Phillips Petroleum Co v. State of Wisconsin State of Texas v. State of Wisconsin Federal Power Commission v. State of Wisconsin

• Decision Date: 07 June 1954
• Docket Number: Nos. 280,418,281,s. 280
• Citation: 74 S.Ct. 794,98 L.Ed. 1035,347 U.S. 672
• Parties: PHILLIPS PETROLEUM CO. v. STATE OF WISCONSIN et al. STATE OF TEXAS et al. v. STATE OF WISCONSIN et al. FEDERAL POWER COMMISSION v. STATE OF WISCONSIN et al
• Court: U.S. Supreme Court

347 U.S. 672

74 S.Ct. 794

98 L.Ed. 1035

PHILLIPS PETROLEUM CO.

v STATE OF WISCONSIN et al.

STATE OF TEXAS et al.

v. STATE OF WISCONSIN et al.

FEDERAL POWER COMMISSION

v. STATE OF WISCONSIN et al.

Nos. 280, 281, 418.

Argued April 6, 7, 1954.

Decided June 7, 1954.

[Syllabus from pages 672-673 intentionally omitted] Mr. Solicitor General Simon E. Sobeloff, Washington, D.C., for petitioner Federal Power Commission.

Mr. Hugh B. Cox, Washington, D.C., for petitioner Phillips Petroleum co.

Mr. Dan Moody, Austin, Tex., for petitioner State of Texas and others.

Messrs. Stewart G. Honeck, Wm. E. Torkelson, Madison, Wis., Charles S. Rhyne, Washington, D.C., James H. Lee, Austin, Tex., Harry G. Slater, Washington, D.C., for respondents.

Mr. Justice MINTON delivered the opinion of the Court.

These cases present a common question concerning the jurisdiction of the Federal Power Commission over the rates charged by a natural-gas producer and gatherer in the sale in interstate commerce of such gas for resale. All three cases are an outgrowth of the same proceeding before the Power Commission and involve the same facts and issues.

The Phillips Petroleum Company¹ is a large integrated oil company which also engages in the production, gethering, processing, and sale of natural gas. We are here concerned only with the natural-gas operations. Phillips is known as an 'independent' natural-gas producer in that it does not engage in the interstate transmission of gas from the producing fields to consumer markets and is not affiliated with any interstate natural-gas pipeline company. As revealed by the record before us, however, Phillips does sell natural gas to five interstate pipeline transmission companies which transport and resell the gas to consumers and local distributing companies in fourteen states.

Approximately 50% of this gas is produced by Phillips, and the remainder is purchased from other producers. A substantial part is casinghead gas—i.e., produced in connection with the production of oil. The gas flows from the producing wells, in most instances at well pressure, through a network of converging pipelines of progressively larger size to one of twelve processing plants, where extractable products and impurities are removed. Of the nine such networks of pipelines involved in these cases, five are located entirely in Texas, one in Oklahoma, one in New Mexico, and two extend into both Texas and Oklahoma. After processing is completed, the gas flows from the processing plant through an outlet pipe, of varying lengths up to a few hundred feet, to a delivery point where the gas is sold and delivered to an interstate pipeline company. The gas then continues its flow through the interstate pipeline system until delivered in other states.

The Federal Power Commission, on October 28, 1948, instituted an investigation to determine whether Phillips is a natural-gas company within the jurisdiction of the Commission, and, if so, whether its natural-gas rates are unjust or unreasonable. In extensive hearings before an examiner, the facts described above were developed, as well as much additional information. An intermediate decision having been dispensed with, the Commission issued an opinion and order in which it held that Phillips is not a 'natural-gas company' within the meaning of that term as used in the Natural Gas Act,² and therefore is not within the Commission's jurisdiction over rates.³ Consequently, the Commission did not proceed to investigate the reasonableness of the rates charged by Phillips. On appeals, the decision of the Commission was reversed by the Court of Appeals for the District of Columbia, one judge dissenting. 92 U.S.App.D.C. 284, 205 F.2d 706. We granted certiorari. 346 U.S. 934—935, 74 S.Ct. 374—376.

The Power Commission is authorized by § 4 of the Natural Gas Act to regulate the 'rates and charges made, demanded, or received by any natural-gas company for or in connection with the transportation or sale of natural gas subject to the jurisdiction of the Commission * * *.' 'Natural-gas company' is defined by § 2(6) of the Act to mean 'a person engaged in the transportation of natural gas in interstate commerce, or the sale in interstate commerce of such gas for resale.' The jurisdiction of the Commission is set forth in § 1(b) as follows:

'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.'

