Public Service Co. of North Carolina, Inc. v. Federal Energy Regulatory Commission, s. 77-2728
| Citation | 587 F.2d 716 |
| Decision Date | 11 January 1979 |
| Docket Number | 77-2746 and 77-2807,Nos. 77-2728,s. 77-2728 |
| Parties | PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INC., State of Texas, State of Louisiana, Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, State of Alaska, State of New Mexico Energy Resources Board, Public Service Commission of the State of New York, Natural Gas Pipeline Company of America, Intervenors. |
| Court | United States Courts of Appeals. United States Court of Appeals (5th Circuit) |
R. Gordon Gooch, Bruce F. Kiely, Randolph Q. McManus, Washington, D. C., F. Kent Burns, Raleigh, N. C., for petitioner Public Service Co. of North Carolina, Inc.
John L. Hill, Atty. Gen. of Tex., David M. Kendall, First Asst. Atty. Gen., Austen H. Furse, Asst. Atty. Gen., Austin, Tex., for petitioner State of Texas.
James R. Patton, Jr., Harry E. Barsch, Linda Elizabeth Buck, David Robinson, Washington, D. C., for petitioner State of Louisiana.
Robert M. Maynard, Asst. Atty. Gen., State of Alaska, Dept. of Law, Avrum M. Gross, Atty. Gen., Juneau, Alaska, Cynthia L. Pickering, Asst. Atty. Gen., Anchorage, Alaska, for State of Alaska, intervenors objecting.
Vernon O. Henning, Asst. Atty. Gen., Toney Anaya, Atty. Gen., Santa Fe, N. M., for Energy Resources Board of State of New Mexico, intervenor objecting.
Robert R. Nordhaus, Gen. Counsel, F. E. R. C., Philip Telleen, Steven Taube, Attys., F. E. R. C., Howard E. Shapiro, Sol., Washington, D. C., for respondent.
Arthur S. Kallow, Chicago, Ill., for Natural Gas Pipeline Co. of America, intervenors supporting.
Peter H. Schiff, Gen. Counsel, P. S. C. of State of N. Y., Albany, N. Y., Richard A. Solomon, Dennis Lane, Washington, D. C., for Public Service Comm. of State of N. Y., intervenor supporting.
Joseph M. Wells, Paul E. Goldstein, Richard E. Terry, Chicago, Ill., for Nat. Gas Pipeline, intervenor supporting.
On Petitions for Review of Orders of the Federal Power Commission.
Before BROWN, Chief Judge, GODBOLD * and RONEY, Circuit Judges.
This case presents the question whether a state, which is not a "natural gas company" under the Natural Gas Act (the Act), may nevertheless be made subject to the abandonment provisions of § 7(b) of the Act. 1 We conclude that where the state has consented to the interstate dedication of its gas, the state must obtain FERC approval prior to abandoning the certificated service.
Much of Texas's public education system is financed from revenues received through the issuance of state oil and gas leases to producers, who then remit a royalty to the state. 2 In the case before us, in May, 1970, Texas, acting through its agency the School Land Board of Texas, 3 followed this scheme by issuing to Superior Oil Company (Superior) gas leases covering state-owned land. 4 In turn, Texas retained a royalty interest that could be taken either "for value" or "in kind. 5 " Pursuant to a 1971 Federal Power Commission certificate obtained by Superior, 6 all the gas produced by Superior, both its own and that attributable to Texas's royalty share, was then sold in interstate commerce to Natural Gas Pipeline Company (Natural).
For several years, Texas received its royalty share in money. Then, on April 25, 1975, after the leases had been amended so as to permit the taking of royalties in kind, 7 Texas elected to take in kind. Shortly thereafter, Texas entered into an agreement to sell its royalty share to Public Service Company of North Carolina (Public Service), a natural gas distribution company. Upon learning of this contemplated transaction, the Commission informed the parties that Texas's royalty gas could not be diverted from Natural to Public Service without prior abandonment authorization from the agency.
Public Service then petitioned the Commission for an order declaring that the Commission had no jurisdiction to require abandonment authorization prior to Texas's taking its royalty gas in kind. In its Declaratory Order, the Commission concluded that, although neither Texas nor its agency was a "natural gas company" within the meaning of the Act, 8 both Texas And Superior were required to seek abandonment authorization Superior, because it had dedicated the gas reserves to interstate commerce, and Texas, because it had acquiesced in this dedication:
(T)he reserves covered by . . . the first two leases were dedicated to interstate commerce when Superior made the sale to Natural. A certificate was issued . . . and gas was delivered. Texas did not object to this course of business until . . . it notified the Commission of its intention to take the royalty gas in kind. Once dedicated, the reserves remained dedicated and this is the result distinct from the underlying contractual arrangement.
