Opposition Brief — Michigan v. Federal Energy Regulatory Commission

iN Supreme Court, U.S.

7 FILED

No. 89-1161

278 aan

JOSEFH F. SPANIOL’, IR

IN THE CLERK

Supreme Court of the United Starrs

OCTOBER TERM, 1989

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the District of Columbia Circuit

BRIEF OF RESPONDENT

NATIONAL STEEL CORPORATION

IN OPPOSITION

Of ¢ f WILLIAM H. PENNIMAN

ras H. West Counsel of Record

1 Lew! UTHERLAND, ASBILL & BRENNAN

Rer ance Cent 1275 Pennsylvania Avenue, N.W

‘ ri) Washington, D.C. 20004-2404

Detroit, Michigan 482 02) 383-0100

13) 259-3232 ittorney for Respondent

RICHARD M. ZOMNIR Vational Steel Corporation

B rT, CALLA ' M

AND ZOMNIR

iv (,ateyv {

P gh, | 15222

412 14-5400

Witsom - Eres Painting Co.. Inc. - 769-0096 - WasHincron. 0.C. 20001

BEST AVAILABLE COPYI

QUESTION PRESENTED

Whether the Federal Energy Regulatory Commission

exceeded its jurisdiction under Section 1(b) of the Na-

tural Gas Act regarding transportation of natural gas

in interstate commerce and companies which perform

such transportation by granting a certificate of public

convenience and necessity that authorizes an interstate

pipeline to transport user-owned natural gas from Okla-

homa to the user’s plant in Michigan and to construct

limited pipeline facilities to perform the interstate trans-

portation service.

(i)

ii

IDENTITY OF AFFILIATES

National Steel Corporation is a Delaware Corporation.

It is jointly owned by two parent entities, NII Capital

Corporation and NKK U.S.A. Corporation. These cor-

porations are not publicly traded but are subsidiaries of

the publicly traded corporations, National Intergroup,

Inc. and NKK Corporation. National Steel Corporation

has the following subsidiaries owned jointly with others,

none of which is publicly traded:

Buffalo River Improvement Corporation

Concast Holding A.G.

Iron Ore Company of Canada

Iron Ore Land Company

Mathies Coal Company

The Messaba-Cliffs Mining Company

Pilot Knob Pellet Company

Presque Isle Corporation

ProCoil Corporation

Taylor Devices, Inc.

TABLE OF CONTENTS

Page

I a acncterncncnnccvecnccnncerseceoeece i

IDENTITY OF AFFILIATES ........00020222022200000......... ii

gs EEE iv

STATEMENT OF THE CASE ..00000000222000.2222.-cececccceceoeee- 1

REASONS FOR DENYING THE WRIT... 7

EET ESE ERD 7

Il. THE CRITERIA FOR A WRIT OF CERTIO-

RARI ARE NOT SATISFIED IN THIS CASE.. 8

Ill. MICHIGAN’S ARGUMENT CONFLICTS

WITH THE STATUTE, THE LEGISLATIVE

HISTORY, LONG-STANDING PRACTICE,

AND DECISIONS OF THIS COURT ......... 9

EE EE SI Oe 19

(iii)

iv

TABLE OF AUTHORITIES

Cases: Page

FPC v. East Ohio Gas Co., 338 U.S. 464 (1950).... 10, 11,

13, 15

FPC v. Louisiana Power & Light Co., 406 U.S. 621

i a et ee, ee passim

FPC v. Transcontinental Gas Pipe Line Corp., 365

08 Et 5 ere Se Plt ei aa pe 12, 18

International Paper Co. v. FPC, 438 F.2d 1349 (2d

Cir.), cert. denied, 404 U.S. 827 (1971) ............... 8

Louisiana-Nevada Transit Co., 2 FPC 546 (1939),

aff'd sub nom. Arkansas Louisiana Gas Co. v.

FPC, 113 F.2d 281 (5th Cir. 1940) ....................... 9

Maryland v. Louisiana, 451 U.S. 725 (1981) ........... 15

Michigan Consolidated Gas Co. v. Panhandle East-

ern Pipe Line Co., 887 F.2d 1295 (6th Cir.

1989), petition for cert. filed sub nom. State of

Michigan v. Panhandle Eastern Pipe Line Co.,

58 U.S.L.W. 3491 (U.S. Jan. 24, 1990) (No. 89-

EMME «code asnacciccscassehudsiapeuneninaeaateabatnensesaasasinstaentitecste 7, 16,17

Missouri v. Kansas Natural Gas Co., 265 U.S. 298

RIE RSENS A ae © RR eR OAS 15, 17

Nantahala Power & Light Co. v. Thornburg, 476

8 RE eee tad oe Re 18

Panhandle Eastern Pipe Line Co. v. FPC, 232 F.2d

467 (3d Cir.), cert. denied, 352 U.S. 891 (1956)... 12

Panhandle Eastern Pipe Line Co. v. Michigan Pub.

Serv. Comm’n, 341 U.S. 329 (1951) .........00000000.. 14, 15

Panhandle Eastern Pipe Line Co. v. Pub. Serv.

