Amicus Brief — Maryland v. Louisiana

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No. 83, Original

Iu the Supremy Court of the united States

OCTOBER TERM, 1979

ee ee |

STATE OF MARYLAND, ET AL., PLAINTIFFS

Vv.

STATE OF LOUISIANA

ON MOTION FOR JUDGMENT OF THE PLEADINGS

BRIEF FOR THE UNITED STATES AND THE

FEDERAL ENERGY REGULATORY ee

AS AMICI CURIAE

WADE H. MCCREE, JR.

Solicitor General

STUART A. SMITH

Assistant to the Solicitor General

Department of Justice

Washington, D.C. 20530

ROBERT R. NORDHAUS

General Counsel

J. PAUL DOUGLAS

Attorney

Federal Energy Regulatory Commission

Washington, D.C. 20426

EERIE Weck SOR SAO Ce

Se |. | i ee

Constitutional provisions and statutes involved..

The interest of the United States and the Fed-

eral Energy Regulatory Commission ............

iia ak snpiveaeneaalep

Summary of argument .................- RoLIR oka CORR

Argument:

I. The Louisiana First Use Tax conflicts

with the federal regulation of the sale

and transportation of na*ural gas in in-

terstate commerce and is therefore in-

valid under the Supremacy Clause of the

2 RE <a ae SM Cera OER

| Te, EI Ne alco ane hese

B. The gas subject to the First Use Tax

moves in interstate commerce .......-

C. The taxable “uses” enumerated in

the Louisiana statute do not inter-

rupt the journey of the gas in inter-

RI IID sicircnthiecrecrnncnavdasensineniie

D. The Louisiana tax interferes with

the federal regulation of the trans-

portation and sale of natural gas

in interstate commerce ....................

II. The Louisiana First Use Tax Tax is in-

valid under the Commerce Clause ..........

III. Resolution of the questions presented

does not require the appointment of a

EE BN alicihiiciprcecianentalieeeninmncnnceit

oe ac eee

CITATIONS

Cases:

Area Rate Proceeding (Southern Louisiana

Area), 40 F.P.C. 530, aff’d, Austral Oul

Co., 428 F.2d 407, cert. denied, 400 U.S.

DP ected nleninsitnbieipiieonienens bssanciecisiie 28,

8 A. SRNIRISIISE BARES erin Sonn? Unites Oo SUR

Atlantic Refining Co. v. Public Service

Commission, 360 U.S. 378 .....-.....-------------

Board of Trade of City of Chicago v. Olsen,

Be OTN CT URS on cere eee ae

Boston Stock Exchange v. State Tax

Comm'n, 429 U.S. 318 .............- 19, 45, 50,

California v. Lo-Vaca Gathering Co., 379

SMITE ssi pchiis case iassiciataasipacaconstesicicocanasinnes

Re BI SiiccticonipaibeicasedieiaaaSimdcinberticstaes tania

Canadian Superior Oil (U.S.) Ltd., et al.,

Docket No. CI77-802 (Mar. 28, 1978) ....

Carpenter v. Shaw, 280 U.S. 368 ................

Case of State Freight Tax, 82 U.S. (15

MN IE Gio tolneseeenscniasaasceliiebpeabcipsoceeenn

Champlin Realty Co. v. Brattleboro, 260

a IN aathncicsiceeieneccl-ieisnibiablaaatindd hilaienieditnovsies

Chandleuer Pipe Line Co., 42 F.P.C., ..........

Page

10a

34, 37

51, 53

III

Cases—Continued | Page

Cities Service Gas Co. v. Federal Power

Commission, 155 F.2d 694, cert. denied,

BOO TE, FED eivicstnciciemiesrsipiin Cease 32-33

City of Detroit v. Federal Power Commis-

sion, 230 F.2d 810, cert. denied, 352 U.S.

SIE .sisesssiininsseicceictsbcigpisbcsiotacedi tate aaa iia 32

Colonial Pipeline Co. v. Traigle, 421 U.S.

DID saiscciicesttinsicsindionciaaensaebiahioiaieaibeaaie 47

Colorado Interstate Gas Co. v. FPC, 324

Rebs: HU: taesacarteciesnpacepyianaeniaceebiaaimadeabbabiions 33

Complete Auto Transit, Inc. v. Brady, 480

Weide GP jciscciscskevibiccaditlpaenataiabamciaicaimealine 44, 48

Continental Oil Co., et al., 27 F.P.C. 96...... 37, 38

Continental Ou Co. v. Federal Power Com-

mission, 370 F.2d 57, cert. denied, 388

Chis FO inincckcricnivaiensacicoemmabeateraatal 23-24, 42

Darnell, I.M. & Son v. Memphis, 208 U.S

TDW asuccicosicbuninibietptcvienghinteseanaicataseaen tama intel 50

Deep South Oil Co. of Texas v. Federal

Power Commission, 247 F.2d 882, cert.

denied, 355 U.S. 9380 -.-.....0....2...----- 23, 28, 34

Douglas v. Seacoast Products, Inc., 431

Ride . stivacectenibidatonsaaedeiulae isis 30

East Ohio Gas Co. v. Tax Commission of

CRNGG, BIRD Ris MI pinion, 23

Federal Energy Regulatory Commission v.

Pennzoil Producing Co., 439 U.S. 508... 12

Federal Power Commission v. Corporation

Commission of Oklahoma, 362 F. Supp.

522, aff’d per curiam, 415 U.S. 961 ........ 31

Federal Power Commission v. East Ohio

Gas Co., 388 U.S. 464 .W20 eee 23, 27

FPC v. Hunt, 8376 U.S. 616... 54

FPC v. Tennessee Gas Transmission Co.,

371 U.S. 145

Cases—Continued Page

Federal Power Commission v. United Gas

Pipe Line Co., 386 U.S. 287 .............--- 32, 33-34

Freeman v. Hewit, 329 U.S. 249 -.............. 45

Gulf Oil Corporation, Docket No. C177-635

(July 29, 1977), petition for review

pending, Gulf Oil Corporation v. Federal

Energy Regulatory Commission, No. 77-

EE SNOT SESS ARIST OO 38

Guy v. Baltimore, 100 U.S. 434 ~............. 49

Hagans v. Lavine, 415 U.S. 528 -............. 30

Halliburton Oil Well Co. v. Reily, 373 U.S.

Ta ans eommneiigenpion 48, 50

High Island Offshore System, Docket Nos.

CP75-104, et al. (June 4, 1976) ............ 38

Hope Natural Gas Co. v. FPC, 184 F.2d

287, rev’d on the ground, 320 U.S. 591... 33

Humble Pipe Line Co. v. Waggonner, 376

OSE eee ae 9

Illinois Natural Gas Co. v. Central Illinois

Public Service Co., 314 U.S. 498 -....... 23, 27, 39

Interstate Natural Gas Co. v. Federal

Power Commission, 331 U.S. 682 ........ 23, 28

' — Kansas-Nebraska Natural Gas Company,

Inc., 58 F.P.C. 1691, reh. denied, 54

I isa ianttdendintameeite 35

Lawrence v. State Tax Commission, 286

ih asladnisceslonirnschsininicosapivininnse 45

Louisiana Public Service Commission v.

Federal Power Commission, 359 F.2d

EES ESEUNSITS DS ie ee 23

McLeod v. J.E. Dilworth Co., 322 U.S. 327.. 43

Memphis Natural Gas v. Stone, 335 U.S.

EUs ipdsiiii nthe eerslesididieisenasmentasip baie ttsasiainasband 47

Michelin Tire Corp. v. Wages, 423 U.S.

ARCHES IPARIST PRE SRSA nc PROT ee RO eT HOE 44

Cases—Continued Page

Michigan-Wisconsin Pipe Line Co. v. Cal-

VOP6, BAT UB. BEF cvcccrtscnopionnnn 18, 28, 44, 45, 48

Minnesota v. Blasius, 290 U.S. 1 -..............- 30

Mississippi River Fuel Corp. v. Cocreham,

382 F.2d 929, cert. denied, 390 U.S.

BUI © ss <ssrosacesnousin ccnieetinntictn nanicneabacdoneiiaki acts ds 8

Missouri v. Kansas Natural Gas Co., 265

pS A. Raves wre eoneeN ce Neat ree OOo 42

Mobi Oil Corp. v. FPC, 483 F.2d 1288 ...... 32, 33

National Rates for Natural Gas, Docket

No. RM 75-14, Opinion No. 770, 15

P.U.R. 4th 21, reh. denied, Opinion 770-

A, 17 P.U.R. 4th 317, aff’d sub nom.

American Public Gas Association v.

FPC, 567 F. 2d 1016, cert. denied, 435

Ss SE cdinsscsccntauieheiasabiadaiasi ea Radbdecconana 35

Natural Rates for Natural Gas, 15 P.U.R.

4th 21, reh. denied, 17 P.U.R. 4th 317,

aff'd sub nom. American Public Gas

Ass’n v. FPC, 567 F.2d 1016, cert. de-

UN, GE isis ccttitcicicesainieew 33-34

National Rates for Natural Gas, 54 F.P.C.

3090, reh. denied, 15 P.U.R. 4th 1, aff’d

in part and rev’d in part sub nom. Ten-

neco Oil Co. v. Federal Energy Regula-

tory Commission, 571 F.2d 834 .............. 34, 35

Nippert v. Richmond, 327 U.S. 416 -........... 48

Norfolk & W.R. Co. v. Tax Commission,

I escssisinssesncnaicbiidlgmaeaboripeditata 47

Northern Natural Gas Co. v. Kansas Com-

mésston, 372 US. 84 -................. 17, 20, 39, 43

Northern Natural Gas Co., 28 F.P.C. 1155,

aff’d sub nom. Mid-American Pipeline

Co. v. FPC, 330 F.2d 226 .................... 34-35, 38

Cases—Continued Page

Northwestern States Portland Cement Co.

v. Minnesota, 358 U.S. 450 -..........-.....-.- 33, 48

Panhandle Eastern Pipe Line Co., 25 F.P.C.

787, remanded sub nom. Panhandle East-

ern Pipe Line Co. v. FPC, 305 F.2d 768,

cert. denied, 372 U.S. 916, aff’d on re-

mand, 32 F.P.C. 636, aff’d per curiam,

348 F.2d 340, cert. denied, 382 U.S. 944.. 35

Panhandle Eastern Pipe Line Co. v. FPC,

Be Ri eete MR: shoe Si dasddbcnabalnipddtaecuuas 33, 48

Panhandle Eastern Pipe Line Co. v. Public

Service Commission, 832 U.S. 507 ........ 27

Pennsylvania v. West Virginia, 262 U.S.

NN ER Fe eae RSNA TAT ay A TY RD 42

Peoples Natural Gas Co. v. Public Service

Commission of Pennsylvania, 270 U.S.

eRe ER SIE Seem EN OT, OER TOO 23, 27

Phillips Petroleum Co. v. Wisconsin, 347

Mle MEI spicata netcinddeicebiapeceineigces 11, 20

Pipeline Costs Allocable to the Transporta-

tion of Liquids, Liquefiable Hydrocar-

bons, etc., For Others, 47 F.P.C. 208,

rev'd on other grounds sub nom. Mobil

Oil Corp. v. FPC, 483 F. 2d 1238 ............ 38

Public Utilities Commission v. Attleboro ..

Steam & Electric Co., 273 U.S. 83 -....... 42

Sabine Pipe Line Company and Texaco,

Inc., Docket Nos. CP77-304 and C174-

537 (July 7, 14, & 26, 1977) -............. 38

Society for Savings v. Bowers, 349 U.S.

hss sspcsivs sos hen tesihaiaaailipehatieniendciiebad td 45

South Carolina v. Katzenbach, 3838 U. S.

RUIN ovcnasisleocieselossiiasieinkaseuhccadcascebiibiaiwidiiecioraimadgtatiss 54

Tennessee Gas Transmission Co., 18 F.P.C.

G88 nine ie 35

VII

Tennessee Gas Pipeline Co., et al., 38

FR aoe cic a iaitdeicresinaserseaeaniens

Texas Eastern Transmission Corporation,

Ba RE, I chica diac nnensiensinscessiinerpecbamiotion

Trunkline Gas Company, et al., Docket

No. CP74-138, et al., Opinion No. 796-A

(EE a SARC MNRUCnLEnRrSE Semeur

Trunkline LNG Co., et al., Opinion No. 796

FS Xe 8: ¢ 8 RNNEER ARNT vee RT

Union Oil Company of California, et al.,

Docket No. C177-828, et al. (Apr. 12,

REISER RS RE Ae oe pe

United Gas Pipe Line Co., 30 F.P.C. 560....

United Gas Pipe Line Co. v. McCombs,

No. 78-17 (June 18, 1979) ....................

United States v. California, 332 U.S. 19 ....

United States v. Texas, 339 U.S. 707 ........

Wash. Rev. Dept. v. Stevedoring Assn., 435

Re 18, 44,

Constitutions, statutes and regulation:

United States Constitution:

Article I, Section 8, clause 3 (Com-

merce Clause) .............. 2, 19, 44, 45,

Article III, Section 2, clause 1 ............

Article VI, Clause 2 (Supremacy

RINNE: siisssidlsiddipeindisonicteaaciaclapibiectlicainsniss

Department of Energy Gunsiinition Act,

Pub. L. No. 95-91, 91 Stat. 565, 42

U.S.C. (Supp. I) 7101 et seq.:

Section 401(a), 42 U.S.C. (Supp. ad

PURO IRIIED . cinctdccesidentitorsiins

Page

46, 47

46, 48

VIII

Constitutions, states and

regulation—Continued Page

Section 402(a)(1)(C), 42 U.S.C.

(Supp. I) 7172(a) (1) (C) -.......-..- 11

Section 402(a)(1)(D), 42 U.S.C.

(Supp. I) 7172(a) (1) (D) .........-.. 11

Section 402(b), 42 U.S.C. (Supp. I)

MI aria rick ecard cbeetigi ine Geivieeeiginnhaas 11, 33

Section 402(e), 42 U.S.C. (Supp. I)

BN oils Sach nsasecciaeatcaasisiaimiicnidente 11

Section 642, 42 U.S.C. (Supp. I)

ORR RMA ec arer BUR ETE ER 11

Natural Gas Act of 1938, 15 U.S.C. 717-

PR cco i kailindcickdndie cachlnipiontaidadabhdadianeesnonbios 5

Be ie FUE eile ntctennineectae 23, 27

Bee Rs I siceiincciocactbavtncceeihenn 23, 27

section 4, 15 U.S.C. 717e¢ .................. 2,12, 32

Section 4(a), 15 U.S.C. 717e(a) ........ 12

Section 4(c), 15 U.S.C. 717e(c) .........- 12

pS BE Aly gy | RANI Re ENR 38

BS Sai Oe PRD | ch aiehenigieswinnctcdansen 38

Section 5, 15 U.S.C. 717d .................- 2,12, 32

Section 5(a), 15 U.S.C. 717d (a) ........ 12

ection 7, 15 U.S.C. TATE in. nceceneecse- 2,37

Section 7(b), 15 U.S.C. 717£(b) -....... 12

Section 7(c), 15 U.S.C. 717f£(¢) -....... 10-11

Section 7(e), 15 U.S.C. 717f£(e) ........ 12

Natural Gas Policy Act of 1978, Pub. L.

No. 95-621, 92 Stat. 3351 et seq.:

Section 1, 92 Stat. 3351 ~.................... 3, 5, 10

Section 2(18), 92 Stat, 3354 0... 2-3

Section 2(18) (A), 92 Stat. 3354 -_..... 15

Section 2(21), 92 Stat. 3355 _....W....... 13

Constitutions, statutes and

regulation—Continued Page

Section 101(b) (9), 92 Stat. 3358 -..... 13

Sections 102-109, 92 Stat. 3358-3368... 13

Section 107, 92 Stat. 83366-3367 -......... 40

Section 110(a)(1), 92 Stat. 3368-

ME sacutiasuacckaceaieshitenlonkeiiibebadidapaiatonns 13

Section 110(a) (2), 92 Stat. 3868-

IE ohesitelisshs ek kit ajicntandiostnseiesbieteaels 13, 39, 40

Sections 110-121(b), 92 Stat. 3368-

3369 .... PSS SAS RUE 3

Section 121(b), 92 Stat. 3870 -........... 3

Section 311 (a), 92 Stat. 3388-3389 .... 15

Section 311(a) (1), 92 Stat. 3389 ...... 15

Section 311(a) (2), 92 Stat. 3389 -..... 15

Section 311(b), 92 Stat. 3889-3392 .... 15

Section 601, 92 Stat. 3409-3411 _......... 13

Section 601(a) (1) (B),92Stat.3409.. 14

Section 601 (a) (1) (C), 92 Stat. 3409.. 15, 16

Section 601 (a) (1) (D), 92 Stat. 3409.. 15, 16

Secttion 601(a) (2), 92 Stat. 3409-

ee ele ARR Erk) Maine ee ae 15, 16

Section 601(a) (2) (A), 92 Stat.3409.. 14

Section 601(b) (1) (A), 92 Stat.3410.. 3,14

Section 601 (c), 92 Stat. 3411 _........... 16

Section 601 (c) (1), 92 Stat. 3411 _....... 14

Section 601(c) (2) (A), 92Stat.3411.. 14

Section 602 (a), 92 Stat. 3411... 42

Outer Continental Shelf Lands Act, Pub.

