Northern Natural Gas Company v. State Corporation Commission of Kansas, No. 62

CourtUnited States Supreme Court
Writing for the CourtBRENNAN
Citation9 L.Ed.2d 601,83 S.Ct. 646,372 U.S. 84
PartiesNORTHERN NATURAL GAS COMPANY, Appellant, v. STATE CORPORATION COMMISSION of the State OF KANSAS
Decision Date18 February 1963
Docket NumberNo. 62

372 U.S. 84
83 S.Ct. 646
9 L.Ed.2d 601
NORTHERN NATURAL GAS COMPANY, Appellant,

v.

STATE CORPORATION COMMISSION of the State OF KANSAS.

No. 62.
Argued Dec. 13, 1962.
Decided Feb. 18, 1963.
Rehearing Denied April 1, 1963.

See 372 U.S. 960, 83 S.Ct. 1011.

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Mark H. Adams, Sr., Wichita, Kan., for appellant.

Charles C. McCarter, Wichita, Kan., for appellee.

Mr. Justice BRENNAN delivered the opinion of the Court.

The question in this case is whether orders of the Kansas State Corporation Commission which require the

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appellant, an interstate pipeline company, to purchase gas ratably from all wells connecting with its pipeline system in each gas field within the State1 invalidly encroach upon the exclusive regulatory jurisdiction of the Federal Power Commission conferred by the Natural Gas Act, 15 U.S.C. §§ 717—717w.

The appellant's pipeline system is connected to some 1,100 natural gas wells in the Kansas Hugoton Field2 under about 125 purchase contracts between the appellant and various producers. The contracts have been duly filed with the Federal Power Commission. Under the

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oldest contract, known as the Republic 'A' contract, which was made in 1945 with Republic Natural Gas Company, and is still in force as modified in 1953, appellant was obligated to purchase gas from Republic up to the maximum production allowables for Republic's Kansas wells connected to appellant's system.3 Appellant's contracts with its other producers provide that appellant's purchase commitments thereunder are expressly subject to the agreement with Republic. Thus appellant was bound to purchase from its other producers only so much of its requirements as were not satisfied by the quantities which the Republic contract required to be taken from Republic wells.

Appellant's requirements until 1958 were such that its purchases from its various producers were nevertheless roughly ratable, that is, in like proportion to the legally fixed allowables for each of the 1,100 wells in the Hugoton Field. However, after 1958 appellant's requirements aggregated substantially less than the total allowables for the Hugoton wells.4 Thus the balance of the total

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requirements, after the contractually required purchases from Republic of the maximum allowables for the Republic wells, resulted in appellant's purchases from appellant's other producers of proportions substantially below the allowables for those producers' wells. This imbalance brought about the orders of the State Commission of which appellant complains.

A Kansas statute5 empowers the State Commission so to 'regulate the taking of natural gas from any and all * * * common sources of supply within this state as to prevent the inequitable or unfair taking from such common source of supply * * * and to prevent unreasonable discrimination * * * in favor of or against any producer in any such common source of supply.' The Commission adopted in 1944, avowedly as a conservation measure, a basic proration order designed to effect ratable production and to protect correlative rights in the Hugoton Field.6 In 1959, in order to require appellant to take gas from Republic wells in no higher proportion to the allowables than from the wells of the other producers, the Commission entered the order specifically directing appellant to

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purchase gas ratably from all 1,100 Hugoton wells. That order was superseded in February 1960 by the general order, directed at all natural gas purchasers taking Kansas gas. These orders presented the appellant with the alternatives of complying with the obligations of the Republic contract and increasing its takes from the other producers' wells—thus taking more gas from Kansas than it could currently use—or of risking liability for a breach of the Republic contract by decreasing its takes from the Republic wells below the allowables.7

Appellant challenged the two orders in the Kansas courts on the ground, among others, that they unconstitutionally invaded the exclusive jurisdiction of the Federal Power Commission under the Natural Gas Act. The Kansas Supreme Court sustained the orders, 188 Kan. 351, 355, 362 P.2d 609, 599; on rehearing, 188 Kan. 624, 364 P.2d 668. We noted probable jurisdiction of an appeal to this Court, 370 U.S. 901, 82 S.Ct. 1248, 8 L.Ed.2d 399. We disagree with the Kansas Supreme Court, for we hold that the State Commission's orders did invade the exclusive jurisdiction which the Natural Gas Act has conferred upon the Federal Power Commission over the sale and transportation of natural gas in interstate commerce for resale.

I.

We consider first the ground relied upon by the Kansas Supreme Court, that the orders constitute only state regulation of the 'production or gathering' of natural gas, which is exempted from the federal regulatory domain by the terms of § 1(b) of the Natural Gas Act, 15 U.S.C. § 717(b). These orders do not regulate 'production or gathering' within that exemption. In a line of decisions beginning with Colorado Interstate Gas Co. v.

