Court Opinion

ID: 9449638
Source: CourtListenerOpinion
Date Created: 2023-08-04 16:17:36.731232+00
Date Added: 2024-06-11T17:31:55.130499
License: Public Domain

RIVES, Circuit Judge
(dissenting).
As shown in 15 U.S.C.A. § 717(b), quoted in footnote 1 to the majority opinion, the Commission has jurisdiction of (1) “the transportation of natural gas in interstate commerce,” (2) “the sale in interstate commerce of natural gas for resale,” and (3) “natural gas companies engaged in such transportation or sale.” The questions for decision are whether the Commission has jurisdiction over proposed sales of natural gas by Lo-Vaca and by Houston to El Paso.
The controlling facts as found in the opinion of the Commission are as follows:
“Lo-Vaca * * * 'at present owns no facilities and engages in no operations. By a contract dated May 16, 1960, Lo-Vaca agreed to sell and deliver an average of 50,000 Mcf of natural gas per day at 14.65 psia to El Paso at Coquat. Later this amount was increased to 80,000 Mcf per day. The contract which is free of restrictions upon the resale of gas by El Paso, is for 20 years at an initial price of 22{S per Mcf. There is no dispute that this sale would be subject to our jurisdiction. The issue of jurisdiction arises over a proposed sale of another 50,000 Mcf per day at 14.65 psia under contract of March 15, 1960, between Lo-Vaca and El Paso, which is substantially the same as the May 16, 1960 contract, but provides that it is the intention and understanding of the parties that the sale would not be subject to our jurisdiction. In Article XVI of the contract, it is further provided
“ ‘All of the gas to be purchased by El Paso from Gatherer under this agreement shall be used by El Paso solely as fuel in El Paso’s compressors, treating plants, boilers, camps, and other facilities located outside of the State of Texas. It is understood, however, that said gas will be commingled with other gas being transported in El Paso’s pipe line system.’
Lo-Vaca has stated that it intends to sell the gas under both contracts whether or not we have jurisdiction, that it has entered into contracts with a number of producers, and that it plans to construct facilities to gather the gas purchased in Live Oak, Goliad, Lavaca, and adjacent counties in Texas, and transport such gas to Coquat for delivery and sale to El Paso.
“ * * * Since 1925, it [Houston] ' has engaged in the purchase, transportation and sale of natural gas within Texas, and at present makes no sales to El Paso. By contract of July 19, 1960, Houston proposed to sell an average of 70,00.0 Mcf per day to El Paso for a 20-year term. As. in the case of the Lo-Vaca contract, Houston’s gas would be transported and delivered at Coquat, but would be metered separately from Lo-Vaca’s gas. The price is to be de-. termined according to a formula which, if applied to the billing month of November, 1959, would have produced 19.5íí plus certain taxes for each unit of one million btu. The contract contains rather elaborate provisions purportedly restricting the use to be made of the gas by El Paso. It recognizes that any gas purchased from Houston must necessarily be commingled with other gas being transported by El Paso in its pipeline system, but in Section 2. 1, ‘El Paso represents and covenants that gas to be purchased by El Paso from Houston hereunder shall *196be used and consumed by El Paso solely as fuel in the operation of El Paso’s plant and in the gasoline plant of Phillips Petroleum Company in Ector County, all located wholly within the State of Texas.’ El Paso further covenants that it would not take from Houston a quantity of gas in excess of the quantity required for fuel in Texas.
“The record shows that gas received by El Paso at Coquat from Lo-Vaca and Houston would move physically in a commingled stream, through the proposed supply company’s pipeline to Sonora where it would enter El Paso’s facilities. Some would be used as fuel in El Paso’s Sonora plant and the rest would move, with further commingling of gas from the Sonora plant and other sources, to Benedum Junction in Upton County, Texas. One portion of this commingled stream would flow from Benedum Junction toward El Paso’s Goldsmith Plant in Ector County, Texas and northward to Plains, Texas, from whence the gas stream would be transported westward through El Paso's northern pipeline which extends to the border of California. Between Bene-dum and Plains the stream would be further commingled with gas from numerous sources. The other portion of the gas from the Benedum Junction point would flow through Crane County to El Paso’s Keystone Compressor Station in Winkler County, Texas. From there the main line of El Paso’s southern pipeline extends into New Mexico, then back into Texas and then into New Mexico again near the City of El Paso and on to the border of California. There would be further commingling in New Mexico with gas from other Texas and New Mexico sources.