L. No. 83-212, 67 Stat. 462 et seq.:

Section 4(a) (2), 43 U.S.C. 1333 (a)

SE siaseclescsdschacibahd ban abieovscisehtiedesdachininatebiais 9

Section 5(c), 43 U.S.C. 1834 (¢) -....... 33

Sections 2-15, 43 U.S.C. 1331-1343 .... 4

Constitutions, statutes and

regulation—Continued Page

72 Stat. 72, 19 U.S.C. 1202, Schedule 4,

pg GE , . 2) Sen Erene rae ee 8

Louisiana Rev. Stat. Ann. (West 1970

& Supp. 1979) :

cE ba: ee ONE! Eee Sa 2,10, 51

Section 47 :6381-47 :646 —..........-----...--- 8

Section 47 :633 (9) (@) -...........------e-cee0- 6

ST CE. <cthredainbeticeendibekcnntes 49

Section 47 :647 . iideceietjctiaiatan 2,51

Sections 47 :1801-47 :1307 .................... 2,3

Section 47:13802(8) .............. 7, 24, 26, 27, 28,

29, 35, 40

Section G7 SESGRCD) .cccccsccsececcsnciieses 7, 40

me ST SII By, nsnnscsincics vor ccenemnsvnn 6, 48, 50

SCE Ee FRO OW vnivnicndencinscnsneaniedepiion 45, 47

nS Vibe tt £m passim

Section 47:1808 E ........................ 8, 10, 18, 44

Ne re Boies 7

OTN EF EOE oi eskiktainicth cata 2

UI EG SOD iescetdicaricsisanipclnitenliaasnlareians 5

UOTE EE SOIC sien nicvceneichaeaeeceatienl 5

1978 La. Sess. Law. Serv. 482 et seq.

CAINE siinaicsnhicainentnicpaesceicaseiatealeaaaaeaanns 3, 10

Act No. 294:

I Ty caetvicatuihseisnbnsh bcbg dca a OanR 7

I A. schcaiicnsnsisinhieasbalionidigsoetie cane 7,54

GID axcinsicsoisi pianiepecidapnanieetan ei 7, 31, 54

1978 La. Sess. Law Serv. 842 (West), Act

BOs GOO ncn. nnsicucniatioimmaeetaenomee 51

1978 La. Sess. Law Serv. 1112 (West), Act

FOO ccccsictcsiasickicincnsipen lini daiilanepaphogalaiaanan 10, 51

Miscellaneous:

Executive Order No. 12,009, 42 Fed. Reg.

se I EE a eee

Federal Power Commission National Gas

Survey, Vols. I and II (1975) ................

Hearings on H.B. 768 Before the, Revenue

and Fiscal Affairs Comm. of the Louisi-

ana Senate (1978) .......... 9-10, 24, 30, 31, 36, 38

Hearings on H.B. 768 Before the Comm. on

Ways and Means of the Louisiana House

of Representatives ................---------- 10, 24, 37, 52

H.R. Rep. No. 95-539, 95th Cong., Ist Sess.

ails aegis alban Scosaiodasiodisiongimnies

H.R. Rep. No. 95-1752, 95th Cong., 2d Sess.

I ihe seictaduaincioessiathveivsmictSniae~aanifutin

Importation and Exportation of Natural

Gas, 48 Fed. Reg. (1978) :

ka akc ett nielcinnapteaotinopeonn

I iain tlh cdcsta aciahdnichncntiniiontedidaners

Regulations Implementing the Incremental

Pricing Provisions of the Natural Gas

Policy Act of 1978, Order No. 49, 44 Fed.

TY BUY eiiiieitritscine vorcidacessssetecsunces

State of Louisiana First Use Tax in Pipe-

line Rate Cases:

Order No. 10, 43 Fed. Reg. 45553

RES SESS Pace eave re

Order No. 10-A, 48 Fed. Reg. 60438

I dled a sil akin Ap sebiadaasnae

Order No. 10-B, 44 Fed. Reg. 13460

(1979), petitions for review pend-

ing sub nom. Tennessee Gas Pipe-

line Company, et al. v. Federal

Energy Regulatory Commission,

No. 78-3816 (5th Cir.) -...22220222020...

Washington Post, Sept. 22, 1979, p. Al,

col. 5

In the Supreme Court of the United States

OCTOBER TERM, 1979

No. 83, Original

STATE OF MARYLAND, ET AL., PLAINTIFFS

STATE OF LOUISIANA

ON MOTION FOR JUDGMENT OF THE PLEADINGS

BRIEF FOR THE UNITED STATES AND THE

FEDERAL ENERGY REGULATORY COMMISSION

AS AMICI CURIAE

This brief is filed pursuant to Rule 42(4) of this

Court’s Rules on behalf of the United States and the

Federal Energy Regulatory Commission in support

of plaintiff’s motion for judgment on the pleadings.

JURISDICTION

The motion for leave to file a complaint invoking

the original jurisdiction of this Court was granted

on June 18, 1979. The jurisdiction of this Court

rests on the Constitution of the United States, Article

III, Section 2, clauses 1 and 2, and 28 U.S.C.

1251(a) (1).

(1)

QUESTIONS PRESENTED

1. Whether the Louisiana First Use Tax on

Natural Gas is invalid because it conflicts with the

exclusive statutory jurisdiction of the Federal Energy

Regulatory Commission to regulate the sale and trans-

portation of natural gas in interstate commerce, and

the apportionment of costs among producers, proces-

sors, and consumers.

2. Whether the Louisiana First Use Tax violates

the Commerce Clause of the United States Consti-

tution.

CONSTITUTIONAL PROVISIONS AND

STATUTES INVOLVED

Article I, Section 8, clause 3 (“Commerce Clause’’),

and Article VI, clause 2 (“Supremacy Clause’) of

the Constitution of the United States are set forth

in piaintiffs’ Brief in Support of Motion for Judg-

ment on the Pleadings, at page 4.

The First Use Tax on Natural Gas, La. Rev. Stat.

Ann. §§ 47:130i-47:1307 (West Supp. 1979), the

First Use Tax on Natural Gas—Severance Tax Credit,

La. Rev. Stat. Ann. § 47:647 (West Supp. 1979),

the First Use Tax Trust Fund, La. Rev. Stat. Ann.

§ 47:1851 (West Supp. 1979), and the Tax Credit

to Operators of Electric Generating Plants and Nat-

ural Gas Distribution Services, La. Rev. Stat. Ann.

§ 47:11 (West Supp. 1979), are set forth at pages

la-20a in the Appendix to Plaintiffs’ Brief in Support

of Motion for Judgment on the Pleadings.

Sections 4, 5, and 7 of the Natural Gas Act of

1938, 15 U.S.C. 717c, 717d, 717f, and Sections 2(18),

110, 121(b), and 601 of the Natural Gas Policy Act

of 1978, Pub. L. No. 95-621, 92 Stat. 3351, 3354,

3368-3369, 3370, 3409-3411 are set forth in the Ap-

pendices, infra, pages la-19a.

THE INTEREST OF THE UNITED STATES AND THE

FEDERAL ENERGY REGULATORY COMMISSION

Plaintiff States’ seek a declaratory judgment that

the Louisiana First Use Tax on Natural Gas? is un-

constituticnal and an order permanently restraining

the collection of the tax and compelling the refund of

all revenues collected plus “all interest earned on such

revenues” (Complaint at 6 J II). After the Court

1 Plaintiffs are the States of Maryland, Illinois, Indiana,

Michigan, New York, Rhode Island, Wisconsin, and the

Commonwealth of Massachusetts. Plaintiffs sue “in their

proprietary capacities as substantial purchasers of natural

gas” subject to the First Use Tax, and in their parens patriae

capacities on behalf of their citizens who will purchase such

gas (Complaint at 6-7 § III). Subsequent to the Court’s grant-

ing of the plaintiffs’ Motion for Leave to File the Complaint,

New Jersey filed a motion for leave to intervene, to file a

complaint, and a brief in support thereof. Seventeen inter-

state natural gas pipeline companies have also sought leave to

intervene. Finally, a motion for leave to file a brief amicus

curiae and the brief have been filed on behalf of Associated

Gas Distributors.

2 Act No. 294, 1978 La. Sess. Law Serv. 482 (West), codified

as La. Rev. Stat. Ann. §§ 47:1301-47:1307 (West Supp. 1979)

(Mot. App. la-8a). Hereinafter, the various provisions of

the act will be referred to by the section number used in the

codification, and the act itself will be referred to as the

“First Use Tax” or the “Act”.

granted plaintiffs’ Motion for Leave to File the Com-

plaint, and directed Louisiana to answer, Louisiana

answered the complaint, and moved for appointment

of a Special Master. Plaintiffs have now moved for

judgment on the pleadings with respect to certain

claims presented in the complaint and have filed an

answer in opposition to the motion for appointment of

a Special Master. In response, Louisiana has filed a

motion to dismiss the complaint.

The Act in question imposes a tax on seven cents

per thousand cubic feet (“Mcf”) by the State of

Louisiana on the first “use” of natural gas in Louisi-

ana originating outside of that state that moves in

interstate commerce. The principal impact of the tax

is on gas produced from federally leased areas on the

Outer Continental Shelf (“OCS gas”), and on gas im-

ported from abroad. Because first “use” is defined so

broadly as to include even the measurement of gas

flowing in interstate commerce, the tax will add at

least $225 million per year to the cost of gas used by

consumers in approximately 30 states.

As a consumer of natural gas in the operation of

military and civilian installations, the United States

is directly affected by the additional costs imposed by

the First Use Tax. The United States is also the

lessor under leases authorizing various persons to

produce natural gas from federal enclaves and the

Outer Continental Shelf, over which it has exclusive

jurisdiction (see 43 U.S.C. 1331-1343). If the federal

government’s lessees are compelled to pay the First

Use Tax, the revenues received by the United States

from these leases could be significantly affected.

Moreover, under the Constitution, the federal gov-

ernment is responsible for the regulation of interstate

and foreign commerce. It is therefore directly con-

cerned with any state tax that may improperly burden

or operate inconsistently with those functions.

Finally, the First Use Tax directly conflicts with

the authority of the Federal Energy Regulatory Com-

mission. Under the Natural Gas Act, 15 U.S.C. 717-

717w,® and the Natural Gas Policy Act of 1978

(“NGPA”), Pub. L. No. 95-621, 92 Stat. 3351

(1978), the Commission is responsible for the regu-

lation of the interstate sale and transportation of

natural gas and the cost and rates of pipelines, in-

cluding the apportionment of costs among producers,

processors, and consumers of natural gas. The only

proceeding in which a state tax may be challenged

in Louisiana is a suit for refund of the amounts paid

under protest.‘ Because the First Use Tax falls

principally on gas moving in interstate commerce, the

Commission has been forced to promulgate regulations

that would permit interstate pipelines to pass along

in their rates the additional costs resulting from the

imposition of the tax to their customers, subject to

refund if the tax is ultimately held to be unconsti-

3 See page 11, note 20, infra.

‘La. Rev. Stat. Ann. §47:1576 (West Supp. 1979).

Neither injunctive nor declaratory relief restraining the col-

lection of a tax prior to payment is available. Sections

47:1575, 47:1576.

tutional.’ Thus, the Louisiana tax has imposed sub-

stantial administrative and regulatory burdens upon

the Commission.

STATEMENT

1. The Nature of the Louisiana Tax. The First

Use Tax imposes a volume tax of seven cents per

thousand cubic feet (subject to certain exclusions),

upon the first “use” within Louisiana of any natural

gas that is not subject to any severance or production

tax levied by Louisiana or any other state or territory

of the United States, or is not subject to any import

tax or tariff levied by the United States on imports

from foreign countries. La. Rev. Stat. Ann.

§ 47:1303 A (West Supp. 1979) (Mot. App. 4a-5a).°

The rate of the tax is equivalent to the rate of the

Louisiana severance tax on natural gas.’

5 State of Louisiana First Use Tax in Pipeline Rate Cases,

Order No. 10, 48 Fed. Reg. 45553 (1978), Order No. 10-A,

43 Fed. Reg. 60438 (1978), Order No. 10-B, 44 Fed. Reg.

138460 (1979), petitions for review pending sub nom. Ten-

nessee Gas Pipeline Company, et al. v. Federal Energy Reg-

ulatory Commission, No. 78-3816 (5th Cir.).

® The tax does “‘not apply to natural gas otherwise subject

thereto * * * used or consumed in the drilling for or produc-

tion of oil, natural gas, sulphur, or in the processing of

natural gas for liquids extraction within [Louisiana]; [or]

to gas shrinkage volumes attributable to the extraction of

ethane, propane, butanes, natural or casinghead gasoline or

other liquefied hydrocarbons. * * * [; or] to natural gas

used or consumed in the manufacture of fertilizer and

anhydrous ammonia within [Louisiana].” Section 47:1303 A

(emphasis added).

7™See La. Rev. Stat. Ann. § 47:633(9) (a) (West Supp.

1979).

The term “use” is defined broadly as “[1] the sale;

[2] the transportation in [Louisiana] to the point

of delivery at the inlet of any processing plant; [3]

the transportation in [Louisiana] of unprocessed

natural gas to the point of delivery at the inlet of

any measurement or storage facility; [4] transfer of

possession or relinquishment of control at a delivery

point in [Louisiana]; [5] processing for the extraction

of liquefiable component products or waste materials;

[6] use in manufacturing; [7] treatment; or [8]

other ascertainable action at a point within [Louisi-

ana].” La. Rev. Stat. Ann. § 47:1302(8) (West Supp.

1979) (Mot. App. 4a).° The First Use Tax recites that

it is “a cost associated with uses made by the owner in

preparation of [sic] marketing of the natural gas,”

(La. Rev. Stat. Ann. § 47:1303 C) (West Supp.

8If any enumerated use “first occurring is determined not

to be a constitutionally taxable incident, the tax shall be

imposed upon the use first occurring thereafter.” La. Rev.

Stat. Ann. § 47:1303 F (West Supp. 1979) (Mot. App. 6a).

The Act provides that if the section reciting that the tax

is a cost associated with uses made by the owner in prepara-

tion or marketing of the gas is held invalid, the entire Act

shall be void. §4(2), 1978 La. Sess. Law Serv. 486 (Mot.

App. 8a). The remaining parts of the Act are severable.

Sections 2, 4, 1978 La. Sess. Law. Serv. 485, 486 (Mot. App.

7a, 8a).

® La. Rev. Stat. § 47:1802(9) (West Supp. 1979) (Mot. App.

4a) defines “owner” as “the person having title to and the

right to alienate the natural gas subject to the tax at the

time a use occurs in [Louisiana except] any person to whom

temporary possession or control has been transferred. In

the event of a sale the purchaser shall be deemed the owner.”

1979)° and not a tax on the natural gas itself.” The

First Use Tax also expressly abrogates provisions of

existing contracts which underlie and form the basis

for certificates of public convenience and necessity is-

sued by the Federal Energy Regulatory Commission

concerning the apportionment of taxes among sellers,

processors, and purchasers of gas. See La. Rev. Stat.

Ann. § 47:1303 C (West Supp. 1979) (Mot. App. 5a).

