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decided: June 26, 1986.


Appeal from the Order of the Pennsylvania Public Utility Commission in the case of Pennsylvania Public Utility Commission, David M. Barasch, Consumer Advocate, Sharon Steel Corporation, The Stackpole Corporation, Airco Carbon, Division of Airco, Inc. and National Fuel Industrial Coalition v. National Fuel Gas Distribution Corporation, No. R-832469, dated March 22, 1985.


John H. Isom, with him, W. Russel Hoerner and Michael W. Gang, Morgan, Lewis & Bockius, for petitioner.

Billie E. Ramsey, Assistant Counsel, with her, Daniel P. Delaney, Deputy Chief Counsel, and Charles F. Hoffman, Chief Counsel, for respondent.

Craig R. Burgraff, with him, Norman James Kennard, Phillip F. McClelland, Assistant Consumer Advocate, and David M. Barasch, Consumer Advocate, for intervenor, Office of Consumer Advocate.

President Judge Crumlish, Jr., and Judges Rogers, Craig, Doyle, Barry, Colins, and Palladino. Opinion by Judge Rogers. Judge Colins dissents.

Author: Rogers

[ 98 Pa. Commw. Page 356]

National Fuel Gas Distribution Company (Petitioner or Distribution), a provider of gas service in northwestern Pennsylvania has filed a petition for review of an order of the Pennsylvania Public Utility Commission entered March 22, 1985, ordering it to reduce its gas costs by $297,700 to adjust for allegedly improvident gas purchases made in 1983 and to reflect such reduction in a current gas rate filing proceedings. This petition represents the last remaining unresolved issue concerning the petitioner's rate filing of October 1983, proposing an increase in annual operating revenues of about $10.3 million, later reduced by a stipulated settlement approved by the Commission to $3.6 million.

Distribution is a wholly-owned subsidiary of National Fuel Gas Company, so also is National Fuel Gas Supply Corporation (Supply).

Distribution, as we have said, serves consumers. Supply owns and operates major transmission pipelines and sells gas in interstate commerce and Distribution is one of its customers. The rates at which Supply sells gas are regulated by the Federal Energy Regulatory Commission (FERC). Supply produces some gas and it purchases some from other interstate pipeline companies; including Columbia Gas Transmission Corporation (Columbia). In 1983, Supply sold about 98% of its volume to Distribution.

In the Commission proceedings, the Office of Consumer Advocate (OCA) contended that had Supply, Distribution's affiliated gas supplier, purchased a larger amount of cheaper, locally produced gas during the period

[ 98 Pa. Commw. Page 357]

March-June 1983, instead of purchasing gas from Columbia, its, Supply's, cost of gas sold to Distribution would have been $297,700 less than the amount it paid to Columbia so that Distribution's current gas rates should be reduced by this amount.

Distribution*fn1 responded that Supply, an interstate pipeline, was bound by a Federal Energy Regulatory Commission certificated contractual agreement with Columbia, another interstate pipeline, to purchase gas from Columbia under terms of the FERC approved tariff referred to in the contract.

OCA contended that the contract to which Distribution contended Supply was bound was not for the sale of gas by Columbia and its purchase by Supply but for the exchange of gas belonging to each from one to the other's pipelines; or, even if the agreement was for sale and purchase, it did not impose an obligation upon Supply to purchase a minimum quantity.

Administrative Law Judge Robert H. Christianson who had presided over this substantial rate case and the settlement of its principal issues, recommended that OCA's suggested adjustment be rejected on the ground that an action for breach of contract and damages could have attended Supply's refusal to purchase under the contract and that this was sufficient constraint justifying Supply's failure to purchase locally produced supplies.

Upon considerations which are not entirely clear to us, the Commission concluded that during the period March 1 through June 13, 1983 Supply was not obliged

[ 98 Pa. Commw. Page 358]

    to purchase from Columbia as much of its supplies of gas furnished to Distribution as it did, that Supply could and should have purchased cheaper locally produced gas and that Distribution must reduce its current gas rate filings by $297,700, the amount OCA had suggested might have been saved by Supply's disregard of its contract with Columbia.

The contract*fn2 which is at the center of this litigation reads, except for the subscriptions, as follows:


AGREEMENT made and entered into as of the 3rd day of August, 1981 by and between COLUMBIA GAS TRANSMISSION CORPORATION, a Delaware corporation, (hereinafter called Seller) and NATIONAL FUEL GAS SUPPLY CORPORATION, a Pennsylvania corporation, (hereinafter called Buyer).

WITNESSETH : That in consideration of the mutual convenience herein contained, the parties hereto agree as follows:

Section 1. Gas to be Sold. Seller hereby agrees to sell and deliver, and Buyer hereby agrees to purchase and receive natural gas on a firm basis, up to a Contract Demand of:

32,100 Dth Per Day in Seller's Rate Zone 6.

Section 2. Rate Schedule. Gas delivered hereunder shall be paid for under the effective Rate Schedule CDS of Seller's FERC Gas Tariff

[ 98 Pa. Commw. Page 359]

    on file with the Federal Energy Regulatory Commission and as the same may hereafter be amended or superseded in accordance with applicable rules and regulations of the Federal Energy Regulatory Commission.

Section 3. General Terms and Conditions. This Agreement in all respects shall be subject to the applicable provisions of Rate Schedule CDS of Seller's FERC Gas Tariff and of the pertinent General Terms and Conditions incorporated therein filed with the Federal ...

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