Petitioners admit that Phillips engages in 'the sale in interstate commerce of natural gas for resale', as, of course, they must. Interstate Natural Gas Co. v. Federal Power Commission, 331 U.S. 682, 687—689, 67 S.Ct. 1482, 1485—1487, 91 L.Ed. 1742; cf. Michigan-Wisconsin Pipe Line Co. v. Calvert, 347 U.S. 157, 166 168, 74 S.Ct. 396, 401—403. They contend, however, that the affirmative grant of jurisdiction over such sales in the first clause of § 1(b) is limited by the negative second clause of the section. In particular, the contention is made that the sales by Phillips are a part of the 'production or gathering of natural gas' to which the Commission's jurisdiction expressly does not extend.

We do not agree. In our view, the statutory language, the pertinent legislative history, and the past decisions of this Court all support the conclusion of the Court of Appeals that Phillips is a 'natural-gas company' within the meaning of that term as defined in the Natural Gas Act, and that its sales in interstate commerce of natural gas for resale are subject to the jurisdiction of and regulation by the Federal Power Commission.

The Commission found that Phillips' sales are part of the production and gathering process, or are 'at least an exempt incident thereof.'⁴ This determination appears to have been based primarily on the Commission's reading of legislative history and its interpretation of certain decisions of this Court. Also, there is some testimony in the record to the effect that the meaning of 'gathering' commonly accepted in the natural-gas industry comprehends the sales incident to the physical activity of collecting and processing the gas. Petitioners contend that the Commission's finding has a reasonable basis in law and is supported by substantial evidence of record and therefore should be accepted by the courts, particularly since the Commission has 'consistently' interpreted the Act as not conferring jurisdiction over companies such as Phillips.⁵ See Gray v. Powell, 314 U.S. 402, 62 S.Ct. 326, 86 L.Ed. 301; National Labor Relations Board v. Hearst Publications, Inc., 322 U.S. 111, 64 S.Ct. 851, 88 L.Ed. 1170. We are of the opinion, however, that the finding is without adequate basis in law, and that production and gathering, in the sense that those terms are used in § 1(b), end before the sales by Phillips occur.

In Federal Power Commission v. Panhandle Eastern Pipe Line Co., 337 U.S. 498, 505, 69 S.Ct. 1251, 1256, 93 L.Ed. 1499, we observed that the 'natural and clear meaning' of the phrase 'production or gathering of natural gas' is that it encompasses 'the producing properties and gathering facilities of a natural-gas company.' Similarly, in Colorado Interstate Gas Co. v. Federal Power Commission, 324 U.S. 581, 598, 65 S.Ct. 829, 837, 89 L.Ed. 1206, we stated that '(t)ransportation and sale do not include production or gathering', and indicated that the 'production or gathering' exemption applies to the physical activities, facilities, and properties used in the production and gathering of natural gas. Id., 324 U.S. at pages 602—603, 65 S.Ct. at page 839. See also Federal Power Commission v. Hope Natural Gas Co., 320 U.S. 591, 612—615, 64 S.Ct. 281, 292—294, 88 L.Ed. 333; Peoples Natural Gas Co. v. Federal Power Commission, 75 U.S.App.D.C. 235, 127 F.2d 153; cf. United States v. Public Utilities Commission, 345 U.S. 295, 307—311, 73 S.Ct. 706, 713 716, 97 L.Ed. 1020.⁶

Even more directly in point is our decision in Interstate Natural Gas Co. v. Federal Power Commission, 331 U.S. 682, 67 S.Ct. 1482, 91 L.Ed. 1742. The Interstate Company produced or purchased natural gas which it in turn sold and delivered to three interstate pipeline companies, all the activities occurring within the same state. We noted that '(e)xceptions to the primary grant of jurisdiction in the section (1(b)) are to be strictly construed',⁷ id., 331 U.S. at pages 690—691, 67 Stat. at page 1487, and held that § 1(b) conferred jurisdiction over such sales on the Federal Power Commission, stating:

'Petitioner asserts * * * that the sales to the three pipe line companies are a part of the gathering process and consequently not within the Commission's power of regulation. This basic contention has given rise to a great many subsidiary questions such as whether the sales were made from petitioner's 'gathering' lines or from petitioner's transmission' lines and whether the gathering process continued to the points of sale or was, as the Commission found, completed at some point prior to surrender of custody and passage of title. We have found it unnecessary to resolve those issues. The gas moved by petitioner to the points of sale consisted of gas produced from petitioner's wells commingled with that produced and gathered by other companies and introduced into petitioner's pipe line system during the course of the movement. By the time the sales are consummated, nothing further in the gathering process remains to be done. We have held that these sales are in interstate commerce. It cannot be doubted that their regulation is predominantly a matter...