State of Wisconsin v. Federal Power Commission

• Decision Date: 22 May 1953
• Docket Number: 11241,11245 and 11252.,11242,No. 11247,11247
• Citation: 205 F.2d 706
• Parties: STATE OF WISCONSIN et al. v. FEDERAL POWER COMMISSION (Phillips Petroleum Co. et al., Intervenor). CITY OF DETROIT, MICH. v. FEDERAL POWER COMMISSION (Phillips Petroleum Co. et al., Intervenors). CITY OF KANSAS CITY, MO. v. FEDERAL POWER COMMISSION (Phillips Petroleum Co. et al., Intervenors). CITY OF MILWAUKEE, WIS. v. FEDERAL POWER COMMISSION (Phillips Petroleum Co. et al., Intervenors). WAYNE COUNTY, MICH. v. FEDERAL POWER COMMISSION (Phillips Petroleum Co. et al., Intervenors).
• Court: U.S. Court of Appeals — District of Columbia Circuit

205 F.2d 706 (1953)

STATE OF WISCONSIN et al. v.FEDERAL POWER COMMISSION (Phillips Petroleum Co. et al., Intervenor^*).

CITY OF DETROIT, MICH. v.FEDERAL POWER COMMISSION (Phillips Petroleum Co. et al., Intervenors).

CITY OF KANSAS CITY, MO. v.FEDERAL POWER COMMISSION (Phillips Petroleum Co. et al., Intervenors).

CITY OF MILWAUKEE, WIS. v.FEDERAL POWER COMMISSION (Phillips Petroleum Co. et al., Intervenors).

WAYNE COUNTY, MICH. v.FEDERAL POWER COMMISSION (Phillips Petroleum Co. et al., Intervenors).

Nos. 11247, 11241, 11242, 11245 and 11252.

United States Court of Appeals, District of Columbia Circuit.

Argued January 12, 1953.

Decided May 22, 1953.

Messrs. Stewart G. Honeck and William E. Torkelson, Madison, Wis., and for petitioners in No. 11247.Mr. Charles S. Rhyne, Washington, D. C., also entered an appearance for petitioners in Nos. 11247, 11245, 11242, 11241and11252.

Mr. Harry G. Slater, Washington, D. C., submitted on the brief for petitioner in No. 11245.

Mr. Jerome M. Joffee, Kansas City, Mo., for petitioner in No. 11242.Mr. James H. Lee, Detroit, Mich., entered an appearance for petitioner in No. 11242.

Mr. James H. Lee, Detroit, Mich., for petitioner in No. 11241.

Mr. Bradford Ross, General Counsel, Federal Power Commission, Washington, D. C., with whom Messrs. Bernard A. Foster, Jr., Assistant General Counsel, Federal Power Commission, and Pascal B. Frazier, Attorney, Federal Power Commission, Washington, D. C., were on the brief, for respondent.

Mr. Hugh B. Cox, Washington, D. C., with whom Messrs. Ernest W. Jennes and Burke Marshall, Washington, D. C., Rayburn L. Foster, Harry D. Turner, Bartlesville, Okl., and Warren M. Sparks, Tulsa, Okl., were on the brief, for intervenorPhillips Petroleum Co.

Mr. J. Paull Marshall, Washington, D. C., submitted on the brief for intervenorState of Texas and the Railroad Commission of Texas.Mr. Peter N. Chumbris, Washington, D. C., submitted on the brief for intervenorState of New Mexico and the Oil Conservation Commission of the State of New Mexico.

Mr. J. Paull Marshall, Washington, D. C., submitted on the brief for intervenorCorporation Commission of Oklahoma.

Before EDGERTON, CLARK, and PRETTYMAN, Circuit Judges.

EDGERTON, Circuit Judge.

We have for review under § 19(b) of the Natural Gas Act, 52 Stat. 821,15 U.S.C.A. § 717 et seq., the question whether Phillips Petroleum Company(Phillips) is a "natural-gas company" within the meaning of the Act, so that the Federal Power Commission has authority under the Act to fix the rates at which Phillips sells gas for interstate transportation and resale.The Commission's staff assured the Commission it had authority, but the Commission reached the opposite conclusion.Commissioner Buchanan dissented.

Phillips is a very large operator in the petroleum industry and a very large producer, gatherer, and processor of natural gas from wells in Texas, Oklahoma, and New Mexico.Phillips owns and operates nine gathering systems and ten processing plants.Through progressively larger pipelines it gathers gas that it produces from its own wells, and other gas that it buys, at common points in or near its plants.At these plants it processes the gas to make it salable or to recover extractable products or both.Phillips then moves the gas here involved through short lines to points where Phillips sells it to Michigan-Wisconsin Pipe Line Company, Panhandle Eastern Pipe Line Company, Independent Natural Gas Company, El Paso Natural Gas Company, or Cities Service Gas Company,¹ for intertsate transportation and resale.Thus Phillips sells the gas after the time and beyond the place at which production and gathering are complete and after processing has intervened.For example, gas processed in one Phillips plant then flows about 240 feet through a Phillips pipeline to sales meters owned and operated by Phillips, where it is sold and delivered to Panhandle Eastern Pipe Line Company.Gas that Phillips produces, gathers, processes, and sells and delivers to the interstate pipeline companies in Texas or New Mexico is resold, after continuous movement, for ultimate public consumption in many other states including Arizona, California, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, Ohio, and Wisconsin, and also in the province of Ontario.