“El Paso proposed * * * to supply its mainline compressor stations in West Texas with a new 16-inch line extending from the Keystone Compressor Station to West Texas and running entirely in Texas, rather than across the corner of New Mexico. The fuel supply to these West Texas compressor stations would thus be produced and transported entirely in Texas, but physically the gas in this new line would be composed of gas from the commingled stream in El Paso’s line at the Keystone Compressor Station.
“Evidence in the record shows the facilities located in Texas which would allegedly use Houston’s gas. These facilities are composed of 23 compressor stations, including Co-quat, owned by El Paso and Phillips’ Goldsmith Plant. On an average day their requirements would exceed the average day volume to be purchased from Houston by 6.091 M2cf per day and on a maximum day would exceed the supply by 31.879 M2cf per day. To give some semblance of physical delivery of Houston’s gas to the existing stations, El Paso proposes to rearrange its station fuel piping at certain stations. This station fuel supply would connect to the main line by means of new supply laterals. An estimated expenditure of approximately $253,-000 is proposed for this purpose. Since the plants are already supplied with fuel, these new facilities are obviously unnecessary.
“The record also shows the compressor stations, 22 in number, located in New Mexico and Arizona, which could allegedly use Lo-Vaca’s gas. Their requirements under the March 15, 1960 contract would exceed the gas purchased from Lo-Vaca by 21.373 M2ef per day on an average day and by 36.549 M2cf per day on a maximum day. However, the record makes it clear that because of commingling, the gas from Houston and Lo-Vaca would in part be consumed by El Paso either within or outside of Texas and would in part be carried on to El Paso’s customers in New Mexico, Arizona and California.”
Thus Houston’s and Lo-Vaca’s respective contracts with El Paso attempt to restrict the use of the gas to non jurisdictional purposes, and provide, on the principle of “fungibility,” that if their gas is not in fact used for the contractually stated non jurisdictional purpose, an equal *197volume of gas supplied by some other supplier will be so used. The Commission refused to let its jurisdiction turn upon the provisions of contracts that do not correspond and are not intended to correspond to reality. I agree with the Commission.
Whether gas is transported in interstate commerce or is sold in interstate commerce for resale depends not on what the parties say about the transaction but on what is done with the gas. This Court so held in Deep South Oil Co. of Tex. v. Federal Power Commission, 5 Cir.1957, 247 F.2d 882, and its companion case, Shell Oil Co. v. Federal Power Commission, 5 Cir.1957, 247 F.2d 900. In decisions of analogous questions, the Supreme Court has continually disregarded contracts which give a fictional construction to business transactions. See e. g., Sprout v. South Bend, 1928, 277 U.S. 163, 168, 48 S.Ct. 502, 72 L.Ed. 833; Baltimore & O. S. W. R.R. v. Settle, 1922, 260 U.S. 166, 170, 43 S.Ct. 28, 67 L.Ed. 189; Eureka Pipe Line Co. v. Hallanan, 1921, 257 U.S. 265, 272, 42 S.Ct. 101, 66 L.Ed. 227. As said in Connecticut Light & Power Co. v. Federal Power Comm., 1945, 324 U.S. 515, 529, 65 S.Ct. 749, 755, 89 L.Ed. 1150: “Federal jurisdiction was to follow the flow of electric energy, an engineering and scientific, rather than a legalistic or governmental, test.”
A detailed discussion of the facts of the cases relied on by the majority would unduly prolong this opinion. Carefully considered, I submit that none of those cases permit a finding of nonjurisdictional status solely upon the language of the contract, but in each case, in addition to the language purporting to restrict use of the gas or electricity to non jurisdictional purposes, there was also an actual flow of the gas or electricity from the nonjuris-dictional seller into the particular “restricted” use. In no previous case has jurisdiction been permitted to turn upon the provisions of contracts not corresponding and not intended to correspond to reality.
The Commission’s jurisdiction over the proposed sales of natural gas by Lo-Vaea and by Houston to El Paso is much more clear than its jurisdiction sustained in United Gas Pipe Line Company, Opinion No. 401 of the Commission issued August 26, 1963.
I respectfully dissent.
ON PETITION FOR REHEARING
PER CURIAM.
This cause coming on for hearing upon the petition for rehearing filed on behalf of the Respondent Federal Power Commission, together with motion for rehearing by the Court en banc, joined in by Southern California Gas Company et al. as Intervenor-Respondents, and the Court having considered the same and the briefs filed in support and in opposition thereto, it is ordered and decreed that the said petitions for rehearing and also the motion for rehearing en banc be, and they hereby are, DENIED.
BOOTHE, District Judge, concurs.
RIVES, Circuit Judge, dissents.