365 U.S. 1 (1961), 45, Federal Power Commission v. Transcontinental Gas Pipe Line Corp.

Docket Nº:No. 45
Citation:365 U.S. 1, 81 S.Ct. 435, 5 L.Ed.2d 377
Party Name:Federal Power Commission v. Transcontinental Gas Pipe Line Corp.
Case Date:January 23, 1961
Court:United States Supreme Court

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365 U.S. 1 (1961)

81 S.Ct. 435, 5 L.Ed.2d 377

Federal Power Commission


Transcontinental Gas Pipe Line Corp.

No. 45

United States Supreme Court

Jan. 23, 1961

Argued November 15, 1960




A public utility company in New York City contracted for the direct purchase of natural gas from producers in Texas, not for resale but for consumption under its own boilers, and it arranged with a pipeline company for transportation of the gas to New York City. The pipeline company applied to the Federal Power Commission for a certificate of public convenience and necessity under § 7(e) of the Natural Gas Act, and offered proof, which was not challenged, that its application met all the conventional tests. The Commission denied the certificate after considering, inter alia, the desirability of the particular end use to which this gas would be put, the possibility of preemption of pipeline capacity and gas reserves by sales to industrial users, the price agreed upon, and the effect of this and similar future transactions on the price and availability of natural gas generally.

Held: the Commission did not exceed its authority or abuse its discretion in denying the certificate on the basis of these considerations. Pp. 3-31.

(a) The desirability of the use to which the gas would be put and the possibility of preemption of pipeline capacity and gas

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reserves by sales to industrial users were properly of concern to the Commission in passing on this application. Pp. 8-22.

(b) In considering this application, it was proper for the Commission to consider the effect which the high price charged in the sale here involved would have on future field prices for natural gas. Pp. 23-28

(c) The Commission did not err by taking cognizance of considerations dehors the record in concluding that widespread direct sales at high prices probably would result in price increases. Pp. 28-30.

(d) It cannot be said that the Commission acted irrationally in concluding that the evidence offered by the purchaser was insufficient to establish that its use of the gas was justified by the need to reduce air pollution. P. 30.

271 F.2d 942 reversed.

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WARREN, J., lead opinion

MR. CHIEF JUSTICE WARREN delivered the opinion of the Court.

The question in these cases is whether the Federal Power Commission has gone beyond the scope of its delegated authority in denying a certificate of public convenience and necessity under § 7(e) of the Natural Gas Act of 1938, 52 Stat. 821, as amended, 15 U.S.C. § 717 et seq.1 The principal respondents2 are Transcontinental Gas Pipe Line Corp. (Transco), a pipeline company

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engaged in transporting natural gas in interstate commerce, and Consolidated Edison Co. (Con. Ed.), a public utility in New York City which uses gas under its boilers and also sells gas to domestic consumers. In 1957, Con. Ed. contracted to purchase gas from producers in the Normanna and Sejita fields in Texas at 19 1/4 cents per Mcf., the contracts of sale containing a prohibition on resale of the gas by Con. Ed. This transaction is commonly labeled a "direct" sale and, because it does not entail a sale for resale in interstate commerce, is not subject to the Commission's jurisdiction except insofar as § 7 requires the Commission to certificate the transportation of gas pursuant to the sale.

Con. Ed. then arranged with Transco for what is called in the record "X-20" service. Under the contract, Transco agreed to transport 50,000 Mcf. daily to Con. Ed. in New York for use under Con. Ed.'s boilers, principally two boilers at Con. Ed.'s Waterside station which were then being fired by coal. Additionally, during a 60-day peak period, Transco agreed to sell 50,000 Mcf. to Con. Ed. from Transco's own reserves without restrictions as to resale. This 60-day supply was designed for use by Con. Ed.'s customers during the winter period, when heating demands were at their highest. Transco sought a certificate of public convenience and necessity for the proposed X-20 service in connection with its plan to conduct a major expansion of its pipeline capacity and storage facilities.

