Document: 489 U.S. 493 109 S.Ct. 1262 103 L.Ed.2d 509 NORTHWEST CENTRAL PIPELINE CORPORATION, Appellantv.STATE CORPORATION COMMISSION OF KANSAS et al. No. 86-1856. Argued Nov. 29, 1988. Decided March 6, 1989. Syllabus The issues for decision are whether a regulation adopted by appellee State Corporation Commission of Kansas (KCC) (1) was pre-empted the federal Natural Gas Act (NGA) or (2) violates Commerce Clause Constitution. Interrelated market, contractual, and regulatory factors have led interstate pipelines to cut back their purchases "old," federally regulated natural gas from producers at Kansas-Hugoton field. KCC found that cutbacks had caused an imbalance between underproduced Hugoton wells supplying overproduced intrastate resulting in drainage posed threat producers' correlative property rights field's common pool. To protect rights, providing entitlements assigned quantities would permanently be canceled if production were too long delayed. reasoned that, permanent cancellation underages alternative timely production, purchasers incentive run more out field thereby reduce existing underages, deter future restore balance In dismissing challenge appellant, pipeline having long-term contract gas, rejected contention NGA, which gives Federal Energy Regulatory (FERC) exclusive jurisdiction over transportation sale resale commerce, including pipelines' purchasing policies pricing practices. On judicial review, county court agreed not pre-empted, Supreme Court affirmed. Held: 1. Congress has exercised its power under Supremacy Art. VI Constitution pre-empt regulation, therefore judgment holding Commission's is Pp. 509-522. (a) does encroach upon marked comprehensive control, but, fact, regulates expressly left States. Section 1(b) NGA carefully divides up industry, conferring on FERC sales, but reserving States regulate, inter alia, "production gathering." Since latter phrase NGA's legislative history clearly establish Congress' intent interfere with States' traditional regulate production—and rates time—as means conserving resources ng KCC's represents precisely sort scheme intended leave within State's authority. find pre-emption merely because might affect purchasers' costs hence largely nullify such state authority, there can little any least incremental effect some market contractual situations. Northern Co. v. Comm'n Kansas, 372 84, 83 646, 9 601, Transcontinental Pipe Line Corp. Oil Bd. Mississippi, 474 409, 106 709, 88 732, invalidated regulations directed purchasers, distinguished. 510-514. (b) conflict regulating cost structures. Appellant asserted exists so direct it impossible comply both practices pricing. Moreover, Kansas' cancel prevent attainment FERC's goals, imposes no requirements pipelines, simply defines extract gas; will make own decisions mind; because, operates as spur greater low-cost intends, this congruous current goals. Further, purpose producers, plausibly related legitimate goal. rendered suspect fact worsen problems actually cancelled, since assumption likely increase implausible light supporting evidence record. 514-519. (c) §§ 7(c) 7(b) respectively require who sell commerce obtain certificate public convenience necessity obligate certificated continue "old" until authorizes abandonment. Plainly meritless appellant's argument producer's available reserves factor certification decision, work abandonment through noncompensable dedicated reserves, without approval undercuts process. authority encompasses only operators right law produce, settled Kansas. Nor merit stands obstacle objective sought attain when gave abandonment—assuring reliable source gas. That goal entirely harmonious regulation's aim assuring opportunity all underlying leases before exhausted. 520-522. 2. violate I, § 8, 522-526. amount per se unconstitutional economic protectionism, neutral face, regardless they supply markets, effects incident efforts waste rights. policy encourage takes expense producing costly disrupt improve efficiency. Although may fail result engender indirect speculative insufficient render unconstitutional. 522-525. invalid balancing test set forth Pike Bruce Church, Inc., 397 137, 142, 90 844, 847, 25 174, applies evenhandedly, producer supplies exercise congressionally recognized production. increasing excessive relation substantial interest controlling rights; possibility diversion impalpable override weighty interest. Appellant's claim must could achieved aims burdening establishing quotas line conception demand levels rejected, appellant challenged determination allowables identified nothing record adequately goals effectively different formula. P. 525-526. 