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UNITED GAS PIPE LINE CO. V. MCCOMBS, 442 U. S. 529 (1979) - US SUPREME COURT DECISIONS ON-LINE
US Supreme Court Decisions On-Line> Volume 442 > UNITED GAS PIPE LINE CO. V. MCCOMBS, 442 U. S. 529 (1979)
UNITED GAS PIPE LINE CO. V. MCCOMBS, 442 U. S. 529 (1979)
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1. Section 7(b) requires producers to continue supplying in interstate chanroblesvirtualawlibrary
MARSHALL, J., delivered the opinion of the Court, in which all other Members joined, except STEWART, J., who took no part in the consideration or decision of the cases. chanroblesvirtualawlibrary
Under § 7(c) of the Natural Gas Act, producers who sell natural gas to pipelines for resale in interstate commerce must obtain a certificate of public convenience and necessity from the Federal Energy Regulatory Commission. [Footnote 1] Section 7(b) of the Act obligates these producers to continue supplying gas in the interstate market until the Commission authorizes an "abandonment." [Footnote 2] The principal issue presented by this case is whether a producer may, consistent with § 7(b), ever terminate this service obligation without obtaining the agency's express approval.
The natural gas involved in this case is produced from a 163-acre tract of land located in Karnes County, Tex., and chanroblesvirtualawlibrary
After United installed gathering facilities on the property and began receiving gas from a well 2,960 feet deep, the Butler B lease was assigned several times. H. A. Pagenkopf eventually obtained the leasehold, and, in 1961, he agreed to extend the term of United's gas purchase contract through February 7, 1981. Upon Pagenkopf's application, the Commission issued a new certificate in 1963, authorizing continued service to United under the same terms as the earlier certificate. In March, 1966, Pagenkopf assigned the Butler B lease to a group headed by L. H. Haring, [Footnote 3] and, shortly thereafter, the only successful well on the property stopped producing. Haring's operator, Bay Rock Corp., notified United some months later that the existing wells were depleted and no other gas would be available at that time. United replied that it would remove its metering equipment for use elsewhere, but would reinstall the equipment
App. 8A-9A. Despite the Commission's subsequent warning that § 7(b) required the filing chanroblesvirtualawlibrary
of an abandonment application if no further sales were contemplated, Haring never sought the Commission's authorization for abandoning service to United. [Footnote 4]
During 1971 and 1972, Haring divided the Butler B leasehold horizontally and vertically, and he assigned to a group headed by respondent McCombs a working interest in the eastern 113 acres of the tract between the depths of 6,500 and 8,653 feet. A few months later, the group acquired a similar interest in the entire Butler B tract from depths of 8,700 to 9,700 feet. Drilling to these deeper horizons, the McCombs group discovered new gas reserves. [Footnote 5] In 1972, they contracted to sell this gas to respondent E. I. du Pont de Nemours & Co. for industrial uses in intrastate commerce. Upon learning of the renewed production, however, United asserted its rights under the 1953 contract, as extended in 1961, to purchase all gas produced from the property. When the McCombs group rejected this claim, United filed a complaint with the Commission.
