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April 27, 1989


The opinion of the court was delivered by: CALDWELL



 Introduction and Background.

 Before the court is the motion of defendant, Pennsylvania Public Utility Commission (PUC), to dismiss this action pursuant to Fed. R. Civ. P. 12(b)(6). Defendant contends that the action is barred by the doctrine of claim preclusion, formerly known as res judicata. *fn1" Plaintiffs are challenging on federal constitutional and statutory grounds a 1988 PUC rate making order in a so-called section 1307(f) proceeding under state utility law. The order refused Equitable the recovery of some $ 10.2 million in alleged variable commodity costs incurred during a thirteen month period from July of 1983 through July of 1984. This case is related to other lawsuits plaintiffs had previously brought before this court and the Third Circuit Court of Appeals making a similar challenge to other PUC section 1307(f) orders. See Kentucky West Virginia Gas Co. v. Pennsylvania Public Utility Comm'n, 620 F. Supp. 1458 (M.D. Pa. 1985) (dismissing complaint concerning a 1985 PUC section 1307(f) order on abstention grounds), rev'd, 791 F.2d 1111 (3d Cir. 1986), (reversing and remanding for a decision on the merits), on remand, 650 F. Supp. 659 (M.D. Pa. 1986), aff'd, 837 F.2d 600 (3d Cir.) (Kentucky West I), cert. denied, 488 U.S. 941, 109 S. Ct. 365, 102 L. Ed. 2d 355 (1988). See also Kentucky West Virginia Gas Co. v. Pennsylvania Public Utility Comm'n, 862 F.2d 69 (3d Cir. 1988), (Kentucky West II) (involving a challenge to a 1986 PUC section 1307(f) order), rev'g, No. 86-1380 (M.D. Pa. July 13, 1987). Factual details of the regulatory scheme and of prior proceedings can be found in Kentucky West I and Kentucky West II. We reiterate here only those facts pertinent to the claim preclusion defense.

 Plaintiff, Kentucky West Virginia Gas Co. (Kentucky West), a wholly owned subsidiary of Equitable Resources, Inc., is an interstate pipeline company engaged in the sale of natural gas in interstate commerce. Plaintiff, Equitable Gas Company (Equitable), a division of Equitable Resources, Inc., is a Pennsylvania retailer of natural gas subject to the authority of the PUC. In a 1985 section 1307(f) proceeding dealing with Equitable's revenues and expenditures from July of 1983 through December of 1984, the PUC, by order dated August 31, 1985, disallowed recovery by Equitable of $ 14.3 million in purchased gas costs for gas bought from Kentucky West, one of Equitable's interstate pipeline suppliers. The PUC reasoned that Equitable could have purchased the gas more cheaply from other suppliers. In the parlance of the state statute, the PUC had decided that Equitable had not followed a "least cost fuel procurement policy." See 66 Pa.C.S. ยง 1318.

 Thereafter, plaintiffs filed a complaint in this court on October 11, 1985, challenging the PUC's action on the basis, in part, of the commerce clause, the supremacy clause, and the first, fifth and fourteenth amendments. The thrust of the argument at that time before this court in relation to the supremacy clause claim was that the PUC could not investigate the prudence of Equitable's purchases because to do so would invade the exclusive jurisdiction of the Federal Energy Regulatory Commission (FERC) to set the rates at which Kentucky West would sell its gas at wholesale. No argument was made before this court that the $ 14.3 million in purchased gas costs represented any minimum bill liability imposed on Equitable by its contract with Kentucky West. "Minimum bill contracts" are intended "to guarantee a long term supply of gas." Kentucky West I, 837 F.2d at 609 n. 7. Under the contract in effect at the time of the 1985 PUC determination, the clause required Equitable "to pay for a specified percentage (66 and 2/3%) of its total contractual entitlement, regardless of actual consumption." Id. This minimum commodity bill had been approved by the FERC along with the rest of the provisions of Equitable's contract with Kentucky West.

