Federal Power Commission v. Transcontinental Gas Pipe Line Corp National Coal Association v. Transcontinental Gas Pipe Line Corp, s. 45

• Decision Date: 23 January 1961
• Docket Number: Nos. 45,46,s. 45
• Citation: 365 U.S. 1,81 S.Ct. 435,5 L.Ed.2d 377
• Parties: FEDERAL POWER COMMISSION, v. TRANSCONTINENTAL GAS PIPE LINE CORP. NATIONAL COAL ASSOCIATION et al. v. TRANSCONTINENTAL GAS PIPE LINE CORP
• Court: U.S. Supreme Court

365 U.S. 1

81 S.Ct. 435

5 L.Ed.2d 377

FEDERAL POWER COMMISSION,

v TRANSCONTINENTAL GAS PIPE LINE CORP.

NATIONAL COAL ASSOCIATION et al.

v. TRANSCONTINENTAL GAS PIPE LINE CORP.

Nos. 45, 46.

Argued Nov. 15, 1960.

Decided Jan. 23, 1961.

[Syllabus from pages 1-2 intentionally omitted] Mr. Solicitor General J. Lee Rankin, Washington, D.C., for petitioner in No. 45.

Mr. Jerome J. McGrath, Washington, D.C., for petitioners in No. 46.

Messrs. Randall J. LeBoeuf, Jr., New York City, and Richard J. Connor, Washington, D.C., for respondents in both cases.

[Amicus Curaie intentionally omitted] 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., 15 U.S.C.A. § 717 et seq.¹ The principal respondents² are Transcontinental Gas Pipe Line Corp. (Transco), a pipeline company 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 vigor- ously that the public interest would suffer 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 pre-emption 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 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), 15 U.S.C.A. § 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 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 pre-empt 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, 66 S.Ct. 75, 77, 90 L.Ed. 38, 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, 65 S.Ct. 1490 (89 L.Ed. 2051). Its function is not only to appraise the facts and to draw inferences from them but also to bring to bear upon the problem an expert judgment and to determine from its analysis of the total situation on which side of the controversy the public interest lies. Its doubt that the public interest will be adequately served if resumption of service is left to existing carriers is entitled to the same respect as its expert judgment on other complicated transportation problems. * * *' See Interstate Commerce Commission v. Railway Labor Executives Ass'n, 315 U.S. 373, 376—377, 62 S.Ct. 717, 719 720, 86 L.Ed. 904.

In fact, in interpreting this very section, we said that '§ 7(e) requires the Commission to evaluate all factors bearing on the public interest.' Atlantic Refining Co. v. Public Service Commission, 360 U.S. 378, 391, 79 S.Ct. 1246, 1255, 3 L.Ed.2d 1312. (Emphasis added.) However, respondents correctly point out that Congress, in enacting the Natural Gas Act, did not give the Commission comprehensive powers over every incident of gas production, transportation and sale. Rather, Congress was 'meticulous' only to invest the Commission with authority over certain aspects of this field, leaving the residue for state regulation. Panhandle Eastern Pipe Line Co. v. Public Service Commission, 332 U.S. 507, 68 S.Ct. 190, 92 L.Ed. 128. Therefore, it is necessary to consider with care whether, despite the accepted meaning of the term 'public convenience and necessity,' the Commission has trod on forbidden ground in making its decision.

End use. No one disputes that natural gas is a wasting resource and that the necessity for conserving it is paramount.³ As we see it, the question in this case is whether the Commission, through its certification power, may prevent the waste of gas committed to its jurisdiction. One apparent method of...