The Commission upheld the Administrative Law Judge's determination that the McCombs group could not sell the chanroblesvirtualawlibrary
Butler B gas in intrastate commerce, at least through February 7, 1981. Opinion No. 740, App. to Pet. for Cert. in No. 7817, pp. A-32 to A-33. In particular, the Commission found that the certificates issued to the group's predecessors covered all gas produced from the property, including the reserves discovered in 1971 and 1972. [Footnote 6] Because these predecessors had commenced deliveries pursuant to the certificates, the Commission ruled that all reserves embraced by the certificates were "dedicated" to interstate commerce, and could not be diverted from that market without obtaining the agency's approval under § 7(b). Noting that it had not authorized abandonment during the 5-year interruption in service, the Commission refused to grant its approval retroactively where, as here, the supply of natural gas was not, in fact, depleted. Accordingly, the Commission declared the sales in intrastate commerce violative of the Act, and ordered delivery to United of all gas derived from the Butler B leasehold. [Footnote 7] chanroblesvirtualawlibrary
A divided panel of the Court of Appeals for the Tenth Circuit set aside the Commission's order. 570 F.2d 1376 (1978). [Footnote 8] The court did not dispute the Commission's determination that all gas underlying the Butler B tract had been dedicated to interstate commerce. However, while acknowledging that § 7(b) expressly requires Commission approval before a producer may withdraw dedicated natural gas from the interstate market, the majority held that "strict compliance" with this requirement was unnecessary here. 570 F.2d 1381. In the court's view, "there was no need for the formality of a Section 7(b) hearing," ibid., because
Congress could not have been more explicit in establishing Commission approval as a prerequisite for lawful abandonment chanroblesvirtualawlibrary
52 Stat. 824, 15 U.S.C. § 717f(b). Not only does the statute require companies to obtain the "approval of the Commission . . . after due hearing," but it also prohibits abandonment absent specific findings by the Commission. The language of § 7(b) simply does not admit of any exception to the statutory procedure. [Footnote 9]
This plain meaning has been acknowledged in several of our previous decisions. Emphasizing that the Natural Gas Act's fundamental purpose was to assure the public a reliable supply of gas at reasonable prices, the Court noted in Atlantic Refining Co. v. Public Service Comm'n, 360 U. S. 378 (1959), that, once gas has been dedicated to interstate commerce, "there can be no withdrawal of that supply from continued interstate movement without Commission approval." Id. at 360 U. S. 388, 360 U. S. 389, 360 U. S. 392 (emphasis added). The Court again addressed the necessity chanroblesvirtualawlibrary
of obtaining the agency's permission in Sunray Mid-Continent Oil Co. v. FPC, 364 U. S. 137 (1960). There, the Court upheld the Commission's authority to insist upon issuing permanent certificates of convenience and necessity, reasoning that this power was essential to prevent companies from circumventing the regulatory scheme. For if producers could demand certificates of limited duration, and thereby escape federal regulation when the certificates expire, the abandonment procedures of § 7(b) would be rendered meaningless. 364 U.S. at 364 U. S. 142-144, 364 U. S. 148. Of particular importance here, the Court specifically considered the impact that depletion of gas supplies would have on a company's obligation to seek abandonment permission. Approving the Commission's practice of issuing certificates that extend beyond the expected life of a given reserve, the Court stressed:
This Court expressed a similar understanding of the abandonment provision in United Gas Pipe Line Co. v. FPC, 385 U. S. 83 (1966), which upheld the Commission's determination that a company had violated § 7(b) of the Act by unilaterally abandoning jurisdictional facilities to avoid paying increased gas prices. In so holding, the Court reiterated that the "statutory necessity of prior Commission approval, with its underlying findings, cannot be escaped." 385 U.S. at 385 U. S. 89 (emphasis added). We reaffirmed this interpretation of § 7(b) just last Term in California v. Southland Royalty chanroblesvirtualawlibrary
Requiring Commission approval, "after due hearing," permits all interested parties to be heard, and therefore facilitates full presentation of the facts necessary to determine whether § 7(b)'s criteria have been met. Contrary to respondents' assumption, see Brief for Respondents 221, the Commission does not automatically approve abandonments whenever production has ceased. Indeed, the agency recently refused to grant an application where the producer had not adequately tested for new gas reserves. [Footnote 10] Had the lessees in the instant case filed an application for abandonment between 1966 and 1971, United might well have demonstrated that exploration chanroblesvirtualawlibrary
of the leasehold had been insufficient to justify finding "the available supply of natural gas . . . depleted to the extent that the continuance of service [was] unwarranted. . . ." § 7(b). And the Commission might have concluded that production from deeper reserves or other measures to restore service were feasible. Permitting natural gas companies to bypass abandonment proceedings simply because known reserves appear depleted would obviously foreclose these factual inquiries. Consequently, the abandonment determination would rest, as a practical matter, in the producer's control, a result clearly at odds with Congress' purpose to regulate the supply and price of natural gas. See California v. Southland Royalty Co., supra at 436 U. S. 526-527, 436 U. S. 529-530; Sunray Mid-Continent Oil Co. v. FPC, supra, at 364 U. S. 142-147.
