Intervenors Reply Brief — Maryland v. Louisiana

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‘Bupreme Court, 6S

FILED

AUG 81980:-»

RODAK, JR, CLERK

No. 83, Original

In the Supreme Court of the United States

OcTOBER TERM, 1979

STATE OF MARYLAND, ET AL., PLAINTIFFS

Vv.

STATE OF LOUISIANA

REPLY OF THE UNITED STATES AND THE

FEDERAL ENERGY REGULATORY COMMISSION

TO EXCEPTIONS OF THE STATE OF LOUISIANA

TO THE REPORT OF THE SPECIAL MAS1 ER,

DATED MAY 14, 1980

WapbDE H. McCREE, JR.

Solicitor General

STUART A. SMITH

Assistant to the Solicitor

General

Department of Justice

Washington, D.C. 20530

(202) 633-2217

ROBERT R. NORDHAUS

General Counsel

' JEROME M. FEIT

Deputy Solicitor

J. PAUL DOUGLAS

Assistant Solicitor

Federal Energy Regulatory

Commission

Washington, D.C. 20426

TABLE OF CONTENTS

Page

PI ceniissinitcninsincsncnitiinmrssciitddenndbensisannindbeinadaaan 2

IEEIUIIN: \ninsncssennsxamiehsansnptiniensaataansacainenieniniadamanenieullin 9

TABLE OF AUTHORITIES

Cases:

Alabama v. King & Boozer, 314 U.S. 1 ............. 6

Arizona v. California, 344 U.S. 919 0... 2

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

Docket No. C177-802 (Mar. 28, 1978) ............ 8

Continental Oil Co., et al., 27 F.P.C. 96 ............ 8

Diamond National Corp. v. State Board of

Bgnemlipatbatt,, GES UB. TI ciccciseivessntosccineavienvers 6

Duke Power Co. v. Carolina Environmental

ee I, EE RE. cecknpvieetencniecsrccrcnes +

Federal Land Bank v. Bismarck Lumber Co.,

ee TEP CURE TE: semedinanesiceiticetiridastomatecabihiaaaiatdiaiaidaataialés 6

Federal Power Commission v. Hope Natural

SD Gia ls SINE cncccincickcsdeneeoniiiiaass 7

First Agricultural Nat. Bank v. Tax Comm'n,

Se ED. Kettner 6

Galveston Electric Co. v. Galveston,

ee SA. SE antanesninianeiieshelnsbalibstellataiauiadinds nantes 7

High Island Offshore System, Docket Nos.

CP75-104, et al. (June 4, 1976) ............... cece 8

Kern-Limerick, Inc. v. Scurlock,

Ee i ED Wassninseishdannennelescieahaneaboatacammiaaa 6

Cases—Continued:

Mississippi River Fuel Corp. v. Federal

Power Commission, 163 F. 2d 433 .............

New Jersey v. New York, 345 U.S. 369 ........

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

affd sub nom. Mid-America Pipeline Co.

6 Us, Ry Be Bs BO wechapsochaphepesscececcscsenes

Northern Natural Gas Co. v. Kansas

Commission, 372 U.S. 84 sehaeasenesnaceassesesstones

Oklahoma v. Texas, 253 U.S. 465 ....ccccccccccceee

Pennsylvania v. West Virginia, 262 U.S.

TET cneincitilnncaviiiabdadswoniasiiisdidocbansasisniiese widths

Pipeline Costs Allocable To The

Transportation Of Liquids, Liquefiable

Hydrocarbons, etc., For Others, 47 F.P.C.

208, rev'd on other grounds sub nom.

Mobil Corp. v. FPC, 483 F. 2d 1238 ........

Public Service Commission of New York v.

Federal Power Commission, 467 F. 2d

NT. Mausiababeibdbediisisanialikebbiataclencanisadabmsicacarecs

Reiter v. Sonotone Corp., 442 U.S. 330 ........

