Prudhoe Bay, Alaska Natural Gas, Matter of
| Decision Date | 11 July 1978 |
| Court | California Court of Appeals Court of Appeals |
| Parties | , 1978-2 Trade Cases P 62,228 In the Matter of the Investigation of Ownership, Production, Sale and Distribution of PRUDHOE BAY, ALASKA NATURAL GAS. Evelle J. YOUNGER, Attorney General of the State of California, Petitioner and Appellant, v. John JENSEN and Pacific Lighting Gas Development Co., Respondents, and Exxon Corporation, Respondent. Civ. 52440, 52975. |
Evelle J. Younger, Atty. Gen., Warren J. Abbott, Robert H. O'Brien, Asst. Attys. Gen., and Linda L. Tedeschi, Deputy Atty. Gen., for petitioner and appellant.
Manatt, Phelps, Rothenberg, Manley & Tunney, Alan I. Rothenberg, and Julia J. Rider, Los Angeles, for respondents John Jensen and Pacific Lighting Gas Development Co.
McCutchen, Black, Verleger & Shea, Jack D. Fudge, Los Angeles, Michael L. Hickok, and Robert L. Norris, Houston, Tex., for respondent Exxon Corp.
In January 1976 The Attorney General of the State of California, purportedly acting under the provisions of Government Code section 11180 1 et seq., delegated authority to certain named persons "to conduct an investigation into the ownership, production, sale and distribution of Prudhoe Bay, Alaska, natural gas insofar as it affects the State of California, to determine the existence, nature, and scope of violations of the federal and state antitrust laws pertaining to price fixing, monopolization, division of markets, and restraint of trade, and to hold hearings, issue subpoenas, inspect books and records, take testimony, hear complaints, and administer oaths in connection therewith" as the delegates might deem necessary. The following April, subpoenas to attend and testify and to produce books, records, papers and documents were served on Pacific Lighting Gas Development Company (PLGD) and Exxon Corporation (Exxon) 2 and certain officers thereof. PLGD and Exxon each produced some documents in response to the subpoenas, and a representative of each company appeared to testify. The Attorney General was not satisfied with the extent of compliance. Cooperative efforts to effect a compromise as to what further compliance was necessary ultimately were unavailing. The Attorney General petitioned the superior court for orders compelling compliance. The two petitions were jointly heard for argument, PLGD and Exxon raising substantially identical grounds in opposition thereto. The court denied the petitions, ruling that the Attorney General's investigation was preempted by federal law, namely the Natural Gas Act of 1938 (15 U.S.C.A., §§ 717-717w) and the Alaska Natural Gas Transportation Act of 1976 (id., §§ 719-719o ). 3 The court did not reach other matters raised in objection, principally Commerce Clause and Fourth Amendment arguments. On this appeal from orders denying petitions, we affirm for the same reason the superior court denied the petitions federal preemption.
The facts relevant to this inquiry are not in dispute. Exxon and Atlantic Richfield Company (ARCO) are two of the three major producers of Prudhoe Bay, Alaska natural gas, the largest reservoir of natural gas ever discovered in North America. Natural gas is, of course, an energy source of major importance to this country, and in recent years a natural gas supply shortage has become a matter of increasing concern. In 1970 the Federal Power Commission (FPC or Commission) 4 took certain steps to alleviate the natural gas shortage. One of these allowed natural gas pipelines, subject to certain conditions, to include in their rate base advance payments to natural gas producers for gas to be delivered at a future date. This measure was expected to stimulate natural gas production by affording producers ready capital investment to finance development and production; allowing rate base treatment for the advance payments provided the encouragement to pipelines to advance the funds. This action of the Commission was upheld in Public Serv. Com'n, State of N. Y. v. Federal Power Com'n (1972), 151 U.S.App.D.C. 307, 467 F.2d 361 as "a justifiable experiment in the continuing search for solutions to our nation's critical shortage of natural gas." (151 U.S.App.D.C. p. 317, 467 F.2d p. 371.)
