Court Opinion

ID: 9419627
Source: CourtListenerOpinion
Date Created: 2023-08-02 22:50:31.26037+00
Date Added: 2024-06-11T17:22:19.279348
License: Public Domain

Mb. Chief Justice Stone,
dissenting in No. 380.
Mb. Justice Robebts, Mb. Justice Reed, Mr. Justice Fbankfuetee and I are of opinion that the Federal Power Commission, in making the rate order here under attack, exceeded its jurisdiction and reached a result which must be rejected because unauthorized by the applicable statute.
*616In fixing rates for petitioner’s interstate business of transporting and selling natural gas for resale, the Commission included petitioner’s gas wells and gas gathering facilities together with all its transportation and distribution facilities in a single rate base. It valued the wells and gathering facilities at their prudent investment cost of many years ago, a valuation drastically less than their present market value. It then restricted petitioner’s return to 6y2% of the rate base, including the wells and production facilities, constituting approximately two-thirds of the total rate base. It thus subjected petitioner’s production and gathering property to the same regulation as that which the statute imposes upon petitioner’s property used and useful in the interstate transportation and sale of gas for resale. This, we think, the Natural Gas Act in plain terms prohibits.
The Natural Gas Act of 1938, 52 Stat. 821, 15 U. S. C. § 717, et seq., as amended February 7, 1942, 56 Stat. 83, declares, § 1 (a): “the business of transporting and selling natural gas for ultimate distribution to the public is affected with a public interest, and . . . Federal regulation in matters relating to the transportation of natural gas and the sale thereof in interstate and foreign commerce is necessary in the public interest.” In the execution of this policy §§ 4 and 5 of the Act set up a complete scheme of regulation of rates and charges for the transportation and sale of natural gas by “natural gas companies” at wholesale in interstate commerce. Section 2 (6) defines a natural gas company as “a person engaged in the transportation of natural gas in interstate commerce, or the sale in interstate commerce of such gas for resale.” Section 1 (b) provides: “The provisions of this Act shall apply to the transportation of natural gas in interstate commerce, to the sale in interstate commerce of natural gas for resale . . but shall not apply to any *617other transportation or sale of natural gas. . or to the production or gathering of natural gas.”
The Court rejects petitioner’s contentions that these provisions preclude the Commission from including the gas wells and gathering facilities in the rate base for petitioner’s regulated business; that regulation begins only with the delivery of gas into petitioner’s transmission pipe line and includes, as the statute provides, only the interstate transportation and sale of the gas for resale. Petitioner insists that, since the wells and gathering facilities are not subject to Commission regulation, the cost or value of the gas upon its delivery to petitioner’s transmission line must, for purposes of rate regulation of the regulated business of transportation and sale, be taken at its fair market value.
This issue is now for the first time presented to this Court for decision. No such question was raised or decided in Federal Power Comm’n v. Hope Natural Gas Co., 320 U. S. 591, 610-614. Although it was mentioned in the amicus brief of the State of West Virginia, which was not a party to the suit, no such issue was raised by the parties in the case. There the gas wells and gathering property were included in the rate base valued at its prudent investment cost, and the allowed return was restricted to 6%%. But no objection was taken to the inclusion of the production property in the rate base, either in the Circuit Court of Appeals or, so far as the record shows, in the application to the Commission for rehearing. Section 19 (b) provides that no objection to the Commission’s order may be considered by the court unless raised in the application to the Commission for rehearing. The production property having been included in the rate base without objection, we could consider only the question which was raised with respect to property admitted to be properly a part of the rate base, namely, whether its valuation by the Commission and the allowed *618rate of return were within constitutional limits. Cf. Cohens v. Virginia, 6 Wheat. 264, 399.
■ The Act speaks in terms of activities which are regulated and those which are not. It subjects the interstate transportation and sale of natural gas, an activity, to the jurisdiction of the Commission, which includes the exercise of its rate-making function as prescribed by §§ 4 and 5, and which concededly extends to the valuation of property used in interstate transportation and sale of natural gas and to the determination of a fair rate of return upon that value.
