Court Opinion

ID: 9420421
Source: CourtListenerOpinion
Date Created: 2023-08-02 22:54:26.121434+00
Date Added: 2024-06-11T16:46:17.918047
License: Public Domain

Mr. Justice Jackson,
whom
Mr. Justice Frankfurter joins, dissenting.
If this were a case of applying an explicit policy of Congress to one recalcitrant gas company, there would of course be no dissent. But if it were such, we would not be likely to find the State of Ohio and her Utility Commission, the National Association of Railroad and Utility Commissioners, and public authorities of several states, including some with notable records for protecting the public interest, here helping the utility. This alliance of state authorities against the Federal Power Commission suggests that there must be more to this case than meets the eye.
The key to an understanding of the Federal Natural Gas Act is its purpose to supplement but not to supplant state regulation. Before passage of the Act, each state was able to regulate the ultimate price of natural gas distributed to its consumers. Pennsylvania Gas Co. v. Public Service Comm’n, 252 U. S. 23. This Court has never denied any state that power. But in doing so they were obliged to allow as operating costs what the distributing *477company paid for the gas when brought into its system from out of the state. This purchase price the state could not regulate, often not even investigate, and the purchases frequently were from affiliates, a fact which might cool the local company’s normal zeal to drive a good bargain for itself and its consumers. Hence, the states appealed to Congress to set up machinery to fix the import price of out-of-state gas. This was all that the states asked the Federal Government to do, and it is everything that the Federal Power Commission revealed any purpose to do while the legislation was pending. Its Solicitor summarized the purposes before a subcommittee of the House Committee on Interstate and Foreign Commerce, as follows: “The whole purpose of this bill is to bring under Federal regulation the pipe lines and to leave to the State commissions control over distributing companies and over their rates, whether that gas moves in interstate commerce or not.” Hearings Before a Subcommittee of the House Committee on Interstate and Foreign Commerce on H. R. 11662, 74th Cong., 2d Sess., 24. That is what the state authorities active in promoting the legislation seem to have believed had been accomplished.
East Ohio is an all-Ohio company, deriving income solely from distributing gas directly to Ohio consumers. It sells no gas for resale. All of its assets are located and all of its business is transacted in Ohio. Since 1911, the Ohio State Commission has exercised regulatory powers over it which have included rate-making, authorizing acquisition of sale of property, approval of capitalization and security issues, complete control of accounting practices and requiring detailed periodic reports. Except for inability to fix the price at which gas should be delivered to the company at the state line, Ohio is able to supervise and regulate this utility completely and continuously.
The Federal Power Commission, as authorized by the Act, fixed the state-line price that East Ohio must pay *478for its out-of-state supplies. But now it seeks to go beyond this and superimpose some features of its regulation which conflict with the regulation of the identical subject matter by the State of Ohio. How much farther than the order here under review the Commission will go in supplanting or duplicating state regulation is not clear from its argument, and how far it can go is rendered unclear by the Court’s opinion which expressly approves some overlapping but leaves its bounds in carefully stated doubt. The anxiety which this program stirs among other states is explained by its magnitude. The Power Commission in its petition here notes forty-three pending cases in which it takes this same position vis-á-vis state regulation.
It appears that the present particular issue arises because the Commission has theories of accounting different from those the state has seen fit to accept. The Federal Commission has ordered East Ohio to change its entire accounting system for all of its properties at a very heavy cost. This requires it either to conduct its accounting contrary to laws of Ohio and the orders of the State Commission or perhaps to keep two sets of books. This is a real conflict in which experience shows state control will wither away and leave the federal rule in possession of the field.
This Court can sustain such overlapping and overriding of the state’s authority only by repudiating its own recent statements. After reviewing the history of the Natural Gas Act, we have said that “Congress meant to create a comprehensive scheme of regulation which would be complementary in its operation to that of the states, without any confusion of functions.” Public Utilities Comm’n v. United Fuel Gas Co., 317 U. S. 456, 467. In a later case, quoting H. R. Rep. No. 709, 75th Cong., 1st Sess., we said that “the bill was designed to take 'no authority from State commissions’ and was 'so drawn as *479to complement and in no manner usurp State regulatory authority.’ ” Federal Power Comm’n v. Hope Natural Gas Co., 320 U. S. 591, 610. Quoting the same House Report, we thereafter pointed out that “the ‘basic purpose’ of Congress in passing the Natural Gas Act was ‘to occupy this field in which the Supreme Court has held that the States may not act.’ ” Interstate Natural Gas Co. v. Federal Power Comm’n, 331 U. S. 682, 690. And only last year we observed that, “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.” Federal Power Comm’n v. Panhandle Eastern Pipe Line Co., 337 U. S. 498, 513.
