Panhandle Eastern Pipe Line Co. v. Public Utilities Commission

• Decision Date: 07 December 1978
• Docket Number: No. 78-170,78-170
• Citation: 383 N.E.2d 1163,56 Ohio St.2d 334,10 O.O.3d 452
• Parties: , 10 O.O.3d 452 PANHANDLE EASTERN PIPE LINE COMPANY, Appellant, v. PUBLIC UTILITIES COMMISSION of Ohio, Appellee.
• Court: Ohio Supreme Court

Page 334

56 Ohio St.2d 334

383 N.E.2d 1163, 10 O.O.3d 452

PANHANDLE EASTERN PIPE LINE COMPANY, Appellant, v. PUBLIC UTILITIES COMMISSION of Ohio, Appellee.

No. 78-170.

Supreme Court of Ohio.

Dec. 7, 1978.

Syllabus by the Court

When the effect of the requirement embodied in R.C. 4905.40 through 4905.42, that a public utility may not issue securities with a maturity exceeding one year without first obtaining approval of the Public Utilities Commission, places an undue burden on interstate commerce, the application of the statutory scheme violates the Commerce Clause of the United States Constitution.

Appellant, Panhandle Eastern Pipe Line Company, is incorporated in Delaware and involved primarily in the purchase, transmission and sale of natural gas in interstate commerce. The company's operations extend from the Anadarko Basin in Texas, Oklahoma and Kansas northeasterly across Missouri, Illinois, Indiana, Ohio and into Michigan.

Appellant owns a total of 6,695 miles of natural gas transmission pipeline in the United States of which 294.2 miles, or 4.39 percent, are located in Ohio. The Ohio pipeline is comprised of four large diameter, high pressure lines with corresponding connections to various high pressure lateral lines which serve Ohio customers.

Except for intrastate sales in Texas and Oklahoma and direct industrial, field and similar sales, appellant sells its natural gas pursuant to long-term contracts to investor or municipally-owned gas distribution systems or to pipeline companies. Deliveries of natural gas in 1976 went to 132 customers; 126 were located in Illinois, Indiana, Kansas, Michigan, Missouri, Oklahoma and Texas. Only six such deliveries were made in Ohio to the Ohio Gas Company, the Toledo Edison Company, Dayton Power and Light Company, the East Ohio Gas Company, and two sales went to the Columbia Gas Transmission Corporation.

In addition to these "sales for resale," the appellant makes direct industrial and commercial sales to three other customers in Ohio: the General Motors Corporation, Johns-Mansville Fiber Glass, Inc., and General Portland Incorporated. In 1976, these "direct" sales amounted to 1.6 percent of appellant's total volume of gas sold in Ohio and less than .35 percent of its overall gas sales by volume.

As a transporter and seller of natural gas in interstate commerce appellant is considered a "natural-gas company" within the meaning of the Natural Gas Act, Section 717a(6), Title 15, U.S.Code, and therefore subject to regulation by the Federal Energy Regulatory Commission (formerly the Federal Power Commission). Not only is the appellant subject to federal regulation but its operations in Ohio result in its classification as both a "natural gas company" as defined in R.C. 4905.03(A)(6) and a "pipe line company" under R.C. 4905.03(A)(7). ¹

Because of the foregoing characterization the appellant is considered a "public utility" as outlined in R.C. 4905.02. ² As a public utility appellant has no authority to issue stocks, bonds, notes and other evidences of indebtedness payable at periods of more than 12 months without the approval of the Public Utilities Commission pursuant to R.C. 4905.40. The importance of obtaining commission approval is further clarified by R.C. 4905.42 which provides that any such issuance without prior authorization is void.

In the past the appellant has consistently followed the statutory procedures. In 1974, it filed four applications for authority to issue its securities; it filed three in 1975 and four in 1976. A rise in the level of applications over the past few years has been a result of increased financing requirements and related activities involving appellant's securities.

Due to this increased need to issue securities on a more regular basis appellant sought to remove itself from the jurisdiction of the commission. On March 25, 1977, it applied to the commission for an order relieving it from the obligation to seek commission approval of the issuance of its securities pursuant to R.C. 4905.40 Et seq., alleging that such a requirement constituted an undue burden upon interstate commerce in violation of the United States Constitution.

On October 19, 1977, the commission issued an order dismissing the application although it did acknowledge the impact of the statutes on appellant's interstate operations. ³ The commission also indicated that because it was an administrative body with its powers specifically delineated by statute, it had no authority to declare the application of the statutory scheme to be unconstitutional.

Appellant filed a timely application for a rehearing on November 17, 1977, which was subsequently denied by operation of law in light of R.C. 4903.10.

