Illinois Natural Gas Co v. Central Illinois Public Service Co

• Citation: 314 U.S. 498,62 S.Ct. 384,86 L.Ed. 371
• Decision Date: 05 January 1942
• Docket Number: No. 100,100
• Parties: ILLINOIS NATURAL GAS CO. v. CENTRAL ILLINOIS PUBLIC SERVICE CO. et al
• Court: United States Supreme Court

314 U.S. 498

62 S.Ct. 384

86 L.Ed. 371

ILLINOIS NATURAL GAS CO.

v CENTRAL ILLINOIS PUBLIC SERVICE CO. et al.

No. 100.

Argued Dec. 19, 1941.

Decided Jan. 5, 1942.

Appeal from the Supreme Court of the State of Illinois.

Mr. Glenn W. Clerk, of Kansas City, Mo., for appellant.

Mr. Albert E. Hallett, Jr., of Chicago, Ill., for appellees.

[Argument of Counsel from pages 499-500 intentionally omitted] Mr. Chief Justice STONE delivered the opinion of the Court.

On complaint of appellee, Central Illinois Public Service Company, which is engaged in the distribution of natural gas to consumers in various cities and towns in Illinois, appellee, Illinois Commerce Commission, made its order requiring appellant, Illinois Natural Gas Company, to supply the Central Company with natural gas and to establish the pipe line connection necessary for that purpose. In the proceedings before the Commission, appellant contended that its entire operations and business in Illinois constitute interstate commerce and challenged the Commission's exercise of its jurisdiction and its order, as in conflict with the commerce clause and the provisions of the Natural Gas Act, 52 Stat. 821—833, 15 U.S.C. §§ 717—717w, 15 U.S.C.A. §§ 717—717w. Section 7(c), 15 U.S.C. § 717f(c), 15 U.S.C.A. § 717f(c), it was contended, prohibits such extension of facilities and sale of gas to distributors without a certificate of public convenience and necessity from the Federal Power Commission.

On review the Illinois Circuit Court sustained the order and the Illinois Supreme Court affirmed, 375 Ill. 634, 32 N.E.2d 157, holding that the activities of appellant affected by the Commission's order constitute intrastate commerce, to which the provisions of the Natural Gas Act do not apply, and that those activities are, therefore, subject to state regulation. The case comes here on appeal under § 237(a) of the Judicial Code as amended, 28 U.S.C. § 344(a), 28 U.S.C.A. § 344(a).

Appellant, an Illinois corporation, is a wholly owned subsidiary of Panhandle Eastern Pipe Line Company, which owns and operates a natural gas pipe line system extending from gas fields in Texas, Kansas and Oklahoma across Illinois and into Indiana. Appellant owns a pipe line system wholly in Illinois, whose transmission pipe lines connect at various points in Illinois with the main line of Panhandle Eastern. Appellant by long term contract purchases its supply of gas from Panhandle Eastern and transports it through its own lines to local gas distributing utilities in Illinois to which it sells the gas for distribution to consumers in Illinois cities and towns. It also sells and delivers gas to several industrial consumers in the state. The gas moves continuously, under pressure applied by Panhandle, from the gas fields until it enters appellant's transmission lines where appellant reduces the pressure according to the needs of its service. After the reduction of pressure the gas continues to move in appellant's lines until it passes into the service pipes of the local distributors, or industrial users, where the pressure is again substantially reduced. The Central Illinois Public Service Company is distributing natural gas to consumers in several Illinois towns and cities, which it purchases for resale from Universal Gas Company, and takes from the pipe line of the latter at the Illinois state line. Universal in turn acquires the gas in Indiana from Panhandle Eastern, and from Kentucky Natural Gas Company.

The Illinois Commission found that appellant's operations in the sale of the gas to distributors in the state are wholly intrastate commerce; that the supply of gas capable of passing through Central's pipe line is inadequate to supply the Illinois communities served by it. The Commission then ordered appellant to extend its pipe line so as to connect with Central's pipe line system and to supply gas in sufficient quantities to enable it to satisfy the needs of its customers.

That appellant and Panhandle Eastern are engaged in interstate commerce in the purchase and sale of the natural gas which moves in a continuous stream from points without the state into appellant's pipes within the state seems not to be open to question. Missouri v. Kansas Gas Company, 265 U.S. 298, 44 S.Ct. 544, 68 L.Ed. 1027; Ozark Pipe Line Corp. v. Monier, 266 U.S. 555, 45 S.Ct. 184, 69 L.Ed. 439; People's Gas Co. v. Public Service Commission, 270 U.S. 550, 46 S.Ct. 371, 70 L.Ed. 726; State Tax Commission v. Interstate Gas Company, 284 U.S. 41, 52 S.Ct. 62, 76 L.Ed. 156. Pursuant to the mutual agreement of the two companies the gas is transported in continuous movement through the pipe line into the state and through appellant's pipes to the service lines of the distributors where appellant delivers it to them. In such a transaction the particular point at which the title and custody of the gas passes to the purchaser without arresting its movement to the intended destination does not affect the essential interstate nature of the business. See People's Gas Co. v. Public Service Commission, supra, 270 U.S. page 554, 46 S.Ct. page 372, 70 L.Ed. 726; Pennsylvania v. West Virginia, 262 U.S. 553, 587, 43 S.Ct. 658, 661, 67 L.Ed. 1117, 32 A.L.R. 300; United Fuel Gas Co. v. Hallanan, 257 U.S. 277, 280, 281, 42 S.Ct. 105, 66 L.Ed. 234.

