Opinion
Nos. 01-1360-JTM, 02-1065-JTM
June 24, 2002
MEMORANDUM ORDER
Five motions are currently before the court in these consolidated actions brought by Kansas Pipeline Company (KPC). KPC has brought actions against the Kansas Corporation Commission (KCC) and Oneok, Inc., operating as Kansas Gas Service (KGS) (Case No. 01-1360-JTM) and against individual Commissioners of the Kansas Corporation Commission (Case No. 02-1065-JTM). KPC alleges that Suspension Orders entered by the KCC which prevent KGS from imposing costs which have the effect of permitting a pass-through of KPC's full charge, are illegal and violate KPC's federal rate tariff. Two of the motions before the court reflect KPC's request for injunctive relief which would void the Suspension Orders (No. 01-1360, Dkt. 3; No. 02-1065, Dkt. 3). The remaining motions are motions to dismiss filed by the KCC defendants ((No. 01-1360, Dkt. Nos. 27, 44), and by Oneok (No. 01-1360, Dkt. 22). The court will grant the motions. Accordingly, the motions for injunctive relief will be denied. Alternatively, this matter will be dismissed for the failure of KPC to exhaust its administrative remedies in the state courts, or in light of the primary jurisdiction of the Federal Energy Regulatory Commission (FERC). This matter belongs either before the administrative tribunals and courts of Kansas, or before FERC. It may not be maintained here. Some history of the dispute between the parties is necessary. KPC and KGS are the successors to prior entities which entered into a series of contracts for the transmission of natural gas throughout what is now the KPC pipeline system. The rates charged by KPS for its services are subject to regulation by the FERC. KGS recovers the cost of the KPC rate charge by imposing charges on its retail customers within Kansas. The KCC has jurisdiction over the costs paid by these ratepayers.
On October 31 and December 3, 2001, the KCC issued two Suspension Orders in its Docket No. 02-KGSG-329-PGA. The case arose from KGS's attempt to include a Cost of Gas Rider (COGR) which would include costs for KPC's pipeline services. In its first order, the KCC began an investigation into the KPC charges, and prohibited KGS from covering the KPC charges until the investigation was completed. After a request for reconsideration by KGS, the KCC ruled in December that the earlier Suspension Order was continuing, and would apply to future COGR filings until the investigation was completed. In a subsequent January 16, 2002 ruling, the KCC clarified that it had not made any final adjudication of the reasonableness of the KGS COGR charge.
The KCC proceeding on the KGS COGR charge is only one facet of the dispute between the parties. On July 9, 1997, the KPC and the KCC entered into a settlement agreement of the disputes between them. Among other things, the KPC agreed to subject itself to FERC jurisdiction; KGS paid KPC a one-time payment of $7.4 million, and KPC agreed to reduce its rates to "competitive levels" by August 1, 2001. The settlement also approved KPC's rates up to July 31, 2001 based on a $31 million cost of service. The settlement was approved by order (in Docket No. 97-WSRG-312-PGA) of the KCC on July 29, 1997.
On October 3, 1997, FERC issued an order recognizing KPC as a pipeline system operating under § 7(c) of the Natural Gas Act. (FERC Docket No. CP96-152-000). However, FERC approved initial rates for KPC which reflected only a $21.8 million cost of service. After KPC's motion for rehearing, the FERC permitted KPC to charge initial rates based on the cost of service reflected in the KCC settlement. These rates were challenged, and subsequently reversed. Missouri Pub. Serv. Comm'n v. FERC, 234 F.3d 36 (D.C. Cir. 2000). The court instructed FERC to explain the basis for the higher initial rates.
The FERC issued an order reaffirming the $31 million cost of service rates on November 9, 2001, 97 FERC ¶ 61,168 (2001). FERC later granted a motion for rehearing, and has not issued any final order.
