People v. Federal Power Commission

• Decision Date: 30 March 1961
• Docket Number: No. 15687.,15687.
• Parties: PEOPLE OF THE STATE OF CALIFORNIA, Petitioner, v. FEDERAL POWER COMMISSION, Respondent, El Paso Natural Gas Company, Intervenor.
• Court: U.S. Court of Appeals — District of Columbia Circuit

296 F.2d 348 (1961)

PEOPLE OF THE STATE OF CALIFORNIA, Petitioner, v. FEDERAL POWER COMMISSION, Respondent, El Paso Natural Gas Company, Intervenor.

No. 15687.

United States Court of Appeals District of Columbia Circuit.

Argued January 25, 1961.

Decided March 30, 1961.

Certiorari Granted October 9, 1961.

Mr. William M. Bennett, San Francisco, Cal., for petitioner.

Mr. Arthur H. Fribourg, Atty., Federal Power Commission, with whom Mr. John C. Mason, Gen. Counsel, Federal Power Commission, Mr. Howard E. Wahrenbrock, Solicitor, Federal Power Commission, and Mr. Robert L. Russell, Asst. Gen. Counsel, Federal Power Commission, were on the brief, for respondent.

Messrs. Charles V. Shannon, Washington, D. C., and Arthur H. Dean, New York City, with whom Mr. Stanley M. Morley, Washington, D. C., was on the brief, for intervenor.

Mr. Richard A. Solomon, Atty., Dept. of Justice, with whom Mr. George D. Reycraft, Atty., Dept. of Justice, was on the brief, for the United States of America, as amicus curiae.

Before MR. JUSTICE BURTON, retired,^* and PRETTYMAN and FAHY, Circuit Judges.

Certiorari Granted October 9, 1961. See 82 S.Ct. 47.

PRETTYMAN, Circuit Judge.

This is a petition by the State of California to review an order of the Federal Power Commission¹ authorizing El Paso Natural Gas Company (hereinafter referred to as "El Paso") to acquire and operate the facilities of Pacific Northwest Pipeline Corporation (hereafter called "Pacific") by a merger of the two corporations.

El Paso was organized as a natural gas company in 1928, and its principal business today is the transportation and sale of natural gas. Its chief sources of gas are in the Panhandle and Permian Basin fields of west Texas and the San Juan Basin in northwestern New Mexico; and it also obtains gas from Canada and through agreements with other pipeline companies. The company operates some 8,000 miles of main transmission lines, which extend in two parallel systems from western Texas, across New Mexico and Arizona to the California border. Expansion of El Paso's operations to California began in 1946, and the company's business expanded greatly in the following decade. Although it has many customers along its pipeline routes in Texas, New Mexico, and Arizona, the great bulk of its certificated capacity — 2.1 million of a total of 2.7 million Mcf per day — is devoted to sales made at the Arizona-California border to three California distribution companies. It has no pipelines or facilities within California. At the time this litigation was initiated El Paso was the sole out-of-state supplier of natural gas to California, and it provided well over half of the state's total supply.

Pacific was incorporated in 1949 and was certificated in 1954 to serve the Pacific Northwest region, the only large area of the country not then served with natural gas. Construction of its system was completed in 1956, and at the time of the merger it owned more than 2,000 miles of pipelines extending from the Canadian border through Washington, Oregon, Idaho, Wyoming, Utah and Colorado. It obtains its gas supplies in the San Juan Basin, in several smaller fields in the Rocky Mountain area, and from Canada. Pacific is authorized to sell gas in all the states through which its lines extend, and it has a system capacity of about 646,000 Mcf per day. In 1958 its sales averaged about 500,000 Mcf per day.

In December, 1954, shortly after Pacific had been certificated, Pacific and El Paso entered into an agreement whereby the latter was to purchase 250,000 Mcf per day of Canadian gas from Pacific. Simultaneously, Pacific contracted with Westcoast Transmission Company, Ltd., a Canadian gas company, to purchase 300,000 Mcf per day. The El Paso-Pacific contract was subsequently modified to provide for the purchase by El Paso of up to 100,000 Mcf per day of this Canadian gas. El Paso's president testified that it was at the time of these negotiations that his company first became interested in acquiring Pacific. Such an acquisition, he said, would provide El Paso with direct access to extensive undeveloped reserves of dry gas in Canada and the Rocky Mountain area and would give Pacific needed additional markets for its gas.

