ANR Pipeline Co. v. Schneidewind
| Decision Date | 15 September 1986 |
| Docket Number | No. 85-1762,85-1762 |
| Citation | 801 F.2d 228 |
| Parties | ANR PIPELINE COMPANY and ANR Storage Company, Plaintiffs-Appellants, v. Eric J. SCHNEIDEWIND, Matthew E. McLogan and Edwyna G. Anderson, Defendants- Appellees. |
| Court | U.S. Court of Appeals — Sixth Circuit |
R. Philip Brown, Asst. Atty. Gen., Lansing, Mich., Don L. Keskey (argued), for defendants-appellees.
John C. Jones (argued), Mika, Meyers, Beckett & Jones, Grand Rapids, Mich., Elizabeth C. Keller, for plaintiffs-appellants.
Before KENNEDY and BOGGS, Circuit Judges, and BROWN, Senior Circuit Judge.
This appeal presents two questions: (1) Whether the Natural Gas Act ("NGA"), codified at 15 U.S.C. Secs. 717-717w, preempts the Michigan public utilities securities regulation law, 1909 Mich.Pub.Acts No. 144 ("Act 144"), codified at Mich. Comp. Laws Sec. 460.301, 1 which requires Plaintiffs-appellants, ANR Pipeline Company ("Pipeline"), a Delaware corporation, and ANR Storage Company ("Storage"), a Michigan corporation, originally brought this action against MPSC seeking a declaratory judgment that MPSC could not constitutionally require them to obtain MPSC's advance approval before issuing and selling long-term securities. After MPSC filed a motion to dismiss the complaint on several grounds including the Eleventh Amendment, plaintiffs-appellants filed a motion for leave to file an amended complaint adding the three members of MPSC, defendants-appellees Eric J. Schneidewind, Matthew E. McLogan, and Edwyna G. Anderson, in their official capacities, as additional parties. On September 7, 1984, the District Court filed an order granting plaintiffs-appellants' motion to file an amended complaint. The order also dismissed MPSC as a defendant. Plaintiffs-appellants have not appealed from that order.
public utilities, including "natural-gas companies" as defined under the NGA in 15 U.S.C. Sec. 717a(6), operating in Michigan to obtain the approval of the Michigan Public Service Commission ("MPSC") before issuing long-term 2 securities; and (2) Whether Act 144 violates the Commerce Clause of the United States Constitution. The United States District Court for the Western District of Michigan, 627 F.Supp. 923, held that federal law did not preempt Act 144 and that Act 144 did not violate the Commerce Clause. For the reasons stated below, we hold that the NGA implicitly preempts Act 144. In addition, we hold that Act 144 unconstitutionally burdens interstate commerce. Accordingly, we reverse the judgment of the District Court.
The parties stipulated that the District Court should decide the case on the basis of a stipulation of facts, an appendix to the stipulation of facts, plaintiffs-appellants' answers to three sets of interrogatories, and plaintiffs-appellants' replies to two sets of requests for admissions. After hearing oral arguments, the District Court ruled that plaintiffs-appellants could not lawfully issue and market long-term securities without obtaining a prior order of approval from MPSC. The District Court further declared that defendants-appellees, in their official capacities as members of MPSC, have the jurisdiction and authority to regulate, approve or disapprove the issuance of plaintiffs-appellants' long-term securities.
Plaintiffs-appellants are wholly-owned subsidiaries of American Natural Resources Company ("ANR"), a diversified holding company incorporated in Delaware. The principal offices of all three companies are located in Detroit, Michigan. Since plaintiffs-appellants are "natural-gas companies," 3 the Federal Energy Regulatory Commission ("FERC") exercises general regulatory jurisdiction over their facilities and operations, including transportation, storage, sales (for resale), rates and charges, construction of new facilities, extension or abandonment of service and facilities, and certain other matters. This jurisdiction includes the authority to review and consider specific long-term financing plans for particular construction projects. FERC, however, does not review plaintiffs- Pipeline owns and operates an interstate natural gas pipeline system which transports and sells gas, for resale only, to 51 gas distribution customers in Michigan, Wisconsin, Iowa, Illinois, Indiana, Kansas, Missouri, Ohio, and Tennessee. Pipeline does not have any direct retail customers in Michigan and does not have plans for any. Although Pipeline derives most of its revenues from the sale of gas at wholesale, Pipeline also provides storage and transportation services for other gas companies by using extensive underground gas transmission pipelines and gas storage facilities located in Michigan and in other states.
appellants' short-term financing or nonconstruction financing. Because plaintiffs-appellants do not use any facilities in, or otherwise engage in, any local or intrastate natural gas operations of any kind, MPSC does not exercise general regulatory jurisdiction over plaintiffs-appellants' facilities or operations.
