Opinion ID: 313092
Heading Depth: 1
Heading Rank: 3

Heading: Jurisdiction to Set Rates for the Transmission of Liquid Hydrocarbons

Text: 22 The Commission's regulatory authority in this area comes solely from the Natural Gas Act, which provides in relevant part that [t]he provisions of this Act shall apply to the transportation of natural gas in interstate commerce . . . . 14 The Act defines such natural gas as either natural gas unmixed, or any mixture of natural and artificial gas . . . . 15 This definition has been construed to mean a mixture of gaseous hydrocarbons found in nature. 16 23 The common thread running through all statements and interpretations of Commission jurisdiction is that its authority extends solely to natural gas and that natural gas is, as the name implies, gaseous and not liquid petroleum. There is no intimation in either the Natural Gas Act or decided cases that the Commission should be empowered to regulate the transportation of liquids. 17 In the past, this distinction between Commission jurisdiction over natural gas and absence of jurisdiction over liquids has been observed by both the Commission and the courts. 24 In the Commission's decision in Phillips Petroleum Co., 18 the Commission concluded that the operation of a gasoline plant was nonjurisdictional and that the production of liquids was not a mere incident to the selling of gas. In the context of pipeline transportation, the distinction between the commodities was similarly recognized by this court's opinion in Mid-America Pipeline Co. v. FPC. 19 In that case a party claimed that a liquid extraction plant was subject to the Commission's jurisdiction because the facility was used as a conduit through which gas was transmitted. We rejected this argument and stated that the Commission was not required to exercise jurisdiction over the extraction operations. 20 Of particular relevance here, we noted that the interests of the gas consumer could be adequately protected by allocating costs between the operations over which the Commission had jurisdiction and those which it did not. 21 25 The several cases cited by the Commission do not support its assertion of jurisdiction over liquids. 22 In Permian Basin Area Rate Cases 23 the Supreme Court merely affirmed the Commission's assertion of jurisdiction over a gaseous stream of casinghead gas which included entrained liquids in a non-liquid form. Since this product was not a liquid at the time of production, Permian is neither decisive nor relevant here. 26 In FPC v. Louisiana Power & Light Co. 24 the Supreme Court simply upheld the Commission's jurisdiction over the pipeline company's transportation of natural gas; the Commission was not setting rates for that commodity. The Commission has always had the power to regulate natural gas being transported in interstate commerce; this case does not constitute an expansion of the FPC's jurisdiction and is of no help to the Commission here. 27 The pipeline rate cases 25 cited by the Commission in its brief, far from supporting its position, show that the creation of rates over liquids is not the proper way to protect the gas consumer's interests, rather that the method of allocation of costs is satisfactory. None of these cases endorse the establishment of mandatory minimum rates for services over which the Commission has no jurisdiction. 28 The Commission essentially argues that it has jurisdiction here because the transportation of liquids is part of a total transaction that includes the transportation of natural gas. As this court has noted, however, Congress did not give the FPC carte blanche to take whatever action it might consider appropriate in furtherance of the objectives of the Act. 26 The Commission cannot gain jurisdiction over an activity simply by characterizing it as part of a total transaction of which another part happens to be subject to the FPC's control. The Commission has jurisdiction over sales of natural gas at the wellhead for resale in interstate commerce. 27 Acceptance of the FPC's argument would inevitably lead to the conclusion that the Commission has and must exercise jurisdiction over similar wellhead sales of oil merely because oil and gas are ordinarily produced simultaneously from a single well. We expect the Commission would recoil from that logical extension. 29 The separable nature of gas and liquid transportation is quite obvious. Even the rates set by the Commission indicate the differing character of the activities -transportation rates for gases and liquefiables are expressed in Mcfs, while rates for liquids are expressed in barrels. The commodities differ in form, substance, metering, accounting, and all other incidents of distinct, separable commodities. 30 We do not ignore the need to assure that users of gas are not asked to pay for the transportation of a commodity they are not using. We recognize that the Commission must have some mechanism to assure that injustice does not result. The proper method is not, however, to extend the Commission's jurisdiction beyond that granted by Congress. 31 We are not confronted with a case where the Commission has demonstrated that rate jurisdiction over liquids is necessary to preserve its rate jurisdiction over natural gas. Under the statute as written, in the last analysis such assertion would have to be presented to Congress, but we think it important to bring out that the necessity has simply not been demonstrated on this record. The Commission has never stated why it concludes that the well-established practice of allocation of costs between liquids and gas has suddenly become inadequate. The Commission indicates that some kind of national approach is necessary. But there could be a system of allocation that is national in its coverage and reach. Under a properly administered allocation system, the service attributable to other commodities would not be allocated to the cost of gas. Under this method the dichotomy contemplated by the Act would be preserved, just as it has been in the numerous prior cases under this statute in which similar questions have arisen. 28 32 For the foregoing reasons, we set aside Order No. 449 insofar as it covers the transportation of liquids. It is clear, however, and appellant does not contest, that the Commission has the authority to set rates for the transportation of liquefiable hydrocarbons. We must, therefore, inquire further into the lawfulness of those rates as established in this proceeding. 33