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Federal Power Comm'n, 324 U.S. 581, 598, 65 S.Ct. 829, 837, 89 L.Ed. 1206, and Interstate Natural Gas Co. v. Federal Power Comm'n, 331 U.S. 682, 689—693, 67 S.Ct. 1482, 1486—1488, 91 L.Ed. 1742, it has been consistently held that 'production' and 'gathering' are terms narrowly confined to the physical acts of drawing the gas from the earth and preparing it for the first stages of distribution. See Phillips Petroleum Co. v. Wisconsin, 347 U.S. 672, 680—681, 74 S.Ct. 794, 797—798, 98 L.Ed. 1035; Continental Oil Co. v. Federal Power Comm'n, 5 Cir., 266 F.2d 208; Huber Corp. v. Federal Power Comm'n, 3 Cir., 236 F.2d 550. Appellant is not a producer but a purchaser of gas from producers, and none of its activities in Kansas shown upon this record involves 'production and gathering, in the sense that those terms are used in § 1(b) * * *'8 Phillips Petroleum Co. v. Wisconsin, supra, 347 U.S. at 678, 74 S.Ct. at 797.

II.

The Kansas Supreme Court also sustained the orders on the ground that neither order threatened any actual invasion of the regulatory domain of the Federal Power Commission since it 'in no way involves the price of gas.'188 Kan. at 624, 364 P.2d, at 668. It is true that it was settled even before the passage of the Natural Gas Act, that direct regulation of the prices of wholesales of natural gas in interstate commerce is beyond the constitutional power of the States—whether or not framed to achieve ends, such as conservation, ordinarily within the ambit of state power. See State of Missouri ex rel. Barrett v. Kansas Natural Gas Co., 265 U.S. 298, 44 S.Ct. 544, 68 L.Ed. 1027; cf. Public Utilities Comm'n v. Attleboro Steam & Electric Co., 273 U.S. 83, 47 S.Ct. 294, 71 L.Ed. 549. But our inquiry is not at an end because the orders do not

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deal in terms with prices or volumes of purchases, cf. Dayton-Goose Creek R. Co. v. United States, 263 U.S. 456, 478, 44 S.Ct. 169, 172, 68 L.Ed. 388. The Natural Gas Act precludes not merely direct regulation by the States of such contractual matters. See Illinois Natural Gas Co. v. Central Illinois Public Service Co., 314 U.S. 498, 506—509, 62 S.Ct. 384, 387—388, 86 L.Ed. 371. The Congress enacted a comprehensive scheme of federal regulation of 'all wholesales of natural gas in interstate commerce, whether by a pipeline company or not and whether occurring before, during, or after transmission by an interstate pipeline company.'9 Phillips Petroleum Co. v. Wisconsin, supra, 347 U.S. at 682, 74 S.Ct. at 799; see H.R.Rep. No. 709, 75th Cong., 1st Sess. 2.

The federal regulatory scheme leaves no room either for direct state regulation of the prices of interstate wholesales of natural gas, Natural Gas Pipeline Co. v. Panoma Corp., 349 U.S. 44, 75 S.Ct. 576, 99 L.Ed. 866, or for state regulations which would indirectly achieve the same result.10 These state orders necessarily deal with matters which directly affect the ability of the Federal Power Commission to regulate comprehensively and effectively the transportation and sale of natural gas, and to achieve the uniformity of regu-

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lation which was an objective of the Natural Gas Act. They therefore invalidly invade the federal agency's exclusive domain.

The danger of interference with the federal regulatory scheme arises because these orders are unmistakably and unambiguously directed at purchasers who take gas in Kansas for resale after transportation in interstate commerce. In effect, these orders shift to the shoulders of interstate purchasers the burden of performing the complex task of balancing the output of thousands of natural gas wells within the State, cf. Miller Bros. Co. v. Maryland, 347 U.S. 340, 74 S.Ct. 535, 98 L.Ed. 744—a task which would otherwise presumably be the State Commission's. Moreover, any readjustment of purchasing patterns which such orders might require of purchasers who previously took unratably could seriously impair the Federal Commission's authority to regulate the intricate relationship between the purchasers' cost structures and eventual costs to wholesale customers who sell to consumers in other States. This relationship is a matter with respect to which Congress has given the Federal Power Commission paramount and exclusive authority. See Federal Power Comm'n v. Hope Natural Gas Co., 320 U.S. 591, 610, 64 S.Ct. 281, 291, 88 L.Ed. 333. The prospect of interference with the federal regulatory power in this area is made even more acute by the fact that criminal sanctions imposed by state statute for noncompliance fall upon such purchasers and not upon the local producers. Therefore, although collision between the state and federal regulation may not be an inevitable consequence, there lurks such imminent possibility of collision in orders purposely directed at interstate wholesale purchasers that the orders must...