This cause is now before the court pursuant to appellant's appeal as a matter of right.

Squire, Sanders & Dempsey, Alan C. Buchmann, George R. Barry, Mark A. Cusick, Cleveland, Laylin & Shawan, Edward H. Laylin and David H. Shawan, Columbus, for appellant.

William J. Brown, Atty. Gen., Marvin I. Resnik and Judith B. Sanders, Columbus, for appellee.

CELEBREZZE, Justice.

The sole issue before this court can be phrased as follows: Does the requirement embodied in R.C. 4905.40 through 4905.42, that a public utility may not issue securities with a maturity exceeding one year without first obtaining approval of the Public Utilities Commission, as applied to appellant, violate the Commerce Clause of the United States Constitution by placing an undue burden on interstate commerce?

R.C. 4905.40 prohibits a public utility from issuing stocks, bonds, notes, or other evidences of indebtedness payable at periods of more than 12 months after their date of issuance unless the proceeds are used for one or more of the purposes specified in that statute and unless there is commission approval. A perusal of the statute reveals that prior approval is required for "all proposed issues of stock and most proposed issues of debt securities by a public utility where the purpose of the issuance is to finance capital improvements, to reorganize the capital structure, to refund certain obligations incurred or to acquire the stock of another public utility." International T. & T. Corp. v. Pub. Util. Comm. (1969), 18 Ohio St.2d 83, 84-85, 247 N.E.2d 726, 727.

R.C. 4905.41 further provides that a prerequisite to approval is the filing of a signed and verified statement by the utility containing the detailed information described in that statute. In addition, R.C. 4905.42 describes the process whereby the commission proceeds to a determination of whether an issuance is justified and sets forth the broad scope of its investigative process:

"To determine whether it should issue the order referred to in section 4905.40 of the Revised Code, the public utilities commission shall hold such hearings, make such inquiries or investigations, and examine such witnesses, books, papers, documents, and contracts As it deems proper." (Emphasis added.)

The statute goes on to indicate the consequence of an issuance proceeding without the requisite approval: "All stocks, bonds, notes, or other evidence of indebtedness, issued by any public utility or railroad Without the permission of the commission are void." (Emphasis added.)

Not only is the commission given extensive authority to investigate and review the issuance of a utility's securities under the foregoing statutes, but its jurisdiction is a continuing one incorporating the power to amend, vacate, or suspend an original order authorizing such an issuance. International Telepost Co., Inc., v. Pub. Util. Comm. (1929), 119 Ohio St. 632, 641, 165 N.E. 528.

Before turning to an assessment of the impact the foregoing statutes have on appellant's activities in interstate commerce a critical distinction must be made. We are not dealing with any arguments that the statutes are unconstitutional on their Face, but merely as they are Applied. The right of the General Assembly to enact such legislation has not been questioned. The delegation of such power to supervise the issuance of securities is wholly within the state police power and the paramount purpose of such authority is the protection and enforcement of the rights of the public. 64 American Jurisprudence 2d 761-62, Public Utilities, Section 255; Annotation 41 A.L.R. 889, 891; Lima Toledo Rd. Co. v. Pub. Util. Comm. (1923), 108 Ohio St. 330, 332, 140 N.E. 603. ⁴

Conceding the facial validity of the statutes and the constitutional foundation underlying their enactment, our next concern is whether their application, in this instance, amounts to a constitutionally impermissible regulation of interstate commerce.

[3,4] As a general rule the regulation of interstate commerce is left to the federal government by the United States Constitution. States may regulate areas of interstate commerce which are local in nature as long as such regulation does not impose an undue burden on the flow of that commerce. Thus, the states do have authority over the essentially local concerns of utilities engaged in interstate commerce. Panhandle Eastern Pipe Line Co. v. Michigan Public Service Comm. (1951), 341 U.S. 329, 71 S.Ct. 777, 95 L.Ed. 993.

[5-7] It is the function of this court to examine the local interests served by commission regulation of appellant's securities and then balance those concerns against the burden placed on interstate commerce. Regulation rises to the level of an undue burden if it may seriously interfere with or "impede substantially" the free flow of commerce between the states. Southern Pacific Co. v. Arizona (1945), 325 U.S. 761, 767, 65 S.Ct. 1515, 89 L.Ed. 1915; Bibb v. Navajo Freight Lines, Inc. (1959), 359 U.S. 520, 79 S.Ct. 962, 3 L.Ed.2d 1003. In addition, the United States Constitution prohibits the states from controlling "those phases of the national commerce" where there is a need for "national uniformity." Southern Pacific, supra, 325 U.S. at page 767, 65 S.Ct. at page...