Iowa State Commerce Commission v. Northern Natural Gas Co.

• Decision Date: 05 September 1968
• Docket Number: No. 52959,52959
• Citation: 161 N.W.2d 111
• Parties: IOWA STATE COMMERCE COMMISSION, Appellant, v. NORTHERN NATURAL GAS COMPANY, Appellee.
• Court: Iowa Supreme Court

Page 111

161 N.W.2d 111

75 P.U.R.3d 394

IOWA STATE COMMERCE COMMISSION, Appellant, v. NORTHERN NATURAL GAS COMPANY, Appellee.

No. 52959.

Supreme Court of Iowa.

Sept. 5, 1968.

Rehearing Denied Dec. 10, 1968.

Leo J. Steffen, Jr., Commerce Counsel, Daniel J. Fay and Susan Thomas, Assistant Commerce Counsel, Des Moines, for appellant.

Eugene Davis, Des Moines, and John B. Will and J. C. Osborne, Omaha, Neb., for appellee.

BECKER, Justice.

Defendant Northern Natural Gas Company is a pipeline company. Its principal business is purchase, transportation and sale of natural gas. It sells high pressure pipeline gas throughout Iowa to wholesale purchasers who well at retail to the ultimate consumer. Northern also sells gas to two classes of ultimate consumers; i.e. 1) to land owners (usually farmers) located at or near the company's main high pressure line and 2) to main line industrial or commercial users situated outside cities and towns and not within any specific franchise territory serviced by retailers of natural gas.

On August 9, 1966 plaintiff Iowa State Commerce Commission issued an order finding the direct line retail gas sales by Northern subject to regulation under Chapter 490A, Code, 1966. It directed Northern to file tariffs and rules and regulations under which the gas was thus sold and services rendered. Northern refused to do so, contending this part of its business was not subject to Chapter 490A regulation. The Commission sought a mandatory injunction from the district court. The court held with Northern that this phase of its operation was not subject to such regulation. We disagree.

Defendant operates some 20,000 miles of lines of which 5,000 miles are in Iowa. As of December 1966 it had approximately 5,000 'farm tap customers' of which 1740 were in Iowa and 93 nondomestic (industrial and commercial) retail customers were also in Iowa.

I. The bulk of defendant's business is at wholesale. Regulation of sale of piped gas For resale is wholly within the jurisdiction of the Federal Power Commission and is not in dispute here. Panhandle Eastern Pipeline Co. v. Public Service Commission of Indiana, 332 U.S. 507, 68 S.Ct. 190, 92 L.Ed. 128. Eighty-five percent of defendant's Iowa Retail gas pipeline business, done in 92 communities through Peoples Natural Gas Company (a wholly owned subsidiary), is regulated by plaintiff and is not in dispute here. The other fifteen percent of defendant's retail business is the direct line tap business referred to above. Plaintiff asserts the right to regulate that business also. Defendant denies that right and thus we have the issue.

The problem presented has been narrowed by defendant to one of statutory construction. Defendant concedes the state of Iowa has the power to regulate direct sales to ultimate consumers from interstate transmission lines. This is the holding in Panhandle Eastern Pipeline Co. v. Public Service Commission of Indiana, supra, and Panhandle Eastern Pipe Line Co. v. Michigan Public Service Commission, 341 U.S. 329, 71 S.Ct. 777, 95 L.Ed. 993.

II. A public utility can do business in areas not covered by its utility rights and obligations. In so doing the utility acts in a private capacity as distinguished from its public capacity and as to such actions it is subject to the same rules as any other private person. City of Phoenix v. Kasun, 54 Ariz. 470, 97 P.2d 210; City of Des Moines v. City of West Des Moines, 239 Iowa 1, 30 N.W.2d 500; Northern Natural Gas Company v. Roth Packing Company, 8 Cir., 323 F.2d 922.

A significant example of this type of business is defendant's business dealing in liquefied petroleum gas (bottled gas) which both parties agree is not covered by Chapter 490A regulation. There is no dispute as to the above principle. The controversy centers on whether the sale of gas from high pressure pipelines directly to the consumer is included in the regulatory statute, Chapter 490A, section 1 of which reads in pertinent part:

'Applicability of authority. The Iowa state commerce commission shall regulate the rates and services of public utilities to the extent and in the manner hereinafter provided.

'As used in this chapter, 'public utility' shall include any person, partnership, business association, or corporation, domestic or foreign, owning or operating any facilities for:

'1. Furnishing gas by piped distribution system or electricity to the public for compensation.