Even though production and gathering could be thought to be a part of the regulated transportation and sale, that possibility is precluded by the words of § 1 (b) which say: “The provisions of this Act [including those of §§ 4 and 5 which prescribe rate making for the activity of transporting and selling wholesale] shall not apply” to another activity, “the production or gathering of natural gas.”
It does not seem possible to say in plainer or more unmistakable language that the one activity, interstate transportation and sale, is to be subjected to, and that the other, production or gathering, is to be excluded from, the valuation and rate-making powers of the Commission. To interpret the words “production or gathering” in § 1 (b) in the only way which the Court or the Government is able to suggest, as referring only to the physical activities of drilling and spacing the gas wells, and thus excluding such activities alone from regulation, seems hardly plausible. It is true that “production or gathering” are activities which may include the drilling and spacing of gas wells. But the “transportation and sale” referred to in the phrase of § 1 (b) “but shall not apply to any other transportation or sale of natural gas ... or to the production or gathering of natural gas,” is also an activity. Yet the Court and the Government concede that by the command of the Act *619that it “shall not apply” to the activity of “any other transportation or sale,” petitioner’s property used in the transportation and sale of gas to industrial consumers is excluded from the rate base. They thus reach the surprising conclusion that property used in one sort of activity to which the provisions of the Act are declared not to apply, may nevertheless be included in the rate base, while holding that another sort of property, also used in an activity to which the provisions of the Act are by the same phrase declared not to apply, is nevertheless excluded from the rate base.
Nor is the plausibility of the Government’s construction aided by reference to the provisions of the Act1 giving the Commission power to make investigations, to regulate accounts, to gather information and to find values of property of natural gas companies and their depreciation. These provisions are obviously directed at aiding the Commission in the exercise of various powers which are conferred upon it but which are unrelated to the regulation of the production or gathering of natural gas. Section 5 (b), for example, authorizes the Commission to procure the information of costs of production or transportation of *620natural gas in aid of state commissions, and such was its purpose. H. Rep. No. 709, p. 5, 75th Cong., 1st Sess., on H. R. 6586. Sections 9 (a) and 10 (a) give authority essential to the Commission’s admitted power to regulate the interstate sale of gas at wholesale, to determine whether the cost of or charge for the gas acquired by a natural gas company, whose rates are regulated, are excessive because unrelated to fair or market value, especially where the relations between the producer and the interstate wholesale distributor are not at arm’s length. United Fuel Gas Co. v. Railroad Comm’n, 278 U. S. 300, 320; Smith v. Illinois Bell Tel. Co., 282 U. S. 133, 144; Western Distributing Co. v. Public Service Comm’n, 285 U. S. 119; Dayton Power Co. v. Public Utilities Comm’n, 292 U. S. 290; Natural Gas Co. v. Slattery, 302 U. S. 300, 306-308; Arkansas Gas Co. v. Dept., 304 U. S. 61; cf. Interstate Commerce Comm’n v. Goodrich Transit Co., 224 U. S, 194, 211. And the determination of the Commission permitted by §14 (a) with respect to the amount of gas reserve is essential to the determination of the rate of depreciation and amortization of the gas company’s regulated transmission line, since its useful life is normally limited by the available gas supply.
No reason, founded upon the language of the statute or its purpose, is advanced for disregarding the plain command of § 1 (b) excluding the production or gathering of the gas from those other activities, the transporting and selling, which are subject to the regulatory provisions of §§ 4 and 5. The language was well chosen to accomplish exactly what the legislative history shows was intended to be accomplished. The report of the House Committee (H. Rep. No. 709, 75th Cong., 1st Sess.), recommending adoption of the bill which became the Natural Gas Act, shows beyond doubt that the purpose of the legislation was to bring under federal regulatory control the interstate transportation and sale of natural gas which had *621been held not to be subject to state regulation, in Missouri v. Kansas Gas Co., 265 U. S. 298; cf. Public Utilities Comm’n v. Attleboro Co., 273 U. S. 83, but to leave undisturbed all other matters which were then subject to state regulation, which included rate-making for production and gathering. See Illinois Natural Gas Co. v. Central Illinois Co., 314 U. S. 498, 506; Federal Power Comm’n v. Hope Natural Gas Co., supra, 609. And upon the floor of the Senate the sponsor of the bill declared: “It does not attempt to regulate the producers of natural gas or the distributors of natural gas; only those who sell it wholesale in interstate commerce.” 81 Cong. Rec., p. 9312. That the exemption of the production of natural gas from regulation was thought by the regulatory authorities themselves to exclude regulation, by the Commission, of the price of gas in the producing field, appears from the hearings upon the predecessor bill,2 which contained provisions identical with or substantially equivalent to §§ 5 (b), 6 (a), 9 (a), and 10 (a) of the Act as finally passed, and § 1 (b) of which declared that the provisions of the bill should not apply “to the production of natural gas.”
