Federal Power Commission v. Panhandle Eastern Pipe Line Company/Opinion of the Court

Stated broadly this certiorari brings before us for review a problem involving the scope of the power over the gas reserves of a natural-gas company given to the Federal Power Commission by the Natural Gas Act. 52 Stat. 821, as amended, 56 Stat. 83, 15 U.S.C.A. § 717 et seq. Specifically the question to be decided is whether a natural-gas company, subject to the Act, may sell the leases covering an estimated twelve per cent of its total gas reserves without the approval and contrary to an order of the Commission.

The issue is made very sharply because the District Court and the Court of Appeals have refused an injunction, sought by the Commission, to hold the consummation of the sale in abeyance until the Commission, through an admittedly permissible investigation, can determine whether the disposal of these reserves will impair the ability of Panhandle to supply its present and prospective customers in the area which it has undertaken to serve as a public utility. The Commission may find that public interest will best be served by requiring Panhandle to retain these reserves. The public interest has strong appeal to a court of equity for its remedies once a legal right is fairly in controversy.

Respondent, Panhandle Eastern Pipe Line Company (herein called Panhandle), a Delaware corporation, transports and markets natural gas in interstate commerce by means of its pipe-line system which runs from Texas into Michigan. In addition it owns or controls gas-producing properties in Kansas, Oklahoma, and Texas.

In September, 1948, Panhandle organized Hugoton Production Company (hereinafter called Hugoton), also a Delaware corporation. On October 11, 1948, pursuant to a written agreement between the two companies, Panhandle transferred to Hugoton gas leases on approximately 97,000 acres of land in Kansas and $675,000 in cash. In return Panhandle received all the outstanding capital stock of Hugoton and the option to purchase on or after January 1, 1965, all or part of the gas produced from this land, which is at present undeveloped and not connected with any pipe-line system. The gas reserves under this acreage are estimated at approximately 700 billion cubic feet. Hugoton thereafter contracted to sell to the Kansas Power and Light Company for a period of fifteen years from November 1, 1949, to November 1, 1964, the gas produced from these leases, which, according to the contract, was to be consumed wholly within the State of Kansas.

On the same date as the transaction between Panhandle and Hugoton, Panhandle declared a dividend of the Hugoton stock to the holders of its common stock at the rate of one-half share of Hugoton stock for each share of common stock of Panhandle. The dividend was to be paid November 17, 1948, to Panhandle's stockholders of record on October 29, 1948. Nothing called to our attention indicates any control retained by Panhandle over the Hugoton stock.

On October 26, 1948, the Federal Power Commission (hereinafter called the Commission) ordered an investigation 'pursuant to the provisions of Section 14 of the Natural Gas Act, of the fa ts and circumstances involved in the formation and proposed operation of the Hugoton Production Company and the transfer to said company by Panhandle Eastern of the naturalgas reserves * *  * .' By supplementary order of November 10, 1948, Hugoton was joined as a party, a date for a public hearing was fixed, and Hugoton and Panhandle ordered to show cause why they should not be directed to cancel the contract, and why Panhandle should not be prohibited from transferring the leases without the consent of the Commission and from distribution the Hugoton stock to its stockholders. Pending a final determination the Commission ordered that the status quo be maintained by Panhandle and Hugoton.

Upon the apparent refusal of Panhandle to company with this order the Commission on November 13, 1948, instituted the instant suit in the United States District Court for the District of Delaware, seeking a preliminary injunction and a temporary restraining order to compel Panhandle to proceed no further with the stock distribution and to maintain the status quo pending the final determination of the questions for which the hearing before the Commission had been set. The district court issued the temporary pestraining order which has been kept in effect by successive orders and which enjoined Panhandle from issuing to its stockholders the dividend of Hugoton stock. Panhandle was ordered to cause Hugoton to refrain from transferring any of the gas leases and from issuing or transferring any of it capital stock. After a hearing the district court refused to grant the preliminary injunction on the ground that there had not been shown any basis for the relief sought by the Commission.