Under the facts here, particularly the acquiescence of Texas in the interstate course of business we conclude therefore that, before Texas' royalty gas from the first two leases can be withdrawn from sale to Natural and transported and delivered to Public Service, Texas, or its agency, and Superior must obtain abandonment authority under Section 7(b) of the Natural Gas Act. 9
Public Service unsuccessfully challenged the Commission's Order in administrative proceedings and now brings its Petition for Review in this Court. 10
Petitioners' main contention is that since a state is not, and never can be, a "natural gas company" under the Act, the Commission cannot require the state to seek abandonment authorization under § 7(b) of the Act, a section that is specifically limited to "natural gas companies." Moreover, petitioners argue, since a state cannot directly come within the ambit of § 7(b), the same result cannot be achieved indirectly by requiring Superior to seek abandonment authorization. 11
As logical and as consistent with the statutory language as petitioners' argument might appear, we must nevertheless conclude that their position cannot be upheld. Our reading of the recent Supreme Court decision in California v. Southland Royalty Company, 1978, 436 U.S. 519, 98 S.Ct. 1955, 56 L.Ed.2d 505, leads us to conclude that an entity's status as a "natural gas company" is largely irrelevant to the question of whether that entity must seek abandonment authorization under § 7(b). As we see it, Southland establishes the principle that any party, whether a "natural gas company" or not, that acquiesces in the "dedication" of its gas to interstate commerce becomes obligated to continue the dedicated service or seek Commission approval to abandon it.
In Southland, Gulf acquired a 50-year leasehold interest in certain oil and gas reserves, with Southland and others retaining a reversionary interest in those reserves. As authorized by the terms of its lease, Gulf arranged to sell the production in interstate commerce. Accordingly, Gulf obtained a Commission certificate of unlimited duration and proceeded to transmit gas through the interstate market. Later, upon expiration of its lease, Gulf's interest in the reserves went to Southland and the other owners of the reversionary interest. These owners then sought to make an intrastate sale of the remaining gas reserves. Despite the fact that Gulf, a tenant for a term of years, had under Texas law no legal rights over the gas remaining after the termination of the lease, the Court determined that the lessee Gulf had, with the owners' approval, "dedicated" all the reserves to interstate commerce by transporting the gas in the interstate market subject to a certificate of unlimited duration:
This issuance of a certificate of unlimited duration covering the gas at issue here created a federal obligation to serve the interstate market until abandonment had been obtained. The Commission reasonably concluded that under the statute the obligation to continue service attached to the gas, not as a matter of contract but as a matter of law, and bound all those with dominion and power of sale over the gas, including the lessor to whom it reverted. (T) he service obligation imposed by the Commission survived the expiration of the private agreement which gave rise to the Commission's jurisdiction.
Id. at 526, 98 S.Ct. at 1959. Once this gas was so dedicated, the Court held, the owners could not divert it from interstate commerce without first seeking Commission authorization under § 7(b) of the Act.
The facts of the case before us are clearly analogous to those of Southland. Texas fully acquiesced in Superior's interstate transmission of All the production to Natural. Texas never objected to Superior's obtaining a certificate covering All the gas, and indeed, Texas profited from Superior's interstate dedication of the gas by accepting royalty payments based on the interstate sales of its gas. Thus, to paraphrase the Court in Southland, Texas, having consented to Superior's interstate sales of gas, cannot now object to the rules and restrictions that accompany such sales. Cf. id. at 528-29, 98 S.Ct. at 1960.
Petitioners seek to distinguish the instant case from Southland on the grounds that the owners of the reversionary interest in Southland could become "natural gas companies," while Texas can never achieve this status. This may well be true. The argument, however, overlooks the major point of Southland that it is the Dedication of the gas that creates the service obligation. Indeed, in Southland, the Court refused to reach the question of whether the owners were "natural gas companies." Instead, the Court pointed out that whether or not the owners were "natural gas companies" was "somewhat beside the point, for the obligation to serve the interstate market had already attached to the Gas, and respondents became obligated to continue that service when they assumed control of the gas." Id. at 528, 98 S.Ct. at 1960. Thus, the fact that Texas can never become a "natural gas company" is irrelevant once Texas has allowed its gas to be dedicated to interstate service. 12
Petitioners also seek exemption from the...
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