'* * *

'Mutual telephone companies in which at least fifty percent of the users are owners, telephone companies having less than two thousand stations, municipally-owned utilities, unincorporated villages which own their own distribution system, and co-operative corporations or associations shall not be subject to the rate regulation provided for in this chapter; * * *'

The legislature has defined public utility for the purposes of Chapter 490A in the above section. We therefore start with the familiar statement that the legislature is its own lexicographer when it deems it advisable to define a word or phrase. Graham v. Worthington, 259 Iowa 845, 146 N.W.2d 626, 632.

III. There is no doubt defendant is a 'corporation', 'furnishing gas', 'for compensation.' The key phrases remaining are 'to the public' and 'by piped distribution system.'

Defendant argues strongly that the term 'furnishing gas * * * to the public' means service to, or readiness to serve, an indefinite public (or portion of the public as such) which has a legal right to demand and receive its services or commodities. The term precludes the idea of service which is private in nature and is not to be obtained by the public. A public utility may perform acts in a private, as distinguished from public, capacity, in which case it is subject to the same rules as any other private person. Citing 43 Am.Jur., Public Utilities, Section 2 and City of Des Moines v. City of West Des Moines, supra, as authority.

The Des Moines v. West Des Moines case involved a sewer agreement between the cities and one of the challenges was: 'a contract for public utility service and rates therefor cannot by contract be fixed for perpetually renewable ten-year periods.' The court held that while the business of disposing of sewerage is a public utility business, the City of Des Moines had no duty to dispose of West Des Moines' sewerage and thus the contract between the parties was private and in no way subject to rate regulation by Des Moines. In so deciding we said at page 7: 'The authorities quite generally refuse to attempt an all-inclusive definition of the term 'public utility.' 43 Am.Jur., Public Utilities and Services, § 2; 51 C.J. 4. 'As its name indicates, the term * * * implies a public use and service to the public.' 43 Am.Jur. (section 2), supra.

'* * *

'But even though the service be impressed with a public interest the question arises, what public? It is said 'the principal determinative characteristic * * * is that of service to, or readiness to serve, an indefinite public * * * Which has a legal right to demand and receive its services or commodities.' 43 Am.Jur. (section 2), supra. (Italics supplied.)'

As between the two contracting cities we refused to impose public utility concepts on the agreement. This holding is not determinative of our problem. The question here is not the validity of the agreement between contracting parties but whether the legislature has exercised its admitted right to regulate those contracts. In that sense the instant case is also clearly distinguishable from Northern Natural Gas Co. v. Roth, supra. Here we have a different problem of statutory construction in connection with the question 'What public?'. It is a problem faced by other courts in closely analogous situations.

In Industrial Gas Company v. Public Utilities Commission, 135 Ohio St. 408, 21 N.E.2d 166; 29 P.U.R.,N.S., 89 the commission sought to regulate a pipeline company. The company had a line 50 miles long, serving 19 industrial and 12 private consumers, all under written contracts stipulating the price to be paid for the gas. The 12 private consumers were given the privilege of buying gas in consideration for the right-of-way grants. The industrial purchasers obviously constituted the bulk of the company's business. The company did not hold itself out to serve either the public or the users of industrial gas generally and had refused or failed to agree with, and consequently, did not serve certain industrial users.

In holding the company subject to utility regulation the court there said at page 168 of 21 N.E.2d: 'The appellant with its fifty miles of pipelines running through four counties supplying nineteen industrial plants with natural gas, was rendering a service to a substantial part of the state that would ordinarily be serviced by public utilities under regulatory restrictions.

'* * *

'* * * Yet, it is not a controlling factor that the corporation supplying service does not hold itself out to serve the public generally. It has been held that a business may be so far affected with a public interest that it is subject to regulation as to rates and charges even though the public does not have the right to demand and receive served. (Citing case).

'Regardless of the right of the public to demand and receive service in a particular instance, the question whether a business enterprise constitutes a public utility is determined by the nature of its operations. Each case must stand upon the facts peculiar to it. A corporation that serves such a substantial part of the public as to make its rates, charges and methods of operations a matter of public concern, welfare, and interest subjects itself to regulation by the duly constituted governmental authority. (Citing case). * * * Thus, changing the purpose clause of its charter, refraining from use of the right of eminent domain, avoiding a holding out to serve the public generally, and selling only to select consumers by private contract could...