The First Use Tax is not levied on gas subject to a

production or severance tax imposed by Louisiana or

any other state or any import tax imposed by the

United States. Almost every state, including Louisi-

ana," has a severance tax. However, the United

States does not levy any import taxes upon gas from

abroad.” As a result, the impact of the First Use Tax

is on gas produced from federal enclaves or from the

Outer Continental Shelf (to which state severance

taxes do not apply)** or on gas imported from foreign

10 The First Use Tax statute recites that it is not imposed

“on the production, severance, or ownership of natural gas

produced outside of the boundaries of the State of Louisiana

* * * [and] that the incidence of this tax shall not be upon

the natural gas nor upon the property or rights from which

it is produced, but rather shall be only upon the privilege

of performance or allowing the performance, by the owner

of the enumerated actions comprising first use within [Louisi-

ana].” La. Rev. Stat. Ann. § 47:1303 E (West Supp. 1979)

(Mot. App. 6a).

11 La. Rev. Stat. Ann. §§ 47:631-47:646 (West 1970).

12 See 72 Stat. 72, 19 U.S.C. 1202, Schedule 4, Part 10, Item

475.15.

18 F'.g., Mississippi River Fuel Corp. v. Cocreham, 382 F.2d

929 (5th Cir. 1967), cert. denied, 390 U.S. 1014 (1968);

countries.“* While the First Use Tax is applicable to

gas from all of these three sources, the Louisiana

legislature intended that the principal target of the

tax would be OCS gas.”

What is more, the practical impact falls on gas

that passes through the state, since Louisiana allows

all electric generating utilities, gas distribution com-

panies, and other persons in Louisiana who purchase

natural gas directly from an interstate pipeline a

credit against their Louisiana state and local taxes

for any increases in the transportation and marketing

costs for federal-domain Outer Continental Shelf gas

accord, Humble Pipe Line Co. v. Waggonner, 376 U.S. 369

(1964). See also Outer Continental Shelf Lands Act, Section

4(a) (2), Pub. L. No. 83-212, 67 Stat. 462, 43 U.S.C. 1333

(a) (2).

14The First Use Tax will fall on gas imported directly

into Louisiana, and on gas first imported into another state

which flows through Louisiana. Beginning in 1980, liquefied

natural gas from Algeria will be imported into the United

States through facilities located near Lake Charles, Louisiana.

Trunkline Gas Co., et al., Docket No. CP74-138, et al., Opinion

No. 796-A (June 30, 1977). In addition an agreement has been

reached with the Republic of Mexico for the importation of

natural gas from that country. See Washington Post, Sept.

22, 1979, page Al, col. 5. This gas will be imported through

existing and proposed facilities at Reynosa, Mexico, near

Hidalgo, Texas. Border Gas, Inc., Docket No. CP80-75, Ap-

plication for Authority pursuant to Section 3 of the Natural

Gas Act to Import Natural Gas from Mexico, at 2 (filed No-

vember 9, 1979). Initially, that gas will be imported into

the United States through facilities owned by Texas Eastern

Transmission Corporation. Jd. at 3-4. A portion of such gas

will be transported through Louisiana and will therefore be-

come subject to the First Use Tax.

15 See Hearings on H.B. 768 Before the Revenue and Fiscal

Affairs Committee of the Louisiana Senate, 1 (Governor

which they purchase.** Because Louisiana has char-

acterized the First Use Tax as a cost of transporting

and marketing gas (La. Rev. Stat. Ann. § 47:1303

C, E (West Supp. 1979)), this credit allows Louisi-

ana consumers who consume gas subject to the First

Use Tax to offset increased rates for natural gas

attributable to that tax through reductions in other

taxes paid to Louisiana. Indeed, the very purpose of

the credit is to ensure that Louisiana consumers do

not bear any of the costs associated with the First

Use Tax.” a

2. The Federal Regulation of Natural Gas. Two

statutes—the Natural Gas Act™* and the Natural

Gas Policy Act of 1978 *—prescribe the nature and

extent of federal regulation of the sale and trans-

portation of natural gas in interstate commerce.

Edwards), 3 (Rep. Tauzin), 138 (Mr. Slaton) (1978); Hear-

ings on H.B. 768 Before the Committee on Ways and Means of

the Louisiana House of Representatives, 7 (Rep. Tauzin)

(Hearing of June 5, 1978); id. at 8-9, 16 (Mr. Brooksher),

25-36 (Mr Woodward) (Hearing of June 6, 1978).

16 See Act No. 599, Tax Credits to Operators of Electric

Generating Plants and Natural Gas Distribution Services,

1978 La. Sess. Law. Serv. 1112, codified as La. Rev. Stat. Ann.

§ 47:11 (West Supp 1979).

17 Hearings on H.B. 768 Before The Committee On Ways

and Means of the Louisiana House of Representatives, supra,

at 4 (Colloquy between Representative Tauzin and unidenti-

fied speakers), 5 (Colloquy between Representatives Sour

and Bagert), 6 (Representative Laborde) (Hearing of June

5, 1978).

1815 U.S.C. 717-717w.

19 Pub. L. No. 95-621, 92 Stat. 3351.

a. The Natural Gas Act. The Natural Gas Act

conferred upon the Federal Power Commission the

authority to regulate “the transportation of natural

gas in interstate commerce [and] the sale [of natural

gas] in interstate commerce for resale to consumers.”

California v. Southland Royalty Co., 486 U.S. 519,

524 (1978). Sales for resale by producers are like-

wise subject to regulation under the Act. Phillips

Petroleum Co. v. Wisconsin, 347 U.S. 672 (1954).

Section 7 of the Natural Gas Act prohibits any

person from selling or transporting natural gas in

2°>On October 1, 1977, pursuant to the Department of

Energy Organization Act (“DOE Act’), Pub. L. No. 95-91,

91 Stat. 565, 42 U.S.C. (Supp. I) 7101, et seq., and Execu-

tive Order No. 12,009, 42 Fed. Reg. 46267 (1977), the Federal

Energy Regulatory Commission (DOE Act, Section 401(a),

42 U.S.C. (Supp. I) 7171(a)) succeeded to certain functions

of the Federal Power Commission. The successor Commission

continues to have the authority to establish rates and charges

for the transportation and sale for resale of natural gas in in-

terstate commerce, to issue certificates of public convenience

and necessity, and to regulate abandonments of service. DOE

Act Section 402(a) (1) (C), (D), 42 U.S.C. (Supp. I) 7172 (a)

(1) (C), (D). In addition, the Secretary of Energy, pursuant

to Sections 402(e) and 642 of the DOE Act, 42 U.S.C. (Supp.

I) 7172(e) and 7252, the Secretary of Energy has delegated to

the Commission the authority to determine rates and charges,

and to issue certificates of public convenience and necessity,

for the sale or transportation of natural gas imported into the

United States from a foreign country. Importation and Ex-

portation Of Natural Gas, 43 Fed. Reg. 47769, 47772 (1978).

The Commission also succeeded to the authority of the

Interstate Commerce Commission to establish rates and

charges for the transportation of oil by pipeline and the

valuation of such pipelines. See DOE Act, Section 402(b),

42 U.S.C. (Supp. I) 7172(b).

interstate commerce without first obtaining a certifi-

cate of public convenience and necessity from the

Commission. See 15 U.S.C. 717f(c). Section 7(e)

provides that the “Commission * * * [may] attach

to * * * [such] certificate[s] * * * such reasonable

terms and conditions as the public convenience and

necessity may require” (15 U.S.C. 717f(e)). Finally,

Section 7(b) prohibits the termination of certificated

service without the prior approval of the Commission.

15 U.S.C. 717£(b) ; e.g., United Gas Pipe Line Co. v.

McCombs, No. 78-17 (June 18, 1979), slip op. 6-10;

California v. Southland Royalty Co., supra.

Once service has commenced, “sections 4 and 5 of

the Natural Gas Act, 15 U.S.C. 717c and 717d,

mandate the Commission to set just and reasonable

rates for the [transportation and] sale of interstate

natural gas.” Federal Energy Regulatory Commis-

sion v. Pennzoil Producing Co., 439 U.S. 508, 517

(1979). All such rates and contracts affecting such

rates must be just and reasonable. Section 4(a), 15

U.S.C. 717c(a). Accordingly, all rates and contracts

must be filed with the Commission (Section 4(c), 15

U.S.C. 717¢(c) ), which may suspend temporarily the

operation of, and investigate, newly filed rates and

contracts. If the Commission finds that any rate or

contract is not just and reasonable, it “shall determine

the just and reasonable rate, * * * or contract * * *”

(Sections 5(a), 15 U.S.C. 717d(a) ).

b. The Natural Gas Policy Act. The Natural Gas

Policy Act of 1978 (NGPA) modifies the scheme of

producer regulation under the Natural Gas Act. It

prescribes maximum lawful prices for all natural gas

produced in the United States and rules for recovery

of those costs in interstate transactions, excludes cer-

tain “first sales” of natural gas from the Commis-

sion’s jurisdiction under the Natural Gas Act. It

does not, however, alter the Commission’s jurisdiction

over the transportation of natural gas in interstate

commerce, or any sales for resale subsequent to first

sales by interstate pipeline. except as provided in

Section 601, 92 Stat. 3409-3411. Nor does the NGPA

modify the Commission’s authority over the trans-

portation of liquid and liquefiable hydrocarbons by

pipeline in interstate commerce pursuant to the DOE

Act and the Natural Gas Act.

The NGPA specifies inaximum lawful prices for all

“first sales” ** of natural gas produced in the United

states, whether sold in interstate commerce or intra-

state commerce.” NGPA Sections 102-109, 92 Stat.

3358-3368. These prices may be adjusted for state

severance taxes * and for “any costs of compressing,

gathering, processing, treating, * * * or transporting

such natural gas, * * * borne by the seller and allowed

for * * * by the Commission.” *

21 A “first sale” is “any [sale, exchange, or other transfer

for value] of any volume of natural gas * * * to any inter-

state * * * or intrastate pipeline, * * * local distribution

company[,] or [user of natural gas,] and [any sale] * * *

which precedes or follows any [such] sale * * * and is de-

fined by the Commission as a first sale in order to prevent

circumvention of any maximum lawful price established

under this Act.” NGPA Section 2(21), 92 Stat. 3355.

22 These maximum prices may be collected only if contrac-

tually authorized. NGPA Section 101(b) (9), 92 Stat. 3358.

28 NGPA Section 110(a) (1), 92 Stat. 3369.

24 NGPA Section 110 (a) (2), 92 Stat. 3869.

The maximum lawful prices authorized by the

NGPA are deemed just and reasonable for purposes

of the Natural Gas Act. NGPA Section 601(b) (1)

(A), 92 Stat. 3410. Thus, the “Commission may

not deny, or condition the grant of, any certificate

under section 7 of the Natural Gas Act based upon

the amount paid in any [first] sale * * * if such

amount is deemed to be just and reasonable under

subsection (b)” (Section 601(c) (1), 92 Stat. 3411).

Likewise, the Commission may not “deny any inter-

state pipeline [the right to recover] any amount paid

[for] any purchase of natural gas if * * * under

subsection (b) * * *, such amount is deemed just and

reasonable for purposes of sections 4 and 5 of [the

Natural Gas] Act” (Section 601(c) (2) (A), 92 Stat.

3411).

The NGPA also excludes from the Commission’s

jurisdiction under the Natural Gas Act certain first

sales of natural gas in interstate commerce and per-

sons making only such sales. Natural gas not “com-

mitted or dedicated to interstate commerce” before

the effective date of the NGPA never becomes subject

to the Commission’s jurisdiction even if sold in a

first sale in interstate commerce. NGPA Section

601(a)(1)(A), 92 Stat. 3409.% However, gas is

“committed or dedicated to interstate commerce” if

25The Commission’s jurisdiction under the Natural Gas

Act also ceases with respect to first sales of certain classes

of natural gas which were committed or dedicated to inter-

state commerce prior to the effective date of the NGPA.

Section 601 (a) (1) (B), 92 Stat. 3409.

it “is from the Outer Continental Shelf” or, if it

would be required to be sold in interstate commerce

(within the meaning of the Natural Gas) under the

terms of any contract, any certificate under the Nat-

ural Gas Act, or any provision of such Act.” NGPA

Section 2(18) (A), 92 Stat. 3354; H.R. Rep. No. 95-

1752, 95th Cong., 2d Sess. 71 (1978).

Under Section 3ll1(a) of the NGPA (92 Stat.

3388-3389), the Commission may authorize interstate

pipelines to transport natural gas for intrastate pipe-

lines and local distribution companies (Section 311

(a) (1), 92 Stat. 3388), and intrastate pipelines to

transport natural gas for interstate pipelines and

local distribution companies served by interstate pipe-

lines (Section 311(a)(2), 92 Stat. 3389). Such

transportation and the persons providing the trans-

portation service are not subject to the Commission’s

jurisdiction under the Natural Gas Act. NGPA Sec-

tion 601(a) (2), 92 Stat. 3409-3410. The Commission

may also authorize intrastate pipelines to sell natural

gas to interstate pipelines or local distribution com-

panies served by interstate pipelines, or to assign the

right to purchase natural gas to such persons. NGPA

Sections 311(b), 312, 92 Stat. 3889-3391, 3392.

These sales and the persons making them are not

subject to the Commission’s jurisdiction under the

Natural Gas Act. NGPA Section 601(a)(1)(C),

(D), 92 Stat. 3409.

In sum, the Commission’s jurisdiction under the

Natural Gas Act over the transportation of natural

gas in interstate commerce and sales for resale in

interstate commerce other than “first sales’ remains

undisturbed except as noted above. The Commission

continues to determine the terms on, and rates and

charges at, which natural gas may be transported in

interstate commerce pursuant to the provisions of the

Natural Gas Act.** The only limitations on this au-

thority are the requirement that the Commission may

not deny, or condition a certificate to require gas to

be sold at a price other than that permitted under

the NGPA, or deny full recovery of amounts paid to

purchase such gas if the price paid for such gas is

deemed just and reasonable (NGPA Section 601(c),

92 Stat. 3411), and the exclusion of certain sales and

transportation arrangements from its jurisdiction

under the National Gas Act (NGPA Section 601 (a)

(1)(C), (D), (2), 92 Stat. 3409-3410).

SUMMARY OF ARGUMENT

The Louisiana First Use Tax conflicts with the fed-

eral regulation of the sale and transportation of

natural gas in interstate commerce and is therefore

invalid under the Supremacy Clause of the Constitu-

tion. Although couched in terms of a tax on the “use”

of natural gas, the principal impact of the levy is to

increase the price of gas extracted from federally-

leased areas on the Outer Continental Shelf and from

federal enclaves or of gas imported from abroad and

26 It also continues to prescribe rates and charges for the

transportation of liquid and liquefiable hydrocarbons. See

page 11, note 20, supra, and pages 32-33, note 36, infra.

shipped through Louisiana in interstate commerce.

Since Congress by the Natural Gas Act and the Nat-

ural Gas Policy has vested in the Federal Energy

Regulatory Commission the exclusive authority to set

rates for the sale and transportation of such natural

gas in interstate commerce, the Louisiana tax is in-

compatible with the federal regulatory scheme.

Contrary to the assertion of Louisiana, the deci-

sions of this Court establish that the interstate jour-

ney of the gas subject to tax is not interrupted by the

occurrence of any of the taxable “uses” enumerated

in the Louisiana statute unless the gas is sold for

ultimate consumption in Louisiana. Thus, whatever

the extent of processing or treatment that occurs

within Louisiana, it is settled that such processing

does not break the interstate journey of gas that is

produced outside of Louisiana and is brought into

and/or through Louisiana for ultimate consumption

in other states. It is therefore clear that the Louisi-

ana tax trenches upon “matters which directly affect

the ability of the [Commission] to regulate compre-

hensively and effectively the transportation and sale

of natural gas, and to achieve the uniformity of regu-

lation which [is] an objective of the Natural Gas Act

[and the Natural Gas Policy Act].” Northern Natu-

ral Gas Co. v. Kansas Commission, 372 U.S. 84, 91-

92 (1963).

II.

The Louisiana First Use Tax is also invalid under

the Commerce Clause. The Commerce Clause flatly

prohibits state taxation of goods that are merely in

transit through the state when the tax is assessed.

Michigan-Wisconsin Pipe Line Co. v. Calvert, 347

U.S. 157 (1954). While the Louisiana tax is char-

acterized as “upon the privilege of performance or

allowing the performance by the owner, of the enum-

erated actions comprising first use within Louisiana”

(La. Rev. Stat. Ann. § 47:1803 E (West Supp. 1979)

(Mot. App. 6a)), the provisions of the Act dem-

onstrate that the tax falls on the transportation of

the natural gas within Louisiana, not the privilege

of use. Stripped to its essentials, the Louisiana levy

is nothing more than an “unapportioned levy on the

transportation of the entire volume of gas” Wash.