Pipeline purchases natural gas from producers in Texas, Oklahoma, Kansas, Louisiana, and Wyoming and uses large diameter, cross-country pipelines to transport the gas, primarily to the states of Michigan and Wisconsin. During 1983, Pipeline sold 555 billion cubic feet of gas to its customers; over fifty percent of Pipeline's 1983 sales were in Michigan, approximately forty-five percent in Wisconsin and less than five percent in other states. Pipeline delivers all the gas that the company transports to Wisconsin directly to gas distribution utilities for immediate resale to their customers. Pipeline delivers most of the gas transported to Michigan directly to gas distribution utilities but also occasionally injects relatively minor volumes of gas into storage.
ANR organized Storage in 1978 to develop and operate gas storage reservoirs to store gas for non-affiliated customers. Storage operates four storage fields in the northern portion of Michigan's lower peninsula. Storage does not sell natural gas. During the summer, Storage receives natural gas from another pipeline company and stores the gas in one or more of the four storage fields. 4 Upon demand of its customers, Storage redelivers the natural gas to the pipeline company. All of the natural gas that Storage stores comes from outside the state of Michigan. Upon withdrawal of the natural gas from Storage's facilities, Storage's customers ultimately use the gas outside of Michigan.
Since its creation in 1939 and except for the period 1970-1979, MPSC has exercised authority over the securities that Pipeline or its predecessor, Michigan Wisconsin Pipe Line Company, has issued. After the decision of the Michigan Court of Appeals in Great Lakes Transmission Co. v. Michigan Pub. Serv. Comm'n, 24 Mich.App. 77, 180 N.W.2d 59 (1970), MPSC advised Pipeline (then Michigan Wisconsin Pipe Line Company) that, pursuant to the advice of its legal division, MPSC did not have jurisdiction to regulate the issuance of Pipeline's securities. Accordingly, Pipeline did not file securities applications from 1970 until the decision of the Supreme Court of Michigan in Michigan Gas Storage v. Public Serv. Comm'n, 405 Mich. 376, 275 N.W.2d 457, reh'g denied, 406 Mich. 1118 (1979). After that decision, Pipeline has filed seven applications to issue securities. All seven applications raised the question of MPSC's jurisdiction, but the parties have not litigated the issue until now.
Since 1979, MPSC has approved all seven of Pipeline's applications to issue securities. In each case, MPSC granted authorization for Pipeline to issue and sell the amount and type of securities that Pipeline had requested. In one instance, MPSC did not grant authorization for the issuance until slightly more than eight months after Pipeline applied for the authorization. MPSC granted the other six authorizations in between three and six weeks. On one occasion, however, Pipeline filed an application for approval of proposed security issuances MPSC has also exercised authority over securities that Storage has issued since 1979. During that time, MPSC has unconditionally approved all three of Storage's applications in between three and six weeks. On one occasion, however, Storage withdrew an application after a MPSC representative advised the company that MPSC would hold hearings on the application. After ANR and MPSC reached a settlement regarding ANR's divestiture of Michigan Consolidated Gas Company, Storage filed a substitute application which MPSC approved. Storage's applications also raised the issue of MPSC's jurisdiction.
which included guaranteeing certain financing by a subsidiary company. Instead of promptly approving the application as it had done in the past, MPSC issued a "Notice of Inquiry" and set the matter for hearing. Thereafter, Pipeline withdrew the original application and filed a substitute application, which omitted the guarantee. MPSC approved the substitute application.
Since the natural gas industry is a capital-intensive industry, the issuance of various forms of securities is an essential aspect of plaintiffs-appellants' businesses. Pipeline, for example, uses short-term debt to finance the build-up of gas balances until the heating season begins and to finance capital expenditures, such as the construction of natural gas transmission and storage facilities, pending long-term financing. Pipeline uses various forms of long-term financing including common and preferred stock, first mortgage bonds, debentures, and unsecured notes. Pipeline plans to issue approximately 50 million dollars in securities in 1986, not including potential refunding of debts, and approximately 100 million dollars in securities during 1987. Pipeline plans to use the proceeds from such securities issuances to assist in financing construction projects costing approximately 560 million dollars. Of this total, Pipeline plans to spend...
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