What defines the point beyond which the provisions of the Act shall not apply? The Court suggests that there is an inherent limitation on the affirmative grant of power which would render surplusage the clause in § 1 (b) denying application of the Act to “the local distribution of natural gas or to the facilities used for such distribution.” Or it may be this exclusionary clause itself. At any rate, the Court finds the dividing line of jurisdiction to be drawn by physical characteristics of the transmission lines. It seizes upon the point where the high pressure at which gas is transmitted any substantial distance is reduced to the low pressure at which it must be served to customers’ burners through the community supply lines as the outer limit of the “local” area reserved to the states.
Recognizing the purpose of the Federal Natural Gas Act of June 21, 1938, to regulate only that which was unregulated and unregulatable by the states, the Court assumes that decisions prior to its passage, “not what we have since decided or would decide today,” fix the states’ power for the purposes of measuring that of the Commis*480sion. The Court has heretofore followed the principle that Congress does not intend to freeze the impact of its legislation within current judicial decisions in the absence of evidence which makes such intention unmistakable. United States v. South-Eastern Underwriters Assn., 322 U. S. 533. But today it makes no effort to look for evidence of such an intention and had it searched it would not have found it. Cf. Helvering v. Griffiths, 318 U. S. 371; Parker v. Motor Boat Sales, 314 U. S. 244.
Today’s anomalous result whereby the Commission is given regulatory power over the intrastate distribution facilities of a gas company over whose sales it admittedly has no jurisdiction is based upon the premise that paramount in Congress’ mind in dealing with cases prior to passage of the Act, was, not the holdings of applicable cases relating to regulation, but the peculiarly mechanistic formula employed principally in 1931 in East Ohio Gas Co. v. Tax Comm’n, 283 U. S. 465,1 as a means of holding that the State' of Ohio could levy an excise tax based on the entire gross receipts from sales to local consumers by an interstate gas company.
I find no convincing indication, either in the language of the Act or in its legislative history, that Congress intended that we should be forever bound, in construing this legislation, either by the then current decisions as to limitations of the Commerce Clause on state power, cf. United States v. South-Eastern Underwriters Assn., supra, or by the then current criteria of what separated local from nonlocal facilities. The crucial question is not whether this Court in 1931 would have held a given *481factual situation without the area of local distribution and beyond the reach of state regulation, but whether this Court today can say that the federal power can be exerted because the state power cannot be exerted. So long as we pay even lip service to Congress’ intention to leave to the states that which they can regulate, we cannot satisfactorily beg this question.
But even if the Court is to shift to the doctrine that Congress casts its Acts forever in the mold made by prior decisions of this Court, the pressure-reduction station now relied upon to limit “local” had lost its standing even in tax cases and never was accepted in regulation cases. If Congress was interested in tax case criteria when it passed the Natural Gas Act, it must have known of this Court’s disdainful disregard of pressure changes in favor of emphasis on the difference between wholesale and retail distribution less than half a year after the East Ohio tax decision. State Tax Comm’n v. Interstate Natural Gas Co., 284 U. S. 41.2
And yet, although the Committee Reports and the records of congressional debates on the Natural Gas Act may be scanned in vain for any mention of this pressure-reduc*482tion point, we are now asked to believe that Congress fixed it as the point where state control should end and federal control should begin. With this approach, today’s decision confines the states’ regulatory power to the service area, bounded by the low-pressure transmission system, which means practically within the city gates. By its emphasis on this pressure change the Court finds a plain congressional grant of Commission jurisdiction over high-pressure pipe lines such as those of East Ohio. However, this pressure factor is one which we found immaterial in Interstate Natural Gas Co. v. Federal Power Comm’n, supra, 689, where, with rare unanimity, we put our emphasis upon the fact of sale for resale in interstate commerce. But today it is the difference between retail and wholesale operations which is termed immaterial, so long as the factor of high-pressure pipe lines is present.