During the early part of 1955 the two companies discussed the possibility of a merger, but the talks broke down after a disagreement as to the method of merger. El Paso insisted that the merger be carried out in such a way as to require the approval of the Federal Power Commission under Section 7(c) of the Natural Gas Act, 15 U.S.C.A. § 717 et seq., that is, a merger of the assets of the two corporations. Pacific, which was then involved in financing and constructing pipelines, wanted to avoid extended proceedings before the Commission, and it insisted that the merger be accomplished by an exchange of stock.² In further negotiations El Paso proposed a stock exchange to be followed by an asset merger, but this was rejected by Pacific because of a disagreement on price and also because of its continued reluctance to go before the Commission. Talks resumed in August, 1956, and on November 8, 1956, the companies signed an agreement for the exchange of stock. By May 1, 1957, El Paso had acquired 99.8 per cent of Pacific's stock.

On July 22, 1957, the Attorney General of the United States filed a civil action in the United States District Court for the District of Utah, attacking the stock acquisition as a violation of Section 7 of the Clayton Act, 15 U.S.C.A. § 12 et seq. On August 7, 1957, the companies filed applications for approval of a merger of their assets.³ This step had been authorized by their respective boards of directors on the preceding July 16th and was, by El Paso's own admission, "considerably stimulated" by the imminence of the Clayton Act suit.⁴ The Commission refused a request by the Justice Department to suspend proceedings on the applications until the District Court decided the antitrust case, and it scheduled hearings for September 17, 1958. The Antitrust Division of the Justice Department was invited by the Commission to participate, but it declined. On October 13, 1958, the District Court in Utah granted a continuance pending final determination by the Commission of the applications before it.

The merger was approved by the Presiding Examiner on November 20, 1959. Exceptions were filed by California, and on December 23, 1959, the Commission affirmed the Examiner's decision. A certificate was issued to El Paso,⁵ and the merger was consummated on December 31st. After the asset merger the United States amended its Clayton Act complaint to include this merger as well as the stock acquisition.

Throughout these proceedings the State of California has taken the position that it should not be wholly dependent on a single company for its out-of-state gas supplies. It seeks the benefits of competition among suppliers and argues that the merger, if upheld, will eliminate a potential competitor to El Paso.

The principal contentions of California may be distilled into three: (1) The Commission did not give sufficient or proper attention to the impact of the merger upon future rates to customers; (2) the Commission failed to give proper attention and effect to the policies and terms of the antitrust laws; and (3) California was denied due process, in that the Examiner failed to examine documents filed in evidence. In the second contention it is supported by the United States as amicus curiae. Petitioner also attacks the conclusions of the Commission concerning various features of the proposed merger in respect to the public convenience and necessity. We have examined these latter points, the supporting evidence, and the findings and conclusions of the Commission. It is sufficient to say that decisions on such questions lie largely within the expert judgment of the Commission, and we find the conclusions reached in this case to be well within that area. We turn, then, to the principal contentions, as above stated.

Petitioner summarizes its contentions in respect to the rate inquiry as follows:

"By precluding inquiry into economic impact and denying examination upon future rate structure the Commission denied due process to California; created a record devoid of evidence upon an indispensible item of proof, to wit, public convenience and necessity measured in terms of the cost of merger to the consuming public; authorized a merger as being in the public interest with no inquiry of its cost impact to the public."

Petitioner makes clear in its argument that it contends there was a burden of proof upon El Paso, the applicant, to present evidence as to specific future rates after the proposed merger, and that the Commission erred in refusing to go into that subject. The Examiner ruled clearly and succinctly on the matter. He said:

"It seems to me there can be no aggrievement when there is no dollar impact at the present time on the consumer. It is merely a question of determining the public interest, and you must have some general idea whether it is going to be an exploitation of the customer — I realize all that. That is what the purpose of the certificate proceeding is.

"But when you get down to dollar impact, it does not come about until the rates are changed.

* * * * * *

"Well, unless I am directed to do so by order of the Commission, I am not going to make a rate case out of this — whether they are lawful under Section 4(a) or 4(b), whatever it is, of the Act. I am not going to do it unless directed to do it."

The Commission agreed with the Examiner.

We think the Examiner ruled correctly on the point and the Commission was correct in sustaining him. Increases in rates must under the scheme of the statute be proposed by the utility company. The Commission then, under either Section 4(e) or Section 5(a) of the statute, can determine the lawfulness of the proposals. No contention is made that the existing rates of the companies are...