People of State of California v. Gathering Company Southern California Gas Company v. Gathering Company Federal Power Commission v. Gathering Company
| Decision Date | 18 January 1965 |
| Docket Number | Nos. 46,57,47,LO-VACA,s. 46 |
| Citation | 13 L.Ed.2d 357,85 S.Ct. 486,379 U.S. 366 |
| Parties | PEOPLE OF the STATE OF CALIFORNIA et al., Petitioners, v. GATHERING COMPANY et al. SOUTHERN CALIFORNIA GAS COMPANY et al., Petitioners, v.GATHERING COMPANY et al. FEDERAL POWER COMMISSION, Petitioner, v.GATHERING COMPANY et al |
| Court | U.S. Supreme Court |
Richard A. Solomon, Washington, D.C., Richard E. Tuttle, San Francisco, Cal., and John Ormasa, Richmond, Cal., for petitioners.
Sherman S. Poland, Washington, D.C., for respondents.
El Paso Natural Gas Co. is an interstate natural gas pipeline company that delivers gas at the Arizona-California border to three California distribution companies. The present controversy concerns gas to be purchased by it in Texas from Lo-Baca Gathering Co. and Houston Pipe Line Co. Under Lo-Vaca's contract gas produced in Texas is to be delivered to a subsidiary of El Paso's at a Texas point for delivery into its pipeline. The contract contains the following two clauses:
'It is the intent and understanding of the parties hereto that the sale of natural gas hereof is not subject to the jurisdiction of the Federal Power Commission because this sale is not for resale.'
This 'restricted use' agreement provides for a separate metering of the contract volumes prior to their delivery into El Paso's system. El Paso will meter the gas used for fuel purposes in its New Mexico and Arizona facilities to make certain this amount invariably exceeds the volumes of gas taken from Lo-Vaca under this agreement.
El Paso and Houston made a similar contract containing a similar 'restricted use' provision by which El Paso covenants that this Houston gas will be consumed by El Paso solely as fuel in its Texas operations or in another Texas plant. This contract, like the other one, also provides for metering the volume of gas delivered in Texas; and it includes a covenant by El Paso that the Texas uses will at all times exceed the amounts supplied by Houston.
In spite of these 'restricted use' covenants it is conceded that the gas sold by Lo-Vaca and Houston to El Paso will flow in a commingled stream with gas from other sources and that at least a portion of the gas will in fact be resold out of Texas.
The Federal Power Commission asserted jurisdiction over these sales as sales in interstate commerce 'for resale,' as that term is used is § 1(b) of the Natural Gas Act, 52 Stat. 821, 15 U.S.C. § 717 (1958 ed.).1 26 F.P.C. 606, rehearing denied, id., at 840. The Court of Appeals reversed, one judge dissenting. 323 F.2d 190. The case is here on a writ of certiorari. 377 U.S. 951, 84 S.Ct. 1627, 12 L.Ed.2d 496.
We said in Connecticut Light & Power Co. v. Federal Power Comm., 324 U.S. 515, 529, 65 S.Ct. 749, 755, 89 L.Ed. 1150, 'Federal jurisdiction was to follow the flow of electric energy, an engineering and scientific, rather than a legalistic or governmental, test.' And that is the test we have followed under both the Federal Power Act and the Natural Gas Act, except as Congress itself has substituted a so-called legal standard for the technological one. Id., at 530—531, 65 S.Ct., at 756. In Interstate Natural Gas Co. v. Federal Power Comm., 331 U.S. 682, 687, 67 S.Ct. 1482, 1485, 91 L.Ed. 1742, we considered the anatomy of the pipeline system to discover the channel of the constant flow; again in Federal Power Comm. v. East Ohio Gas Co., 338 U.S. 464, 467, 70 S.Ct. 266, 268, 94 L.Ed. 268; and most recently in Federal Power Comm. v. Southern Cal. Edison Co., 376 U.S. 205, 209, n. 5, 84 S.Ct. 644, 647, 11 L.Ed.2d 638. The result of our decisions is to make the sale of gas which crosses a state line at any stage of its movement from wellhead to ultimate consumption 'in interstate commerce' within the meaning of the Act.
Attempts have been made by one convention or another to convert a local transaction into one of interstate commerce (Sprout v. City of South Bend, 277 U.S. 163, 48 S.Ct. 502, 72 L.Ed. 833; Superior Oil Co. v. Mississippi ex rel. Knox, 280 U.S. 390, 50 S.Ct. 169, 74 L.Ed. 504) or to make a segment of interstate commerce appear to be only intrastate (Baltimore & Ohio S.W.R.R. Co. v. Settle, 260 U.S. 166, 43 S.Ct. 28, 67 L.Ed. 189). But those attempts have failed. Similarly, we conclude that when it comes to the question what gas is for 'resale' the present contracts should not be able to change the jurisdictional result.