But appellee argues, as the State Supreme Court held, that although the sale of the gas and its movement into the state is interstate commerce, that commerce comes to an end when appellant reduces the gas pressure before its delivery into the service pipes of the distributors. In consequence it is asserted the sale of the gas to the distributors is intrastate commerce subject to state regulation by the Commission's order, and is therefore not within the purview of the Natural Gas Act, which is said to be applicable only to interstate commerce.

This Court has held that the retail sale of gas at the burner tips by one who pipes the gas into the state, or by one who is a local distributor acquiring the gas from another who has similarly brought it into the state, is a sale in intrastate commerce, since the interstate commerce was said to end upon the introduction of the gas into the service pipes of the distributor. Public Utilities Commission v. Landon, 249 U.S. 236, 39 S.Ct. 268, 63 L.Ed. 577; East Ohio Gas Co. v. Tax Commission, 283 U.S. 465, 51 S.Ct. 499, 75 L.Ed. 1171. In applying this mechanical test for determining when interstate commerce ends and intrastate commerce begins this Court has held that the interstate transportation and the sale of gas at wholesale to local distributing companies is not subject to state control of rates, Missouri v. Kansas Gas Co., supra; see Public Utilities Commission v. Landon, supra, 249 U.S. page 245, 39 S.Ct. page 269, 63 L.Ed. 577; cf. Public Utilities Commission v. Attleboro Co., 273 U.S. 83, 89, 47 S.Ct. 294, 296, 71 L.Ed. 549, or to a state privilege tax, State Tax Commission v. Interstate Gas Company, supra. Yet state regulation of local retail rates to ultimate consumers has been sustained where the gas so dis- tributed was purchased at wholesale from one who had piped the gas into the state, Public Utilities Commission v. Landon, supra, as has a state tax measured by receipts from local retail sales of gas by one who has similarly brought the gas into the state. East Ohio Gas Co. v. Tax Commission, supra.

In other cases the Court, in determining the validity of state regulations, has been less concerned to find a point in time and space where the interstate commerce in gas ends and intrastate commerce begins, and has looked to the nature of the state regulation involved, the objective of the state, and the effect of the regulation upon the national interest in the commerce. Cf. South Carolina Highway Dept. v. Barnwell Bros., 303 U.S. 177, 185, 187 et seq., 58 S.Ct. 510, 513, 514, 82 L.Ed. 734; California v. Thompson, 313 U.S. 109, 113, 114, 61 S.Ct. 930, 932, 85 L.Ed. 1219; Duckworth v. Arkansas, 314 U.S. 390, 62 S.Ct. 311, 86 L.Ed. -, decided the term. Thus, in Pennsylvania Gas Co. v. Public Service Commission, 252 U.S. 23, 40 S.Ct. 279, 64 L.Ed. 434, where natural gas was transported by pipe line from one state into another and there sold directly to ultimate local consumers, it was held that, although the sale was a part of interstate commerce, a state public service commission could regulate the rates for service to such consumers. While the Court recognized that this local regulation would to some extent affect interstate commerce in gas, it was thought that the control of rates was a matter so peculiarly of local concern that the regulation should be deemed within state power. Cf. Arkansas Louisiana Gas Co. v. Department of Public Utilities, 304 U.S. 61, 58 S.Ct. 770, 82 L.Ed. 1149. And, similarly, this Court has sustained a non-discriminatory tax on the sale to a buyer within the taxing state of a commodity shipped interstate in performance of the sales contract, upon upon the ground that the delivery was not a part of interstate commerce, see East Ohio Gas Co. v. Tax Commission, supra, but because the tax was not a prohibited regulation of or burden on that commerce. Wil- oil Corporation v. Pennsylvania, 294 U.S. 169, 55 S.Ct. 358, 79 L.Ed. 838; McGoldrick v. Berwind-White Co., 309 U.S. 33, 50, 60 S.Ct. 388, 394, 84 L.Ed. 565, 128 A.L.R. 876. In Southern Gas Corp. v. Atabama, 301 U.S. 148, 156, 157, 57 S.Ct. 696, 700, 81 L.Ed. 970, on which the Illinois Supreme Court relied, we held only that the sale of gas to a local industrial consumer by one who was piping the gas into the state was a local business sufficient to sustain a franchise tax on the privilege of doing business within the state, measured by all the taxpayer's property located there, including that used for wholesale distribution of gas to local public service companies.

In the absence of any controlling act of Congress we should now be faced with the...