Rev. Dept. v. Stevedoring Ass’n, 485 U.S. 734, 749

n. 18).

Even if the Louisiana First Use Tax is not simply

a transit levy on gas moving in interstate commerce,

it is nevertheless invalid because it is not fairly ap-

portioned and because it discriminates against inter-

state commerce. It is not related to either the value

of identifiable activities occurring within the taxing

state, the taxpayer’s investment in facilities within

the state, its gross income from business or the per-

centage of business conducted within the state, or the

length of the facilities or distance traveled within the

state.

The Louisiana tax also discriminates against inter-

state commerce in two distinct ways. First, while

Louisiana has prohibited the purchasers of gas sub-

ject to the tax from shifting it to the producer, it does

not prohibit purchasers of gas subject to its severance

tax from shifting all or part of the tax to the pro-

ducer. The practical effect of prohibiting the shifting

of the First Use Tax, while allowing the shifting of

the severance tax, is to impose a tax on Outer Conti-

nental Shelf, federal enclave, and imported gas which

is greater than the tax imposed on gas _—

within Louisiana.

Finally, the Louisiana First Use Tax discriminates

against interstate commerce by requiring out-of-state

consumers to bear the entire burden of the levy. This

discrimination is accomplished by a system of credits

designed to ensure that Louisiana consumers are re-

lieved of any First Use Tax liability. The Louisiana

tax therefore “falls short of the substantially even-

handed treatment demanded by the Commerce

Clause.” Boston Stock Exchange v. State Tax

Comm’n, 429 U.S. 318, 382 (1977).

III.

The resolution of the questions presented does not

require the appointment of a Special Master. The

decisions of this Court establish as a matter of law

that the gas moves in interstate commerce when the

enumerated taxable uses occur. Once the interstate

movement of the gas is recognized, plaintiffs’ claims

under the Supremacy and Commerce Clauses can be

resolved by testing the Louisiana tax statute under

the precedents of this Court. No evidence is required

on these constitutional questions.

ARGUMENT

I. THE LOUISIANA FIRST USE TAX CONFLICTS

WITH THE FEDERAL REGULATION OF THE

SALE AND TRANSPORTATION OF NATURAL GAS

IN INTERSTATE COMMERCE AND [S THERE-

FORE INVALID UNDER THE SUPREMACY

CLAUSE OF THE CONSTITUTION

A. Introduction

“TI]t was settled even before the passage of the

Natural Gas Act, that direct regulation of the prices

of wholesales of natural gas in interstate commerce

is beyond the constitutional power of the States—

whether or not framed to achieve ends, such as con-

servation, ordinarily within the ambit of state power.”

Northern Natural Gas Co. v. Kansas Commission, 372

U.S. 84, 90 (emphasis in original). In passing the

Natural Gas Act in 1938 and the Natural Gas Policy

Act in 1978, Congress did something more. In the

Court’s words, “[t]he Congress enacted a comprehen-

sive scheme o§ federal regulation of ‘all wholesales of

natural gas in interstate commerce, whether by a

pipeline company or not and whether occurring be-

fore, during, or after transmission by an interstate

pipeline company[,]’ Phillips Petroleum Co. v. Wis-

consin, [3847 U.S. 672] at 682 * * *” (372 USS. at

91) (footnote omitted).

The exclusive federal regulation of the sale and

transportation of natural gas in interstate commerce

preempts all forms of state regulation not expressly

authorized by NGPA. Thus, for example, in Northern

Natural Gas Co. v. Kansas Commission, supra, this

Court held that orders of a state commission—requir-

ing an interstate pipeline company to purchase rat-

ably from all wells connecting with its pipeline system

in each gas field within the state—were an invalid

encroachment upon the exclusive regulatory jurisdic-

tion of the Federal Power Commission. In so holding,

the Court observed that “[t]he federal regulatory

scheme leaves no room either for direct state regula-

tion of the prices of interstate wholesales of natural

gas * * * or for state regulations which would in-

directly achieve the same result. These state orders

necessarily deal with matters which directly affect the

ability of the Federal Power Commission to regulate

comprehensively and effectively the transportation

and sale of natural gas, and to achieve the uniformity

of regulation which was an objective of the Natural

Gas Act. They therefore invalidly invade the federal

agency’s exlusive domain” (372 U.S. at 91-92).

Judged by this standard, the Louisiana First Use

Tax is invalid. Although couched in terms of a tax

on the “use” of natural gas, we shall show that the

principal impact of the levy is to increase the price of

gas extracted from federally-leased areas on the

Outer Continental Shelf and federal enclaves or of

gas importea from abroad and shipped through Lou-

isiana in interstate commerce. Indeed, the term “use”

is defined so broadly as to include any “ascertainable

action at a point within [Louisiana]” taken with re-

spect to such gas shipped in interstate commerce.

Since Congress has vested in the Federal Energy

Regulatory Commission the exclusive authority to set

rates for the sale and transportation of such natural

gas, the Louisiana tax is incompatible with the fed-

eral regulatory scheme.

Like the plaintiff states, we believe that the invalid-

ity of the Louisiana tax can be demonstrated as a

matter of law on the pleadings and that there are no

factual questions that require the appointment of a

Special Master. Once it is recognized that the impact

of the Louisiana tax is on gas produced from fields

located on the Outer Continental Shelf, or from fields

within federal enclaves, or from abroad and trans-

ported across Louisiana, and that such gas moves

in interstate commerce, the exclusive federal regu-

latory jurisdiction over such gas, and the incom-

patibility of the tax with that exclusive jurisdiction,

are established. We therefore now turn to a de-

scription of the mechanics of the Louisiana tax and

the movement of the natural gas upon which it is

imposed.

B. The Gas Subject To The First Use Tax Moves In

Interstate Commerce

As we have already explained, the Louisiana First

Use Tax applies to three categories of natural gas:

OCS gas, federal enclave gas and imported gas. Gas

in each of these three categories moves in interstate

commerce as that term is defined by the decisions of

this Court.

It has long been established that natural “gas which

crosses a state line at any stage of its movement from

welhead to ultimate consumption[,]” or gas which

is commingled with gas so moving, is in interstate

commerce during the entire journey. California v.

Lo-Vaca Gathering Co., 379 U.S. 366, 369 (1965).”

That journey commences at the wellhead (California

v. Lo-Vaca, supra; East Ohio Gas Co. v. Tax Com-

mission, 283 U.S. 455 (1931)). It ends after the

pressure is reduced and the gas is delivered into local

distribution systems for ultimate consumption (Fed-

eral Power Commission v. East Ohio Gas Co., 338 U.S.

464, 472-473 (1950) ; Hast Ohio Gas Co. v. Tax Com-

mission, supra, 283 U.S. at 470), or after the gas is

delivered to an industrial user for consumption (15

U.S.C. 717(b)), or to a distribution company, or

intrastate pipeline, which is subject to state or local

regulation, at the border of, or within, a state, and

the gas is actually consumed within that state (15

U.S.C. 717(c)). This standard applies to each of the

categories of gas involved in this case.

a. OCS gas. OCS gas is produced from “field[s]

* * * located outside the borders of any state and any

gas taken will have to be transported across state lines

for sale within the United States.” Continental Oil

Co. v. Federal Power Commission, 370 F.2d 57, 66

27 See also Federal Power Commission v. East Ohio Gas

Co., 388 U.S. 464, 467, 469-472 (1950); Interstate Natural

Gas Co. v. Federal Power Commission, 331 U.S. 682, 687-689

(1947) ; Illinois Natural Gas Co. v. Central Illinois Public

Service Co., 314 U.S. 498, 503-506 (1942) ; Hast Ohio Gas Co.

v. Tax Commission of Ohio, 283 U.S. 465, 470 (1931); Peo-

ples Natural Gas Co. v. Public Service Commission of Penn-

sylvania, 270 U.S. 550, 554 (1926) ; Lowisiana Public Service

Commission V. Federal Power Commission, 359 F.2d 525, 527-

528 (5th Cir. 1966) ; Deep South Oil Co. of Texas v. Federal

Power Commission, 247 F.2d 882, 887-889 (5th Cir. 1957),

cert. denied, 355 U.S. 980 (1958).

(5th Cir. 1966) (emphasis in original), cert. denied,

388 U.S. 910 (1967). Thus, “the onshore movement

of gas produced in tie Federal domain offshore Louisi-

ana constitutes interstate commerce within the mean-

ing of the Natural Gas Act * * *.” Chandeleur Pipe

Line Co., 42 F.P.C. 25 (1969). See also United Gas

Pipe Line Co., 30 F.P.C. 560, 563-564 (1963). Fur-

thermore, most of the OCS gas which enters Louisi-

ana is transported through that state for ultimate

consumption in other states. This interstate move-

ment is not interrupted by any of the taxable uses

described in La. Rev. Stat. Ann. § 47:1302(8) (West

Supp. 1979), unless the gas is sold to a local distribu-

tion company, intrastate pipeline, or user of gas within

Louisiana, for ultimate consumption there.

b. Federal enclave gas. Federal enclave gas from

Barksdale Air Force Base also moves in interstate

commerce. That gas is processed near the field in

plants owned by Union Texas Petroleum Company

and Arkansas Louisiana Gas Company. The gas is

then delivered to Arkansas Louisiana Gas Company,

Mississippi River Transmission Corporation, Texas

Gas Transmission Company, and United Gas Pipe

Line Company. Some of this gas is sold to distribu-

tion companies and directly to industrial and other

users in Louisiana; the remainder is transported to

28 Hearings on H.B. 768 Before the Committee on Ways and

Means of the Louisiana House of Representatives, 7 (Rep.

Tauzin) (Hearing of June 5, 1978) ; id. at 9 (Mr. Brooksher)

(Hearing of June 6, 1978) ; Hearings on H.B. 768 Before the

Revenue and Fiscal Affairs Committee of the-Louisiana Sen-

ate, 4 (Rep. Tauzin) (1978).

out-of-state consumers. The total volume of gas from

Barksdale Air Force Base either moves in interstate

commerce or is commingled with such gas. Thus, such

federal enclave gas moves in interstate commerce

from the time it leaves the wellhead until it is sold

for ultimate consumption within Louisiana or other

states.

c. Imported gas. Gas imported from Mexico will

enter the United States through existing connections

near Hidalgo, Texas, where it will enter facilities

operated by Texas Eastern Transmission Corpora-

tion. In these facilities, the imported gas will be

commingled with gas produced in Texas, and the

commingled stream will be transported into Louisiana,

where some of the stream will be sold, and then on to

other states where the remainder is sold for ultimate

consumption. The movement of this imported gas

into and/or through Louisiana is in interstate com-

merce.

Gas imported from Algeria as liquefied natural gas

is carried in special tankers that will dock near Lake

Charles, Louisiana. There, the gas will be tempo-

rarily stored, vaporized, and delivered to Trunkline

Gas Company for transportation through Louisiana

for sale and delivery to consumers in Louisiana and

other states. Trunkline LNG Co., et al., Opinion No.

796 (Apr. 29, 1977) 2-3. The movement of the

liquefied gas to the onshore storage tanks is in inter-

state, if not foreign, commerce. See Atlantic Coast Line

R.R. v. Standard Oil Co., 275 U.S. 257, 267 (1927).

And the movement of the vaporized gas in Trunk-

line’s interstate pipeline is clearly in interstate com-

merce.

C. The Taxable “Uses” Enumerated In The Louisiana

Statute Do Not Interrupt The Journey Of The Gas

In Interstate Commerce

Louisiana does not dispute the fact that each of the

three categories of gas to which the First Use Tax

applies—OCS gas, federal enclave gas, and imported

gas,—moves in interstate commerce. It contends, how-

ever, that extensive processing and treatment of the

gas occurs in Louisiana and that these activities in-

terrupt the journey of the gas in interstate commerce

and thereby justify imposition of the tax (see Motion

to Dismiss, 22-26; Answer at 11, ] XXXV; 13, ] XL).

But the decisions of this Court establish that the

interstate journey of OCS, federal enclave, and im-

ported natural gas is not interrupted by the occur-

rence of any of the taxable “uses” enumerated in the

Louisiana tax statute unless the gas is sold for ulti-

mate consumption in Louisiana. Thus, whatever the

extent of processing or treatment that occurs within

Louisiana, it is settled that such processing does not

break the interstate journey of gas that is produced

outside of Louisiana and is brought into and/or

through Louisiana for ultimate consumption in other

states. We turn now to a discussion of each of the

taxable “uses” enumerated in the Louisiana First Use

Tax Statute.

1. The “sale” or “transfer of possession or relin-

quishment of control at a delivery point [within

Louisiana]” (La. Rev. Stat. Ann. § 47:1302(8)

(West Supp. 1979) ) does not necessarily interrupt the

interstate movement of gas subject to the First Use

Tax. Jllinois Natural Gas Co. v. Ceniral Illinois Pub-

lic Service Co., supra, 314 U.S. at 503-504; Peoples

Natural Gas Co. v. Public Service Commission, 270

U.S. 550, 554 (1926).

In transactions involving gas that is sold and/or

delivered to another pipeline, which transports the

gas, or commingles it with gas transported, out of

Louisiana, or sells and/or delivers the gas to a third

pipeline, which transports the gas out of Louisiana,

“the particular point at which the title and custody

of the gas pass to the purchaser, without: arresting

its movement to its intended destination, does not

affect the essential interstate nature of the business.”

Illinois Natural Gas Co. v. Central Illinois Public

Service Co., supra, 314 U.S. at 503-504.”

2° On the other hand, if the gas is sold and delivered to an

intrastate pipeline, or distribution company at the border of,

or within, Louisiana, and is actually consumed within that

state, it ceases to be in interstate commerce once that delivery

is made. 15 U.S.C. 717(c) ; Illinois Natural Gas Co. v. Central

Illinois Public Service Co., supra, 314 U.S. at 503-504; Federal

Power Commission v. East Ohio Gas Co., supra, 338 U.S. at

472-473. The same is true if gas is sold and delivered to an

industrial or other user within Louisiana. 15 U.S.C. 717(b) ;

Panhandle Eastern Pipe Line Co. v. Public Service Commis-

sion, 332 U.S. 507 (1947).

Gas which is subject to the First Use Tax and which is

“use[d] in manufacturing” in Louisiana (§ 47:1302(8)) has

ceased to be in interstate commerce with its delivery to the

manufacturer, or the local distribution company or intrastate

pipeline which serves that manufacturer.

2. The “transportation in [Louisiana] to the point

of delivery at the inlet of any processing plant” or

“the transportation in [Louisiana] of unprocessed gas

to the point of delivery at the inlet of any measure-

ment or storage facility’ (La. Rev. Stat. Ann.

§ 47:1302(8)) by an interstate pipeline does not

interrupt the interstate movement of the gas. To the

contrary, such transportation is an inseparable seg-

ment of the interstate movement of the gas from the

wellhead to the ultimate consumers located in Louisi-

ana and in other states. Cf. Michigan-Wisconsin Pipe

Line Co. v. Calvert, 347 U.S. 157, 163 (1954); Area

Rate Proceeding (Southern Louisiana Area), 40 F.P.C.

530, 611 (1968).

3. The delivery of gas to the operator of a treating

and/or processing plant, treatment of the gas for re-

moval of impurities and/or waste products, and proc-

essing to extract liquid and liquefiable hydrocarbons

(see § 47:1302(8)) do not interrupt the interstate

movement. Instead, as this Court has observed, the

“Tt}he entire movement of the gas, from the produc-

ing wells through the [processing plants] and into

the [interstate] pipeline[s] to consumers outside

[Louisiana] is a steady and continuous flow.” Michi-

gan-Wisconsin Pipe Line Co. v. Calvert, 347 U.S.

157, 163 (1954); Interstate Natural Gas Co. v. Fed-

eral Power Commission, 331 U.S. 682, 685 n.7

(1947). Thus, “processing does not interrupt the

continuous movement of the gas from the wellhead

to consumer burner tips * * *.” Deep South Oil Co.

v. Federal Power Commission, supra, 247 F.2d at 888.

