Pan Am. Petroleum Corp. v. El Paso Natural Gas Co.

• Citation: 77 N.M. 481,424 P.2d 397,1966 NMSC 271
• Decision Date: 27 December 1966
• Docket Number: No. 7925,7925
• Parties: PAN AMERICAN PETROLEUM CORPORATION, a corporation, Plaintiff- Appellant, v. EL PASO NATURAL GAS COMPANY, a corporation, Defendant-Appellee.
• Court: Supreme Court of New Mexico

Page 397

424 P.2d 397

77 N.M. 481

PAN AMERICAN PETROLEUM CORPORATION, a corporation, Plaintiff- Appellant, v. EL PASO NATURAL GAS COMPANY, a corporation,

Defendant-Appellee.

No. 7925.

Supreme Court of New Mexico.

Dec. 27, 1966.

Rehearing Denied March 14, 1967.

Atwood & Malone John W. Bassett, Jr., Roswell, J. K. Smith Ft. Worth, Tex., for appellant

Seth, Montgomery, Federici & Andrews, Santa Fe, Hardie, Grambling, Sims & Galatzan, El Paso, Tex., for appellee.

OPINION

NOBLE, Justice.

Pan American Petroleum Corporation, plaintiff below (hereinafter referred to as Pan American), has appealed from a summary judgment dismissing a declaratory judgment action brought to determine whether § 248 ch. 179, Laws 1963, imposed upon Pan American an additional excise tax under the terms of its gas-purchase contract with El Paso Natural Gas Company, defendant below (hereinafter referred to as El Paso). This appeal requires our determination whether the district court had jurisdiction to resolve that question. Pan American is a natural gas producer selling gas to El Paso for use in interstate commerce. By its gas-purchase contract, El Paso agreed to reimburse Pan American to the extent of three-fourths of any additional excise tax imposed after January 29, 1959, the date of the contract. Section 72--16--4, N.M.S.A.1953 (§ 1, ch. 143, Laws 1953) imposed a 2% tax upon the gross receipts from the production of natural gas, but § 72--16--4 and § 72--16--4.2(E), N.M.S.A.1953 (§ 28, ch. 54, Laws 1959) exempted from payment of the 2% tax, sales of gas:

* * * to a person engaged in the business of refining, smelting, reducing, compounding, manufacturing or otherwise preparing for sale or use as manufactured or partly manufactured products, * * * so that the character or condition thereof is materially changed, in mills or plaints located in this state, * * *.'

Pan American asserts and El Paso denies that the character of the gas was so changed that Pan American was not required to pay the tax. Section 24, ch. 179, Laws 1963 (§ 72--21--4, N.M.S.A.1953), effective, April 1, 1963, increased the tax to 2.55% of the taxable value of the gas delivered, and removed the exemption granted by the 1955 and 1959 statutes. El Paso contends that Pan American was always subject to the tax so that the increase imposed by the 1963 legislature amounts only to .55%. The declaratory judgment sought to have this controversy between the parties resolved.

Both corporation are engaged in the interstate transportation of gas. El Paso contends that a determination requiring it to reimburse Pan American to the extent of three-fourths of the tax imposed by the 1963 statute would have a direct and substantial effect on the price paid by the ultimate consumer over which the Federal Power Commission exercises exclusive jurisdiction. The record discloses an extensive written decision by which the trial court concluded as a matter of law that such determination would have the effect of changing the price to be paid for such gas, and that the approval or disapproval of such price change is a matter within the exclusive jurisdiction of the Federal Power Commission. Accordingly, holding that the state courts are without jurisdiction to determine the issues presented by the declaratory judgment proceeding, the trial court entered summary judgment dismissing the action with prejudice. We agree that a judgment in favor of Pan American and against El Paso for the amount of any taxes imposed on the sale of gas, and within the terms of the contract between the parties, would have a direct and substantial effect on the price of gas over which state courts cannot directly interfere. However, that is not the issue presented by this action. The sole question at issue here is whether, in fact, § 24, ch. 179, Laws 1963, imposed an additional tax on Pan American's sale of natural gas produced by it and sold to El Paso. A determination of that preliminary question is simply one of the construction of our statutes.

Whether the Federal Power Commission has exclusive jurisdiction to determine the extent to which New Mexico statutes imposed a tax on the sale of Pan American's gas requires an examination of that agency's authority. The powers and duties of the Federal Power Commission respecting natural gas companies are defined by sections 4 and 5 of the Natural Gas Act, 15 U.S.C.A. §§ 717c and 717d. The commission has neither the power nor authority to initially determine or fix a gas rate, even upon the request of a natural gas company. Under the statutory method of regulations, a rate must be initially established by the gas company, by contract or otherwise. (Rate, as used in the act, includes the price to be charged to another gas company for the sale of gas by a producer.) After the rate or price for the gas is so initially fixed by contract, the company files notice of the proposed rate or rate change. The commission's regulatory authority is limited to a review of the rate or price established by contract with the power to set aside or modify any rate or price which it determines to be "unjust, unreasonable, unduly discriminatory, or preferential." United Gas Pipe Line Co. v. Mobile Gas Corp., 350 U.S. 332, 341, 76 S.Ct. 373, 379, 100 L.Ed. 373. See also, Phillips Petroleum Co. v Federal Power Commission, 258 F.2d 906 (10th Cir.1958); Callery Properties, Inc. v. Federal Power Commission, 335 F.2d 1004 (5th Cir.1964); Pure Oil Co. v. Federal Power Commission, 299 F.2d 370 (7th Cir.1962).

To preserve its right to reimbursement from the date of the 1963 tax statute, Pan American filed with the commission a notice of proposed increase in price. The filing of that notice precipitated the threshold question of whether such increases are contractually authorized. An affirmative determination of that question is a prerequisite to the jurisdiction of the Federal Power Commission to proceed with a consideration of whether the price fixed by the contract is just and reasonable. It is only this threshold question which is presented by the declaratory judgment proceeding, and which the court was asked to determine. Whether the 1963 act imposed an additional tax within the meaning of the contract between Pan American and El Paso is, of course, not determinative of the issue of whether the price resulting from an increase, if the tax is found to have been imposed, is just and reasonable. If it be resolved that the 1953 and 1959 tax laws exempted the Pan American gas sold to El Paso from the tax then imposed, and that there is a contractual basis for the demand for reimbursement, then the Federal Power Commission must decide, not only from those facts, but from a consideration of all factors involved in a review of a utility rate change or charge, whether the price fixed by the contract is just and reasonable. It is this latter determination that is within the exclusive jurisdictiom of the commission. It is plain that the commission could conclude that notwithstanding the...