The Supreme Court decided in 1924 that the Constitution forbids states to regulate rates at which natural gas is sold, at points remote from the wells, "in wholesale quantities, not to consumers, but to distributing companies for resale to consumers in numerous cities and communities in different States."The sales in that case, like those in this case, were by a producer and gatherer.The Court said: "the sale and delivery here is an inseparable part of a transaction in interstate commerce — not local, but essentially national, in character * * *.The contention that, in the public interest, the business is one requiring regulation, need not be challenged.But Congress thus far has not seen fit to regulate it, and its silence, where it has the sole power to speak, is equivalent to a declaration that that particular commerce shall be free from regulation."Missouri ex rel. Barrett v. Kansas Natural Gas Co., 1924, 265 U.S. 298, 309, 308,²44 S.Ct. 544, 546, 68 L.Ed. 1027.

Some years later Congress decided that that particular commerce should no longer be free from regulation and therefore passed the Natural Gas Act of 1938.The Act begins with a declaration in § 1(a)"that the business of transporting and selling natural gas for ultimate distribution to the public is affected with a public interest, and that Federal regulation in matters relating to the transportation of natural gas and the sale thereof in interstate and foreign commerce is necessary in the public interest."³The House Committee on Interstate and Foreign Commerce said in its report on the bill: "sales for resale, or so-called wholesale sales, in interstate commerce (for example, sales by producing companies to distributing companies) * * * have been considered to be not local in character and, even in the absence of Congressional action, not subject to State regulation.(SeeMissouri ex rel. Barrett v. Kansas Gas Co.(1924), 265 U. S. 298, 44 S.Ct. 544, 68 L.Ed. 1027, andPublic Utilities Commission v. Attleboro Steam & Electric Co.(1927), 273 U.S. 8347 S.Ct. 294, 71 L.Ed. 549.)The basic purpose of the present legislation is to occupy this field in which the Supreme Court had held that the States may not act."⁴

In accordance with this basic purpose the Natural Gas Act provides in § 1(b) that it "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."⁵Section 2(6) provides that "`Natural-gas company' means a person engaged in the transportation of natural gas in interstate commerce, or the sale in interstate commerce of such gas for resale."⁶Section 5(a) authorizes the Commission to regulate interstate sales rates of natural-gas companies.⁷

Accordingly the Supreme Court has repeatedly upheld the Commission's authority under the Natural Gas Act to regulate the rates at which a producer and gatherer of of natural gas sells it, after producing and gathering it, to pipeline companies for resale in other states.One such case is Colorado Interstate Gas Co. v. Federal Power Commission, 1945, 324 U.S. 581, 65 S.Ct. 829, 89 L.Ed. 1206.In that case the company called "Canadian" was a producer and gatherer.It produced from its own properties all the gas it sold.The Commission adopted a rate base etc. that included Canadian's production and gathering properties as well as its interstate transmission system.Canadian contended "that contrary to the mandate of § 1(b) the Commission has undertaken to regulate the production and gathering of natural gas."324 U.S. at page 597, 65 S.Ct. at page 837.It pointed out that Senator Wheeler, who sponsored the legislation in the Senate, said during the debate: "It does not attempt to regulate the producers of natural gas or the distributors of natural gas; only those who sell it wholesale in interstate commerce."324 U.S. at page 600, 65 S.Ct. at page 838.But the Supreme Court said: "A natural-gas company as defined in § 2(6) of the Act, 15 U.S.C.A. § 717a(6) is `a person engaged in the transportation of natural gas in interstate commerce, or the sale in interstate commerce of such gas for resale.'Canadian is such a company.It is plain therefore that the Commission has authority to fix its interstate wholesale rates.* * * That does not mean that the part of § 1(b) which provides that the Act shall not apply `to the production or gathering of natural gas' is given no meaning.Certainly that provision precludes the Commission from any control over the activity of producing or gathering natural gas.For example, it makes plain that the Commission has no control over the drilling and spacing of wells and the like."324 U.S. at pages 600-601, 602-603, 65 S.Ct. at page 838.

In Interstate Natural Gas Co. v. Federal Power Commission, 1947, 331 U.S. 682, 67 S.Ct. 1482, 91 L.Ed. 1742, the Court again upheld the Commission's regulation of the rates at which a producer and gatherer of natural gas sold it to pipeline companies for resale in other states.The Court said: "In a series of decisions announced prior to the passage of the Act, this Court had held that although Congress had not acted, the regulation of wholesale rates of gas and electrical energy moving in interstate commerce is beyond the...