 24 to 36 hour analysis which

resulted in only infrequent interruptions. A finding that the

greatly increased interruption resulting under that new

policy constituted a breach of contract is directed only to the

extent of the interruptions, and does not convert interrupti-

ble to firm service.

KN also argues (Pet., p. 19) that the Commission issued

certificates for storage fields to enable KN to serve firm

customers and therefore the gas from these fields could not

legally be used to serve interruptible customers. But prior

to KN’s adoption of the storage withdrawal interruption

policy in 1973, KN had, in the normal course and without

suggesting any impropriety, withdrawn gas from storage as

needed to serve interruptible customers. Not only is there

no suggestion in any certificate that the interruptible cus-

tomers are not to be served by the certificated facilities, but,

as discussed above, the Natural Gas Act precludes the

18

Commission from issuing certificates that result in dramat-

ically reduced service (such as resulted from the storage

withdrawal interruption policy, see p. 4, swpra) to existing

customers.

Finally, KN urges (Pet., p. 19) that the Commission

certificate issued for the Big Springs Storage Field had

indicated that the field was needed to help KN meet its

future peak requirements. But such purpose is not incon-

sistent with serving interruptible customers out of storage

when the gas is available—in contrast to the flat prohibition

against such service mandated by the storage withdrawal

interruption policy.’

2. Commission Policy Statements: KN invokes (Pet., p.

20) two statements of general policy issued by the Commis-

sion, Order No. 431, 45 FPC 570 (1971), and Order No. 498,

50 FPC 1954 (1973). The plain language of these policy

statements rebuts any suggestion that they authorized or

required KN’s unilatera! adoption of the storage withdrawal

interruption policy. The policy statements were addressed

to gas companies experiencing severe gas supply shortages,

not KN. See pp. 11-12, swpra. By their own terms, the

policy statements were not binding; did not require gas

companies to take any specific action; and certainly did not

require them to breach their contracts or unilaterally

change their contractual performance. Indeed, Order No.

‘® As the Colorado Supreme Court pointed out (Pet. App., p. 17a), in

interpreting the certificate’s plain language as a matter of law, the

Commission’s comment on the storage withdrawal interruption poi-

icy in its Big Springs orders (also referred to by KN (Pet., p. 19)),

“merely recognized KN’s unilaterally-imposed policy and was not

made a condition to the issuance of [that] certificate.”

19

431” provided that gas companies facing supply shortages

should file tariff sheets setting out proposed curtailment

plans which, “if approved by the Commission, will control in

all respects notwithstanding inconsistent provisions in sales

contracts.” 45 FPC at 572 (emphasis supplied). And Order

No. 498 merely “requested” that pipelines “consider” taking

certain actions “where possible,” 50 FPC at 1957, language

emphasizing the purely advisory character of the Order.”

3. KN’s Tariffs: The Colorado courts ruled that KN’s

tariffs filed in 1975 and 1976 did not immunize KN from

liability for two independent reasons. One reason was that

under the plain language of the tariffs, KN was free to serve

interruptible customers even while withdrawing gas from

storage. Thus, since there was no conflict between the

tariffs’ plain language and KN’s contractual obligations, the

tariffs could not serve as a defense. Pet. App., pp. 20a-25a.

KN does not question this ruling, which serves as an inde-

pendent reason for uphoiding the Colorado courts’

conclusion.

Order No. 431 was issued in April 1971, 2% years before the

adoption of the storage withdrawal interruption policy, during which

time KN continued to operate under the historical 24 to 36 hour

analysis. And Order No. 498, issued in December 1973, after KN

unilaterally adopted that policy, hardly constitutes a Commission

requirement that the policy be adopted.

“KN also relied below on Order No. 467B, 49 FPC 583, 584 (1973)

(Pet. App., pp. 19a-20a, 45a). That Order destroys KN’s position here,

for it recognizes that a gas company which cuts back on service to its

customers—without first being in curtailment and operating under a

Commission-approved curtailment plan—does so at the “risk of civil

liability.” As discussed at pp. 11-12 swpra, KN was never in curtail-

ment during the relevant time period and never operated under an

approved curtailment plan.