4. The storage of gas within Louisiana by an

interstate pipeline, which may constitute “other as-

certainable action at a point within the state”

(§ 47:1302(8)) does not interrupt the interstate

movement if it is a temporary incident of such move-

ment. Cf. Board of Trade of City of Chicago v. Olsen,

262 U.S. 1, 33-384 (1928).° This gas has moved in

interstate commerce prior to storage and will so move

upon withdrawal from storage in the manner previ-

ously authorized by the Commission until such time as

the Commission, by an amendment to the certificate

authorizing operation of the storage facility, auth-

orizes a different movement. The seasonal storage of

such gas does not break the interstate journey because

the gas is stored to facilitate its movement to the

ultimate consumers, whether in Louisiana or in other

states, during the winter heating season when the

demand for gas is the greatest.” Cf. Champlin Realty

Co. v. Brattleboro, 260 U.S. 366, 376-377 (1922).

The temporary storage of liquefied natural gas to

permit it to be reconverted by vaporization to its

normal gaseous state is likewise a segment in the

movement of the gas from foreign producers to con-

sumers in the United States.” Such storage does not

80 Storage of gas subject to the First Use Tax by an intra-

state pipeline, local distribution company, or industrial or

other consumer of gas within Louisiana presents a different

legal issue. Such gas has ceased to be in interstate commerce.

by reason of the sale of such gas to those persons.

81 See Federal Power Commission National Gas Survey, Vol.

I, at 39-40, 44-46, 47 (1975).

82 National Gas Survey, supra, Vol. II, at 406.

break the interstate movement because it is equivalent

to storage in transit. See Board of Trade of City of

Chicago v. Olsen, 262 U.S. 1, 38-34 (1923); cf. At-

lantic Coast R.R. v. Standard Oil Co., supra, 275

U.S. at 267-270. Nor does the vaporization of the

liquefied natural gas break the interstate journey

because “‘mere changes in the method of transporta-

tion do not affect the continuity of the transit.”

Minnesota v. Blasius, 290 U.S. 1, 10 (1983).

D. The Louisiana Tax Interferes With The Federal

Regulation Of The Transportation And Sale Of

Natural Gas In Interstate Commerce

Once it is recognized that the First Use Tax is

imposed upon OCS, federal enclave, and imported

natural gas, and that each of these categories of gas

move in interstate commerce, it is readily seen that

the Louisiana levy interferes with the federal regu-

lation of the transportation and sale of gas in inter-

state commerce and is therefore invalid under the

Supremacy Clause.*

We focus first on Section 47:1303 C as it inter-

feres with the Commission’s regulation of the trans-

portation and sale of natural gas in interstate com-

33 “Although [these claims are] basically constitutional in

nature, deriving [their] force from the operation of the

Supremacy Clause, Art. VI, cl. 2, they are treated as ‘statu-

tory’ for purposes * * * of deciding statutory claims first to

avoid unnecessary constitutional adjudications.” Douglas v.

Seacoast Products, Inc., 431 U.S. 265, 271-272 & n. 6 (1977) ;

Hagans Vv. Lavine, 415 U.S. 528, 549 (1974).

merce. By the terms of the First Use Tax Act,

§ 4(2), 1978 La. Sess. Law. Serv. 486, if that pro-

vision is unconstitutional, the entire statute becomes

void.** Thus, if the Court holds Section 47:1303 C

invalid under the Supremacy Clause, it need not reach

any of plaintiffs’ other claims.*

Section 47:1303 C declares the First Use Tax to

be “a cost associated with uses made by the owner in

preparation of [sic] marketing of the natural gas[,].”

It abrogates “agreement[s] or contract[s] by which

an owner of natural gas at the time a taxable use

first occurs claims a right to reimbursement or refund

of such taxes from any other party in interest, other

than a purchaser of such natural gas * * * on the

basis that this tax constitutes a cost incurred by such

owner by virtue of the separation or processing of

natural gas for extraction of liquid or liquefiable

hydrocarbons, or * * * any other grounds for reim-

bursement or refund * * *.” Louisiana’s answer

34 See Hearings on H.B. 768 Before the Revenue and Fiscal

Affairs Committee of the Louisiana Senate, 4, 18, 28 (Repre-

sentative Tauzin) (1978).

85 Contrary to Louisiana’s denial (Answer at 17-18

4] XLVIII), Section 47:1303 C is a regulation of the trans-

portation and sale of natural gas in interstate and foreign

commerce. To “ ‘regulate’ is to lay down the rule by which a

thing shall be done.” Federal Power Commission v. Corpora-

tion Commission of Oklahoma, 362 F.Supp. 522, 532 (W.D.

Okla. 1973) (three judge court), aff’d per curiam, 415 U.S. 961

(1974). As it prescribes “the rule by which natural gas pro-

duced [outside of Louisiana’s taxing jurisdiction] may move

from [Louisiana] to other states[,] [§ 47:1803 C] consti-

tute[s], therefore, a regulation * * *” (362 F. Supp. at 533).

states that “the sole purpose, intent, and application

of [47:1303 C is] to ensure that the First Use Tax

will not unreasonably burden any person within the

interstate commerce stream but will be passed along

to the ultimate users and consumers.” Answer at 2]

§ LX. It is therefore plain that Section 47:1303 C

seeks to regulate the apportionment of costs among

producers, processors, and pipelines, and therefore in-

terferes with the Commission’s jurisdiction.

1. Section 47:1303 C impinges upon the Com-

mission’s ratemaking authority under Sections 4 and

5 of the Natural Gas Act (15 U.S.C. 717c, 717d).

Insofar as it characterizes the First Use Tax as a

cost associated with uses of the gas by the interstate

pipeline owner and abrogates contractual provisions

which would require persons other than gas consum-

ers to bear the tax, Section 47:1303 C interferes

with the Commission’s authority to allocate costs be-

tween gas consumers and the owners of liquid and

liquefied hydrocarbons which are carried by interstate

pipelines.

\Because many natural gas pipelines transport ex-

tra¢table hydrocarbons as well as natural gas (see

page'87 & note 39, infra), the Commission must de-

termine wi costs should be borne by natural gas

consumers’ and which should be borne by the owners

of the extractable hydrocarbons.** The First Use Tax,

36 Mobil Oil Corp. v. FPC, 483 F.2d 1238, 1241-1248, 1247,

1249 (D.C. Cir. 1978) ; City of Detroit v. FPC, 230 F.2d 810,

819-821 (D.C. Cir. 1955), cert. denied, 352 U.S. 829 (1956) ;

Cities Service Gas Co. V. FPC, 155 F.2d 694, 703 (10th Cir.),

like other taxes and costs, is an element of the pipe-

lines’ costs of service. Federal Power Commission v.

cert. denied, 329 U.S. 773 (1946) ; Hope Natural Gas Co. v.

FPC, 134 F.2d 287, 307-308 (4th Cir. 1943), rev’d on other

grounds, 320 U.S. 591 (1944); Panhandle Eastern Pipe Line

Co. v. FPC, 324 U.S. 635, 641-642 (1945); Colorado Inter-

state Gas Co. v. FPC, 324 U.S. 581, 588-590 (1945); see

cases cited at page 38, note 41, infra.

When these cases were decided, the Commission could not

directly prescribe rates for the transportation of liquid hydro-

carbons; it could only assign costs to that service and preclude

the recovery of such costs in rates charged natural gas con-

sumers. Mobil Oil Corp. v. FPC, supra, 483 F.2d at 1246-

1249. Arguably, the Commission could regulate the terms

on, and rates at, which liquefiable hydrocarbons—those

hydrocarbons produced with natural gas existing in a gase-

ous state when produced and transported that may be ex-

tracted from the gas stream by processing, liquefied, and

treated as liquids (id. at 1241)—are transported in inter-

state commerce pursuant to the Natural Gas Act (id. at 1242,

1246, 1249). The Commission’s authority to regulate the

transportation of liquid, and perhaps liquefiable, hydrocar-

bons by interstate natural gas pipelines (cf. id. at 1242-1243),

was established when the DOE Act vested the Commission

with jurisdiction to set rates for the transportation of oil

by common-carrier pipeline (DOE Act, Section 402(b), 42

U.S.C. (Supp. I) 7172(b)), including any “petroleum by-

products, derivates or petrochemicals.” H. Rep. No. 95-539,

95th Cong., Ist Sess. 69 (1977). Thus, the Commission may

now prescribe directly the rates for the transportation of

liquid and liquefiable hydrocarbons by natural gas pipelines

providing common carriage for such products. Accordingly,

since any natural gas pipeline operating on the Outer Conti-

nental Shelf, which carries liquid and liquefiable hydrocarbons

for producers, must operate as a common carrier (43 U.S.C.

1334(c)), the Commission may now prescribe directly the

rates for the transportation by pipeline of liquid hydrocarbons

as well as for the liquefiable hydrocarbons and natural gas

carried by such pipelines.

United Gas Pipe Line Co., 386 U.S. 243 (1967). It is

for the Commission and the Commission alone to

determine whether this cost should be borne by gas

consumers or others. Jd. at 243-246.

The Commission has therefore consistently held that

a pipeline’s natural gas customers do not receive any

benefits from the pipeline’s transportation of liquid

and liquefiable hydr. ..cbons for the owners, and that

the costs associated with the transportation and de-

livery of those products at the inlet of a processing

plant must be borne by the producers, who benefit

from such activities, and not by natural gas con-

sumers. See page 38, note 41, infra. The Commis-

sion has also held that costs associated with the proc-

essing of natural gas to extract the liquid and lique-

fiable hydrocarbons must be borne by the owners of

those products, and not by the natural gas con-

sumers.”

87 Natural gas is processed to extract liquid and liquefiable

hydrocarbons because those products are considered more

valuable than the processed gas. E.g., Deep South Oil Co.

of Texas Vv. Federal Power Commission, supra, 247 F.2d

at 888; National Rates for Natural Gas, 54 F.P.C. 3090,

3096-3102 (1975), reh. denied, 15 P.U.R. 4th 1, 12-13 (1976),

aff’d in- part and rev’d in part on other grounds, sub nom.

Tenneco Oil Co. v. Federal Energy Regulatory Commission,

571 F.2d 834, 844-845 (5th Cir. 1978). The removal of these

hydrocarbon products does not benefit gas consumers because

it reduces both the volume, and heat content, of the processed

gas. Area Rate Proceeding (Southern Louisiana Area), 40

F.P.C. 530, 611 (1968), aff’d, 428 F.2d 407 (5th Cir.), cert.

denied 400 U.S. 950 (1970); Northern Natural Gas Co., 28

F.P.C. 1155, 1158, 1163-1165 (1962), aff’d sub nom. Mid-

The First Use Tax is such a cost. It is imposed on

activities which, in most cases, occur solely because

the pipeline transports and delivers the gas stream

to a processing plant so that the producers may sepa-

rate and extract the liquid and liquefiable hydro-

carbons contained in that stream. Thus, “the trans-

American Pipe line Co. v. FPC, 330 F.2d 226, D.C. Cir.

1964).

Although the methodologies have differed, the Commission

has applied the policy of requiring the owner of hydrocarbons

to bear the cost of their extraction in establishing rates for pro-

ducers as well as for pipelines. In establishing producer rates,

the Commission has either credited revenues from the sale of

the extracted hydrocarbons against costs, or allocated costs

between the processed gas and the extracted hydrocarbons on

the basis of economic and physical characteristics of the two

products. National Rates For Natural Gas, Docket No. RM75-

14, Opinion No. 770, 15 P.U.R. 4th 21, 49-50 (1976), reh.

denied, Opinion No. 770-A, 17 P.U.R. 4th 317, 346-347 (1976),

aff’d swh nom. American Public Gas Association v. FPC, 567

F.2d 1016 (D.C. Cir. 1977), cert. denied, 435 U.S. 907 (1978) ;

National Rates for Natural Gas, 54 F.P.C. 3090, 3096-3102

(1975), reh. denied, Opinion No. 749-C, 15 P.U.R. 4th 1, 12-

14 (1976). In establishing rates for those pipelines which

own the extracted hydrocarbons as well as the processed gas,

the Commission has credited the revenues from the sales of

the liquids against the pipeline’s cost of service. Kansas-

Nebraska Natural Gas Company, Inc., 58 F.P.C. 1691, 1702-

1703 (1975), reh. denied, 54 F.P.C. 923 (1975); Panhandle

Eastern Pipe Line Co., 25 F.P.C. 787, 797-798 (1961), re-

manded sub nom. Panhandle Eastern Pipe Line Co. v. FPC,

305 F.2d 763, 767-768 (D.C. Cir. 1962), cert. denied, 372

U.S. 916 (1963), aff’d on remand, 32 F.P.C. 636 (1964),

aff’d per curiam, 348 F.2d 340 (D.C. Cir.), cert. denied, 382

U.S. 944 (1965) ; Northern Natural Gas Co., 28 F.P.C. 1155,

1163-1165; Tennessee Gas Transmission Co., 18 F.P.C. 428,

435 (1957) ; id. at 474-479 (Initial Decision).

portation in [Louisiana] of unprocessed natural gas

to the point of delivery at the inlet of any measure-

ment or storage facility[,] * * * processing for the

extraction of liquefiable component products or waste

materials[,] * * * [and] treatment” * occur solely

because the gas is delivered to a producer-owned

processing plant. Moreover, the pipeline must “trans-

fer * * * possession or relinquish[] control at a

delivery point in [Louisiana]” (ibid.) at the inlet of

the processing plant to enable the producers to process

the gas. Since such activities benefit only the pro-

ducers, the Commission must determine whether the

producers or the pipelines’ natural gas customers

must bear the costs (including any taxes) incurred

by the pipelines because of these activities.

Section 47:1303 C, however, seeks to preclude the

Commission from classifying the First Use Tax as

a cost associated with the extraction of hydrocarbons

and requiring that it be recovered from those prod-

ucts. It does this by abrogating contracts which

require the owners of the extracted hydrocarbons to

reimburse the transporting interstate pipelines for

costs allocated to transportation and processing of

those products. This abrogation prohibits the inter-

state pipeline from obtaining reimbursement from the

owner of the extracted hydrocarbons and requires the

interstate pipeline to seek reimbursement, if at all,

from subsequent purchasers of the processed gas.

The practical effect of this provision is to shift the

incidence of significant costs incurred primarily for

the benefit of the owners of the extracted hydrocar-

38 La. Rev. Stat. Ann. § 47:1302(8) (West Supp. 1979).

bons to the ulimate consumer of the processed gas

without the prior approval of the Commission.

2. Section 47:1303 C also interfers with the Com-

mission’s authority to control the terms on which

natural gas is transported in interstate commerce

through the issuance of certificates of public conveni-

ence and necessity under Section 7 of the Natural

Gas Act (15 U.S.C. 717f). Interstate pipelines trans-

port liquid and liquefiable hydrocarbons for the pro-

ducers as well as natural gas onshore to a processing

plant where the former are extracted by the producer

and the residue gas returned to the pipeline.” Many

contracts for this transportation service require the

owner of the extractable hydrocarbons to reimburse

the pipeline for all costs (including any taxes) in-

curred by, or levied against, the pipeline as a result

of this transportation or the processing of the gas

to extract the hydrocarbon products. Thus, the con-

tracts require the producers to bear all costs asso-.

89 Area Rate Proceeding (Southern Louisiana Area), 40

F.P.C. 530, 611 (1968) ; Tennessee Gas Pipeline Co., et al., 38

F.P.C. 691, 725, 737 (1967) (Initial Decision) ; Continental

Oil Co., et al., 27 F.P.C. 96, 149-150 (1962) (Initial Decision) ;

Hearings on H.R. 768 Before the Revenue and Fiscal Affairs

Committee of the Louisiana Senate, 14 (Mr. Slaton) (1978) ;

Hearings on H.R. 768 Before the Committee on Ways and

Means of the Louisiana House of Representatives, 9 (Mr.

Brooksher) (Hearing of June 6, 1978).

In some cases, the producer transports the gas onshore for

processing. E'.g., Gulf Oil Corporation, Docket No. CI77-635

(July 29, 1977), petition for review pending, Gulf Oil Cor-

poration V. Federal Energy Regulatory Commission, No. 77-

2137 (D.C. Cir.) ; Sabine Pipe Line Company and Texaco Inc.,

Docket Nos. CP77-304 and CI74-537 (July 7, 14, & 26, 1977).

ciated with transporting and extracting the liquid and

liquefiable hydrocarbons.”