The advance payments program was originally approved on a temporary basis. It was subsequently modified and continued on several occasions, and in December 1973 it was extended to Alaskan advances. In March 1975 ARCO and PLGD entered into an advance payments or funding agreement whereby ARCO agreed to "enter into exclusive good faith negotiations" with an affiliate of PLGD 5 for the right to purchase 60 percent of ARCO's gas reserves at Prudhoe Bay. 6 In return, PLGD and Southern California Gas Company (SoCal), another affiliate, promised to pay the interest and carrying charges on a production payment loan arranged by ARCO. The same month a similar agreement was reached between Exxon and Pacific Gas and Electric Company (PG&E). 7 This contract gave PG&E "the sole and exclusive initial right to negotiate" for 30 percent of Exxon's Prudhoe Bay gas production over a twenty-year period in exchange for the advance of the cost of raising capital; Exxon would raise the capital.
Each of these agreements described certain of the terms to be included in the future contracts for sale should they actually be concluded. One of the terms was a "most favored nation" pricing provision according to which the buyer agreed to pay the seller the highest price provided in any other contract for sale of Prudhoe Bay natural gas to be delivered in the lower 48 states. 8
Apparently PG&E and SoCal submitted applications to the California Public Utilities Commission (PUC) for permission to pass on to consumers the costs entailed by the agreements with Exxon and ARCO respectively. These applications were approved though it seems the PUC was highly critical of the funding agreements. Sometime after the applications were submitted, the president of the PUC requested the opinion of the Attorney General regarding possible antitrust violations with respect to the funding agreements. A general concern was expressed as to the possibility of antitrust violations including market division by the gas producers, and two specific questions were asked: The Attorney General's opinion of January 2, 1976, concluded that serious antitrust questions were raised by the funding agreements and "the circumstances surrounding the proposed development and distribution of Prudhoe Bay natural gas," and recommended further investigation. 9
On December 31, 1975, after the decision in Public Serv. Com'n, State of N.Y. v. Federal Power Co. (1975) 167 U.S.App.D.C. 100, 511 F.2d 338, 10 and upon further consideration, the Federal Power Commission terminated its advance payments program; termination of the Alaskan payments was retroactive to a date preceding the agreements of respondents. On January 12, 1976, PLGD and ARCO mutually agreed to terminate their funding agreement. SoCal then petitioned the PUC to rescind its approval of the agreement, which was done on January 27. PG&E and Exxon mutually agreed to terminate their funding agreement on February 9; PG&E petitioned the PUC to rescind its approval thereof, and this was done on April 13.
The Attorney General's "Delegation of Authority to Conduct Investigation and Hold Hearings in Connection Therewith" was signed January 19, 1976, and the subpoenas to PLGD and Exxon were served in April. While said delegation of authority purports to authorize an investigation of ownership, production, sale, and distribution of Prudhoe Bay natural gas insofar as it affects California to determine the existence, nature, and scope of violations of federal and state antitrust laws, the Attorney General does not now assert authority to investigate violations of federal law under the provisions of Government Code section 11180. Thus, our inquiry is limited to whether this investigation into the possibility of violation of state antitrust law is preempted by federal statutes.
The doctrine of preemption has its source in the Supremacy Clause (U.S.Const., art. VI, cl. 2): "This Constitution, and the Laws of the United States which shall be made in Pursuance thereof . . . shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding." Numerous catchwords have been employed in preemption analysis. The Supreme Court (Hines v. Davidowitz (1941) 312 U.S. 52, 67, 61 S.Ct. 399, 404, 85 L.Ed. 581, fn. omitted.) In the final analysis, a court's function is to determine whether the challenged statute "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." (Ibid.; Perez v. Campbell (1971) 402 U.S. 637, 649, 91 S.Ct. 1704, 29 L.Ed.2d 233.)
In recent years cases involving the question of preemption seem to have arisen at an accelerating rate. To mention only a few of the more significant ones, Ray v. Atlantic Richfield Co. (1978) --- U.S. ----, 98 S.Ct. 988, 55...
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