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112 practice notes
  • Prudhoe Bay, Alaska Natural Gas, Matter of
    • United States
    • California Court of Appeals
    • July 11, 1978
    ...576, 99 L.Ed. 866), or for state regulations which would indirectly achieve the same result (Northern Gas Co. v. Kansas Comm'n. (1963) 372 U.S. 84, 91, 83 S.Ct. 646, 9 L.Ed.2d Because the antitrust inquiry of the Attorney General is directed at matters within the jurisdiction of the FPC, ba......
  • United States v. Alabama, Case No. 2:11–CV–2746–SLB.
    • United States
    • United States District Courts. 11th Circuit. United States District Court of Northern District of Alabama
    • September 28, 2011
    ...(“FERC”). Prior to 1978 regulation by FERC preempted any state regulation. See N. Natural Gas Co. v. State Corporation Comm'n of Kansas, 372 U.S. 84, 83 S.Ct. 646, 9 L.Ed.2d 601 (1963). In the Natural Gas Policy Act of 1978, Pub. L. 95–621, 92 Stat. 3351, Congress substantially restricted F......
  • Public Utilities Com'n of State of Cal. v. F.E.R.C., Nos. 89-1189
    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • May 10, 1990
    ...character of FERC jurisdiction where it applies, both under the NGA, see Northern Natural Gas Co. v. State Corporation Comm'n of Kansas, 372 U.S. 84, 91, 83 S.Ct. 646, 650, 9 L.Ed.2d 601 (1963); Northwest Central Pipeline Corp. v. State Corp. Comm'n of Kansas, --- U.S. ----, 109 S.Ct. 1262,......
  • Middle South Energy, Inc. v. Arkansas Public Service Com'n, Nos. 84-2409
    • United States
    • United States Courts of Appeals. United States Court of Appeals (8th Circuit)
    • August 23, 1985
    ...found notwithstanding that the APSC has not actually voided the agreements. Cf. Northern Natural Gas Co. v. State Corporation Commission, 372 U.S. 84, 92, 83 S.Ct. 646, 659, 9 L.Ed.2d 601 (1963) ("[A]lthough collision between the state and federal regulation may not be an inevitable consequ......
  • Request a trial to view additional results
112 cases
  • Prudhoe Bay, Alaska Natural Gas, Matter of
    • United States
    • California Court of Appeals
    • July 11, 1978
    ...576, 99 L.Ed. 866), or for state regulations which would indirectly achieve the same result (Northern Gas Co. v. Kansas Comm'n. (1963) 372 U.S. 84, 91, 83 S.Ct. 646, 9 L.Ed.2d Because the antitrust inquiry of the Attorney General is directed at matters within the jurisdiction of the FPC, ba......
  • United States v. Alabama, Case No. 2:11–CV–2746–SLB.
    • United States
    • United States District Courts. 11th Circuit. United States District Court of Northern District of Alabama
    • September 28, 2011
    ...(“FERC”). Prior to 1978 regulation by FERC preempted any state regulation. See N. Natural Gas Co. v. State Corporation Comm'n of Kansas, 372 U.S. 84, 83 S.Ct. 646, 9 L.Ed.2d 601 (1963). In the Natural Gas Policy Act of 1978, Pub. L. 95–621, 92 Stat. 3351, Congress substantially restricted F......
  • Public Utilities Com'n of State of Cal. v. F.E.R.C., Nos. 89-1189
    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • May 10, 1990
    ...character of FERC jurisdiction where it applies, both under the NGA, see Northern Natural Gas Co. v. State Corporation Comm'n of Kansas, 372 U.S. 84, 91, 83 S.Ct. 646, 650, 9 L.Ed.2d 601 (1963); Northwest Central Pipeline Corp. v. State Corp. Comm'n of Kansas, --- U.S. ----, 109 S.Ct. 1262,......
  • Middle South Energy, Inc. v. Arkansas Public Service Com'n, Nos. 84-2409
    • United States
    • United States Courts of Appeals. United States Court of Appeals (8th Circuit)
    • August 23, 1985
    ...found notwithstanding that the APSC has not actually voided the agreements. Cf. Northern Natural Gas Co. v. State Corporation Commission, 372 U.S. 84, 92, 83 S.Ct. 646, 659, 9 L.Ed.2d 601 (1963) ("[A]lthough collision between the state and federal regulation may not be an inevitable consequ......
  • Request a trial to view additional results

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