 Despite its contractual obligation, during the time period covered by the 1985 section 1307(f) rate filing, July of 1983 through December of 1984, Equitable had unilaterally stopped paying for gas it was not actually taking from Kentucky West, thereby suspending its minimum bill liability for this period. It was negotiating with Kentucky West for a settlement of those charges but no agreement was reached during the PUC consideration and eventual disposition by order of August 31, 1985, of Equitable's section 1307(f) rate filing. Nor had agreement been reached by the time the complaint had been filed in this court challenging the 1985 PUC order. Plaintiffs allege that a settlement was eventually reached and that the FERC approved it on November 13, 1985. *fn2" The settlement: (1) revised Equitable's minimum bill liability downward from 66 and 2/3% to 55% for July 1, 1983 through July 31, 1984; (2) established the 55% ratio for July 1, 1983 through February 29, 1984; and (3) required Equitable to pay carrying charges on minimum bill deficiencies from March 1, 1984 through July 31, 1984. The settlement also gave Equitable the right to future redelivery of gas from January 1, 1985 until December 31, 1988. In the meantime, this court had abstained from entertaining plaintiffs' challenge to the PUC action, was reversed, and eventually held a hearing on the merits on August 21, 22 and 28 of 1986. See 650 F. Supp. at 661.

 Subsequent section 1307(f) proceedings occurred in 1986 and 1987. No claim relating to the $ 14.3 million was made in 1986. In the 1987 proceeding, Equitable based its rate adjustment request, in part, on the fixed commodity charge of $ 2.5 million of minimum bill liability incurred during the eighteen months ending in December of 1984. By order, dated August 31, 1987, the PUC allowed recovery of this expense.

 On March 1, 1988, Equitable instituted another section 1307(f) proceeding in which it sought recovery of $ 10.2 million "for the minimum bill costs approved by the FERC represent[ing] the variable cost . . . portion of Kentucky West's minimum bill . . . which Equitable was obligated to pay under the FERC approved settlement agreement." (complaint, para. 26) (brackets added). On September 1, 1988, the PUC disallowed the claim, reasoning, in part, as follows:


Equitable seeks recovery of a hypothetical variable cost minimum bill payment that it never actually made to its pipeline supplier. *fn3" This claim is appropriately denied first, because it does not constitute a cost actually incurred and paid. Second, the 1987 Section 1307(f) case compensated Equitable for the minimum bill liability with Kentucky West. Equitable has not cited any new events or changed circumstances that have arisen since it claimed and recovered Kentucky West minimum bill costs from 1983-1984 in its 1987 gas cost recovery proceeding that warrants allowance of a new and different minimum bill amount. This is an effort to relitigate an issue already settled in the absence of new evidence or changed circumstances.

 (PUC brief in support of motion to dismiss, Attachment B at p. 12) (emphasis added) (footnote added).

 While appealing this determination to the Pennsylvania Commonwealth Court, Equitable also filed the instant lawsuit challenging the 1988 PUC order on the basis of: (1) the supremacy clause, *fn4" the filed rate doctrine, *fn5" the due process clause of the fourteenth amendment *fn6" and the taking clause. *fn7"


 Defendant contends that claim preclusion bars the instant action because plaintiffs could have raised the same claim but did not do so: (1) in the proceedings in this court in August of 1986 following the Third Circuit's remand in Kentucky West I, or in its federal challenge to the 1986 PUC order dealt with in Kentucky West II, or (2) in its 1986 and 1987 section 1307(f) administrative proceedings before the PUC.

  The Federal Court Lawsuits.

 Defendant's reliance upon the proceedings in this court in Kentucky West I is misplaced. The hearings we held in that action were based upon the complaint filed on October 11, 1985. The events forming the basis of that complaint, the PUC proceedings leading up to its order of August 31, 1985, occurred prior to the FERC approval of the settlement on November 13, 1985. Those proceedings specifically did not deal with minimum bill liabilities. Negotiations were still ongoing to modify Equitable's liability in that regard. Thus, the cause of action giving rise to the complaint before us could not have included any minimum bill issues and claim preclusion could not have applied.

 This result is supported by Purter v. Heckler, 771 F.2d 682, 689-90 (3d Cir. 1985) (footnote omitted) in which the Third Circuit stated:


Res judicata, or claim preclusion, is a court-created rule that is designed to draw a line between the meritorious claim on the one hand and the vexatious, repetitious and needless claim on the other hand. . . .


