Federal Power Commission v. Panhandle Eastern Pipe Line Co

• Citation: 69 S.Ct. 1251,93 L.Ed. 1499,337 U.S. 498
• Decision Date: 20 June 1949
• Docket Number: No. 558,558
• Parties: FEDERAL POWER COMMISSION v. PANHANDLE EASTERN PIPE LINE CO. et al
• Court: United States Supreme Court

337 U.S. 498

69 S.Ct. 1251

93 L.Ed. 1499

FEDERAL POWER COMMISSION

v PANHANDLE EASTERN PIPE LINE CO. et al.

No. 558.

Argued April 22, 1949.

Decided June 20, 1949.

Mr. Bradford Ross, Washington, D.C., for petitioner.

Messrs. Robert P. Patterson, New York City, and Jeff A. Robertson, Topeka, Kan., for respondents.

Mr. Justice REED delivered the opinion of the Court.

Stated broadly this certiorari brings before us for review a problem involving the scope of the power over the gas reserves of a natural-gas company given to the Federal Power Commission by the Natural Gas Act. 52 Stat. 821, as amended, 56 Stat. 83, 15 U.S.C.A. § 717 et seq. Specifically the question to be decided is whether a natural-gas company, subject to the Act, may sell the leases covering an estimated twelve per cent of its total gas reserves without the approval and contrary to an order of the Commission.

The issue is made very sharply because the District Court and the Court of Appeals have refused an injunction, sought by the Commission, to hold the consumma- tion of the sale in abeyance until the Commission, through an admittedly permissible investigation, can determine whether the disposal of these reserves will impair the ability of Panhandle to supply its present and prospective customers in the area which it has undertaken to serve as a public utility. The Commission may find that public interest will best be served by requiring Panhandle to retain these reserves. The public interest has strong appeal to a court of equity for its remedies once a legal right is fairly in controversy.¹

Respondent, Panhandle Eastern Pipe Line Company (herein called Panhandle), a Delaware corporation, transports and markets natural gas in interstate commerce by means of its pipe-line system which runs from Texas into Michigan. In addition it owns or controls gas-producing properties in Kansas, Oklahoma, and Texas.

In September, 1948, Panhandle organized Hugoton Production Company (hereinafter called Hugoton), also a Delaware corporation. On October 11, 1948, pursuant to a written agreement between the two companies, Panhandle transferred to Hugoton gas leases on approximately 97,000 acres of land in Kansas and $675,000 in cash. In return Panhandle received all the outstanding capital stock of Hugoton and the option to purchase on or after January 1, 1965, all or part of the gas produced from this land, which is at present undeveloped and not connected with any pipe-line system. The gas reserves under this acreage are estimated at approximately 700 billion cubic feet. Hugoton thereafter contracted to sell to the Kansas Power and Light Company for a period of fifteen years from November 1, 1949, to November 1, 1964, the gas produced from these leases, which, according to the contract, was to be consumed wholly within the State of Kansas.

On the same date as the transaction between Panhandle and Hugoton, Panhandle declared a dividend of the Hugoton stock to the holders of its common stock at the rate of one-half share of Hugoton stock for each share of common stock of Panhandle. The dividend was to be paid November 17, 1948, to Panhandle's stockholders of record on October 29, 1948. Nothing called to our attention indicates any control retained by Panhandle over the Hugoton stock.

On October 26, 1948, the Federal Power Commission (hereinafter called the Commission) ordered an investigation 'pursuant to the provisions of Section 14 of the Natural Gas Act, of the fa ts and circumstances involved in the formation and proposed operation of the Hugoton Production Company and the transfer to said company by Panhandle Eastern of the naturalgas reserves * * *.' By supplementary order of November 10, 1948, Hugoton was joined as a party, a date for a public hearing was fixed, and Hugoton and Panhandle ordered to show cause why they should not be directed to cancel the contract, and why Panhandle should not be prohibited from transferring the leases without the consent of the Commission and from distribution the Hugoton stock to its stockholders. Pending a final determination the Commission ordered that the status quo be maintained by Panhandle and Hugoton.