Simon v. Eastern Kentucky Welfare Rights

Organization, 426 U.S. 26 .o..cccccccccececceeeceeees

Tennessee Gas Pipeline Co., et al.,

Re IE alisleee sinisonshaniivkinsnconsicnaabarvasesebes

Texas Eastern Transmission Corporation,

PE ue iw SOP Medteisnisepnahinarsvdsetketinacsacesivarees

United States v. Mississippi Tax Comm'n,

NE ELIE Sientcheckiacniendcsteupsrsactonnrninvasseuaass

iil

Page

Cases—Continued:

Union Oil Company of California, et al.,

Docket No. C177-828, et al. (Apr. 2,

DPT incidsisbnitnctiaansteddcbdidetnsbaih tonbadenncapsasinninaninlioss 8

Utah v. United States, 394 U.S. 89 wu... eeeee 9

Wisconsin v. Illinois, 278 U.S. 367 ..........ccccceeeees 2

Statutes and rule:

Outer Continental Shelf Lands Act,

ee cs IIE didi acsitsavieicdanccannaiupdeeadnnestin 2

ee SERIE GR ene enemies ee Na 2

First Use Tax Act, La. Rev. Stat. Ann.

§ 47:1303C (West Supp. 1980) ............ ee

Miscellaneous:

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

Ways and Means of the Louisiana House of

Representatives (June 5, 1978) ...............0006 6, 7

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

Ways and Means of the Louisiana House of

Representatives (June 6, 1978) ..............ccee0e 6, 7

Hearings on H.B. 768 Before the Revenue

and Fiscal Affairs Comm. of the

Louisiana State (June 26, 1978) .................. 6, 7

In the Supreme Court of the Hnited States

OCTOBER TERM, 1979

No. 83, Original

STATE OF MARYLAND, ET AL., PLAINTIFFS

¥.

STATE OF LOUISIANA

REPLY OF THE UNITED STATES AND THE

FEDERAL ENERGY REGULATORY COMMISSION

TO EXCEPTIONS OF THE STATE OF LOUISIANA

TO THE REPORT OF THE SPECIAL MASIER,

DATED MAY 14, 1980

In our brief amici curiae of June 1979 in support of the

plaintiffs’ motion for leave to file a complaint and our

brief amici curiae of November 1979 in support of

plaintiffs’ motion for judgment on the pleadings, we

advised the Court that both the United States and the

Federal Energy Regulatory Commission have a substan-

tial and immediate interest in this litigation involving the

Louisiana First Use Tax on natural gas.

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. 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 reduced. Finally, the

Louisiana First Use Tax conflicts with the federal

regulation of the sale and transportation of natural gas in

interstate commerce. The impact of the Louisiana tax is

to increase the price of gas extracted from federally-leased

areas.

ARGUMENT

1. The Special Master correctly recommended that the

Court grant the motion of the United States and the

Federal Energy Regulatory Commission to intervene as

plaintiffs. As he noted in his report (page 5), while the

interest of the United States and the Commission is

somewhat different from that of the original plaintiffs,

“from the point of view of completing the litigation with

the participation of all parties which have a direct and

important interest in it, it is not only appropriate, but

highly desirable that the United States be joined as a

party.” In support of his recommendation, the Special

Master cited the fact that the United States is not only a

consumer of natural gas but has a separate interest

because of its responsibilities under the Outer Continental

Shelf Lands Act, 43 U.S.C. 1331-1343. Moreover, since

the plaintiffs rely upon actions of the United States and

the Commission for their claims as to the un-

constitutionality of the Louisiana First Use Tax, Fed. R.

Civ. P. 24(b) supports the federal intervention. See also

Wisconsin v. Illinois, 278 U.S. 367 (1929); Arizona v.

California, 344 U.S. 919 (1953); Oklahoma v. Texas, 253

U.S. 465 (1920); New Jersey v. New York, 345 U.S. 369,

373 (1953).!