On appeal the Court of Appeals for the Third Circuit affirmed the judgment of the district court on the ground that § 1(b) of the Natural Gas Act, excluding 'the production or gathering of natural gas' from the Commission's jurisdiction left the transfer of gas leases to state regulation and outside the scope of the Commission's regulatory powers. 172 F.2d 57. The State Corporation Commission of Kansas had been granted leave to intervene in the Court of Appeals in opposition to the Federal Power Commission.

To consider the important question of the applicability of the Natural Gas Act, to this transaction, we granted certiorari. 336 U.S. 935, 69 S.Ct. 748.

Without entering upon another review of its legislative history, suffice it to say that the Natural Gas Act did not envisage federal regulation of the entire natural-gas field to the limit of constitutional power. Rather it contemplated the exercise of federal power as specified in the Act, particularly in that interstate segment which the states were powerless to regulate because of the Commerce Clause of the Federal Constitution. The jurisdiction of the Federal Power Commission was to complement that of the state regulatory bodies. Accordingly, Congress in § 1(b) of the Act not only prescribed the intended reach of the Commission's power, but also specified the areas into which this power was not to extend.

'(b) The provisions of this Act 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.'

'This section determines the Act's coverage and does so in the light of the situation existing at the time. Three things and three only Congress drew within its own regulatory power, delegated by the Act to its agent, the Federal Power Commission. These were: (1) The transportation of natural gas in interstate commerce; (2) its sale in interstate commerce for resale; and (3) natural gas companies engaged in such transportation or sale.' Panhandle Eastern Pipe Line Co. v. Public Service Commission of Indiana, 332 U.S. 507, 516, 68 S.Ct. 190, 195, 92 L.Ed. 128. The Act, moreover, expressly exempts from its coverage (1) any other transportation or sale of natural gas; (2) the local distribution of natural gas; (3) the facilities used for local distribution; and (4) the production and gathering of natural gas.

The Commission seeks to distinguish between the activities of production and gathering, such as drilling, spacing wells, or collecting gas, and the facilities, such as reserves and gas leases, used therefor and argues that only the former were excluded from the coverage of the Act. In support of this position it is pointed out that the section specifically exempts both the local distribution and the facilities used therefor while it makes no mention of the facilities used for production or gathering. In the face of the unambiguous language of the Act and its legislative background, we cannot ascribe such a narrow meaning to the words, 'the production or gathering of natural gas.' In Colorado Interstate Gas Co. v. Federal Power Commission, 324 U.S. 581, 603, 65 S.Ct. 829, 839, 89 L.Ed. 1206, we said that this phrase comprehended the producing properties and gathering facilities of a natural-gas company. We now adhere to this natural and clear meaning of the words and their obvious expression of congressional intent. Of course leases are an essential part of production.

The Commission cites §§ 5(b), 6(a) and (b), 8(a), 9(a), 10(a), and 14(b) to show that Congress intended 'to confer a certain measure of authority upon the Commission' over the production and gathering of gas. These sections empower the Commission to make investigations, to prescribe rules for the keeping of accounts and records by the natural-gas companies, and to require that the companies file such reports as are deemed necessary by the Commission in the proper administration of the Act. These powers are inquisitorial in nature and were designed to aid the Commission in exercising its powers and 'to serve as a basis for recommending further legislation to the Congress.' Section 14(b), quoted below, comes closest to supporting the Commission's argument but that confers only power to obtain information. Although these sections bear evidence of congressional consideration of the relationship of production properties to other elements of the natural-gas business, they do not even by implication suggest to us an extension of the regulatory provisions of the Act to cover incidents connected with the production or gathering of gas.