20

Instead, KN attacks only the Colorado courts alternative

holding that if the tariff" were somehow inconsistent with

KN’s contract obligations to GW, the unilateral nature of its

filing would not cause an abrogation of KN’s contractual

obligations under the Mobile-Sierra doctrine.“ Even here,

KN does not question the validity of the courts’ factual

conclusion (Pet. App., pp. 22a-24a) that the tariff was filed

unilaterally. Instead, it contends (Pet. pp. 23-24) only that

GW did not raise this argument in the Commission proceed-

ings in RP76-90, and therefore that GW had failed to ex-

haust its administrative remedies.

But in so arguing, KN improperly assumes that the tariff

mandated the storage withdrawal interruption policy—an

assumption belied by the Colorado courts’ primary holding

not questioned by KN here. Moreover, KN ignores the fact

that it was KN, not GW, which lost before the ALJ in

RP76-90: the ALJ there had held KN’s tariff invalid and had

ruled that KN had acted discriminatorily and contrary to its

obligations under the Natural Gas Act, Kansas-Nebraska

Natural Gas Co., Inc., 6 FERC 4 63,055 (1979); and it was

KN which failed there to challenge the ALJ’s finding (even

though it seeks to do so here) that issues concerning the

storage withdrawal interruption policy should be resolved

in the courts. Thus, it was KN, rather than GW, which was

in a position of having to exhaust administrative remedies.

=KN’s tariff argument relates to the period after March 14, 1976,

when the 1975 tariff was accepted for filing. Prior to that time, KN

admittedly had operated under the storage withdrawal interruption

policy without any contract amendment or Commission approval. See

pp. 3-4 supra.

“United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U.S.

332 (1956); Federal Power Commission v. Sierra Pacific Power Co.,

350 U.S. 348 (1956).

21

Accordingly, if anyone failed to exhaust its administrative

remedies, it was KN.”

III. A Damage Award For Breach Of Contract Neither

Results In An Unlawful Undue Preference Nor Vio-

lates The Filed Rate Doctrine.

KN’s argument that the Colorado courts violated the filed

rate doctrine is raised untimely. KN did not bring that

argument to the attention of the Colorado trial court.”

Under then-existing Colorado procedure, KN had no au-

thority to assert that argument before the Colorado Su-

preme Court. Rule 59(f), Colo. R.Civ.P. (repealed in 1985).

*KN’s argument also assumes that GW had some administrative

“remedy” that it needed to “exhaust”. In the courts, GW sought the

award of damages for KN’s breach of contract during the period

1973-79, a remedy which the Commission has no power to award,

particularly for the period before March 1976 when KN’s tariff took

effect. See n.22, supra.

*KN also did not bring this argument to the attention of the

Colorado Court of Appeals.

*Former Rule 59(f), Colo.R.Civ.P., states:

No Review Unless Made. The party claiming error in the trial of

any case (except as provided in section (h) of this Rule) must move the

trial court for a new trial as herein above provided, and the trial court

may not dispense with the necessity for filing such a motion but may

dispense with oral argument on the motion after it is filed, and only

questions presented in such motion will be considered by the appel-

late court on review; provided, however, that if a motion to alter or

amend the judgment is filed it shall, for appellate purpose, be consid-

ered as a motion for a new trial.

Rule 59(h), Colo. R.Civ.P., which is referred to in Rule 59(f), states:

When Motion Not Necessary. When final judgment is entered

pursuant to motion filed under the grounds stated in Rule 12(b)(1) to

(6), inclusive, or after hearing on motion filed pursuant to Rule 12(c)

or 56; or after pretrial conference, or after any hearing not involving

ieiinidisiiaidiieaeas” aimee

22

Review of this issue is thus barred on an independent state

ground.