‘Louisiana seeks to distinguish (Br. 36) Wisconsin v. Illinois, supra,

and New Jersey v. New York, supra, on the ground that “the United

States at no time appeared as an intervenor.” But the United States

was an active participant in subsequent proceedings in the former

case for many years, first as an amicus curiae (e.g., 352 U.S. 983, 984

(1957); 359 U.S. 963 (1959); 360 U.S. 712, 713, 714 (1959)), later as an

2. Louisiana argues that neither the United States nor

the Federal Energy Regulatory Commission should be

permitted to intervene as parties in this case and that the

Special Master erred in so recommending. In support of

its position, Louisiana claims that: (a) the United States

did not allege that the injuries for which it seeks redress

were directly caused by Louisiana (Br. 29); (b) that, even

as a consumer of natural gas, the United States has no

cause of action against Louisiana for increased costs of

gas because the tax is imposed upon the producer and

transporter of the gas and simply “passed on” to the

United States (Br. 29); and (c) that the Federal Energy

Regulatory Commission, and not Louisiana, is responsi-

ble for the pipelines’ passing on of the additional cost

represented by the tax to consumers such as the United

States (Br. 31). Moreover, Louisiana disputes (Br. 31) the

government’s claim that the United States is directly

affected by the tax in its capacity as a lessor under leases

authorizing production of naturai gas from _ federal

enclaves and the Outer Continental Shelf over which it

intervenor (361 U.S. 956 (1960)), and we contributed to the

formulation of the proposed decree that the Court entered on June

12, 1967. 388 U.S. 426. The potentially affected interests of the

United States included navigation in the Great Lakes, the St.

Lawrence Seaway and the Illinois Waterway, hydroelectric power

development on the Niagara and St. Lawrence Rivers, pollution and

other threats to public health in and around the Great Lakes, the

national interest in the Great Lakes-St. Lawrence system as a unique

natural resource, and finally, the maintenance of friendly relations

with Canada.

Moreover, while the United States did not intervene in New Jersey

v. New York, supra, the Special Master's (and our) citation of that

case is to the portion of this Court’s opinion denv:iig 4 motion by the

City of Philadelphia to intervene because its interests were adequately

represented by Pennsylvania. Here, by contrast while the United

States supports the plaintiff States, its concerns and interests are

different.

has exclusive jurisdiction. Finally, Louisiana contests (Br.

33-35) the proposed intervention of the Federal Energy

Regulatory Commission on the ground that there is no

conflict between the First Use Tax and the federal

regulation of the sale and transportation of natural gas in

interstate commerce.

a. The most cursory examination of the Complaint in

Intervention establishes that the United States has alleged

“injurfies] that fairly can be traced to the challenged

action of the defendant, and not injury that results from

the independent action of some third party not before the

court.” Simon v. Eastern Kentucky Welfare Rights

Organization, 426 U.S. 26, 41-42 (1976); Duke Power Co.

v. Carolina Environmental Study Group, 438 U.S. 59, 72,

74 (1978). Specifically, the United States alleges that it “is

a consumer of natural gas in the operation of military and

civilian installations and is thereby directly affected by the

additional costs imposed by the Louisiana First Use

Tax[,]” and that, as the lessor under leases authorizing

various persons to produce natural gas from federal

enclaves and the Outer Continental Shelf, it may suffer a

significant reduction in revenues from those leases if its

lessees must bear the First Use Tax.2 Complaint in

Intervention, paras. VI-VII.

Plainly, a decision by this Court will “redress the

claimed injuries.” Duke Power Co. v. Carolina En-

vironmental Study Group, supra, 438 U.S. at 74. If, as we

submit, the Court holds that the First Use Tax is

unconstitutional, the United States will not incur

additional operating costs and a potential loss of

revenues. If the tax is upheld, however, then the United

2{he government is not required to await the actual loss of

revenues before seeking relief. It is sufficient that the injury is

impending. Pennsylvania v. West Virginia, 262 U.S. 553, 593 (1923).

