323 F.2d 190 (5th Cir. 1963), 19478, Lo-Vaca Gathering Co. v. Federal Power Commission

Docket Nº:19478.
Citation:323 F.2d 190
Party Name:LO-VACA GATHERING COMPANY, Houston Pipe Line Company and El Paso Natural Gas Company, Petitioners, v. FEDERAL POWER COMMISSION, Respondent.
Case Date:September 24, 1963
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

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323 F.2d 190 (5th Cir. 1963)

LO-VACA GATHERING COMPANY, Houston Pipe Line Company and El Paso Natural Gas Company, Petitioners,



No. 19478.

United States Court of Appeals, Fifth Circuit.

Sept. 24, 1963

Rehearing Denied Dec. 17, 1963.

George D. Horning, Jr., C. Frank Reifsnyder, Harry L. Albrecht, Hogan & Hartson, Washington, D.C., for petitioner El Paso Natural Gas Co.

Sherman S. Poland, Bradford Ross, Ross, Marsh & Foster, Washington, D.C., for petitioner Lo-Vaca Gathering Co.

James Calvin Simpson, Senior Counsel, William M. Bennett, Chief Counsel, Walter G. Linstedt, Counsel, San Francisco, Cal., for the People of Cal. and the Public Utilities Commission of said State.

Jefferson D. Giller, Hugh Q. Buck, Richard L. McGraw, Fulbright, Crooker, Freeman, Bates & Jaworski, Houston, Tex., for petitioner Houston Pipe Line Co.

John Ormasa, Harry P. Letton, Jr., William H. Owens, Los Angeles, Cal., for intervenor-respondent Southern Cal. Gas Co.

Milford Springer, Robert M. Olson, Jr., Los Angeles, Cal., for intervenor-respondent Southern Counties Gas Co. of Cal.

Milton J. Grossman, Atty., Howard E. Wahrenbrock, Sol., Richard A. Solomon, Gen. Counsel, Robert L. Russell, Asst. Gen. Counsel, F.P.C., Washington, D.C., for respondent.

Before RIVES and CAMERON, Circuit Judges, and BOOTLE, District Judge.

CAMERON, Circuit Judge.

The question here involves solely the extent of the jurisdiction of the Federal Power Commission (Commission) under the Natural Gas Act. 1 The facts underlying the controversy presented by this petition for review of an order of the

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Federal Power Commission are not in dispute and are, briefly, as follows:

Lo-Vaca Gathering Company (Lo-Vaca) requested certificate authority with respect to two contracts involving the delivery of natural gas to El Paso Natural Gas Company (El Paso). The First request involved the 'gathering and delivery' to El Paso of 50,000 Mcf (meaning, thousand cubic feet) of natural gas per day, and the second involved the 'gathering and sale' of 70,000 Mcf per day. Authority requested under the first contract is thus limited to the 'gathering and delivery' rather than the sale of the gas. Petitioners contend that regulation of the sale is not within the Commission's jurisdiction under the Act because that volume of gas is not to be resold. The contract provides:

'All of the gas to be purchased by El Paso from Gatherer (Lo-Vaca) under this agreement shall be used by El Paso solely as fuel in El Paso's compressors, treating plants, boilers, camps and other facilities located outside the State of Texas. It is understood, however, that said gas will be commingled with other gas being transported in El Paso's pipe line system.'

Jurisdiction is not disputed as to the second Lo-Vaca contract.

Houston Pipe Line Company (Houston) proposes to sell to El Paso 70,000 Mcf of natural gas per day to be consumed wholly within the State of Texas. The contract provides that the gas sold 'shall be used and consumed by El Paso solely as fuel in the operation of El Paso's plants and in the gasoline plant of Phillips Petroleum Company in Ector County, all located wholly within the State of Texas.'

It is not necessary here to outline the complicated routing of the gas through El Paso's multiplex lines. It is enough to say that, in each instance, petitioners propose to meter into the system, in Texas, the specified volumes of gas; that this gas will be commingled with gas already in the lines (which gas is admittedly 'jurisdictional'); that other gas will later be put into the lines; and that, at the points described in the quoted clauses of the contract, an equal volume of gas will be withdrawn for 'non jurisdictional' use. The Commission does not claim that the physical in-metering-- out-metering will not be faithfully consummated just as the contracts provide; rather, it argues that as a matter of physical reality the gas withdrawn will not be 'non jurisdictional' gas because it will not be the identical gas metered into the lines under the contracts.