These contracts form the basis of the certificates

authorizing these transportation services. See, ¢.g.,

Atlantic Refining Co. v. Public Service Commission,

360 U.S. 378, 387 (1959). In issuing certificates

for such transportation, the Commission has, at

a minimum, required that costs be allocated to

that service.** Furthermore, the Commission must

~pprove any amendment to these contracts. The par-

ties must give notice of any proposed changes in these

contracts to the Commission (15 U.S.C. 717c(d)),

which may suspend temporarily the operation of the

amended contracts (15 U.S.C. 717c(e)) and deter-

4 F.g., Hearings on H.B. 768 Before the Revenue and

Fiscal Affairs Commitice of the Louisiana Senate, 5 (Rep-

resentative Tauzin), 14 (Mr. Slaton), 19 (Mr. Garner)

(1978) ; Hearings on H.B. 768 Before the Committee on Ways

and Means of the Louisiana House of Representatives, 9, 16

(Mr. Brooksher) (Hearing of June 6, 1978).

41 Union Oil Company of California, et al., Docket No.

CI77-828, et al., order at 7, 10-11 (Apr. 12, 1978) ; Canadian

Superior Oil (U.S.) Ltd., et al., Docket No. CI77-802 (Mar.

28, 1978) ; High Island Offshore System, Docket Nos. CP75-

104, et al., order at 10, 16-17, 18 (June 4, 1976) ; Tennessee

Gas Pipeline Co., et al., 38 F.P.C. 691, 698 (1967) ; Northern

Natural Gas Co., 28 F.P.C. 1155, 1163-1165 (1962), aff’d

sub nom. Mid-America Pipeline Co. v. FPC, 330 F.2d 226

(D.C. Cir. 1964); Continental Oil Co., et al., 27 F.P.C. 96,

107-108 (1962); Texas Eastern Transmission Corporation,

11 F.P.C. 485, 447 (1952). See also Pipeline Costs Allocable

To The Transportation Of Liquids, Liquefiable Hydrocarbons, «

etc., For Others, 47 F.P.C. 208 (1972), ‘rev’d on other grounds

sub nom. Mobil Oil Corp. v. FPC, 483 F.2d 1238 (D.C. Cir.

1973).

mine the terms of the amended contracts (15 U.S.C.

717d(a)). This procedure is within the exclusive

jurisdiction of the Commission and may not be cir-

cumvented by states seeking to exercise control over

such matters. Northern Natural Gas Co. v. Kansas

Commission, 372 U.S. 84, 96-98 (1963); Illinois

Natural Gas Co. v. Central Illinois Public Service

Co., 314 U.S. 498, 506-509 (1942); cf. United Gas

Pipe Line Co. v. McCombs, No. 78-17. (June 18,

1979). Thus, only the Commission may authorize

deletion of the reimbursement provisions from con-

tracts which are part of the certificates.

Section 47:1303 C, however, abrogates those pro-

visions. It requires that the owner of the gas (rather

than the owner of the extractable hydrocarbons) bear

the cost of the tax. In doing so, it modifies certifi-

cates issued by the Commission and thereby invades

the exclusive jurisdiction of the Commission.

3. Finally, Section 47:1803 C interferes with the

regulation prescribed by the Natural Gas Policy Act

in two distinct ways. First, it interferes with the

Commission’s authority under Section 110(a) (2), to

determine whether, when a producer transports and

processes OCS and federal enclave gas prior to selling

it in a first sale, he should be allowed to increase the

maximum lawful prices for such first sales to recover

the First Use Tax from purchasers of the gas or

whether he must recover the First Use Tax from other

persons. Second, the Louisiana tax statute attempts

to regulate aspects of first sales of “high-cost natural

gas” produced on the OCS which Congress has directed

are to be free of federal as well as state regulation.

a. Under Section 110(a) (2) of the NGPA, a per-

son making a “first sale” of natural gas may increase

the maximum lawful price fu such first sale to recover

costs incurred in “compressing, gathering, processing,

treating, * * * or transporting * * * natural gas,

or other similar costs,” only if the Commission first

authorizes such recovery. See H.R. Rep. No. 95-1752,

95th Cong., 2d Sess. 91 (1978).

Where a producer transports and processes OCS

and federal enclave gas prior to selling it in a first

sale, he incurs the First Use Tax because he is the

owner of the gas when the taxable uses occur (see La.

Rev. Stat. Ann. § 47:1302(9) (West Supp. 1979)

(Mot. App. 4a)) and performs the taxable uses,

namely the transportation of unprocessed gas to the

inlet of a processing plant and the processing and

treatment of the gas to extract liquid and liquefiable

hydrocarbons and waste materials (see § 47:1302(8) ),

and because First Use Tax is “deemed a cost associated

with uses made by the owner in preparation of [sic]

marketing of the natural gas” (§ 47:1303 C) (Mot.

App. 5a)). In those cases, the First Use Tax is sub-

ject to recovery through an increase in maximum

lawful prices pursuant to Section 110(a) (2) of the

NGPA because it is a cost “of compressing, gathering,

processing, treating, * * * or transporting such nat-

ural gas * * * borne by the seller * * *.”’ Thus, the

maximum lawful prices for first sales of such natural

gas subject to the First Use Tax may be increased to

recoup that tax only if first authorized by the Com-

mission.

Section 47:13803 C, however, interferes with the

exercise of that authority. As previously noted, it

abrogates provisions of contracts and agreements

which permit the producer-owner of the gas to such

reimbursement for the tax from persons other than

subsequent purchasers of the processed natural gas.

By requiring that the tax be passed along, if at all,

only to natural. gas customers, Section 47:1303 C

conflicts with the provisions of Section 110(a) (2) of

the NGPA which authorize the Commission to deter-

mine whether the maximum lawful prices prescribed

in the NGPA should be increased to permit recovery

of the First Use Tax, or whether the producer must

look to persons other than natural gas consumers to

reimburse him for the tax.

b. Moreover, Section 47:1303 C attempts to regu-

late the apportionment of costs in certain “first sales”

of natural gas which Congress has directed are to be

free of federal and state regulation. Section 121(b)

of the Natural Gas Policy Act generally provides that

the price ceilings prescribed in the Act for first sales

of “high cost natural gas” ” shall cease to apply to

such first sales. This provision became effective upon

the implementation of the incremental pricing pro-

visions of the Act on November 1, 1979.*

Such first sales of natural gas in interstate com-

merce are now free of federal! regulation. In addition,

42 Section 107, 92 Stat. 3366-3367.

43 Regulations Implementing the Incremental Pricing Pro-

visions of the Natural Gas Policy Act of 1978, Order No. 49,

44 Fed. Reg. 57726. (1979).

to the extent that “high-cost natural gas” is produced

on the OCS, it is also free from any state regulation

under Section 602(a) of the NGPA (92 Stat. 3411),

which authorizes the states to prescribe maximum law-

ful prices for first sales of natural gas “produced in

such State” that are lower than the maximum lawful

prices prescribed in the NGPA. Because the OCS “is

located outside the borders of any state” (Continental

Oil Co. v. Federal Power Commission, supra, 370

F.2d at 67), Louisiana may not regulate sales of

“high-cost natural gas” from that area since such gas

is not produced in Louisiana.

In the absence of congressional authorization to do

so, the states have no constitutional power to regu-

late the price of wholesales of natural gas in inter-

state commerce (Missouri v. Kansas Natural Gas

Co., 265 U.S. 298 (1924); cf. Public Utilities

Commission v. Attleboro Steam & Electric Co., 273

U.S. 83 (1927) or to establish the terms on which

such gas could be transported in interstate commerce.

Cf. Pennsylvania v. West Virginia, 262 U.S. 553

(1923) (states may not require gas companies serv-

ing both interstate and intrastate consumers to serve

intrastate consumers prior to serving interstate con-

sumers). Accordingly, since Section 47:1303 C seeks

to regulate the apportionment of costs between the

seller and buyer of “high-cost natural gas,” which

is produced from the OCS, it seeks to regulate trans-

actions which this Court has held that the states

may not regulate and which Congress has required

to be free of federal as well as state regulation.

In light of the foregoing, it is clear that Section

47:1303 C trenches upon “matters which directly

affect the ability of the [Commission] to regulate

comprehensively and effectively the transportation

and sale of natural gas, and to achieve the uniformity

of regulation which [is] an objective of the Natural

Gas Act [and the Natural Gas Policy Act].” Northern

Natural Gas Co. v. Kansas Comm’n, supra, 372 U.S. at

91-92. By providing that the First Use Tax can only be

passed on only to natural gas consumers, Section

47:1303 C, “seriously impair[s] the [Commission’s]

authority to regulate the intricate relationship between

the [pipeline] purchasers’ cost structures and eventual

costs to wholesale customers who sell to consumers in

other states” (372 U.S. at 92). Since regulation of

“Tt]his relationship is a matter with respect to which

Congress has given the [Commission] paramount and

exclusive authority[,]”’ Section 47:1303 C should be

“declared a nullity in order to assure the effectuation

of the [regulatory scheme] ordained by Congress”

(872 U.S. at 92).

II. THE LOUISIANA FIRST USE TAX IS INVALID

UNDER THE COMMERCE CLAUSE

Article I, Section 8, Clause 3 of the Constitution

provides that: “Congress shall have power * * * to

regulate Commerce with foreign Nations, and among

the several States, and with the Indian Tribes.” As

the Court observed in McLeod v. J. E. Dilworth Co.,

322 U.S. 327, 330 (1944), “[t]he very purpose of

the Commerce Clause was to create an area of free

trade among the several States.” It is settled by the

decisions of this Court that “the Commerce Clause

was not merely an authorization to Congress to enact

laws for the protection and encouragement of com-

merce among the States, but by its own force created

an area of trade free from interference by the States.

* * * [T]he Commerce Clause even without imple-

menting legislation by Congress is a limitation upon

the power of the States.” Freeman v. Hewit, 329

U.S. 249, 252 (1946). See also Boston Stock Ex-

change v. State Tax Comm’n, 429 U.S. 318, 328

(1977).

The Commerce Clause flatly prohibits state taxa-

tion of goods that are merely in transit through the

state when the tax is assessed. Michigan-Wisconsin

Pipe Line Co. v. Calvert, 347 U.S. 157 (1954);

Michelin Tire Corp. v. Wages, 423 U.S. 276, 290

n. 11 (1976). Moreover, to the extent the goods

come to rest and the tax can be said to reach a local

activity, it is valid only where it is applied to activities

having a substantial nexus with the state, is fairly

apportioned, does not discriminate against interstate

commerce, and is fairly related to the services pro-

vided by the state. See, e.g., Washington Rev. Dept.

v. Stevedoring Assn., 485 U.S. 734, 750 (1978);

Complete Auto Transit, Inc. v. Brady, 430 U.S. 274,

279 (1977). The Louisiana First Use Tax con-

travenes the Commerce Clause in both respects.

A. The First Use Tax is imposed upon gas that is

in transit through Louisiana in interstate commerce.

While the tax is characterized as “upon the privilege

of performance or allowing the performance by the

owner, of the enumerated actions comprising first use

within [Louisiana]” (La. Rev. Stat. Ann. § 47:1303 E

(West Supp. 1979) (Mot. App. 6a), provisions

of the Act demonstrate that the tax falls on the trans-

portation of the natural gas within Louisiana, not

the privilege of use.**

As we have pointed out (pages 6-7, supra, “[t]he

tax imposed * * * shall be computed at a rate

of seven cents on each unit of natural gas as to

which a use first occurs within [Louisiana]” and the

term “unit” is defined as “one thousand cubic feet of

natural gas” measured at a specified pressure and

temperature (La. Rev. Stat. Ann. § 47:1303 B (West

Supp. 1979) (Mot. App. 5a)). But such a levy is no

different than a tax imposed “‘at the rate of 9/20 of one

cent per thousand (1,000) cubic feet of gas gathered”

at the outlet of a processing plant that this Court

struek down in Michigan-Wisconsin Pipe Line Co. v.

Calvert, supra, 347 U.S. 161. There, Texas levied

a tax on the production of natural gas measured by

the entire volume of gas to be shipped in interstate

commerce. A refinery extracted the gas from crude

oil and transported it 300 yards to the pipeline. Like

Louisiana, the State identified, as a local incident, the

transfer of gas from the refinery to the pipeline. The

Court held the tax to be unconstitutional under the

44 “Where a federal right is concerned we are not bound by

the characterization given to a state tax by state courts or

legislatures, or relieved by it from the duty of considering the

real nature of the tax and its effect upon the federal right

asserted” Carpenter v. Shaw, 280 U.S. 363, 367-368 (1930).

See also Society for Savings Vv. Bowers, 349 U.S. 143, 150

(1955) ; Lawrence v. State Tax Commission, 286 U.S. 276,

280 (1932).

Commerce Clause because it was an unapportioned

levy on the transportation of the entire volume of gas.

The exaction did not relate to the length of the Texas

portion of the pipeline or the percentage of the tax-

payer’s business that was attributable to Texas. In

these circumstances, the Court ruled that the Texas

tax could not survive attack under the Commerce

Clause. °

In our view, Michigan-Wisconsin Pipe Line Co.

controls the Commerce Clause aspects of this case.

Stripped to its essentials, the Louisiana tax is simply

a transit fee on the privilege of moving gas through

the state. It is unrelated to the actual consumption

of the gas within the state. Indeed, to the extent that

gas subject to tax comes to rest and is consumed

within the state, there are credits that are available

to offset other Louisiana taxes payable by the users.

Nor does the tax bear any reasonable relationship to

the transporter’s business within Louisiana. It is

nothing more than an “unapportioned levy on the

transportation of the entire volume of gas’ (Wash.

Rev. Dept. v. Stevedoring Ass’n, supra, 485 U.S. at

749 n. 18) and therefore invalid under the Commerce

Clause.

B. Even if the Louisiana First Use Tax is not

simply a transit levy on gas moving in interstate

commerce, it is nevertheless invalid because it is not

fairly apportioned and because it discriminates

against interstate commerce.

1. A tax on interstate activities is properly ap-

portioned if it is related to the value of identifiable

activities occurring within the taxing state (Wash-

ington Rev. Dept. v. Stevedoring Ass’n, supra, 435

U.S. at 746-747), the taxpayer’s investment in fa-

cilities within the state (Colonial Pipeline Co. v.

Triagle, 421 U.S. 100, 107 n. 5 (1975); Memphis

Natural Gas Co. v. Stone, 335 U.S. 80, 81-82 nn. 1

& 2, 93 (1948) (Opinion of Reed, J.)), gross in-

come from business conducted within the state (Wash-

ington Rev. Dept. v. Stevedoring Assn, supra, 435

U.S. at 737-738 and n. 4, 750; Complete Auto Tran-

sit, Inc. v. Brady, supra, 430 U.S. at 275), the percent-

age of the taxpayer’s business in the state (Washington

Rev. Dept. v. Stevedoring Ass’n, supra, 435 U.S. at

749 n. 18; Case of the State Freight Tax, 82 U.S.

(15 Wall.) 232, 273, 278 (1872), or the length of

the facilities or distance traveled within the state

(Norfolk & W.R. Co. v. Tax Comm’n, 390 U.S. 317,

323-325 (1968) ).

The First Use Tax is not related to any of these

factors. Rather, it is imposed on the entire volume

of OCS, federal enclave, and imported gas enteiing

the state, except such gas as is consumed in certain

uses within Louisiana. La. Rev. Stat. Ann. §§ 47:

1303 A, B (West Supp. 1979) (Mot. App. 4a-5a).

The tax “is the same whether the [gas is] moved one

mile or three hundred.” Case of the State Freight

Tax, 82 U.S. (15 Wall.) at 273. It is therefore simply

“an unapportioned levy on the transportation of the

entire volume of gas.” Washington Rev. Dept. v.

Stevedoring Ass’n, supra, 435 U.S. at 749 n.18.

Contrary to Louisiana’s contention (Answer at

10, 12, 7 XXXIV, XXXVII), the tax is not appor-

tioned simply because it applies only if the gas is

subjected to one of the enumerated uses. The Louisi-

ana ‘awable “uses,” like the taking of gas by a pipe-

line at the outlet of a processing plant, are insepar-

able elements of the interstate transmission of gas.

Michigan-Wisconsin Pipe Line Co. v. Calvert, supra.

As the Court there stated, in terms that are strik-

ingly appropriate to this case, there are “aspect[s] —

of interstate transportation [whici] cannot be

‘earve[d] out from what is an entire or integral

economic process,’ * * * by legislative whimsy and

segregated as a basis for [a] tax” (347 U.S. at

169, quoting Nippert v. Richmond, 327 U.S. 416,

423 (1946) ).