240 Kan. 638, 732 P.2d 775 (1987), BRENNAN, J., delivered opinion unanimous Court. Harold L. Talisman, Washington, D.C., appellant. Frank A. Caro, Jr., Wichita, Kan., appellees. Michael R. Lazerwitz, Com'n, amici curiae, appellees, special Justice BRENNAN 1 appeal, we decide govern timing either We hold not. 2 * At issue Designed counterweight forces seeks amounts lost Northwest Central Pipeline Corporation, pipeline, argues business exerts pressure affects purchase mixes structures, impinges control commerce. also urges coerces give larger share other States, or, alternatively, causes market. 3 effort solve perplexing assigning protecting pool preventing limited resources. migrates high-pressure areas around shut-in (or slow-producing) low-pressure faster producing) wells. As consequence phenomenon single well exhaust entire pool, though belong many owners. Absent countervailing agreement among owners, low-pressure, heavily produced creates owner fast possible, order owners draining otherwise migration enable capture disproportionate A rush however, cause waste. For example, excess demand; drilled than necessary efficient pool; depleted way recover potentially mineral (in particular oil, recovered using reservoir energy often supplied associated reserves). See generally McDonald, Prorationing Production: An Economic Analysis, 57 U.Colo.L.Rev. 153 (1985-1986). 4 common-law rule capture, whereby owned whoever unchecked these twin perceived inequities strong disincentives conserve Ibid. response, like abandoned favor equitable directly statute prohibits waste, Kan.Stat.Ann. 55-701 (1983); directs "regulate taking sources inequitable unfair supply," 55-703(a) (Supp.1987); content concept obliging 5 "may produce portion currently satisfy demands, permit each developed lease ultimately approximately proportionately uncompensated cognizable separately-owned, parts thereof." 6 Pursuant statutory 1944 Basic Proration Order field, after finding impaired leases. &Par; (d)-(f), App. 9-11. object fix formula determining "allowables" level "each enabled . allowable underlies lease." 7; see ¶ (j), 17. end, monthly ceiling based estimates demand,1 assign individual keyed acreage served well's "deliverability," ability put into against (a increases wellhead pressure). Id., (g)-(l), 11-22. 7 allows tolerances account underproduction overproduction, variations If produces less accrues "underage." "overage." achievement should eventually depends occurring time compensate accrued underage overage.2 case constitutionality 1983 of, compensating for, vast use storage while needs elsewhere. 8 Prior amendment, provided reached six nine times allowable, depending adjusted deliverability well, readily reinstated time. (p), 23-24.3 Under scheme, become greatly underproduced, noncanceled totaling 204 billion cubic feet unreinstated 314 September 1, 1982. Juris. Statement 74a, 76a. It appeared seriously imbalanced, overages during same period. 128-130. This resulted combination interrelated factors. substantially five intersta e Central. These outside State. sixth major purchaser Power Light Company, buys 10 entered contracts oligopsonic. usually provide relatively low prices do contain "take-or-pay" provisions requiring pay minimum quantity irrespective delivery.4 made, gone considerable changes. Pierce, Regulation Federally Deregulated Market: Tragedy Commons Revisited, 73 Cornell L.Rev. 15, 18-20 (1987). Following period maintenance price ceilings (NGA), 52 Stat. 821, amended, 15 U.S.C. 717 seq., acute shortage 1970's prompted enact Policy 1978 (NGPA), 92 3352, 3301 seq. NGPA took sales "new" "high-cost" coverage 601(a)(1)(B), 3431(a)(1)(B), instead market-driven pricing, first high ceiling, later ceiling. 102(b), 3312(b) (new ceilings); 103(b), 3313(b) (high-cost 121, 3331 (elimination controls). Many responded availability new, higher priced deregulated committing themselves required them take-or-pay large part contractually reserves. When dwindled early 1980's, reduced low-priced included penalty. result, fell. effect, began immediate elsewhere—a practice facilitated paragraph (p) Order, permitted stored 11 time, dependent situations suffered cutback indeed accumulated overages. L.Rev., 47. Mesa Petroleum Company delivering 2.6 late Comm'n, 237 248, 252, 699 1002, 1008 (1985). 