Panhandle Eastern Pipe Line Co v. Michigan Public Service Commission

• Decision Date: 14 May 1951
• Docket Number: No. 486,486
• Citation: 71 S.Ct. 777,95 L.Ed. 993,341 U.S. 329
• Parties: PANHANDLE EASTERN PIPE LINE CO. v. MICHIGAN PUBLIC SERVICE COMMISSION et al
• Court: U.S. Supreme Court

341 U.S. 329

71 S.Ct. 777

95 L.Ed. 993

PANHANDLE EASTERN PIPE LINE CO.

v MICHIGAN PUBLIC SERVICE COMMISSION et al.

No. 486.

Argued April 23, 1951.

Decided May 14, 1951.

Mr Robert P. Patterson, New York City, for appellant.

Mr. Edmund E. Shepherd, Lansing, Mich., for appellee Michigan Public Service Comm.

Mr. Donald R. Richberg, Washington, D.C., for appellee Michigan Consolidated Gas Co.

Mr. Justice MINTON delivered the opinion of the Court.

This is an appeal from the affirmance of an order of the Michigan Public Service Commission requiring appellant to obtain a certificate of public convenience and necessity before selling natural gas direct to industrial consumers in a municipality already served by a public utility.

Appellant is engaged in the transportation of natural gas by pipe line from fields in Texas, Oklahoma and Kansas into areas which include the State of Michigan. Appellant is a 'natural gas company' within the coverage of the Natural Gas Act, 52 Stat. 821, 15 U.S.C. § 717 et seq., 15 U.S.C.A. § 717 et seq., and subject thereunder to regulation by the Federal Power Commission. Appellee Michigan Consoli- dated Gas Company is a public utility of Michigan which under appropriate authorization distributes gas to domestic, commercial and industrial consumers in and around Detroit. Consolidated obtains its entire supply of natural gas for distribution in the Detroit district from appellant.

In 1945, appellant publicly announced a program of securing large idnustrial customers for the direct sale of natural gas in Michigan. In Detroit it offered to pay the City for the right to lay and operate its pipe line along the streets and alleys directly to large industrial customers. In October of that year appellant succeeded in securing a large direct-sale contract with the Ford Motor Company for gas at its Dearborn plant, located in the Detroit district. Ford was already purchasing substantial quantities of gas for industrial use at the Dearborn plant from Consolidated.

Believing its interests and those of its customers were prejudiced by appellant's program, particularly the Ford contract, Consolidated filed a complaint with the Michigan Public Service Commission. Appellant appeared to contest the jurisdiction of the Commission over such sales. After hearing, the Commission ordered appellant to—'cease and desist from making direct sales and deliveries of natural gas to industries within the State of Michigan, located within municipalities already beng served by a public utility, until such time as it shall have first obtained a certificate of public convenience and necessity from this Commission to perform such service.'¹

Appellant obtained an injunction against the order of the Commission in the Circuit Court of Ingham County, Michigan. The Circuit Court held that the order was a prohibition of interstate commerce and therefore invalid. The Supreme Court of Michigan, three judges dissenting, reversed the Circuit Court and affirmed the Commission's order. 328 Mich. 650, 44 N.W.2d 324. That court rejected the argument that the order of the Commission was an absolute denial of the right of appellant to sell natural gas in Michigan direct to consumers. Since appellant was free to make application to the Michigan Commission for a certificate of public convenience and necessity as to such sales, the order was construed as denying the right of appellant to sell direct without first obtaining such certificate. The court held this require- ment to be within the State's regulatory authority despite the interstate character of the sales. This appeal challenges the correctness of that decision.

The sale to industrial consumers as proposed by appellant is clearly interstate commerce. Panhandle Eastern Pipe Line Co. v. Public Service Comm. of Indiana, 332 U.S. 507, 513, 68 S.Ct. 190, 193, 92 L.Ed. 128; Pennsylvania Gas Co. v. Commission, 252 U.S. 23, 28, 40 S.Ct. 279, 280, 64 L.Ed. 434. But the sale and distribution of gas to local consumers made by one engaged in interstate commerce is 'essentially local' in aspect and is subject to state regulation without infringement of the Commerce Clause of the Federal Constitution, article 1, § 8, cl. 3. In the absence of federal regulation, state regulation is required in the public interest. Pennsylvania Gas Co. v. Commission, supra, 252 U.S. at page 31, 40 S.Ct. at page 281, 64 L.Ed. 434. See also opinion of Cardozo, J., in Pennsylvania Gas Co. v. Public Service Commission, 225 N.Y. 397, 122 N.E. 260. These principles apply to direct sales for industrial consumption as well as to sales for domestic and commercial uses. Panhandle-Indiana, supra, 332 U.S. at pages 514, 519—520, 68 S.Ct. at pages 193, 196, 92 L.Ed. 128.