In order to raise successfully the defense of res judicata, the party asserting the defense must demonstrate that (1) there has been a final judgment on the merits in a prior suit; (2) the prior suit involves the same parties or their privies and (3) the subsequent suit is based on the same causes of action. United States v. Athlone Industries Inc., 746 F.2d 977, 983 (3d Cir. 1984). . . . This court has suggested three considerations relevant to the inquiry into whether there is identity of causes of action: "(1) whether the acts complained of and the demand for relief are the same (that is, whether the wrong for which redress is sought is the same in both actions. . . .); (2) whether the theory of recovery is the same; (3) whether the witnesses and documents necessary at trial are the same (that is, whether the same evidence necessary to maintain the second action would have been sufficient to support the first) . . . and (4) whether the material facts alleged are the same." Id. (citations omitted).

 In the instant case, three of the four factors to be considered in determining whether the causes of action are the same have not been satisfied. First, the acts complained of are not the same. Necessarily, plaintiffs could not have raised minimum bill liability claims prior to the settlement approval. *fn8" Second, the witnesses and documents would not be the same. For example, the settlement agreement was not in existence at the time of the federal complaint. Finally, the material facts are not the same.

 We reject defendant's contention that plaintiffs could have litigated the effect of the settlement agreement in the Kentucky West I district court proceedings because by the time of our hearings in August of 1986 following remand, plaintiffs could have presented evidence concerning the settlement's effect on minimum bill liabilities. It seems to us that plaintiffs only had to prosecute the cause of action pleaded in the complaint. While it may have been preferable, there was no duty to amend the complaint to litigate the subsequent settlement agreement. *fn9"

 The PUC Proceedings Subsequent to 1986.

 We must look to state law to determine the claim preclusive effect of the subsequent section 1307(f) proceedings. See Kentucky West I, supra, 837 F.2d at 611; National Railroad Passenger Corp. v. Pennsylvania Public Utility Commission, 665 F. Supp. 402, 406 n. 8 (E.D. Pa. 1987), aff'd on other grounds, 848 F.2d 436 (3d Cir.), cert. denied, 488 U.S. 893, 109 S. Ct. 231, 102 L. Ed. 2d 220 (1988). Pennsylvania will apply claim preclusion to administrative agency decisions.


The application of res judicata principles is not precluded merely because administrative proceedings are involved and where an administrative agency is acting in a judicial capacity and resolves disputed issues of fact properly before it which the parties have had an adequate opportunity to litigate the courts will not hesitate to apply res judicata principles.

 Philadelphia Electric Co. v. Borough of Lansdale, 283 Pa. Super. 378, 392, 424 A.2d 514, 521 (1981) (brackets added) (citing United States v. Utah Construction and Mining Co., 384 U.S. 394, 86 S. Ct. 1545, 16 L. Ed. 2d 642 (1966)).

 The PUC was acting in a judicial capacity in the section 1307(f) proceedings. Equitable was represented by counsel, testimony was taken and factual determinations within the province of the PUC's jurisdiction were made, i.e., whether purchased gas costs during the pertinent reconciliation periods were prudently incurred. The PUC has also recognized the applicability of the filed rate doctrine to its proceedings.

 We therefore look to the following standard:


Pennsylvania requires a concurrence of four conditions before claim preclusion can apply. The two actions must share an identity of the (1) thing sued on; (2) cause of action; (3) persons and parties to the action; and (4) quality or capacity of the parties suing or sued. Duquesne Slag Products Co. v. Lench, 490 Pa. 102, 105, 415 A.2d 53, 56 (1980); Bearoff v. Bearoff, 458 Pa. 494, 497, 327 A.2d 72, 74 (1974). See also Harris v. Pernsley, 755 F.2d 338, 342 (3d Cir.), cert. denied, 474 U.S. 965, 106 S. Ct. 331, 88 L. Ed. 2d 314 (1985); Davis, 688 F.2d at 170.

 Gregory v. Chehi, 843 F.2d 111, 116 (3d Cir. 1988).