More quickly to delineate the issue drawn here, it should be noted that the Commission admits, as it must, that if the volumes under consideration were in some manner physically segregated it would not and could not claim jurisdiction over the sales. The Houston sale would not be subject to the Commission's jurisdiction because it would not be a 'sale in interstate commerce;' and the Lo-Vaca sale, though in interstate commerce, would not be 'for resale.' 15 U.S.C.A. § 717(b). See, Panhandle Eastern Pipe Line Company v. Public Service Commission of Indiana, 1947, 332 U.S. 507, 68 S.Ct. 190, 92 L.Ed. 128. The Commission contends, however, that the physical nature of natural gas cannot be overcome by the words of the contract. In short, it urges that the fact is that some, and actually most, of the molecules sold will actually be resold in interstate commerce. This physical fact cannot be doubted, gas being the substance it is, but the real question before us is whether the physical commingling of the gas sold under the contracts with other gas destroys its 'non jurisdictional' status.

We hold that it does not. Gas is gas, and borrowing the words of Judge Brown, in connection with a different petroleum problem, '* * * that principles of constitutional law and statutory construction are not equated with laws of physics, so that the inquiry is something more than the schoolboy's quest for molecular identification.' Deep South Oil Co. of Texas v. Federal Power Commission, 1957, 5 Cir., 247 F.2d 882, 891 (dissenting opinion).

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First, we may discuss what is not involved. No question of constitutional limitations under the Commerce Clause need be considered. The Commission's jurisdiction under § 717(b) is not so broad as the scope of the federal power under Art. 1, Sec. 8, Cl. 3 of the Constitution. Its jurisdiction over the sale of natural gas is limited:

'Three things and three only Congress drew within its own regulatory power, delegated by the Act to its agent, the Federal Power Commission. These were: (1) the transportation of natural gas in interstate commerce; (2) its sale in interstate commerce for resale; and (3) natural gas companies engaged in such transportation or sale. * * *

'The line of the statute was thus clear and complete. It cut sharply and cleanly between sales for resale and direct sales for consumptive uses. No exceptions were made in either category for particular uses, quantities or otherwise. And the line drawn was that one at which the decisions had arrived in distributing regulatory power before the Act was passed.' Panhandle Eastern Pipe Line Company v. Public Service Commission of Indiana, supra, 332 U.S. at 516, 517, 68 S.Ct. at 195.

And, as we have said, the sales would admittedly be 'non jurisdictional' if the gas so sold were not mixed and commingled with other gas which was to be resold in interstate commerce. So the question is more finely drawn: if the gas metered out for 'non jurisdictional' use will not be made up of the identical molecules as the gas so metered in, does the Commission thereby gain jurisdiction of the sale? Petitioners rely principally on two cases from the courts of appeal 2 to support their theory of 'fungibility' or 'separation by contract.' These cases, in turn, rely on the language of United States v. Public Utilities Commission of California, 1953, 345 U.S. 295, 73 S.Ct. 706, 97 L.Ed. 1020. The Public Utilities Commission of California case is the starting point.

The Navy contracted with California Electric Power Company to purchase electrical energy in California for the Navy's use 3 in Nevada. Delivery of the power was made at a sub-station about twenty-five miles from the Nevada line. The Power Company argued that jurisdiction of the Commission attached only to that portion of the energy resold by the Navy. Assuming arguendo that the energy could be so divided for jurisdictional purposes, the Court said that such separability 'would turn, of course, on whether an essentially separate transaction covering the power directly consumed by the purchaser is identifiable. * * * But there is no record evidence of separate rates, separate negotiations, separate contracts or separate rate regulation by official bodies; in short that the 'sales' themselves were separate * * *', 345 U.S. pp. 317-318, 73 S.Ct. at p. 719. The petitioners here have carefully tailored their transactions to fit the above caveat. 4

City of Hastings, Neb. v. Federal Power Commission, 1954, 95 U.S.App.D.C. 158, 221 F.2d 31, certiorari denied, 349 U.S. 920, 75 S.Ct. 660, 99 L.Ed. 1252 (1955) involved a situation strikingly similar to the Lo-Vaca proposal. The City entered into two contracts with a supplier for the purchase of gas. One contract involved gas to be resold by the City and the other involved gas to be used by the City in its power plant. The gas came from out-of-state sources and was thus a 'sale in interstate commerce.' The gas sold under both contracts was

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delivered to the City in a commingled stream and, in holding the not-for-resale sale 'non jurisdictional', that court said:

'The entire course of dealings clearly permitted the Commission to find the existence of separate rates, separate billings, separate negotiations, separate contracts, separate allocation of gas and effective separate measurement facilities.' (221 F.2d p. 36)

The situation in North Dakota v. Federal Power Commission, 8 Cir., 1957, 247 F.2d 173, was very much like that involved here under the Houston contract. There, Montana-Dakota Utilities Company entered into two contracts for the purchase of gas for sale in intrastate market and two contracts for the purchase of gas for the interstate market. Gas under all four contracts was delivered to Montana-Dakota in a commingled stream at one...

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