In Colorado Interstate Gas Co. v. Federal Power Commission, supra, 324 U.S. at page 602, 65 S.Ct. at page 839, the Court in considering the more important of these sections said that they described powers which were aids to the 'normal conventions' of rate making. We held that the Commission in exercising its rate-making authority could include the fair value of the producing and gathering facilities in the rate base of a natural-gas company. The primary duty of the Commission is to fix just and reasonable rates for the transportation and sale of natural gas in interstate commerce for resale. For this purpose the Court permitted the Commission to examine and consider the cost of production and gathering. The use of such data for rate making is not a precedent for regulation of any part of production or marketing. Before the Colorado Interstate decision, it was apparent that the value of producing facilities and the cost of gas bought by a natural-gas company from producers would be weighty factors in rate making whether a rate-base method or other method for fixing rates was used. Low valuation by the Commission of producing properties or low-cost allowance for purchased gas discourages exploration for gas or its sale in interstate commerce. Congress knew this necessary relationship between production and distribution but excluded the Commission from exercising any direct control or regulation over the actual production and gathering of natural gas.

The Commission urges it has jurisdiction over the transaction between Panhandle and Hugoton from the powers granted to it by § 7(c) of the Act which authorizes it to issue certificates of convenience and necessity for the interstate transportation and sale of natural gas and those granted to it by §§ 4 and 5 to determine reasonable rates for such transportation and sale. It is point out that Panhadle in three applications for certificates of convenience and necessity to construct additional pipeline facilities had included the acreage here involved as part of its gas reserves, and certificates were issued upon the finding by the Commission that Panhandle had adequate reserves to warrant its expansion. Moreover Panhandle had been permitted to include these reserves in its rate base as 'used and useful property.' The Commission, therefore, argues that these gas leases which Panhandle proposes to grant to Hugoton have been dedicated to the discharge of Panhandle's public-utility obligation to render adequate service at reasonable and nondiscriminatory rates. From these circumstances, the Commission concludes that these leases cannot be relinquished by Panhandle without the consent of the Commission, which has the implied power to protect its rate making function and to insure the maintenance of adequate service by a natural-gas company. Sections 4, 5 and 7 do not concern the producing or gathering of natural gas; rather they have reference to the interstate sale and transportation of gas and are so limited by their express terms. Thus §§ 4(a), (b), (c), 5(a) and 7(c) speak of 'transportation or sale of natural gas subject to the jurisdiction of the Commission' while § 7(a) and (b) refer respectively to 'transportation facilities' and 'facilities subject to the jurisdiction of the Commission.' Nothing in the sections indicate that the power given to the Commission over natural-gas companies by § 1(b) could have been intended to swallow all the exceptions of the same section and thus extend the power of the Commission to the constitutional limit of congressional authority over commerce. The repetition of the words 'subject to the jurisdiction' makes clear to us the intent to keep the Commission's hands out of the excepted local matters. The same answer applies to petitioner's argument that § 16 gives it authority to stop sales of leases. The power to do the things appropriate to carry out the provisions of the Act can hardly be taken to rescind a prohibition against certain actions.

The Federal Power Commission leans heavily upon § 7(b) which provides that no natural-gas company may abandon any of its facilities subject to the jurisdiction of the Commission without the prior approval of the Commission. The argument here is that since natural gas is the 'lifeblood' of a pipe-line system, a company by disposing of its gas reserves, unhampered by Commission control, may render itself unable to continue service; consequently abandonment of facilities and service without the consent of the Commission will result. The argument begs the question. The section like those above, covers only 'facilities subject to the jurisdiction of the Commission.'

To accept these arguments springing from power to allow interstate service, fix rates, and control abandonment would establish wide control by the Federal Power Commission over the production and gathering of gas. It would invite expansion of power into other phases of the forbidden area. It would be an assumption of powers specifically denied the Commission by the words of the Act as explained in the report and on the floor of both Houses of Congress. The legislative history Footnote 15—Continued.

'The primary purpose of the pending bill is to provide Federal regulation, in those cases where the State commissions lack authority, under the interstate-commerce law. This bill takes nothing from the State commissions; they retain all the State power they have at the present time. This bill would apply to the transportation of natural gas in interstate commerce and to the sale of natural gas in interstate commerce for resale or public consumption.