Upon the apparent refusal of Panhandle to company with this order the Commission on November 13, 1948, instituted the instant suit in the United States District Court for the District of Delaware, seeking a preliminary injunction and a temporary restraining order to compel Panhandle to proceed no further with the stock distribution and to maintain the status quo pending the final determination of the questions for which the hearing before the Commission had been set. The district court issued the temporary pestraining order which has been kept in effect by successive orders and which enjoined Panhandle from issuing to its stockholders the dividend of Hugoton stock. Panhandle was ordered to cause Hugoton to refrain from transferring any of the gas leases and from issuing or transferring any of it capital stock. After a hearing the district court refused to grant the preliminary injunction on the ground that there had not been shown any basis for the relief sought by the Commission.

On appeal the Court of Appeals for the Third Circuit affirmed the judgment of the district court on the ground that § 1(b) of the Natural Gas Act, excluding 'the production or gathering of natural gas' from the Commission's jurisdiction left the transfer of gas leases to state regulation and outside the scope of the Commission's regulatory powers. 172 F.2d 57. The State Corporation Commission of Kansas had been granted leave to intervene in the Court of Appeals in opposition to the Federal Power Commission.

To consider the important question of the applicability of the Natural Gas Act, to this transaction, we granted certiorari. 336 U.S. 935, 69 S.Ct. 748.

Without entering upon another review of its legislative history,² suffice it to say that the Natural Gas Act did not envisage federal regulation of the entire natural-gas field to the limit of constitutional power. Rather it con- templated the exercise of federal power as specified in the Act, particularly in that interstate segment which the states were powerless to regulate because of the Commerce Clause of the Federal Constitution.³ The jurisdiction of the Federal Power Commission was to complement that of the state regulatory bodies.⁴ Accordingly, Congress in § 1(b) of the Act not only prescribed the intended reach of the Commission's power, but also specified the areas into which this power was not to extend.

Section 1(b) provides as follows:

'(b) The provisions of this Act shall apply to the transportation of natural gas in interstate commerce, to the sale in interstate commerce of natural gas for resale for ultimate public consumption for domestic, commercial, industrial, or any other use, and to natural-gas companies engaged in such transportation or sale, but shall not apply to any other transportation or sale of natural gas or to the local distribution of natural gas or to the facilities used for such distribution or to the production or gathering of natural gas.'

'This section determines the Act's coverage and does so in the light of the situation existing at the time. 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.' Panhandle Eastern Pipe Line Co. v. Public Service Com- mission of Indiana, 332 U.S. 507, 516, 68 S.Ct. 190, 195, 92 L.Ed. 128. The Act, moreover, expressly exempts from its coverage⁵ (1) any other transportation or sale of natural gas; (2) the local distribution of natural gas; (3) the facilities used for local distribution; and (4) the production and gathering of natural gas.

The Commission seeks to distinguish between the activities of production and gathering, such as drilling, spacing wells, or collecting gas, and the facilities, such as reserves and gas leases, used therefor and argues that only the former were excluded from the coverage of the Act. In support of this position it is pointed out that the section specifically exempts both the local distribution and the facilities used therefor while it makes no mention of the facilities used for production or gathering.⁶ In the face of the unambiguous language of the Act and its legislative background, we cannot ascribe such a narrow meaning to the words, 'the production or gathering of natural gas.' In Colorado Interstate Gas Co. v. Federal Power Commission, 324 U.S. 581, 603, 65 S.Ct. 829, 839, 89 L.Ed. 1206, we said that this phrase comprehended the producing properties and gathering facilities of a natural-gas company. We now adhere to this natural and clear meaning of the words and their obvious expression of congressional intent.⁷ Of course leases are an essential part of production.

The Commission cites §§ 5(b), 6(a) and (b), 8(a), 9(a), 10(a), and 14(b) to show that Congress intended 'to confer a certain measure of authority upon the Commission' over the production and gathering of gas. These sections empower the Commission to make investigations, to prescribe rules for the keeping of accounts and records by the natural-gas companies, and to require that the companies file such reports as are deemed necessary by the Commission in the proper administration of the Act. These powers are inquisitorial in nature and were designed to aid the Commission in exercising its powers and 'to serve as a basis for recommending further legislation to the Congress.' Section 14(b), quoted below, comes closest to supporting the Commission's argu- ment but that confers only power to obtain information.⁸ Although these sections bear evidence of congressional consideration of the relationship of production properties to...