Contrary to KN’s argument (Pet., pp. 25-27), awarding

damages to GW for KN’s breach of contract does not result

in an undue preference or advantage prohibited by Section

4(b) of the Natural Gas Act. 15 U.S.C. § 717c(b). Not only

would this argument, if valid, in effect wipe out the courts

jurisdiction to make damage awards in breach of contract

actions in situations such as here involved,” but it assumes

that GW alone of all interruptible customers would be en-

titled to an award of damages. Although GW is the only

customer who has brought suit, there is nothing blocking

other interruptible customers similarly situated from also

bringing suit against KN and recovering appropriate

damages.

Nor does awarding GW damages for breach of contract

under these facts violate the filed rate doctrine. GW does

not question the rate charged for gas delivered to it. GW’s

complaint is that KN breached its contract by not delivering

gas. GW’s damages were, in fact, measured as the difference

in cost between operating its factories with fuel oil and with

~ natural gas, and its cost of operating with natural gas was

measured as “the price [of] natural gas under the con-

controverted issues of fact; the party claiming error may appeal

without the necessity of filing a motion for a new trial or a motion to

alter or amend a judgment.

Not only did KN fail to make any argument under the filed rate

doctrine in any post-trial motion directed to the trial court, but it also

failed to raise an argument under that doctrine in its motion for

summary judgment or in its response to GW’s summary judgment

motion.

Indeed, when KN was . plaintiff in a breach of contract lawsuit,

i.e., its suit against Pan American, it sought and obtained damages.

See 297 F.2d at 564-65.

23

tracts.” Pet. App., p. 35a. In other words, GW’s damages

were premised upon the validity of the price for gas, 1.e., the

filed rate, which KN charged GW. GW,, in fact, accepted the

filed rate without question.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted,

HARDIN HOLMES MELVIN RICHTER

KENNETH L. STARR 1050 17th Street, N.W.

JEFFREY REIMAN Suite 600

HoLMES & STARR Washington, D.C. 20036

717 - 17th St., Ste. 2440 (202) 331-1194

Denver, CO 80202

(303) 292-1500 Counsel of Record

Attorneys for

The Great Western Sugar Company

May, 1985

APPENDIX

la

APPENDIX

In compliance with Rule 28.1, Counsel for Respondent,

The Great Western Sugar Company, state that GW is now

the debtor in possession in a Chapter 11 proceeding under

the Bankruptcy Act instituted in March 1985. The following

list includes all parent companies, subsidiaries, and affiliates

of GW:

Planet Investment Corporation

Keep Corporation

Hunt International Resources Corporation

Great Western United Corporation

Great ‘Western Cities, Inc. of New Mexico

Great Western Cities Realty

California City Development Company

Great’ Western Cities, Inc.

California City Realty Company

Borden Valley Water Development Company

Western Cities Hotels, Inc.

Great Western United Properties, Inc.

Colorado City Development Company

Colorado City Realty Company

Great Western Cities Realty Company

Boron Royalty Corporation

GWS International Trading Company

Hunt International Coal & Trading

Crescent Home Export Company

The Great Western Sugar Company

Great Western Sugar Export Company

Northern Ohio Sugar Company

Godchaux-Henderson Sugar Co., Inc.

The Great Western Railway Company

Sierra White Sugar Company

Bighorn Limestone Company

Offshore Investment Limited

2a

Pillar Drilling

Impel Energy Corporation

Western Energy Land Company

Western Energy Coal Company

Energy Equipment Corporation

Carver Tipple Corporation

Impel New Zealand, Ltd.

Oakdale Tipple Corporation

Shakey’s Inc.

Shakey’s International Ltd.

Shakey’s National Advertising Fund, Inc.

Shakey’s Pizza Parlor Company, Inc.

Shakey’s of Texas, Inc.

Shakey’s New York Pizza, Inc.

Sheridan Pizza Parlor, Inc.

Wyoming No. 1

Wyoming No. 2

Wyoming No. 3

Wyoming No. 4

Hunt Electronic Company

OSB, Ince.