'The bill does not apply to the production and gathering of gas.' 81 Cong.Rec. 6721.

Likewise on the floor of the Senate, Chairman Wheeler of the Committee on Interstate Commerce gave a similar interpretation to the Act:

'Mr. Austin. Mr. President, may I ask the Senator from Montana (Mr. Wheeler) a question concerning this bill? Does the bill undertake to regulate the production of natural gas, or does it undertake to regulate the producers of natural gas?

'Mr. Wheeler. 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. * *  *

'Mr. Austin. Mr. President, will the Senator yield for one other inquiry?

'Mr. Wheeler. Yes.

'Mr. Austin. Is the bill limited in its scope to the regulation of transportation?

'Mr. Wheeler. Yes; it is limited to transportation in interstate commerce, and it affects only those who sell gas wholesale.

'Mr. King. Mr. President, I should like to obtain information from the Senator as to the implications that arise from the bill, and what States it would affect. As an illustration, if gas is produced in Wyoming and is transported for consumption into the Senator's State or my Stat, would the Federal Power Commission have to do with such an activity?

'Mr. Wheeler. No; and let me say to the Senator that, as a matter of fact, the bill does not interfere with the State regulation, in any way, shape or form.' 81 Cong.Rec. 9312.

'Mr. Connally. Is it not also true, even though the utility commissioners advocate it, that whenever a Federal agency takes over an activity such as this the State authorities begin to shift of lose of this Act is replete with evidence of the care taken by Congress to keep the power over the production and gathering of gas within the states. This probably occurred because the state legislatures, in the interests of conservation, had delegated broad and elaborate power to their regulatory bodies over all aspects of producing gas. The Natural Gas Act was designed to supplement state power and to produce a harmonious and comprehensive regulation of the industry. Neither state nor federal regulatory body was to encroach upon the jurisdiction of the other. Congress enacted this Act after full consideration of the problems of production and distribution. It considered the state interests as well as the national interest. It had both producers and consumers in mind. Legislative adjustments were made to reconcile the conflicting views.

The District Court found as a fact, and the finding is undisputed by the Commission, that, 'It has been the practice in the natural gas industry for companies to trade freely in gas leases, and the Commission has never heretofore asserted the right to regulate transfers of such leases.' Thus for over ten years the Commission has never claimed the right to regulate dealings in gas acreage. Failure to use such an important power for so long a time indicates to us that the Commission did not believe the power existed. In the light of that history we should not by an extravagant, even if abstractly possible, mode of interpretation push powers granted over transportation and rates so as to include production. If possible all sections of the Act must be reconciled so as to produce a symmetrical whole. We cannot attribute to Congress the intent to grant such far-reaching powers as implicit in the Act when that body has endeavored to be precise and explict in defining the limits to the exercise of federal power.

The Commission sought by injunction to enforce its order halting the transaction between Panhandle and Hugoton pending the outcome of its investigation. The Commission argues that at any rate the transfer should be enjoined until it can determine its own power and the necessity of using it. Injunctive aid was requested under § 20(a) of the Act and the general equiry power of the district court. To be entitled to judicial assistance, however, the order issued by the Commission must be valid and based on a statutory grant of power to the Commission. As we have held above that the transfer of undeveloped gas leases is an activity related to the production and gathering of natural gas and beyond the coverage of the Act, the authority of the Commission cannot reach the sales. A proposed transfer cannot be stopped by the Commission. It should not be permitted to delay what it cannot prevent. If the Commission is of the opinion that it should have power to control the disposition of leases by natural-gas companies, it is authorized to call the attention of Congress to that fact.

The judgment of the Court of Appeals is accordingly affirmed.

Affirmed.

Mr. Justice MURPHY took no part in the consideration or decision of this case.

Mr. Justice BLACK, with whom Mr. Justice DOUGLAS and Mr. Justice RUTLEDGE concur, dissenting.