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KENTUCKY WEST VIRGINIA GAS CO. v. PENNSYLVANIA PUC

November 6, 1985

KENTUCKY WEST VIRGINIA GAS COMPANY, et al., Plaintiffs
v.
PENNSYLVANIA PUBLIC UTILITY COMMISSION, et al., Defendants



The opinion of the court was delivered by: CALDWELL

 I. Introduction.

 Plaintiffs, Kentucky West Virginia Gas Company (Kentucky West) and Equitable Resources, Inc. (Equitable), have filed a complaint for preliminary and permanent injunction and a declaratory judgment against defendants, the Pennsylvania Public Utility Commission (PUC) and its individual members, Linda C. Taliaferro, Frank Fischl and Bill Shane. The Federal Energy Regulatory Commission (FERC) has also been named as a defendant. Plaintiffs claim that a PUC order directed at Equitable, dated August 29, 1985, and certain sections of Pennsylvania Act No. 1984-74, pursuant to which the order was issued, violate the commerce clause, *fn1" the supremacy clause, *fn2" and the first, fifth and fourteenth amendments. *fn3" Plaintiffs also claim that the Act No. 1984-74 and the agency order violate certain sections of the Natural Gas Act (NGA), 15 U.S.C. § 717 et seq. and the Natural Gas Policy Act (NGPA), 15 U.S.C. § 3301 et seq.

 Motions to intervene were filed by David M. Barasch, Consumer Advocate for the Commonwealth of Pennsylvania, the Office of the Attorney General of Pennsylvania and the American Gas Association (AGA), a national trade association representing the interests of gas companies which distribute and transport natural gas. Barasch and the Attorney General were permitted to intervene as defendants. The AGA was allowed into the suit as an amicus curiae.

 On October 30, 1985, a hearing on the requested injunctive and declaratory relief was held and the parties have briefed and argued their positions. Plaintiffs' request is therefore ripe for disposition.

 II. Background.

 Plaintiff, Equitable, produces, purchases, transports, stores, distributes and sells natural gas in both interstate and intrastate commerce. Subject to the authority of the PUC it retails gas to approximately 240,000 customers in southwestern Pennsylvania. Equitable purchases approximately 80% of its gas from three interstate suppliers. One of these is plaintiff, Kentucky West, with which Equitable has a long term contract for purchasing gas. Kentucky West is a wholly owned subsidiary of Equitable Resources, Inc. and Equitable is a division of that company. Kentucky West's wholesale rates for natural gas are regulated by FERC which approved the rates charged to Equitable.

 On March 1, 1985, Equitable sought approval of new rates for its retail customers by filing a computation of Annual Purchased Gas Adjustment pursuant to 66 Pa. C.S. § 1307(f). The PUC investigated the justness and reasonableness of the proposed rates under authority conferred upon it by Act No. 1984-74. See 66 Pa.C.S. § 1307(f)(2). Fourteen days of hearings were held. The PUC Order of August 29, 1985 followed in which the agency disallowed the requested rates because it found that Equitable had not pursued a least cost fuel procurement policy, consistent with its obligation to provide safe, adequate and reliable service. *fn4" Specifically, the PUC found that Equitable had failed to use its own production and that of other suppliers to keep costs down. Rather, it had purchased higher priced gas from Kentucky West. Equitable filed a Petition for Review of the order in the Pennsylvania Commonwealth Court on September 27, 1985. This lawsuit was filed on October 11, 1985.

 III. Discussion.

 Briefly, plaintiffs mainly argue on the merits that Pennsylvania's attempt to require Equitable to follow a least cost procurement policy intrudes upon the FERC's authority to set Kentucky West's interstate rate for gas. In their view, Pennsylvania must accept the FERC approved rate in considering Equitable's intrastate rate. To do otherwise violates the commerce and supremacy clauses.

 Initially, however, we will consider two defense arguments which would, if successful, require us to dismiss this action without reaching the merits. The PUC contends that, pursuant to the Johnson Act, 28 U.S.C. § 1342, we do not have jurisdiction over this case. The agency and defendant Barasch, further contend that, in any event, we should exercise our discretion and abstain from adjudicating plaintiffs' claims. Both defendants rely upon Burford v. Sun Oil Co., 319 U.S. 315, 63 S. Ct. 1098, 87 L. Ed. 1424 (1943) to support the latter argument and the PUC further argues that abstention under Railroad Commission of Texas v. Pullman, 312 U.S. 496, 61 S. Ct. 643, 85 L. Ed. 971 (1941) is appropriate. Since the Johnson Act may, as the PUC contends, preclude jurisdiction over this action, we turn to that issue first.

 The Johnson act provides as follows:

 
The district courts shall not enjoin, suspend or restrain the operation of, or compliance with, any order affecting rates chargeable by a public utility and made by a State administrative agency or a ratemaking body of a State political subdivision, where:
 
(1) Jurisdiction is based solely on diversity of citizenship or repugnance of the order to the ...

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