*622The exclusion of production and gathering of natural gas from the regulatory authority of the Commission is a command to the Commission not to regulate that which is excluded. Otherwise powers reserved to the states would be encroached upon contrary to the words and purpose of the Act, and a pretended government would be set up by Commission action, without the authority of Congress.
The Commission did not deny the. command, but justified disregard of it only by saying that “Canadian’s production and gathering operations are an integral part of its total operations, including transportation in interstate commerce and the sale of natural gas for resale in interstate commerce.” And it added: “The investigation of Canadian’s production and gathering property and operations is indispensable in regulating Canadian’s rates and charges for the sale of natural gas in interstate commerce for resale.” Such an investigation was undoubtedly proper and necessary in order to ascertain the fair unregulated value of the natural gas produced in an unregulated field, on its delivery into petitioner’s transmission pipe line, in order to enable the Commission to regulate appropriately the sales price of the gas.
But this does not mean that in fixing rates for a regulated business which derives its distributed product from an unregulated business that the property of the latter is not to be segregated from the regulated property, or that there can rightly be applied to it standards of valuation and rate of return which are applicable only to a regulated business. Interstate Commerce Comm’n v. Goodrich Transit Co., supra, 211; Smith v. Illinois Bell Tel. Co., supra, 151; Western Distributing Co. v. Public Service Comm’n, supra, 123-124. Otherwise its exclusion from regulation would be meaningless. The standards to be applied in order to make certain that the regulated business is not paying too much for the product are those which *623currently apply in the unregulated business. This, as we have pointed out, was recognized by the Solicitor of the Commission in the hearings on proposed legislation culminating in the present Act. He said that the unregulated field price was controlling upon the Commission “if the transaction is at arm’s length. If the transaction is not at arm’s length, of course, its reasonableness may be inquired into, under the decisions of the Supreme Court.” 3
It is one thing to say that such investigation is necessary to ascertain the fair unregulated value of petitioner’s gas when produced. But it is quite another to say, and the Commission did not say, that it is necessary or permissible for the Commission to fix the value of petitioner’s production property and the gas which it produces far below their market value, and to restrict petitioner’s return from its unregulated business below that which would be produced if the gas production were unregulated. Such restrictions can be justified only by authorized-rate regulation. From such regulation petitioner’s gas wells and production facilities have been specifically exempted by command of the statute.
Where a regulated utility procures from an unregulated source the product which it distributes, the proper cost which the regulated company should be allowed to pay for it, when the Commission is not authorized to regulate the production, presents a problem not free from difficulties. But here the Commission has made no effort to meet these difficulties, if such there be, except by the one course which the statute forbids, by subjecting the production property to regulation.
A familiar and permissible way of meeting them, as petitioner points out, is by treating the property unreg-ulable in law as unregulable in fact, and applying to it those standards of value and return which currently *624prevail in an unregulated business when it is conducted at arm’s length. Petitioner urges that there are other courses open to the Commission which will not violate the statute, and that there is uncontradicted evidence in the record showing that natural gas has a market value at the wellhead and at the point of delivery into petitioner’s transmission line. Those conditions would indicate that gas production property in the area in question has an ascertainable market value on which, in the absence of regulation, petitioner is free to receive the return currently produced by such property.