12 investigation. After conducting hearing, KCC, February 16, 1983, issued case, amending certain circumstances.5 det rmined causing producers. further reduced, deterred, restored 72a-75a.6 Mr. Ron Cook, member staff, explained his testimony never able change, benefit proportionate reserves: 13 "Correlative been being violated due unratable offsetting Future projection Field indicate[s] trend accumulating cancelled number years. 14 "There definite near end wells['] productive li[ves], tremendous physical inability underage. violation present Paragraph P basic order, reinstate manner volumes abandoned. "Therefore, staff's propos[ed amendment ] t begin reinstating making previously underage." 35-36; 16 Thus, new "instill field," 44, drainage, id., 49, prior exhaustion, 48.7 B 17 industry subject interlocking authorities. continues gas—gas already enacted excluded regulation—including most 1(b), 717(b), provides "the ., natural-gas companies engaged sale." entry certificates authorizing transport 7(e), 717f(e), exit service. 7(b), 717f(b). powers extend enforcing old now 104 106(a) NGPA, 3314 3316(a); terms resale, ensuring rates, affecting just reasonable. 5, 717c 717d; 601(a), 3431(a). mix pipelines. See, e.g., Corp., 44 61,222 (1988), aff'g 33 63,067 (1985) (finding various prudent). pipeline's sells see, Columbia Transmission 43 61,482 (1988) (average passed customers), comes "to wholesale flow delivery consumers." Maryland Louisiana, 451 725, 748, 101 2114, 2129, 68 576 (1981).8 18 carves role retain transportation, local distribution, distribution facilities, gathering gas." 19 Relying 90-93, 649-652, 601 (1963), proposition pre-empts matters grounds impermissibly requires NGA. rehearing, dismissed challenge, distinguishing purchasers; hand, "is interests promote orderly development functions reserved states exemption [NGA]. 16th anything refrain doing anything." 87a. petition District Gray County, change take "cause 'mix' miles away." 58a. But despite order's probable consequences held fell threatened allowables. 59a. affirmed ground. 1002 stated "obviously purchasers." 266, P.2d, 1017. Nevertheless, allowables, matter construed pertain production[, t]he rules thus violative [NGA], even indirectly caught backwash." 267, 20 vacated Court's judgment, 475 1169, 89 289 (1986), remanded consideration our (1986) (Transco )—a declared post-NGPA vitality Natural' ratably patterns. n. supra. remand, reaffirmed Transco, Natural, ground governed actions rather aimed primarily marketing, pre-empted. 645-646, 775, 780 noted jurisdiction, 486 1021, 108 1993, 100 225 affirm. II 21 Article law. Determining examine congressional intent. absence explicit language signaling pre-empt, infer where legislated comprehensively occupy leaving room supplement law, Rice Santa Fe Elevator 331 218, 67 1146, 91 L.Ed. 1447 (1947), conflicts both, Florida Lime & Avocado Growers, Inc. Paul, 373 132, 142-143, 1210, 1217-1218, 248 accomplishment execution objectives, Hines Davidowitz, 312 52, 67, 61 399, 404, 85 581 (1941). Schneidewind ANR Co., 485 293, 299-300, 1145, 1150-1151, 99 316 (1988); Louisiana Public Service FCC, 476 355, 368-369, 1890, 1898-1899, 369 (1986); Pacific Electric Resources Conservation Development 461 190, 203-204, 1713, 1721-1722, 75 752 (1983). States; scheme; 22 consider occupied Congress, intrudes continuing sold oversee mixes. 23 divided industry. "did envisage limit constitutional power. R ther contemplated specified Act." FPC Panhandle Eastern 337 498, 502-503, 69 1251, 1254-1255, 93 1499 (1949). Indeed, went far prescribe reach [federal] power, [to] specif[y] extend." U.S., 503, S.Ct., 1255. conferred authorities "over resale," 89, 649, things gas," is, acts drawing earth preparing stages distribution." 90, 650. 24 absent pre-emptive legislation curb prorating operating Champlin Refining Oklahoma, 286 210, 559, 76 1062 (1932); Thompson Consolidated Utilities 300 55, 364, 81 510 (1937). allocate scarce resources" remained enactment system dual established Act. 93, 651. gathering" sufficient reserve "control drilling spacing like," Colorado Interstate FPC, 324 581, 603, 65 829, 839, 1206 (1945), time—a key element, all, event, explored length Eastern, supra, makes plain regard. Solicitor (FPC), predecessor FERC, assured earlier bill similar did "not attempt rates" purely concern. Hearings H.R. 11662 Subcommittee House Committee Foreign Commerce, 74th Cong., 2d Sess., 34 (1936); 505, 7, 1256, 7. And generally, replete assurances "takes [regulatory] commissions: time," Cong.Rec. 6721 (1937); 509-512, 1258-1260, 15—power proration aid conservation protection rights.9 considering moved naturally remember express jurisdictional limitation contained Cf. 370, 1899. section fences off "language certainly sweeping wording provision declaring [FERC's] role." "was designed Neither nor body other." 