 We believe that the claim in the 1988 section 1307(f) proceedings for $ 10.2 million in variable commodity costs shares an identity with the thing sued on in the 1986 administrative proceedings. It is also the same cause of action. Equitable initiated the 1986 proceedings on February 28, 1986, and, pursuant to the statutory and regulatory scheme, *fn10" sought an adjustment of its rates for a twelve month reconciliation period ending not less than two months prior to the date of filing. This period would have included October of 1985, the time when the settlement would have been approved by the FERC and the last possible period when Equitable's minimum bill liability for July of 1983 through December of 1984 would have been arguably uncertain. Having filed a section 1307(f) petition covering this reconciliation period and having omitted a claim which could have been argued, but which was not, Equitable would now be foreclosed by a state court from litigating the issue. *fn11" We must do likewise. See Gregory, supra, 843 F.2d at 116 ("Claim preclusion prevents a party from prevailing on issues he might have but did not assert in the first action.") (citing Pennsylvania law).

 The same conclusion applies to the 1987 administrative proceedings. In those proceedings, Equitable did make a claim for $ 2.5 million, representing the fixed portion of the commodity charge incurred during the 1983-84 period and the PUC did allow the expense in setting Equitable's rates. But no claim was made for the $ 10.2 million. It has therefore been waived. See Jost v. Phoenixville Area School District, 119 Pa. Commw. 477, , 547 A.2d 830, 833 (1988) ("A judgment is res judicata not only as to damages actually claimed but also as to those which could have been sought.").

 We reject plaintiffs' argument that the waiver was actually on the part of the PUC. Their reliance upon Purter v. Heckler, supra, and Coup v. Heckler, 834 F.2d 313 (3d Cir. 1987), in this regard is misplaced. Those social security disability cases do stand for the general proposition that an agency waives res judicata when it de facto reopens previous administrative decisions and reviews the entire record on the merits. But that did not happen in the 1987 PUC proceedings. Equitable pressed its claim only for $ 2.5 million and claim preclusion was waived only as to that issue. The PUC could have rejected even this claim on claim preclusion grounds because it could have been raised, but was not, in the 1986 administrative proceedings.

 Purter and Coup are further distinguishable because they dealt with the merits of the administrative proceeding in which the agency waiver had occurred. Conversely, the instant case does not involve the 1987 PUC decision; rather, the 1988 section 1307(f) petition in which Equitable made a claim for the first time for the $ 10.2 million. Any waiver of the defense of claim preclusion - and only then it would have been applicable solely to the $ 2.5 million claim - could only have been invoked as to the 1987 proceedings. Claim preclusion could still have been relied upon in the 1988 proceedings.

 In applying claim preclusion here, we recognize that the PUC proceedings at issue involve rate making, traditionally not considered an area of administrative law where claim preclusion should apply. The PUC itself has stressed the flexible nature of the rate making process in that successive section 1307(f) proceedings take into account historical as well as projected costs. But we agree with the PUC that, at some point in time, rate making predicated upon certain historical and ascertainable costs can be made subject to claim preclusion principles. *fn12" The PUC in setting rates need not consider costs in years past which could have been, but were not, raised in prior administrative proceedings. It must also be borne in mind that the regulatory scheme at issue here contemplates looking backward only a certain period of time. In short, while claim preclusion does not have to be as rigidly applied in administrative proceedings as in judicial ones, "when the reasons for uses of the rule in court proceedings are present in full force," Atlantic Richfield Co. v. City of Bethlehem, 69 Pa. Commw. 6, 12, 450 A.2d 248, 252 (1982) (quoting City of McKeesport v. Public Utility Comm'n, 65 Pa. Commw. 179, 182, 442 A.2d 30, 31 (1982)), the doctrine should be invoked.


 AND NOW, this 27th day of April, 1989, upon consideration of defendant's motion to dismiss, treated as a motion for summary judgment, it is ordered that:


1. The motion is granted.


2. Judgment is hereby entered in favor of defendant and against plaintiffs.


3. The motion of the proposed intervenor, the Consumer Advocate of Pennsylvania, to intervene is dismissed as moot.


4. Plaintiffs' request for oral argument is denied.


5. The Clerk of Court shall close this file and the scheduling conference noticed for May 3, 1989 is cancelled.

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