Respondents maintain that, even if producers must always obtain Commission approval for abandonment, the decision below should nevertheless be affirmed. In their view, the Court of Appeals actually concluded that the Commission had erred as a matter of law by refusing to authorize an abandonment retroactively. Assuming this was the true purport of the decision below, we believe the Court of Appeals lacked chanroblesvirtualawlibrary
We need not determine whether § 7(b) allows the Commission to approve an abandonment retroactively and disregard evidence of subsequent production. [Footnote 11] For the agency certainly did not abuse its discretion in declining to do so here. Authorizing abandonments retroactively would often deprive interested parties of the opportunity to be heard at a meaningful time and to present evidence on the likelihood of renewing gas production in the future. Thus, the Commission would be required to determine on a hypothetical set of facts what action it would have taken had an application been timely filed. Additionally, the jurisdictional status of all dedicated acreage would become uncertain, since the property would be subject to retroactive Commission pronouncements in the indefinite future. Frequent retroactive action would chanroblesvirtualawlibrary
also undermine the statutory scheme by creating an incentive for producers to delay seeking agency approval in the hope that they could later establish good faith. Given this potential for disruption of § 7(b)'s approval procedure, we believe it is within the Commission's discretion to reject good faith alone as a sufficient justification for determining whether the evidence available in 1966 warranted granting an abandonment. [Footnote 12]
Finally, respondents defend the judgment below on the ground that only the depleted shallow reserves underlying Butler B, as opposed to the newly discovered gas, were subject chanroblesvirtualawlibrary
to the approval requirements of § 7(b). In their view, the deliveries actually made in interstate commerce, rather than the certificates of public convenience and necessity, define the "service" that may not be abandoned without Commission approval. Although deliveries were once made from a reservoir approximately 2,900 feet deep, the "separate and distinct" gas from the deeper reservoirs was never delivered into interstate commerce. Thus, according to respondents, the current production is not subject to the requirements of § 7(b), even though the certificates of public convenience and necessity cover all reservoirs located on Butler B. [Footnote 13]
Our prior decisions compel rejection of this narrow statutory interpretation. In California v. Southland Royalty Co., we expressly agreed with the Commission that the "initiation of interstate service pursuant to the certificate dedicated all fields subject to that certificate." 436 U.S. at 436 U. S. 525 (emphasis added). And as the Court emphasized in Sunray Mid-Continent Oil Co. v. FPC, "once so dedicated, there can be no withdrawal of that supply from continued interstate movement without Commission approval.'" 364 U.S. at 364 U. S. 156, quoting Atlantic Refining Co. v. Public Service Comm'n, 360 U.S. at 360 U. S. 39. [Footnote 14] chanroblesvirtualawlibrary
Applying these principles, the Commission determined that all reserves underlying Butler B were dedicated to interstate commerce pursuant to the certificates it had issued in 1954 and 1963, see supra at 442 U. S. 534, and n. 6, and therefore were subject to the requirements of § 7(b). There being ample factual and legal justification for the Commission's conclusions, see Sun Oil Co. v. FPC, 364 U. S. 170 (1960), we hold that § 7(b) requires respondents to continue supplying in interstate commerce all gas produced from the leasehold until they properly obtain permission for abandonment.
Plaquemines Oil Gas Co. v. FPC, 146 U.S.App.D.C. 287, 450 F.2d 1334 (1971), merely held that, once the Commission chooses "to regard as being done that which should have been done," id. at 290, 450 F.2d 1337, it must apply this principle consistently within the same case. Finally, Highland Resources, Inc. v. FPC, 537 F.2d 1336 (CA5 1976), involved a producer that, relying on a published order of the Commission, failed to submit certain rate applications. After the agency changed its filing requirements, the producer promptly tendered the appropriate papers. The Commission nevertheless refused to give the application retroactive effect. The Court of Appeals set aside this aspect of the Commission's order, holding that a producer should not be penalized for its reliance on the agency's own pronouncements. There was no such reliance, however, in the present litigation. See n 4, supra.