The facts in the instant case show that the proposed sales are primarily of local interest. They emphasize the need for local regulation and the wisdom of the principles just discussed. To accommodate its operations, appellant proposes to use the streets and alleys of Detroit and environs. A local utility already operating in the same area, Consolidated, receives its entire supply of natural gas from appellant. A substantial portion of Consolidated's revenues is derived from sales to large industrial consumers. Appellant ignored requests of Consolidated for additional gas to meet the increased wants of its industrial customers. Instead of attempting to meet increased needs through Consolidated, appellant launched a program to secure for itself large industrial accounts from customers, some of whom were already being served by Consolidated. In connection with the Ford Motor Company, it is note- worthy that the tap line by which appellant proposed to serve Ford directly would be substantially parallel to and only a short distance from the existing tap line by which Consolidated now serves Ford.

Thus, not only would there be two utilities using local facilities to accommodate their distribution systems, but they would be seeking to serve the same industrial consumers. Appellant asserts a right to compete for the cream of the volume business without regard to the local public convenience or necessity. Were appellant successful in this venture, it clearly presents a situation of 'essentially Consolidated's over-all costs of service and its rates to customers whose only source of supply is Consolidated. This clearly preents a situation of 'essentially local' concern and of vital interest to the State of Michigan.

Of course, when Congress acts in this field it is supreme. It has acted. Section 1(b) of the Natural Gas Act, supra, provides as follows:

'The provisions of this Act 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.'

By this Act Congress occupied only a part of the field. As to sales, only the sale of gas in interstate commerce for resale was covered. Direct sales for consumptive use were designedly left to state regulation. Panhandle-Indiana, 332 U.S. at pages 516—518, 68 S.Ct. at pages 194, 196, 92 L.Ed. 128. Speaking further of the divi- sion of regulatory authority over interstate commerce in natural gas, this Court said in the same case:

'It would be an exceedingly incongruous result if a statute so motivated, designed and shaped to bring about more effective regulation, and particularly more effective state regulation, were construed in the teeth of those objects, and the import of its wording as well, to cut down regulatory power and to do so in a manner making the states less capable of regulation than before the statute's adoption. Yet this, in effect, is what appellant asks us to do. For the essence of its position, apart from standing directly on the commerce clause, is that Congress by enacting the Natural Gas Act has 'occupied the field,' i.e., the entire field open to federal regulation, and thus has relieved its direct industrial sales of any subordination to state control.

'The exact opposite is the fact. Congress, it is true, occupied a field. But it was meticulous to take in only territory which this Court had held the states could not reach. That area did not include direct consumer sales, whether for industrial or other uses. Those sales had been regulated by the states and the regulation had been repeatedly sustained. In no instance reaching this Court had it been stricken down.

'The Natural Gas Act created an articulate legislative program based on a clear recognition of the respective responsibilities of the federal and state regulatory agencies. It does not contemplate ineffective regulation at either level. We have emphasized repeatedly that Congress meant to create a comprehensive and effective regulatory scheme, complementary in its operation to those of the states and in no manner usurping their authority. * * * And, as was pointed out in Federal Power Comm. v. Hope Natural Gas Co., 320 U.S. (591) at page 610, 64 S.Ct. (281) at page 291 (88 L.Ed. 333), 'the primary aim of this legislation was to protect consumers against exploitation at the hands of natural gas companies.' The scheme was one of co-operative action between federal and state agencies. It could accomplish neither that protective aim nor the comprehensive and effective dual regulation Congress had in mind, if those companies could divert at will all or the cream of their business to unregulated industrial uses.' 332 U.S. at pages 519, 520—521, 68 S.Ct. at pages 196—197, 92 L.Ed. 128.

The statutory scheme of 'dual regulation' might have some overlaps or conflicts but no such exigencies appear here....