Without an appropriate investigation we cannot know the fact, which is for the Commission and not for us to determine. If investigation discloses difficulties which only legislation can cope with, the answer is further legislation, not disregard of existing legislation. But the Commission has made no such determination or investigation and, so far as appears, has given no consideration to the evidence supporting petitioner’s contentions. It is the duty of the Commission so to conduct its proceedings as to restrict its action within the jurisdiction conferred upon it. It is plain that it has not performed that duty here, and that it should be required to do so. Whether the facilities for the production of natural gas should be regulated and, if so, whether the regulation should be left to the states, as we think Congress has left it, are matters for Congress to determine. If it be thought that petitioner’s profits from production of gas are too great because they are unregulated, and if it be thought to be important that they be reduced, it is immensely more important that that be not accomplished by lawless action.
It is no answer to cite our authorities involving state regulation,4 in order to prove that the Commission here *625has acted within its statutory authority. In reviewing such cases we accept the state’s construction of its statutes fixing the jurisdiction of state regulatory bodies. Nor is it any justification of the Commission’s action to say, applying the Hope case, that the end result of the Commission’s action is that petitioner’s unregulated property is not being confiscated. Authorized utility regulation may, of course, result in a permissible diminution of property values and income, provided the regulation does not so exceed constitutional limitations as to be “confiscatory.” Hence, loss or damage caused by authorized utility regulation gives rise to no actionable wrong if the regulation is within constitutional limitations. Such was the principle laid down in the Hope case.
But any such diminution in value or return, caused by unauthorized regulation, is unlawful without reference to constitutional principles. In the Hope case there was no contention that the utility’s production property was not subject to regulation. The only question was whether the return upon it, as allowed by statutory authority, was confiscatory because it went beyond the constitutional limits of the power to regulate. Here the question is only of the deprivation of petitioner’s property by the Commission’s action in excess of its statutory power to regulate. That power, in the case of petitioner’s production property, we think does not exist. So far as the unauthorized regulation deprives petitioner of its property, the deprivation cannot be justified by saying that, if authorized, it would not violate the Constitution. Absence of confiscation by authorized Commission regulation does not prove that the Commission has legislative authority to regulate.

 Section 5 (b) authorizes investigation by the Commission of the cost of production of natural gas, where the Commission has no authority to establish a rate governing the transportation or sale of such natural gas. Section 6 (a) empowers the Commission to ascertain the cost of the property of every natural gas company and other facts bearing on the determination of such cost “when found necessary. for rate making purposes.” Section 9 (a) authorizes the Commission to determine the proper “rates of depreciation and amortization” of the several classes of property of each natural gas company “used or useful in the production, transportation, or sale of natural gas.” Section 10 (a) gives the Commission authority to require reports from natural gas companies of their “cost of maintenance and operation of facilities for the production” of natural gas. Section 14 (a) gives the Commission power to determine the “adequacy or inadequacy of the gas reserves held or controlled” by them.

 In the hearings upon the earlier bill, Mr. DeVane, Solicitor of the Federal Power Commission, stated: “Section 1 (b) also provides that the Commission shall have no jurisdiction over the gathering or gathering rates for natural gas.” “Gathering rates,” he explained as “The rates that are paid in the gathering field.” He further stated, “There is no control of the gathering rate; the Commission would not have jurisdiction. That price is fixed by competitive conditions that exist in the field.” He said that the Commission does not have any power over the price “that is paid to the gatherer, to the man that produces it; that is binding if the transaction is at arm’s length. If the transaction is not at arm’s length, of course, its reasonableness may be inquired into, under the decisions of the Supreme Court.” There is nothing in the subsequent legislative history to indicate that this understanding with respect to § 1 (b) in the earlier Act was changed at a later stage, and § 1 (b) as finally adopted indicates no such change. Hearings on H. R. 11662,74th Cong., 2d Sess., pp. 28,42-3.

 See footnote 2, supra.

 Willcox v. Consolidated Gas Co., 212 U. S. 19; Cedar Rapids Gas Co. v. Cedar Rapids, 223 U. S. 655; Newark Natural Gas Co. v. *625Newark, 242 U. S. 405; Public Utilities Comm’n v. London, 249 U. S. 236; Pennsylvania Gas Co. v. Public Service Comm’n, 252 U. S. 23; Railroad Commission v. Pacific Gas & Electric Co., 302 U. S. 388; Lone Star Gas Co. v. Texas, 304 U. S. 224.