The fact that a substantial part of the gas will be resold, in our view, invokes federal jurisdiction at the outset over the entire transaction. Were suppliers of gas and pipeline companies free to allocate by contract gas from a particular source to a particular use, havoc would be raised with the federal regulatory scheme, as it was con- strued and applied in Phillips Petroleum Co. v. Wisconsin, 347 U.S. 672, 74 S.Ct. 794, 98 L.Ed. 1035. A pipeline would then be able to discriminate in favor of its 'nonjurisdictional' customers. Moreover, a pipeline company by a contract clause could immunize a particular supplier from the reach of federal regulation2 as defined by Phillips Petroleum Co. v. Wisconsin, supra. There would be created in those and in other ways an 'attractive gap' in the federal regulatory scheme (Federal Power Comm. v. Transcontinental Gas Pipe Line Corp., 365 U.S. 1, 28, 81 S.Ct. 435, 449, 5 L.Ed.2d 377) which the producing States might have little incentive to close, since the gap would often involve either lower costs to intrastate customers or else merely higher pipeline costs which ultimately would be reflected in rates paid by consumers in other States. Whether cases could be conjured up where in spite of original commingling there might be a separate so-called nonjurisdictional transaction3 of a precise amount of gas not-for-resale 4 within the meaning of the Act is a question we need not reach.
Finally it is said that the Commission should draw the appropriate lines between 'jurisdiction' and 'nonjurisdictional' sales through the use of its rule-making power. But we cannot say that the adjudicatory process is not an appropriate method for drawing the line case-by-case (United States v. Public Utilities Comm., 345 U.S. 295, 73 S.Ct. 706, 97 L.Ed. 1020) as in a host of other administrative determinations. The Commission has acted responsibly in this situation and its decision must be upheld.
Reversed.
Mr. Justice WHITE took no part in the consideration or decision of these cases.
Today's decision furnishes a too-ready answer to an intricate problem of administrative regulation. It reflects the sort of decision that is to be expected when the Court is willing to make a bare choice between two unrefined points of view as to regulatory method, without first being informed by the regulating agency concerned as to its evaluation of the competing factors something that is indispensable to achieving a well-balanced solution of a problem such as this. The respective positions of the parties here each possesses the capacity to frustrate the scope of natural gas regulation ordained by the Congress. The Commission's molecular theory, accepted by the Court with undefined reservations, results in expanding the regulatory scheme by sweeping within the Commission's authority gas that has not been supplied or used for interstate resale ('nonjurisdictional' gas). The respondents' contractallocation position, on the other hand, might serve to contract the legitimate scope of regulation by interfering with the ability of the Commission to deal with gas restricted under a supply contract to 'not-for-sale,' but which has been actually used by the pipeline-purchaser for interstate resale ('jurisdictional' gas).
Whether or not there is a middle ground that would more closely fulfill the purposes of the Natural Gas Act than either of the proposals now before us is something that this Court is not competent to assess without expert guidance from the Commission, and we have been given none. Lacking this, I am unwilling to accept at this juncture the position of either party to this litigation. I think the Court should decline to pass upon these cases until the Commission has first illumined the regulatory problems involved through an appropriate exercise of its rule-making powers.1
The complexity and elusiveness of the matters with which we are asked to deal are best exposed from the vantage point of this Court by considering some of the questions to which allocation contracts in varying contexts give rise.
The Commission has, at least until this case, accepted the proposition that a single supplier to a pipeline may allocate by contract between the amount of gas used for jurisdictional purposes and the amount used nonjurisdictionally. For example, in City of Hastings v. Federal Power Comm., 95 U.S.App.D.C. 158, 221 F.2d 31, a pipeline company sold gas to the city through one pipeline under two contracts, one covering the gas to be resold by the city, and the other gas to be used by the city in its own plants. Although the gas was mingled in the common pipeline, the allocation was approved, and the latter gas was, without more, considered not subject to Commission regulation. A similar situation was presented in United States v. Public Utilities Comm. of California, 345 U.S. 295, 73 S.Ct. 706, 97 L.Ed. 1020, where a power company sold electricity to the Navy for use in its power plants and also for resale to dependent families. The absence of any allocation was fatal in that case, but the Court...
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