States will suffer the burden of these additional costs and

reduction in revenues.

b. Moreover, it is immaterial that the First Use Tax is

not imposed directly upon the United States. For present

purposes, it is sufficient that the First Use Tax triggers a

chain of -vents that results in the imposition of additional

costs upon the United States. That fact gives the United

States standing to pursue a cause of action against

Louisiana involving “a matter of grave public concern in

which the [plaintiff States and the federal government], as

the representative[s] of the public, h[ave] an interest apart

from that of the individuals affected. It is not merely a

remote or ethical interest but one which is immediate and

recognized by law” Pennsylvania v. West Virginia, 262

U.S. 553, 592 (1923). See also Reiter v. Sonotone Corp.,

442 U.S. 330, 339-344 (1979).

c. At all events, even if it were necessary that the First

Use Tax be imposed upon the United States, it is plain

that the Act requires that the tax will not be absorbed by

the pipelines but will be passed on to the ultimate

consumers. Section 47:1303C of the First Use Tax Act,

La. Rev. Stat. Ann. (West Supp. 1980), 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

reimbursement or refund[.]” In its answer, Louisiana

admits that Section 47:1303C requires that the First Use

fax be passed along to natural gas consumers. It states

that “the sole purpose, intent, and application of [Section

47:1303C is] to ensure that the First Use lax will not

unreasonably burden any person within the interstate

commerce stream but will be passed along to the ultimate

users and consumers.” Answer, para. LX, at 21. “There

can be no doubt from the clear wording of the statute that

the [Louisiana] Legislature intended that this [First Use]

tax be passed on to the purchaser.” First Agricultural

Nat. Bank v. Tax Comm’n, 392 U.S. 339, 348 (1968). See

also United States v. Mississippi Tax Comm'n, 421 U.S.

599, 607-609 (1975); Diamond National Corp. v. State

Board of Equalization, 425 U.S. 268 (1976); Federal Land

Bank v. Bismarck Lumber Co., 314 U.S. 95, 97, 99 (1941);

Kern-Limerick, Inc. v. Scurlock, 347 U.S. 110 (1954);

Alabama v. King & Boozer, 314 U.S. 1 (1941).

The fact that the Act requires that the First Use Tax be

passed on to the ultimate consumer is further supported

by the authoritative legislative history, which takes the

form of statements made during the hearings before the

Louisiana legislature. Representative Tauzin, the sponsor

of the First Use Tax, and others stated that the effective

date of the tax had been deferred to give the pipelines

time to reflect the tax in their rates,} that the pipelines

would not bear the tax because they could pass it along to

their customers,’ that the tax had been structured to

require that it be passed along to the ultimate consumers

not to the gas producers,’ and that gas consumers in

‘Hearings on H.B. 768 Before the Revenue and Fiscal Affairs

Comm. of the Louisiana Senate 4, 5-6, 12-13 (June 26, 1978) (Rep.

lauzin) (hereinafter “Senate Hearings’); Hearings on H.B. 768

Before the Comm. on Ways and Means of the Louisiana House of

Representatives 2 (June 6, 1978) (Rep. Tauzin) (hereinafter “House

Hearings of June 6, 1978”).

‘Senate Hearings, 4, 5-6, 26-27 (Rep. lauzin); id. at 19 (Mr.

Garner); House Hearings of June 6, 1978, 3 (Rep. Vauzin).

*Senate Hearings, 3-5 (Rep. Tauzin); Hearings on H.B. 768 Before

the Comm. on Ways and Means of the Louisiana House of

Representatives 13 (June 5, 1978) (Rep. Tauzin) (hereinafter “House

Hearings of June 5, 1978).