2. One of the unquestioned principles in this

Court’s Commerce Clause jurisprudence is that no

state, consistent with the Commerce Clause, may ‘‘im-

pose a tax which discriminates against interstate

commerce * * * by providing a direct commercial

advantage to local business” (Northwestern States

Portland Cement Co. v. Minnesota, 358 U.S. 450, 457

(1959) ). See also Halliburton Oil Well Co. v. Reily,

373 U.S. 64 (1968) ; Nippert v. Richmond, 327 U.S.

416 (1946) ; J. M. Darnell & Son v. Memphis, 208 U.S.

113 (1908); Guy v. Baltimore, 100 U.S. 484, 4438

(1880); Welton v. Missouri, 91 U.S. 275 (1876).

“The probation against discriminatory treatment of

interstate commerce follows inexorably from the

basic purpose of the Clause. Permitting the individ-

ual States to enact laws that favor local enterprises

at the expense of out-of-state businesses ‘would in-

vite a multiplication of preferential trade areas de-

structive’ of the free trade which the Clause pro-

tects.” Boston Stock Exchange v. State Tax Comm'n,

supra, 429 U.S. at 329, quoting from Dean Milk Co.

v. Madison, 340 U.S. 349, 356 (1951). The First

Use Tax discriminates against interstate commerce

in two distinct ways.

First, Louisiana has prohibited the purchasers of

gas subject to the First Use Tax from shifting any or

all of that tax to the producer. La. Rev. Stat. Ann.

§ 47:1303 C (West Supp. 1979), abrogates pro-

visions of contracts that require persons other than

purchasers of such gas to pay the First Use Tax.

On the other hand, Louisiana does not prohibit pur-

chasers of gas subject to its severance tax from shift-

ing all or part of the tax to the producer. To the

contrary, Louisiana permits the purchasers and sel-

lers of such gas to determine, by contract, who shall

bear that tax. La. Rev. Stat. Ann. § 47:633.1 (West

Supp. 1979).

The practical effect of prohibiting the shifting of

the First Use Tax while allowing the shifting of the

severance tax is to impose a tax on OCS, federal

enclave, and imported gas which is greater than the

tax imposed on gas produced within Louisiana. As

matters now stand, purchasers of gas produced in

Louisiana, and sold in either interstate or intrastate

commerce, can seek the advantage of the lower tax

burden that is denied to interstate purchasers of the

gas subject to the First Use Tax. There is no con-

stitutional warrant for such discriminatory treatment.

Boston Stock Exchange v. State Tax Commission,

supra, 429 U.S. at 333-336. “The conclusion is in-

escapable: equal treatment for in-state and out-of-

state taxpayers similarly situated taxpayers is the

condition precedent for a valid use tax on goods im-

ported from out-of-state.” Halliburton Oil Well Co.

v. Reily, supra, 373 U.S. at 70.

The Louisiana First Use Tax also discriminates

against interstate commerce by requiring out-of-state

consumers to bear the entire burden of the levy. This

discrimination is accomplished by a system of credits

designed to ensure that Louisiana consumers are re-

lieved of First Use Tax liability.

La. Rev. Stat. Ann. § 47:1303 A (West Supp.

1979) (Mot. App. 4a-5a),*° provides that the First Use

Tax shall not be levied against natural gas, otherwise

subject to the tax, which is consumed in specified

uses within Louisiana. However, natural gas sub-

ject to the tax which is consumed in identical uses in

other states is not granted a similar exemption. So,

45 The First Use Tax does “not apply to natural gas other-

wise subject [to the tax] * * * used or consumed in the drilling

for or production of oil, natural gas, sulphur, or in the proc-

essing of natural gas for liquids extraction within the state;

nor * * * to gas shrinkage volumes attributable to the extrac-

tion of ethane, propane, butanes natural or casinghead gaso-

line or other liquefied hydrocarbons * * *[;] nor * * * to

natural gas used or consumed in the manufacture of ferti-

lizer and anhydrous ammonia within the state.” § 47:1803 A.

also, the related Severance Tax Credit *° permits tax-

payers liable for the First Use Tax to credit that

liability, dollar-for-dollar, against their liability for

Louisiana’s severance tax on natural gas. As a re-

sult of this credit, Louisiana imposes a higher tax

on those persons who do not pay Louisiana severance

taxes than it does on those who do.*’ Thus, Louisi-

iana businesses enjoy a distinct commercial advan-

tage over their out-of-state competitors in the form

of lower prices for natural gas.

Finally, Act No. 599 ** allows every Louisiana elec-

tric generating plant, gas distribution service, and

direct purchaser of natural gas from an interstate

pipeline, to recoupt that portion of increased rates

they pay for natural gas which is attributable to in-

creased transportation and marketing costs for na-

tural gas from the federal domain of the Outer Con-

tinental Shelf through direct credits against any tax

or combination of taxes, other than severance taxes,

46 First Use Tax On Natural Gas—Severance Tax Credit,

Act No. 436, 1978 La. Sess. Law Serv. 842 (West), La. Rev.

Stat. Ann. § 47:647 (West Supp. 1979).

47 This difference can be illustrated by the following exam-

ple. Owner A has 1000 Mcf of OCS gas; Owner B has 500 Mcf

of OCS gas and 500 Mef of gas subject to Louisiana’s sever-

ance tax. A owes $70 of first use tax; B owes $35 of first use

tax and $35 in severance tax. B, however, pays only $35 in

first use taxes. He owes no severance tax because he can credit

the first use tax payment against his severance tax liability.

48 Tax credit for electric and natural gas service, 1978 La.

Sess. Law Serv. 1112 (West), codified as La. Rev. Stat. Ann.

§ 47:11 (West Supp. 1979).

owed to Louisiana. Since the First Use Tax is

“deemed [to be] a cost associated with” the transporta-

tion and marketing of OCS, federal enclave, and im-

ported natural gas (La. Rev. Stat. Ann. § 47:1303

C (West Supp. 1979) (Mot. App. 5a) ), Louisiana con-

sumers of such gas may effectively recoup the amounts

attributable to that tax through a reduction in other

state taxes. The legislative history indicates that the

sole purpose of Act No. 599 is to ensure that Louisiana

consumers do not incur any increased costs for natural

gas as a result of the First Use Tax.”

In sum, the equivalence between the First Use Tax

and the Severance Tax that Louisiana claims is il-

lusory. Purchasers of gas subject to severance tax

can shift the burden of the tax to the producer of

gas but purchasers of gas subject to the “equivalent”

First Use Tax cannot shift the burden of the levy.

Moreover, the burden of the First Use Tax falls en-

tirely on out-of-state consumers of gas. The Louisiana

First Use Tax therefore “falls short of substantially

even-handed treatment demanded by the Commerce

Clause.” Boston Stock Exchange v. State Tax Comm'n,

supra, 429 U.S. at 332.

49 Hearings on H.B. 786 Before the Commission on Ways

and Means of the Louisiana House of Representatives, supra,

at 4 (Representative Tauzin and unidentified speakers), 5

(Colloquy between Representatives Sour and Bagert), 6 (Rep-

resentative Laborde).

Ill. RESOLUTION OF THE QUESTIONS PRESENTED

DOES NOT REQUIRE THE APPOINTMENT OF A

SPECIAL MASTER

In light of the foregoing, we submit that there are

no genuine issues as to any material facts that would

require the appointment of a Special Master. Louis-

iana’s pro forma denials of the material allegations

of the complaint, its assertion “that many factual

controversies have been raised by the pleadings,” and

its recitation of eight matters as to which it wishes

to present evidence (Answer at 24-25 § LXX), fail -

to establish that an evidentiary hearing is necessary

to resolve the claims advanced in Plaintiff’s Motion

for Judgment on the Pleadings.

The initial question to be addressed in this case

is whether the gas which is subject to the First Use

Tax moves in interstate commerce when any of the

enumerated taxable uses occur. As we have pointed

out, the decisions of this Court establish beyond ques-

tion as a matter of law that the gas moves in inter-

state commerce when the enumerated taxable uses

occur. Once the interstate movement of the gas is

recognized, plaintiff’s claims under the Supremacy and

Commerce Clauses can be resolved by testing the

Louisiana tax statute under the decisions of this

Court. Thus, contrary to Louisiana’s assertion (An-

swer at 25 J LXX, Item (7) ), no evidence is required

on these constitutional questions.

In sum, the claims presented in the Plaintiffs’ Mo-

tion for Judgment on the Pleadings, present ques-

tions which can, and should, be resolved without the

the appointment of a Special Master.°° South Caro-

lina v. Katzenbach, 383 U.S. 301, 307 (1966) ; United

States v. California, 332 U.S. 19, 24 (1947); United

States v. Texas, 339 U.S. 707, 712, 715; 720 (1950).

Finally, there is a compelling*need for a prompt

decision on the merits in this case. So long as the

validity of the Louisiana tax remains unresolved,

millions of natural gas consumers face the prolonged

imposition of very substantial additional costs,” with

little hope of recompense for the economic burdens

imposed by such costs.”

50 As we have pointed out (supra, pages 30-31 and note 34),

the disposition of one of plaintiff’s claims may resolve the en-

tire case. The plaintiffs allege (Br. at 9-10, 14-16, 20-24) and

the United States and the Commission believe, that Section

47:1303C. La. Rev. Stat. Ann. § 47:1303 C (West Supp. 1979),

which abrogates “[a]ny agreement or contract by which an

owner of natural gas at the time a taxable use first occurs

claims a right to reimbursement or refund of such taxes from

any other party in interest, other than a purchase of such gas,”

directly conflicts with the Commission’s authority to regulate

interstate gas sales and transportation of natural gas. If Sec-

tion 47:1303 C is invalid, the Louisiana statute provides that

the First Use Tax “shall be null and void * * *” (§4(2),

1978 La. Sess. Law Serv. 486). Thus, a decision on this

claim would be dispositive of the entire case.

51 The First Use Tax will add approximately $225 million

per year to the rates paid by natural gas consumers which re-

ceive gas subject to that tax. Br. at 7-8; Complt. 12; Brief

for the United States and the Commission as Amici Curiae in

support of the Motion for Leave to File at 3.

52 The possibility of future refunds with interest provides,

at best, inadequate compensation for the burdens imposed

while the constitutionality of the tax is litigated. Cf. FPC v.

Hunt, 376 U.S. 515, 524-525 (1964); FPC v. Tennesese Gas

Transmission Co., 371 U.S. 145, 154-155 (1962).

55 7”

CONCLUSION

Plaintiff’s motion for judgment on the pleadings

should be granted.

Respectfully submitted.

WADE H. MCCREE, JR.

Solicitor General

STUART A. SMITH

Assistant to the Solicitor General

ROBERT R. NORDHAUS

General Counsel

J. PAUL DOUGLAS

Attorney

Federal Energy Regulatory Commission

NOVEMBER 1979

APPENDIX A

Sections 4, 5, and 7 of the Natural Gas Act of 1938,

15 U.S.C. 717c, 717d and 717f, provide:

RATES AND CHARGES; SCHEDULES;

SUSPENSION OF NEW RATES

Sec. 4. (a) All rates and charges made, de-

manded, or received by any natural-gas company

for or in connection with the transportation or

sale of natural gas subject to the jurisdiction of

the Commission, and all rules and regulations

affecting or pertaining to such rates or charges,

shall be just and reasonable, and any such rate

or charge that is not just and reasonable is

hereby declared to be unlawful.

(b) No natural-gas company shall, with re-

spect to any transportation or sale of natural

gas subject to the jurisdiction of the Commission,

(1) make or grant any undue preference or ad-

vantage to any person or subject any person to

any undue prejudice or disadvantage, or (2)

maintain any unreasonable difference in rates,

charges, service, facilities, or in any other re-

spect, either as between localities or as between

classes of service.

Commission may prescribe, every natural-gas

company shall file with the Commission, within

such time (not less than sixty days from the

date this act takes effect) and in such form as

the Commission may designate, and shall keep

open in convenient form and place for public in-

spection, schedules showing all rates and charges

for any transportation or sale subject to the ju-

risdiction of the Commission, and the classifica-

tions, practices, and regulations affecting such

rates and charges, together with all contracts

which in any manner affect or relate to such

rates, charges, classifications, and services.

(d) Unless the Commission otherwise orders,

no change shall be made by any natural-gas com-

pany in any such rate, charge, classification, or

service, or in any rule, regulations, or contract

relating thereto, except after thirty days’ notice

to the Commission and to the public. Such notice

shall be given by filing with the Commission and

keeping open for public inspection new schedules

stating plainly the change or changes to be made

in the schedule or schedules then in force and the

time when the change or changes will go into

effect. The Commission, for good cause shown,

may allow changes to take effect without requir-

ing the thirty days’ notice herein provided for

by an order specifying the changes so to be made

and the time when they shall take effect and the

manner in which they shall be filed and pub-

lished.

(e) Whenever any such new schedule is filed

the Commission shall have authority, either upon

complaint of any State, municipality, State com-

mission, or gas distributing company or upon its

own initiative without complaint, at once, and if

it so orders, without answer or formal pleading

by the natural-gas company, but upon reasonable

notice, to enter upon a hearing concerning the

lawfulness of such rate, charge, classification, or

service; end, pending such hearing and the deci-

sion thereon, the Commission, upon filing with

such schedules and delivering to the natural-gas

company affected thereby a statement in writing

of its reasons for such suspension, may suspend

the operation of such schedule and defer the use

of such rate, charge, classification, or service,

but not for a longer period than five months be-

yond the time when it would otherwise go into

effect; and after full hearings, either completed

before or after the rate, charge, classification, or

service goes into effect, the Commission may

make such orders with reference thereto as would

be proper in a proceeding initiated after it had

become effective. If the proceeding has not been

concluded and an order made at the expiration

of the suspension period, on motion of the natu-

ral-gas company making the filing, the proposed

change of rate, charge, classification, or service

shall go into effect. Where increased rates or

charges are thus made effective, the Commission

may, by order, require the natural-gas company

to furnish a bond, to be approved by the Com-

mission, to refund any amounts ordered by the

Commission, to keep accurate accounts in detail

of all amounts received by reason of such in-

crease, specifying by whom and in whose behalf

such amounts were paid, and, upon completion

of the hearing and decision, to order such natu-

ral-gas company to refund, with interest, the

portion of such increased rates or charges by its

decision found not justified. At any hearing in-

volving a rate or charge sought to be increased,

the burden of proof to show that the increased

rate or charge is just and reasonable shall be

upon the natural-gas company, and the Commis-

sion shall give to the hearing and decision of

such questions preference over other questions

pending before it and decide the same as speed-

ily as possible.

FIXING RATE AND CHARGES; DETERMINATION OF

COST OF PRODUCTION OR TRANSPORTATION

SEc. 5. (a) Whenever the Commission, after

a hearing had upon its own motion or upon com-

plaint of any State, municipality, State commis-

sion, or gas distributing company, shall find that

any rate, charge, or classification demanded, ob-

served, charged, or collected by any natural-gas

company in connection with any transportation

or sale of natural gas, subject to the jurisdiction

of the Commission, or that any rule, regulation,

practice, or contract affecting such rate, charge,

or classification is unjust, unreasonable, unduly

discriminatory, or preferential, the Commission

shall determine the just and reasonable rate,

charge, classification, rule, regulation, practice,

or contract to be thereafter observed and in

force, and shall fix the same by order: Provided,

however, That the Commission shall have no

power to order any increase in any rate con-

tained in the currently effective schedule of such

natural-gas company on file with the Commis-

sion, unless such increase is in accordance with

a new schedule filed by such natural-gas com-

pany; but the Commission may order a decrease

where existing rates are unjust, unduly discrimi-

natory, preferential, otherwise unlawful, or are

not the lowest reasonable rates.

(b) The Commission upon its own motion, or

upon the request of any State comimission, when-

ever it can do so without prejudice to the effi-

cient and proper conduct of its affairs, may

investigate and determine the cost of the pro-

duction or transportation of natural gas by a

natural-gas company in cases where the Com-

mission has no authority to establish a rate gov-

erning the transportation or sale of such natural

gas.