This shift in emphasis rests upon inferences drawn from the legislative history of the Natural Gas Act which are wholly inconsistent with those drawn in our prior decisions examining the subject. Heretofore we have been careful consistently to observe that Congress did not attempt to occupy the entire field within the limits of its constitutional power, and until today we have insisted that in extending federal regulation Congress “was meticulous to take in only territory which this Court had held the states could not reach.” Panhandle Eastern Pipe Line Co. v. Comm’n, 332 U. S. 507, 519. We said only two years ago in that case that “by 1938 the Court had delineated broadly between the area of permissible state control and that in which the states could not intrude. The former included interstate direct sales to local consumers, as exemplified in Pennsylvania Gas Co. v. Public Service Comm’n, 252 U. S. 23; the latter, service interstate to local distributing companies for re*483sale, as held in Missouri v. Kansas Gas Co., 265 U. S. 298, reinforced by Public Utilities Comm’n v. Attleboro Co., 273 U. S. 83.” And we went on to say that the purpose of the legislation was to make state regulation effective “by adding the weight of federal regulation to supplement and reinforce it in the gap created by the prior decisions.” Id., pp. 514, 517. And see Interstate Natural Gas Co. v. Federal Power Comm’n, 331 U. S. 682, 689; also, Federal Power Comm’n v. Hope Natural Gas Co., 320 U. S. 591, 609, quoting from Illinois Natural Gas Co. v. Public Service Co., 314 U. S. 498, 506. We could hardly have said more clearly that the “gap” was in the wholesale realm of the natural-gas industry in interstate commerce.
The Court’s opinion professes to adhere to these statements relating to the gap Congress intended to close. But it first widens the gap, squarely upon the premise that, under decisions of this Court called to Congress’ attention prior to passage of the Act, the state regulatory power could not reach transmission lines for interstate gas outside the point of reduction in pressure. Actually, no decision could have been called to the attention of Congress, and none is or can be cited today, in which this Court held that any of the intrastate transmission lines of any retail gas, electric or similar company, within or without the pressure-reduction point, were beyond the state regulatory authority. Nor was this question even at issue in any case cited by the Court in support of its premise. That is not to say that the question was not considered, however. Quite to the contrary, less than two months before passage of the Natural Gas Act, this Court, through the pen of Mr. Chief Justice Hughes, in a case not cited by the Court, declared that such transmission lines were properly within the sphere of state rate-making powers. Lone Star Gas Co. v. Texas, 304 *484U. S. 224.3 And so if Congress were consulting the decisions of this Court to define the gap in state power, which it must fill with the Commission’s function, it found the latest, and all but unanimous one, to declare that no gap such as the Court perceives today was then existent.
Although the scope of the Natural Gas Act was not limited to sales of natural gas in interstate commerce for resale, it must be recognized that, if any one thing is clear from the legislative history of this Act, it is that Congress’ paramount concern was to establish regulation of such prices.4 And it must likewise be recognized that what*485ever of our old doctrines may have been frozen into the Act could not include the point of pressure reduction and entrance into municipal lines as the measure of state regulatory authority, for no such doctrine can be found in our cases.
Thus it is apparent that in selecting the point to mark either the inherent limitation in the Act’s affirmative grant of power to the Commission, or the corollary limit imposed by the clause excluding facilities used in local distribution, the Court has resorted to criteria neither *486supportable by this Court’s decisions prior to the Act nor even claimed to be consistent with its most recent doctrines.
But if the pressure-reduction point cannot be resurrected from the East Ohio tax case to bound the facilities used in the local distribution of natural gas in interstate commerce, what criteria can we employ? It is not as though a simple, unsophisticated answer were not available. It seems to me that the obvious answer is that intrastate transmission lines of a retail gas company devoted exclusively to serving communities within the state are facilities used in the local distribution of natural gas and are accordingly excepted from application of the Act. For it must not be forgotten that if justification for today’s decision cannot be found in § 1 (b) of the Act, it cannot be established by resort to the language of those sections defining the Commission’s powers. For § 1 (b) is jurisdictional. It sets forth the areas to which the provisions of the Act shall and shall not apply. Its “but” clause was Congress’ assurance to the state bodies sponsoring the legislation that federal control would not extend to the area within their authority. Cf. Connecticut Light & Power Co. v. Federal Power Comm’n, 324 U. S. 515, 527.
This simple solution squares not only with modern standards, but also with the approach, if it is to be adopted, that Congress in passing this Act froze into law current judicial decisions. It keeps faith with the states. It is decidedly consistent with our recent declaration under the almost identical words of a similar Act that limitation of local facilities was not to be found in the East Ohio tax formula, and that even the transmission lines of a state-wide system supplying electric power to consumers in over a hundred communities are “facilities used in local distribution.” Connecticut Light & Power Co. v. Federal Power Comm’n, supra.