Louisiana are protected from any im, act resulting from

the tax.° These remarks reinforce the explicit language of

Section 47:1303C and confirm our submission that

Louisiana has enacted an elaborate taxing scheme which

is designed to ensure that the tax will be borne solely by

consumers in other states. There is accordingly no basis to

Louisiana’s claim that the tax is not borne by the United

States in its capacity as a consumer of natural gas and as

a lessor of production areas in federal enclaves.

d. Given the plainly-stated prohibition of Section

47:1303C against the owner of the gas passing on the cost

of the First Use Tax to the producer, Louisiana blinks at

the realities of gas regulation and economics in conten-

ding that the imposition of the tax on the ultimate

consumer is a consequence of the voluntary actions of

either the pipelines or the Commission.

As regulated utilities, the pipelines are entitled to

recover in their rates prudently incurred costs including

taxes for “no public utility [can] be compelled to absorb

its own costs and not pass them on to the consumer.”

Public Service Commission of New York v. Federal

Power Commission, 467 F. 2d 361, 370 (D.C. Cir. 1972);

Federal Power Commission v. Hope Natural Gas Co., 320

U.S. 591 (1944); Galveston Electric Co. v. Galveston, 258

U.S. 388, 399 (1922); Mississippi River Fuel Corp. v.

Federal Power Commission, 163 F. 2d 433, 437, 451

(D.C. Cir. 1947). Since the Louisiana tax at issue amounts

to approximately $225 million per year, the prohibition

against passing on the tax back to the producers virtually

requires the pipelines to pass it on to the consumers.

*Senate Hearings, 3-5, 13 (Rep. Tauzin); House Hearings of June 5,

1978, 4 (Rep. Tauzin), 5 (Rep. Bagart and Rep. Guidry), 6 (Rep.

Laborde), 8 (Rep. Bruneau); House Hearings of June 6, 1978, 10, 17

(Mr. Brooksher), 37 (Mr. Steimel), 40 (Rep. Leach).

There was nothing voluntary about such action. [he

pipelines cannot remain in business it they are required

ultimately to absorb this massive cost.

e. Finally, Louisiana contests the proposed interven-

tion of the Federal Energy Regulatory Commission. But

the conflict between Section 47:1303C of the First Use

Tax Act and the Commission’s exclusive regulatory

jurisdiction over the transportation and sale of natural gas

in interstate commerce could not be more palpable. The

Commission has consistently held that a pipeline’s natural

gas customers do not receive any benefits from the

pipelines transportation of liquid and __liquefiable

hydrocarbons for the owners, and that the costs

associated with the transportation and delivery of such

products at the inlet of a processing plant must be borne

by the producers, who benefit from such activities, and

not by the natural gas consumers.’ However, Section

47:1303C seeks to preclude the Commission from

classifying the First Use Tax as a cost associated with the

extraction of hydrocarbons. It does this by prohibiting the

pipelines from obtaining reimbursement from the owner

of the extracted hydrocarbons and requiring the pipeline

to seek reimbursement, if at all, from subsequent

purchasers, i.e., consumers, of the natural gas.

7Union Oil Company of California, et al., Docket No. C177-828, et

al., order at 7, 10-11 (Apr. 12, 1978); Canadian Superior Oil (U.S.)

Ltd., et al., Docket No. C177-802 (Mar. 28, 1978); High Island

Offshore System, Docket Nos. CP75-104, et a/., 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. KPC, 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, || F.P.C. 435, 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).

| The conflict between the Louisiana tax and the

Commission’s authority is therefore not an abstraction.

To the contrary, the First Use Tax trenches upon “matters

which directly affect the ability of the [Commission] to

regulate comprehensively and effectively the transporta-

tion 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 Commission, 372 U.S. 84, 91-92

(1963). In these circumstances, the Commission’s “right to

intervene [has] a substantial basis * * *, [and] it would

seem fairest to permit [it] to speak for itself.” Utah v.

United States, 394 U.S. 89, 92 (1969). See also Fed. R.

Civ. P. 24(b).

CONCLUSION

For the reasons stated above and in the Special

Master’s Report, the motion of the United States and the

Federal Energy Regulatory Commission to intervene as

plaintiffs should be granted.

Respectfully submitted.

WADE H. McCRrEE, JR.