EXTENSION OF FACILITIES; ABANDONMENT

OF SERVICE

SEC. 7. (a) Whenever the Commission, after

notice and opportunity for hearing, finds such

action necessary or desirable in the public in-

terest, it may by order direct a natural-gas com-

pany to extend or improve its transportation

facilities, to establish physical connection of its

transportation facilities with the facilities of,

and sell natural gas to, any person or munici-

pality engaged or legally authorized to engage

in the local distribution of natural or artificial

gas to the public, and for such purpose to ex-

tend its transportation facilities to communities

immediately adjacent to such facilities or to ter-

ritory served by such natural-gas company, if

the Commission finds that no undue burden will

be placed upon such natural-gas company there-

by: Provided, That the Commission shall have

no authority to compel the enlargement of trans-

portation facilities for such purposes, or to com-

pel such natural-gas company to establish physi-

cal connection or sell natural gas when to do so

would impair its ability to render adequate serv-

ice to its customers.

(b) No natural-gas company shall abandon all

or any portion of its facilities subject to the

jurisdiction of the Commission, or any service

rendered by means of such facilities, without the

permissien and approval of the Commission first

had and obtained, after due hearing, and a find-

ing by the Commission that the available supply

of natural gas is depleted to the extent that the

continuance of service is unwarranted, or that

the present or future public convenience or ne-

cessity permit such abandonment.

will be a natural-gas company upon completion

of any proposed construction or extension shall

engage in the transportation or sale of natural

gas, subject to the jurisdiction of the Commis-

sion, or undertake the construction or extension

of any facilities therefor, or acquire or operate

any such facilities or extensions thereof, unless

there is in force with respect to such natural-gas

company a certificate of public convenience and

necessity issued by the Commission authorizing

such acts or operations: Provided, however, That

if any such natural-gas company or predecessor

in interest was bona fide engaged in transporta-

tion or sale of natural gas, subject to the juris-

diction of the Commission, on the effective date

of this amendatory Act, over the route or routes

or within the area for which application is made

and has so operated since that time, the Commis-

sion shall issue such certificate without requir-

ing further proof that public convenience and

necessity will be served by such operation, and

without further proceedings, if application for

such certificate is made to the Commission with-

in ninety days after the effective date of this

amendatory Act. Pending the determination of

any such application, the continuance of such

operation shall be lawful.

In all other cases the Commission shall set the

matter for hearing and shall give such reason-

able notice of the hearing thereon to all inter-

ested persons as in its judgment may be neces-

sary under rules and regulations to be prescribed

by the Commission; and the application shall be

decided in accordance with the procedure pro-

vided in subsection (e) of this section and such

certificate shall be issued or denied accordingly:

Provided, however, That the Commission may

issue a temporary certificate in cases of emer-

gency, to assure maintenance of adequate service

or to serve particular customers, without notice

or hearing, pending the determination of an ap-

plication for a certificate, and may by regulation

exempt from the requirements of this section

temporary acts or operations for which the issu-

ance of a certificate will not be required in the

public interest.

(d) Application for certificates shall be made

in writing to the Commission, be verified under

oath, and shall be in such form, contain such in-

formation, and notice thereof shall be served

upon such interested parties and in such manner

as the Commission shall, by regulation, require.

(e) Except in the cases governed by the pro-

visos contained in subsection (c) of this section,

a certificate shall be issued to any qualified ap-

plicant therefor, authorizing the whole or any

part of the operation, sale, service, construction,

extension, or acquisition covered by the applica-

tion, if it is found that the applicant is able and

willing properly to do the acts and to perform

the service proposed and to conform to the pro-

visions of the Act and the requirements, rules,

and regulations of the Commission thereunder,

and that the proposed service, sale, operation,

construction, extension, or acquisition, to the ex-

tent authorized by the certificate, is or will be

required by the present or future public con-

venience and necessity; otherwise such applica-

tion shall be denied. The Commission shall have

the power to attach to the issuance of the certifi-

cate and to the exercise of the rights granted

thereunder such reasonable terms and conditions

as the public convenience and necessity may re-

quire.

(f) The Commission, after a hearing had

upon its own motion or upon application, may

determine the service area to which each author-

ization under this section is to be limited. With-

in such service area as determined by the Com-

mission a natural-gas company may enlarge or

extend its facilities for the purpose of supplying

increased market demands in such service area

without further authorization.

(g) Nothing contained in this section shall be

construed as a limitation upon the power of the

Commission to grant certificates of public con-

venience and necessity for service of an area

already being served by another natural-gas

company.

(h) When any holder of a certificate of public

convenience and necessity cannot acquire by con-

tract, or is unable to agree with the owner of

property to the compensation to be paid for, the

necessary right-of-way to construct, operate, and

maintain a pipe line or pipe lines for the trans-

portation of natural gas, and the necessary land

or other property, in addition to right-of-way,

for the location of compressor stations, pressure

apparatus, or other stations or equipment neces-

sary to the proper operation of such pipe line

or pipe lines, it may acquire the same by the

exercise of the right of eminent domain in the

district court of the United States for the dis-

trict in which such property may be located, or

in the State courts. The practice and procedure

in any action or proceeding for that purpose in

the district court of the United States shall con-

form as nearly as may be with the practice and

procedure in similar action or proceeding in the

courts of the State where the property is situ-

ated: Provided, That the United States district

courts shall only have jurisdiction of cases when

the amount claimed by the owner of the prop-

erty to be condemned exceeds $3,000.

10a

APPENDIX B

Sections 2, 110, 315 and 601 of the Natural Gas

Policy Act of 1978, Pub. L. No. 95-621, 92 Stat. 3350,

3352, 3868, 3393, 3409, provide:

SEc. 2. DEFINITIONS

* * * * *

(18) COMMITTED OR DEDICATED TO INTER-

STATE COMMERCE.—

(A) GENERAL RULE.—The term ‘“com-

mitted or dedicated to interstate commerce”,

when used with respect to natural gas,

means—

(i) natural gas which is from the

Outer Continental Shelf; and

(ii) natural gas which, if sold,

would be required to be sold in inter-

state commerce (within the meaning of

the Natural Gas Act) under the terms

of any contract, any certificate under

the Natural Gas Act, or any provision

of such Act.

(B) EXcLUSION.—Such term does not ap-

ply with respect to—

(i) natural gas sold in interstate

commerce (within the meaning of the

Natural Gas Act)—

(1) under section 6 of the Emer-

gency Natural Gas Act of 1977;

(II) under any limited term cer-

tificate, granted pursuant to sec-

tion 7 of the Natural Gas Act,

which contains a pregrant of aban-

lla ra

donment of service for such natu-

ral gas’

(III) under any emergency reg-

ulation under the second proviso of

section 7(c) of the Natural Gas

Act; or

(IV) to the user by the pro-

ducer and transported under any

certificate, granted pursuant to sec-

tion 7(c) of the Natural Gas Act,

if such certificate was specifically

granted for the transportation of

that natural gas for such user;

(ii) natural gas for which abandon-

ment of service was granted before the

date of enactment of this Act under

section 7 of the Natural Gas Act; and

(iii) natural gas which, but for this

clause, would be committed or dedicated

to interstate commerce under subpara-

graph (A) (ii) by reason of the action

of any person (including any successor

in interest thereof, other than by means

of any reversion of a leasehold inter-

est), if on May 31, 1978—

(I) neither that person, nor any

affiliate thereof, had any right to

explore for, develop, produce, or

sell such natural gas; and

(II) such natural gas was not

being sold in interstate commerce

(within the meaning of the Natu-

ral Gas Act) for resale (other than

any sale described in clause (i) (I),

(II), or (III) ).

12a

Sec. 110. TREATMENT OF STATE SEVERANCE

TAXES AND CERTAIN PRODUCTION-

RELATED COSTS.

(a) ALLOWANCE FOR STATE SEVERANCE TAX-

ES AND CERTAIN PRODUCTION-RELATED COSTS.—

Except as provided in subsection (b), a price

for the first sale of natural gas shall not be con-

sidered to exceed the maximum lawful price

applicable to the first sale of such natural gas

under this subtitle if such first sale price ex-

ceeds the maximum lawful price to the extent

necessary to recover—

(1) State severance taxes attributable to

the production of such natural gas and

borne by the seller, but only to the extent

the amount of such taxes does not exceed

the limitation of subsection (b) ; and

(2) any costs of compressing, gathering,

processing, treating, liquefying, or trans-

porting such natural gas, or other similar

costs, borne by the seller and allowed for,

by rule or order, by the Commission.

(b) LIMITATION ON STATE SEVERANCE TAXES.

—The State severance tax allowable under sub-

section (a) (1) with respect to the production of

any natural gas may not include any amount of

State severance taxes borne by the seller which

results from a provision of State law enacted on

or after December 1, 1977, unless such provision

of law is equally applicable to natural gas pro-

duced in such State and delivered in interstate

commerce and to natural gas produced in such

State and not so delivered.

13a

For purposes of this section, the term “State

severance tax’? means any severance, production,

or similar tax, fee, or other levy imposed on the

production of natural gas—

(1) by any State or Indian tribe (as de-

fined in section 106(b) (2) (B) (ii) ); and

(2) by any political subdivision of a State

if the authority to impose such tax, fee, or

other levy is granted to such political sub-

division under State law.

SEc. 121. ELIMINATION OF PRICE CONTROLS

FOR CERTAIN NATURAL GAS SALES.

* * * * *

(b) HicH-Cost NATURAL GAS.—Effective be-

ginning on the effective date of the incremental

pricing rule required under section 201, the pro-

visions of subtitle A respecting the maximum

lawful price for the first sale of natural gas

shall cease to apply to the first sale of high-cost

natural gas which is described in section 107 (c)

(1), (2), (3), or (4).

* * . * +

Sec. 601. COORDINATION WITH THE NATURAL

GAS ACT.

(a) JURISDICTION OF THE COMMISSION UNDER

THE NATURAL GAS ACT.—

(1) SALES.—

(A) NATURAL GAS NoT COMMITTED

OR DEDICATED.—For purposes of sec-

tion 1(b) of the Natural Gas Act, effec-

l4a

tive on the first day of the first month

beginning after the date of the enact-

ment of this Act, the provisions of the

Natural Gas Act and the jurisdiction

of the Commission under such Act shall

not apply to natural gas which was not

committed or dedicated to interstate

commerce as of the day before the date

of enactment of this Act solely by rea-

son of any first sale of such natural gas.

(B) COMMITTED OR DEDICATED NAT-

URAL GAS.—Effective beginning on the

first day of the first month beginning

after the date of the enactment of this

Act, for purposes of section 1(b) of the

Natural Gas Act, the provisions of such

Act and the jurisdiction of the Commis-

sion under such Act shall not apply

solely by reason of any first sale of

natural gas which is committed or dedi-

cated to interstate commerce as of the

day before the date of the enactment

of this Act and which is—

(i) high-cost natural gas (as

defined in section 107(c)(1), (2),

(3), or (4) of this Act) ;

(ii) new natural gas (as defined

in section 102(c) of this Act) ; or

(iii) natural gas produced from

any new, onshore production well

(as defined in section 103(c) of

this Act).

MENTS.—F or purposes of section 1(h)

15a

of the Natural Gas Act, the provisions

of the Natural Gas Act and the juris-

diction of the Commission under such

Act shall not apply by reason of any

sale of natural gas—

om (i) authorized under section 302

(a) or 311(b); or

(ii) pursuant to any assigned

authorized under section 312(a).

(D) NATURAL-GAS COMPANY. — For

purposes of the Natural Gas Act, the

term “natural-gas company” (as de-

fined in section 2(6) of such Act) shall

not include any person by reason of, or

with respect to, any sale of natural gas

if the provisions of the Natural Gas

Act and the jurisdiction of the Com-

mission do not apply to such sale solely

by reason of subparagraph (A), (B),

or (C) of this paragraph.

(E) ALASKAN NATURAL GAS.—Sub-

paragraph (B) (ii) and (iii) shall not

apply with respect to natural gas pro-

duced from the Prudhoe Bay unit of

Alaska and transported through the

transportation system approved under

the Alaska Natural Gas Transportation

Act of 1976.

(2) TRANSPORTATION.—

(A) JURISDICTION OF THE COMMIS-

SION.—For purposes of section 1(b) of

the Natural Gas Act the provisions of

such Act and the jurisdiction of the

16a

Commission under such Act shall not

apply to any transportation in inter-

state commerce of natural gas if such

_ transportation is—

(i) pursuant to any order un-

der section 302(c) or section 303

(b), (c), (d), or (h) of this Act;

(ii) authorized by the Commis-

sion under section 311(a) of this

Act.

(B) NATURAL-GAS COMPANY. — For

purposes of the Natural Gas Act, the

term “natural-gas company” (as de-

fined in section 2(6) of such Act) shall

not include any person by reason of, or

with respect to, any transportation of

natural gas if the provisions of the

Natural Gas Act and the jurisdiction

of the Commission under the Natural

Gas Act do not apply to such transpor-

tation by reason of subparagraph (A)

of this paragraph.

(b) CHARGES DEEMED JUST AND REASONABLE.

a (1) SALES.—

(A) First SALES.—Subject. to para-

graph (4), for purposes of sections 4

and 5 of the Natural Gas Act, any

amount paid in any first sale of natural

gas shall be deemed to be just and rea-

sonable if—

17a

(i) such amount does not exceed

the applicable maximum lawful

price established under title I of

this Act; or

(ii) there is no applicable maxi-

mum lawful price solely by reason

of the elimination of price controls

pursuant to subtitle B of title I of

this Act.

(B) EMERGENCY SALES. — For pur-

poses of sections 4 and 5 of the Natural

Gas Act, any amount paid in any sale

authorized under section 302(a) shall

be deemed to be just and reasonable if

such amount does not exceed the fair

and equitable price established under

such section and applicable to such sale.

LINES.—F or purposes of sections 4 and

5 of the Natural Gas Act, any amount

paid in any sale authorized by the Com-

mission under section 311(b) shall be

deemed to be just and reasonable if

such amount does not exceed the fair

and equitable price established by the

Commission and applicable to such sale.

(D) ASSIGNMENTS.—For purposes of

sections 4 and 5 of the Natural Gas

Act, any amount paid pursuant to the

terms of any contract with respect to

that portion of which the Commission

has authorized an assignment author-

ized under section 312(a) shall be

deemed to be just and reasonable if

such amount does not exceed the appli-

18a

cable maximum lawful price established

under title I of this Act.

(E) AFFILIATED ENTITIES LIMITA-

TION.—For purposes of paragraph (1),

in the case of any first sale between

any interstate pipeline and any affiliate

of such pipeline, any amount paid in

any first sale shall be deemed to be just

and reasonable if, in addition to satis-

fying the requirements of such para-

graph, such amount does not exceed the

amount paid in comparable first sales

between persons not affiliated with such

interstate pipeline.

(2) OTHER CHARGES.—

(A) ALLOCATION.—For purposes of

sections 4 and 5 of the Natural Gas

Act, any amount paid by any inter-

state pipeline for transportation, stor-

age, delivery or other services provided

pursuant to any order under section

303(b), (c), or (d) of this Act shall

be deemed to be just and reasonable if

such amount is prescribed by the Presi-

dent under section 303 (h) (1).

(B) TRANSPORTATION. — For pur-

poses of sections 4 and 5 of the Natural

Gas Act, any amount paid by any inter-

state pipeline for any transportation

authorized by the Commission under

section 3l1l(a) of this Act shall be

deemed to be just and reasonable if

such amount does not exceed that ap-

19a

proved by the Commission under such

section.

(1) CERTIFICATE MAY NOT BE DENIED

BASED UPON PRICE.—The Commission may

not deny, or condition the grant of, any

certificate under section 7 of the Natural

Gas Act based upon the amount paid in any

sale of natural gas, if such amount is

deemed to be just and reasonable under sub-

section (b) of this section.

(2) RECOVERY OF JUST AND REASONABLE

PRICES PamD.—For purposes of sections 4

and 5 of the Natural Gas Act, the Commis-

sion may not deny any interstate pipeline

recovery of any amount paid with respect

to any purchase of natural gas if—

(A) under subsection (b) of this sec-

tion, such amoun. is deemed to be just

and reasonable for purposes of sections

4 and 5 of such Act, and

(B) such recovery is not inconsistent

with any requirement of any rule under

section 201 (including any amendment

under section 202),

except to the extent the Commission deter-

mines that the amount paid was excessive

due to fraud, abuse, or similar grounds.

WX ov. 8. GOVERNMENT PRINTING orrics; 1979 sosis1 121

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.