*487Of course, this solution does not render meaningless the “transportation of natural gas in interstate commerce” to which the provisions of the Act apply. For instance it would logically enough give to the Federal Power Commission, under the above “transportation clause,” exclusive jurisdiction over the main transmission lines of a retail gas company which ran through Ohio and on into New York; but it would leave to Ohio exclusive jurisdiction over lateral lines branching out from the main trunk in Ohio and, whether one or one hundred miles long, devoted exclusively to delivering gas to the burner tips in Ohio communities. Similarly, under the hypothesis constructed in the Court’s opinion, wherein East Ohio is pictured as having its own transmission lines extending all the way from Texas, it would give exclusively to the Power Commission jurisdiction over those lines beyond the Ohio border as well as over those within or without the state not devoted exclusively to serving Ohio consumers at retail. Again, it would, quite obviously within the words of the Act, give exclusively to the Power Commission jurisdiction over companies which might act in the nature of common carriers transporting gas in interstate commerce for hire. In short it would give to the transportation clause a meaning which, contrary to today’s opinion, does not render surplusage the “sale in interstate commerce of natural gas for resale” to which the provisions also apply.5
*488What the Power Commission asks the Court to do today is not to fill a gap in the state’s power to regulate, for there is none, but to create a gap in order to make room for federal power.
I can well understand the zeal of the Federal Power Commission to expand its control over the natural gas industry. It sprawls over many states and each system must be physically integrated from the depths of the wells to the consumer’s burner tips. Its regulation cannot be uniform if the Federal Commission controls only a middle segment, with production on one end and distribution on the other committed to the control of different states. But that was as far as Congress was willing to supersede state authority. It left the peculiar problems affecting production to the producing states, it left the ultimate protection of consumers to the consuming states, and it left the Federal Power Commission in the middle to fix the rates for gas moving between the two. This obviously subdivides regulation of what has to operate as a unitary enterprise, but that is often the consequence of our federal system. Whatever we may think would be wise policy in this field, the Act which Congress passed places limitations upon the Power Commission, which may chafe but which neither we nor the Commission are free to override. If the Commission had foreshadowed its present course, I do not suppose the Act would have passed, for it certainly would have evoked resistance of the state regulatory agencies instead of their support.
Congress may well have believed that diversity of experimentation in the field of regulation has values which centralization and uniformity destroy. As Mr. Justice Brandeis said, “It is one of the happy incidents of the federal system that a single courageous State may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.” New State Ice Co. v. *489Liebmann, 285 U. S. 262, 311. Long before the Federal Government could be stirred to regulate utilities, courageous states took the initiative and almost the whole body of utility practice has resulted from their experiences.
We must not forget that regulatory measures are temporary expedients, not eternal verities — if indeed they are verities at all. Certainly one of the matters on which the states might well be indulged — the right to an opinion of their own — is as to the accounting methods of a utility whose whole property and business being accounted for is within the state. Out of their diversity of practice and experience emerge pragmatic tests. What the Federal Power Commission seeks to require of this Ohio gas company, for example, is to revert by accounting methods to emphasis on original cost, a basis which William Jennings Bryan for an earlier generation of progressives eloquently urged this Court to reject in the field of railroad rate-making. Smyth v. Ames, 169 U. S. 466. See Mr. Bryan’s argument, p. 489. That is a basis of which, last month, we said in another connection, “Original cost is well termed the ‘false standard of the past’ where, as here, present market value in no way reflects that cost.” United States v. Toronto Navigation Co., 338 U. S. 396, 403. It must be remembered that closer than any federal agency to those they regulate and to their customers are the state authorities, whose mechanisms are less cumbersome and whose principles can much more quickly be adjusted to the changing times.
We should not utilize the centralizing powers of the federal judiciary to destroy diversities between states which Congress has been scrupulous to protect. If now and then some state does not regulate its utilities according to the federal standard, it may be a small price to pay for preserving the state initiative which gave us utilities regulation far in advance of federal initiative.
*490I think that observance of good faith with the states requires that we interpret this Act as it was represented at the time they urged its enactment, as its terms read, and as we have, until today, declared it, viz. to supplement but not to supplant state regulation. What amounts to an entrapment of the state agencies that supported this Act under the representation that it would not deprive them of powers but would only make their powers effective will probably not make it easier to get needed regulatory legislation in the future.