Before the hearing examiner, Transco's application was opposed by the FPC staff and groups representing the coal industry. Con. Ed. intervened in favor of Transco's proposal. Transco offered proof that its application met all the conventional tests -- adequate gas reserves, pipeline facilities and market for the gas -- and this showing, with one immaterial exception, has never been challenged. However, the FPC's staff argued vigorously

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that the public interest would suffer [81 S.Ct. 438] were Transco's petition granted. Among the grounds advanced were that the gas was to be transported for use under industrial boilers, this disposition being an "inferior" use from the standpoint of conserving a valuable natural resource; that authorization of this and similar direct sales to major industrial users would result in preemption of pipeline capacity and gas reserves to the detriment of domestic consumers competing for gas supply; and that the effect of this sale, as well as the resulting increase in direct sales, would effect a general rise in field prices. These contentions were presented as "policy" arguments, and no testimony was taken in support. Con. Ed. contended, in return, that certification was in the public interest, principally because a firm supply of natural gas under the Waterside boilers would reduce the air pollution problem then being aggravated by fly-ash and sulphur dioxide emissions from these boilers. The Waterside station is located near the headquarters building of the United Nations, and Con. Ed. introduced expert testimony indicating that the Waterside boilers were major contributors to the air pollution problem in the area. Respondents also contended that the factors propounded by the FPC's staff were not open for consideration in a § 7 proceeding. The hearing examiner agreed with respondents that his determination was limited to conventional factors, and consequently recommended certification. He qualified his recommendation, however, with a statement that, if he were authorized to consider the policy argument related to the end use of the gas advanced by the FPC staff, he would come to the opposite conclusion. He indicated that respondents' proof concerning the air pollution problem was not sufficiently compelling to overcome this contrary argument.

On review before the full FPC, the Commission held that the broad considerations advanced by its staff

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were cognizable in a § 7 proceeding. The Commission agreed with respondents that the "idea of ameliorating a smoke condition found unpleasant and annoying . . . is an attractive one," but concluded that "more weighty considerations compel the denial of the grant." 21 F.P.C. 138, 142. Respondents sought a rehearing before the Commission, and, upon denial of that petition, 21 F.P.C. 399, appealed to the Court of Appeals. The Court of Appeals reinstated the conclusion of the hearing examiner that the policy considerations advanced by the FPC were outside the scope of a § 7 proceeding. The court relied principally on § 1(b) of the Natural Gas Act, 15 U.S.C. § 717(b), which provides:

The provisions of this chapter 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.

The court also expressed sympathy with respondents' contention that the Commission had given inadequate weight to the air pollution factor, but the holding below does not appear to be based on that ground. 271 F.2d 942.

The principal question before this Court, then, is whether Congress intended to preclude the Commission from denying certification on the basis of the policy considerations advanced by its staff. For purposes of analysis, the litigants have grouped these factors into two broad categories. The first has been labeled the "end use" factor, and reflects and Commission's concern that Con. Ed.'s

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proposed "inferior" use of gas under its industrial boilers would be wasteful of gas committed to the Commission's jurisdiction, and, by the same token, would [81 S.Ct. 439] preempt space in pipelines that might otherwise be used for transportation of gas for superior uses. The second may be called the "price" consideration, and involves the Commission's fear that this sale -- which was executed at a price higher than the maximum fixed by the Commission in the producing districts here involved -- would increase the price of natural gas in the field, thus triggering a rise in the price provisions in other contracts.

In light of what this Court has said on prior occasions concerning the term "public convenience and necessity" in analogous statutes, the ready inference is that the Commission has the power to consider the "end use" and "price" factors. For example, in United States v. Detroit & Cleveland Navigation Co., 326 U.S. 236, 241, the Court concluded that:

The Commission is the guardian of the public interest in determining whether certificates of convenience and necessity shall be granted. For the performance of that function, the Commission has been entrusted with a wide range of discretionary authority. Interstate Commerce Commission v. Parker, 326 U.S. 60. Its function is not...

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