513, 1260 (footnotes omitted). avoid encroachment careful "by extravagant mode interpretation push granted include production." 513-514, 1260. 26 occupies engage scope behavior exercising sure, specifically used period, expected structures rates. one element scheme. strange allow measures prorate furtherance that—because enforcement rates—it intend enforce encouraging actual analyzing lines drew system, conclude 27 By paying attention distinguish mainly relies.10 those cases impinged 91-93, 650-652; 422-424, 717-718. ratable-take orders "invalidly invade[d] agency's domain" "unmistakably unambiguously 92, 651 (emphasis original).11 operate buying transporting another, inevitably Likewise considered survived deregulation au hority expressed unregulated forces—continued forcing 28 crossed dividing drawn retained trespassing territory imposing contrary, rights—a firmly side line. affected leaves brighter line, considerably favorable retention resources, 29 inform Government "has unitary enterprise." East Ohio 338 464, 488, 70 279, 94 268 (1950) (Jackson, dissenting). inevitable "jurisdictional tensions [will] arise [state elements coexist within] integrated system," 375, 1902—particularly contracts, binding rate takes. frequently appear form regulation. Were treated triggering pre-emption, thoroughly undermine division much trouble specific grant pr duction virtually meaningless. 30 conflict-pre-emption analysis applied sensitively area, diminution preserving role.12 conflicting law; prevents goals; impact achieve proper purpose. Pipeline, 308-309 [108 1155]. pre-emption; persuaded nature (p)'s relationship pre-emption. 31 pricing.13 argue, Though hopes redefinition increased costs, potential clear laws defining rights—not automatically supersede them. Supra, ---- - ----. Thus assures us old-gas oversight prudence purc ase mix, recognize environment conducts business, mind. Brief United Amici Curiae 21-22.14 There circumstances extensive disruptive accommodation appears goals.15 32 interplay not, mere guise S.Ct, 1155] (holding "whose central regulate"). influence however labeled. Such demands accommodation. Where impacts subjects chosen avowed adopting traditionally pursued KCC—threatening field—was nd staff cogently how believed likelihood nevertheless suggests suspect, cancelled. 30; Reply 5. true canceled, suffer meliorative suggesting response possible harmed SeeNorthwest 261-262, 1014. implausible, although "controverted, support [it]." 780.16 cannot lacks purpose, weakly C 35 717f(c), FERC. Act, 717f(b), obligates McCombs, 442 529, 2461, 54 (1979); California Southland Royalty 436 519, 523-524, 98 1955, 1957-1958, 56 505 (1978).17 eliminated remains control.18 claims are, first, service, process; and, second, lead operated effectuating 36 Insofar pursuant fully occupied, plainly meritless. assumed occur belief proves optimistic. governs squarely 1(b). 510-511. necessarily produce. premise—that approval—thus fails conclusion draws, exactly what producible given moment consist question assignment allowables.19 37 interpreted abandonment—"to assure Mc- Combs, 536, 2466. Unless damage accommodate Here, seeking ensure exhausted, reasonably extracted enter III 38 Clause. Its protectionism. contends whatever reactions benefit, If, han , then unable accrued. Alternatively, asserts Clause, struck down application 174 (1970). persuades us.20 39 "virtually invalidity" "simple protectionism," Philadelphia New Jersey, 437 617, 624, 2531, 2535, (1978), protectionism "directly discriminates in-state out-of-state interests," Brown-Forman Distillers York Liquor Authority, 573, 579, 2080, 2084, 552 (1986). Minnesota Clover Leaf Creamery 449 456, 471-472, 715, 727-728, 66 659 (1981). neutral, respect unlike Pennsylvania West Virginia, 262 553, 658, 1117 (1923), meet consumers se, effects. 40 incident, rights—under saved 717(b),—by setting Any encouragement purchaser's reacts situations, regulations. point 1(b)'s reservation repercussions arena meant constitutionally orders. prepared meaningless saving dormant deciding whence Prudential Ins. Benjamin, 328 408, 421-427, 1142, 1150-1154, 1342 (1946) (recognizing specify action Clause). 