In addition to these proceedings, KGS has also filed a Complaint with FERC, which alleges that KPC has violated the terms of the KCC settlement by failing to lower its rates. (FERC Docket No. RP02-143-000). This matter also remains unresolved.
Separate from the FERC proceedings, the parties are also enmeshed in litigation in state court. KPC filed the earlier service contracts with the FERC as non-conforming service agreements and the FERC approved them. However, according to KGS, when KPC filed the KCC settlement agreement, KPC claimed the settlement was void as inconsistent with FERC regulations. KGS then commenced a breach of contract action in Johnson County, Kansas District Court. The trial court subsequently dismissed the action. In reaching this conclusion, the District Court ruled — following representations advanced by KPC — that the earlier contracts "were accepted by FERC as part of [KPC]'s tariff." Mem. Order, at 12 (emphasis added). That matter is currently on appeal before the Kansas Court of Appeals. Those earlier contracts contain provisions which require reduction of rates under certain circumstances. Thus, the contracts provide:
Should any regulatory authority having jurisdiction over the rates charged by [KGS] for gas service at any time deny [KGS] the right to recover any amount paid to [KPC] hereunder, [KGS] shall notify [KPC] of such denial within thirty days thereof, and [KPC] shall reduce its rates and charges to [KGS] for the affected service to the level approved for recovery retroactive to the first date of service for which recovery is denied. In the event such rate reduction is required [KGS] and [KPC] will adjust the term of this Agreement to ensure that overall revenues generated hereunder are adequate to allow [KPC] to recover its costs of operation and its financing costs, including principal, interest, and applicable financing fees, associated with the above level of construction costs.
(Dkt. No. 25, Exh. O, at ¶ 4.3).
KPC, in its response to the motions to dismiss, argues that the case is "not about determining the appropriate rate" for KGS to pay KPC, but to enforce KPC's existing tariff. (Response, No. 01-1360-JTM, Dkt. No. 32, at 1). This is misleading. KPC is not seeking to enforce any order of FERC. Determining the rate which KPC may charge is the subject of complex and ongoing disputes between the parties in a variety of venues.
Most recently, on March 28, 2002, FERC entered an Order in the proceedings before it. Previously, FERC had accepted the earlier service contracts, but not the KCC settlement, as non-conforming service agreements. In its March 28 order, the Commission declined to rule on KGS's request that it determine KPC's actions were not just and reasonable, and that its actions violated its FERC tariff. Instead, the Commission found that it should not assert primary jurisdiction over the question of how the parties intended the Global Settlement to affect the KPC's rates. Kansas Gas Service v. Enbridge Pipelines KPC, Order, 96 FERC ¶ 61,342 (March 28, 2002). That issue, the Commission found, could better be resolved in the ongoing state court proceedings brought by KGS.
After reaching this conclusion, the Commission expressly disavowed making any interpretation of the Global Settlement. Id. at 11. The Commission also observed that a state court ruling interpreting the Global Settlement would not violate the filed rate doctrine, and concluded that it was unlikely a state court ruling would create a conflict with federal law, because the "Pre-1995 Contracts were made a part of KPC's tariff as filed with the Commission: thus, whatever rate the Pre-1995 Contracts require to be charged is, in fact, the file rate." Id. at 12 (emphasis in original).
The court finds the matter should be dismissed both for failure of KPC to pursue administrative remedies and, alternatively, because the matter rests within the primary jurisdiction of the FERC. The putative simple enforcement action advanced here by KPC would have the purpose and effect of circumventing the substantial and ongoing litigation between the parties in other fora, and the court declines jurisdiction to entertain the present action.
IT IS ACCORDINGLY ORDERED, this ___ day of June, 2002, that the defendant's Motions to Dismiss (No. 01-1360, Dkt Nos. 22, 27, 44) are hereby granted. Plaintiff's Motions for Injunctive Relief (No. 01-1360, Dkt. 3; No. 02-1065, Dkt. 3) are hereby denied.