Phillips Petroleum Company v. Wisconsin/Dissent Douglas

by William O. Douglas

United States Supreme Court

347 U.S. 672

Phillips Petroleum Company  v.  Wisconsin

 Argued: April 6, 7, 1954. --- Decided: June 7, 1954

Mr. Justice DOUGLAS, dissenting.

The question is whether sales of natural gas by an independent producer at the mouth of an interstate pipeline are subject to regulation by the Federal Power Commission under the Natural Gas Act of 1938. This is a question the Court has never decided. It is indeed one on which we expressly reserved decision in Interstate Natural Gas Co. v. Federal Power Commission, 331 U.S. 682, 690, 67 S.Ct. 1482, 1487, note 18, 91 L.Ed. 1742.

There is much to be said from the national point of view for regulating sales at both ends of these interstate pipelines. The power of Congress to do so is unquestioned. Whether it did so by the Natural Gas Act of 1938 is a political and legal controversy that has reged in the Commission and in the Congress for some years. The question is not free from doubts. For while § 1(b) of the Act makes the regulatory provisions applicable 'to the sale in interstate commerce of natural gas for resale for ultimate public consumption', it also makes them inapplicable "to the production or gathering of natural gas."

The sale by this independent producer is a 'sale in interstate commerce * * * for resale'. It is also an integral part of "the production or gathering of natural gas", as Mr. Justice Clark makes clear in his opinion, for it is the end phase of the producing and gathering process. So we must make a choice; and the choice is not an easy one.

The legislative history is not helpful. Congress was concerned with interstate pipelines, not with independent producers, as the thoughtful Comment in 59 Yale L.J. 1468 points out. If one can judge by the reports of the Federal Trade Commission that preceded the Act (S.Doc.No. 92, Pt. 84-A, 70th Cong., 1st Sess.), and the hearings and debates in Congress on the bills that evolved into the Act, little or no consideration was given to the need of regulating the sales by independent producers to the pipelines. The gap to be filled was that existing before the pipelines were brought under regulation-sales to distributors along the pipelines, as the opinion of Mr. Justice Clark demonstrates.

That was the view of the Commission in a decision that followed on the heels of the Act. Columbian Fuel Corp., 2 F.P.C. 200, 207. That decision exempted from regulation an independent producer to whom Phillips is in all material respects comparable. It was a decision made by men intimately familiar with the background and history of the Act-Leland. Olds, Basil Manly, Claude L. Draper, and Clyde L. Seavey. One Commissioner, John W. Scott, dissented. That construction of the Act by the Commission has persisted from that time (see Billings Gas Co., 2 F.P.C. 288; The Fin-Ker Oil & Gas Production Co., 6 F.P.C. 92; Tennessee Gas & Transmission Co., 6 F.P.C. 98) down to its decision in the present case. 10 F.P.C. 246.

That construction by the Commission, especially since it was contemporaneous, United States v. American Trucking Ass'ns, 310 U.S. 534, 539, 60 S.Ct. 1059, 1061, 84 L.Ed. 1345 and long continued, Federal Power Commission v. Panhandle Eastern Pipe Line Co., 337 U.S. 498, 513, 69 S.Ct. 1251, 1260, 93 L.Ed. 1499, is entitled to great weight. Other obtuse questions no less legal in character than the terms 'production or gathering' of gas have been entrusted to the administrative agency charged with the regulation. See Shields v. Utah Idaho Central R. Co., 305 U.S. 177, 59 S.Ct. 160, 83 L.Ed. 111; Sunshine Anthracite Coal Co. v. Adkins, 310 U.S. 381, 60 S.Ct. 907, 84 L.Ed. 1263; Gray v. Powell, 314 U.S. 402, 62 S.Ct. 326, 86 L.Ed. 301.

There are practical considerations which buttress that position that lead me to conclude that we should not reverse the Commission in the present case. If Phillips' sales can be regulated, then the Commission can set a rate base for Phillips. A rate base for Phillips must of necessity include all of Phillips' producing and gathering properties; and supervision over its operating expenses necessarily includes supervision over its producing and gathering expenses. We held in Colorado Interstate Gas Co. v. Federal Power Commission, 324 U.S. 581, 65 S.Ct. 829, 89 L.Ed. 1206, that the Commission's control extended that far in the case of an interstate pipeline company which owned producing and gathering properties. And so it had to be, if regulation of the pipelines that owned their own gas supplies was to be effective. But an understanding of what regulation entails should lead to a different result in this case. The fastening of rate regulation on this independent producer brings 'the production or gathering of natural gas' under effective federal control, in spite of the fact that Congress has made that phase of the natural gas business exempt from regulation. The effect is certain to be profound. The price at which the independent producer can sell his gas determines the price he is able or willing to pay for it (if he buys from other wells). The sales price determines his profits. And his profits and the profits of all the other gatherers, whose gas moves into the interstate pipelines, have profound effects on the rate of production, the methods of production the old wells that are continued in production, the new ones explored, etc. Regulating the price at which the independent producer can sell his gas regulates his business in the most vital way any business can be regulated. That regulation largely nullifies the exemption granted by Congress.

There is much to be said in terms of policy for the position of Commissioner Scott, who dissented the first time the Commission ruled it had no jurisdiction over these sales. But the history and language of the Act are against it. If that ground is to be taken, the battle should be won in Congress, not here. Regulation of the business of producing and gathering natural gas involves considerations of which we know little and with which we are not competent to deal.

Notes