41 according ----, 15. "It operation [paragraph agencies conformity [NGA NGPA]." Parker Brown, 317 341, 368, 63 307, 322, 87 315 (1943). Parker, agricultural "greater kind programs authorized statutes." congruity, "say program Congressional preclude domestic here. 42 threatening cancellation, consequence, corrective events turn pure speculation, cf. Distillers, 583, 2086, contingent multitude regulatory, factors, economically beneficial disregard supported record, markets follow unwanted, unexpected, incidental endeavor service strike basis "would accomplish effective intended, prejudice interests. compelled Constitution." Michigan 341 329, 337, 71 777, 781, 95 993 (1951). Even unconstitutional, pass muster outlined Provided "regulates evenhandedly effectuate interest," "and incidental, upheld unless burden imposed putative benefits." 847. regard paragraph's granting "clearly excessive" likewise reject Central's Pike, levels. 19, identifies proceeding adequate approach calculating demand. neither Constitution, 45 Affirmed. determines twice year "reasonable, consumption ithout six-month open series nominations requirement requests Lungren, 251, 257-258 (1985-1986) itself bound treat measure process compensatory case: "When relative becomes higher. condition occurs area component deliverability, differences allowable. produced, drops below occurs. drop decreased decrease technique utilized keep pull." 1007 (1985), remanded, " 'will verified therefore, showing status; willing proposed applicant reasonable circumstances.' 24. Take-or-pay "essentially requir[e] [pipelines] accept percentage [is] capable producing, duration. sellers fluctuations cash thought investment development." 412, 712, ). Feb. 63a-80a, aff'd Apr. 18, 81a-92a. explained: "The amendments dispute here divide three categories: January 1975; 1975, December 31, 1982; (3) categories [KCC] met reinstated. pre-1975 underage, reinstatement 1983. 1975 1982 requested 1985. 1982, years date apply reinstatement. request 1974, status. reinstated, allotted permanently. sixty months 253, 1008-1009. amended again, easier buyer made status, identify removed enhance participate "spot" Sept. 1987, Appellee 7a-16a. difficult administer statutorily defined goals: "In future, practically ascertain relate backward perpetuity. Some benchmark field." explain precise rights—as opposed explanation offered quoted text—foundered misconstruction apparently time." 73a. Because varies pressure, 2, operator's falls 73a 75a; 128-129. uniformly shares allowables—and occur. view desirable depended inhere life disapproved construction case. 256-257, 1010-1011. held, though, error conform definition (and workable so, "force equal 257, 1011). Instead, decided, conformed leases, 1011, reasons Cook testimony, 261-263, 1014-1015. 'utility-type ratemaking' supplies," 420, 716. affirmative high-cost compromise transactions," 300, 1151, Transco supply, demand, determined still 422-423, 716-717. demonstrates viewed NGPA. Chairman told "does contemplate intrude performed states. who, historical powers, rates." 124 38366 (1978). position Schneidewind. Michigan's securities exclusively domain. However, companies, purposes level, 306-309, 1153-1155. Unlike here, said alternatives purchaser-directed, checking taking, mentioned "proration producers." 94-95, 12, 652-653, 12. applied, sphere acted sphere. declined FCC depreciation faced situation. involved practices, explicitly denied jurisdiction. 374, 1901. foreseen resolve tensions. 1902. circumstances, lacked act very claiming event mechanism resolving conflicts, place. argued agency sphere, Only applying schemes degree harmony. brief conceivably prudent-purchasing requirements. 14, infra, reason: obligations obviously "impossible" prudent, prompt faulty two reasons. First, prudent preserve filling implies imprudent Second, presupposed p. 61,825. text, environment. ruling purchased says about quite changing whose committed wish elsewhere, attempting access systems buyers. 4-5, 23. Changes litigation tend confirm relaxed provides: "No company shall abandon facilities Commission, permission obtained, extent continuance unwarranted, ch abandonment." "beyond argument" proscription abandoning "any service" sale" 385 83, 87, 265, 268, 181 (1966), "simply admit exception procedure." 104, 106(a), 601(a) 3314, 3316(a), 3431(a), "gas November 1978, remain 9, 2466, 9. premise false, conclusion, wellhead. 24-25. need contention. asserts, discriminated demands. overproduce create favor; cement discrimination obtaining drainage. note, Court, set, calculation

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