 In the East Ohio tax case the reduction of pressure and expansion of volume of the gas at the point of entrance into local supply mains was compared to the breaking of an original package after shipment in interstate commerce, so that its contents could be treated, prepared for sale and sold at retail.

 The question before the Court concerned the power of the State of Mississippi to tax wholesale operations of an interstate pipe-line company. Curtly dismissing the State’s arguments resting on the fact that the gas pressure had been reduced before the sale for resale, the Court held, as succinctly stated in the headnote: “The selling of gas wholesale to local, independent distributors from a supply passing into and through the State in interstate commerce, does not become a local affair and subject to a local privilege tax merely because the vendor, to deliver the quantities sold, uses a thermometer and a meter and reduces the pressure.” In its argument to the Court, 284 U. S. at p. 42, the State had presented the analogy of pressure reduction to the breaking of an original package shipped in interstate commerce, cf. note 1, supra. State Tax Comm’n v. Interstate Natural Gas Co., 284 U. S. 41.

 In the Lone Star case this Court examined the validity of an order of a Texas commission fixing the rate to be charged by the Lone Star company for gas sold to local distributing companies at the gates of numerous Texas communities. Most of the Lone Star gas was piped from fields in the Texas Panhandle, but across a segment of Oklahoma. A small amount was produced or purchased in Oklahoma, piped into Texas, treated, and added to the local supply. Thus commingled beyond separate recognition, both types of gas were conducted through high-pressure lines and sold to the various retail distributing companies. Because of the interrelated corporate structure of Lone Star and these distributing companies, the Court treated them as one operating unit, and approved the state’s exercise of its rate-making power based upon valuation of the entire integrated system.

 H. R. Rep. No. 709, 75th Cong., 1st Sess. 1-2, adopted without change in S. Rep. No. 1162, 75th Cong., 1st Sess. 1-2, said of the proposed bill which became the Natural Gas Act: “. . . The States have, of course, for many years regulated sales of natural gas to consumers in intrastate transactions. The States have also been able to regulate sales to consumers even though such sales are in interstate commerce, such sales being considered local in character and in the absence of congressional prohibition subject to State regulation. (See Pennsylvania Gas Co. v. Public Service Commission (1920), 252 U. S. 23.) There is no intention in enacting the present legislation to disturb the States in their exercise of such jurisdiction. However, in the case of sales for resale, or so-called wholesale sales, in interstate commerce (for example, sales by producing companies to distributing companies) the legal situation is different. Such transactions have been considered to be not local in character and, even *485in the absence of Congressional action, not subject to State regulation. (See Missouri v. Kansas Gas Co. (1924), 265 U. S. 298, and Public Service Commission v. Attleboro Steam & Electric Co. (1927) 273 U. S. 83.) The basic purpose of the present legislation is to occupy this field in which the Supreme Court has held that the States may not act.”
Congressional debates on the bill were similarly concerned with those aspects of the natural gas industry over which no state regulatory control existed. These debates were led, in the House, by Chairman Lea of the Committee on Interstate and Foreign Commerce, and, in the Senate, by Chairman Wheeler of the Committee on Interstate Commerce. In his explanatory statement the former declared, “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.” 81 Cong. Rec. 6721. And he added later, “The object of this bill is to supply regulation in those cases where the State commission has no power to regulate.” Ibid. Committee member Halleek assured the House that “this bill seeks only to reach those sales where the sale is for resale to the ultimate consumer.” Id., 6723. And in the Senate, Chairman Wheeler declared: “There is no attempt and can be no attempt under the provisions of the bill to regulate anything in the field except where it is not regulated at the present time. It applies only as to interstate commerce and only to the wholesale price of gas.” 81 Cong. Rec. 9313.
Neither the East Ohio case nor its mechanistic formula was emphasized or even adverted to in the Committee Reports or in the congressional debates.

 The suggested construction also comports with the conclusions of the House and Senate Committee reports, H. R. Rep. No. 709, 75th Cong., 1st Sess. 3, and S. Rep. No. 1162, 75th Cong., 1st Sess. 3: “That part of the negative declaration stating that the act shall not apply to ‘the local distribution of natural gas’ is surplusage by reason of the fact that distribution is made only to consumers in connection with sales, and since no jurisdiction is given to the Commission to regulate sales to consumers the Commission would have no authority over distribution, whether or not local in character.”