Comm'n of Indiana, 332 U.S. 507 (1947) ........12, 14, 15

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

AIEEE tae Re Ble AE © Se Plt FEN REND 10

Public Serv. Elec. & Gas Co. v. FPC, 371 F.2d 1

(3d Cir.), cert. denied, 389 U.S. 849 (1967)... &

United Gas Pipe Line Co. v. FPC, 385 U.S. 83

t,t os Ries Se Rn Ren ted eS sees 11, 15, 17

Statutes:

Natural Gas Act, Section 1(b), 15 U.S.C. § 717(b)

y S ORME Bet ePID ce Rae ae ANON P Ne 1, 10,11

Vv

TABLE OF AUTHORITIES—Continued

Page

Natural Gas Act, Section 7(b), 15 U.S.C. § 717 (b)

(hse RRS ihe ae Re ON ae iaahahneiiakesadacialaad 17

Natural Gas Act, Section 7(c), 15 U.S.C. § 717f(c)

ARR RRS Tee ne RRC Ts sR Ses ese = Cee 1, 10, 11

Legislative:

H.R. Rep. No. 709, 75th Cong., 1st Sess. 3 (1937)... 13

S. Rep. No. 1162, 75th Cong., lst Sess. 3 (1937)... 13

Natural Gas: Hearings on H.R. 11662 Before a

Subcommittee of the House Committee on Inter-

state and Foreign Commerce, 74th Cong., 2d

Sess. (1936) UE 2 ce erammen ens WEA ALR aR a De 9

IN THE

Supreme Court of the United States

OCTOBER TERM, 1989

No. 89-1161

STATE OF MICHIGAN AND

MICHIGAN PUBLIC SERVICE COMMISSION,

Petitioners,

V.

FEDERAL ENERGY REGULATORY COMMISSION,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the District of Columbia Circuit

BRIEF OF RESPONDENT

NATIONAL STEEL CORPORATION

IN OPPOSITION

STATEMENT OF THE CASE

This case involves the authority of the Federal Energy

Regulatory Commission (“FERC” or ‘“Commission’’)

over interstate transportation of natural gas. Specifi-

cally, Petitioners challenge the Commission’s jurisdiction

to issue, pursuant to Sections 1(b) and 7(c) of the Na-

tural Gas Act (“NGA”), 15 U.S.C. $$ 717(b) and 717f

(c) (1988), a certificate of public convenience and neces-

ee

2

sity authorizing Panhandle Eastern Pipe Line Company

(“Panhandle”) (1) to transport natural gas owned by

National Steel Corporation (“National”) from Oklahoma

to National’s steel plant in Michigan, and (2) to con-

struct and operate pipeline facilities needed to accomplish

the transportation service. The two pipeline taps and

meters authorized to be constructed are located on Pan-

handle’s main transmission line at a point that is on Na-

tional’s plant property. The deliveries are made directly

to National at high pressure from Panhandle’s transmis-

sion line, which runs from Oklahoma to Canada across

National’s steel mill property.

The Commission granted Panhandle’s requested certifi-

cate of public convenience and necessity based upon a full

record consisting of extensive public hearings and brief-

ing in which interested parties were able to present evi-

dence and arguments concerning all factors affecting the

public interest. Petitioners, Michigan and the Michigan

Public Service Commission (‘‘Michigan’’), participated in

those proceedings as did Panhandle, National, Michigan

Consolidated Gas Company (‘‘MichCon’’), other local dis-

tribution companies served by Panhandle, and the FERC

staff.

As recognized by the Commission, Panhandle’s service

to National is pure interstate transportation for hire;

Panhandle makes no sales whatsoever to National. (Pan-

handle Eastern Pipe Line Co., 38 FERC (CCH) § 63,009

at 65,041 (1987), Appendix at 124a-125a.)' Rather, Na-

tional owns the gas to be transported (a) prior to delivery

to Panhandle, (b) at all times it is in the possession of

Panhandle, and (c) at the time of redelivery to Na-

tional’s plant where it is used by National. As found by

the Commission:

1 References to the “Appendix” or “App.” are to the Appendix to

Michigan’s Petition for Writ of Certiorari.

3

[This case] involves natural gas that is purchased

by National Steel in Oklahoma and transported by

Panhandle to Michigan. The gas, therefore, will be

moving in interstate commerce as defined by the

NGA. Because our jurisdiction extends over the

transportation of gas to be delivered to end-users,

Panhandle’s transportation service is subject to our

jurisdiction. Furthermore, once we find the proposed

transportation to be in interstate commerce, section

7(c) of the NGA requires the pipeline to obtain from

us a certificate of public convenience and necessity

authorizing such transportation.

(Panhandle Eastern Pipe Line Co., 42 FERC (CCH)

761,076 at 61,847 (1988), App. at 49a (footnotes

omitted ) .)

The Commission rejected Michigan’s contention that

Panhand’e’s interstate transportation of user-owned gas

directly to National is “local distribution” beyond FERC’s

authority. (42 FERC at 61,347-349, App. at 50a-55a.)?

Furthermore, the Commission rejected Michigan’s conten-

tion that the “local distribution” exemption empowers

states to veto the Commission’s interstate transportation

orders. (42 FERC at 61,349, App. at 54a-55a.) It wrote:

State commissions remain free to regulate the rates

and review the purchasing practices of distributors

under their jurisdiction. If State commissions had

authority to frustrate individual pipeline transac-

2 Contrary to the implications in the Petition for Certiorari (at

3), the Administrative Law Judge merely held that, since the issue

was not before him, he did not need to decide “whether there might

be some concurrent jurisdiction ... .” (38 FERC at 65,042, App. at

126a.) The Commission went further and rejected Michigan’s

claimed right to veto FERC’s grant to Panhandle of the certificate

of public convenience and necessity. (42 FERC at 61,347-349, App.

at 50-55a.) And, the one Commissioner’s dissent did not dispute the

Commission’s exclusive jurisdiction but only whether a condition

affecting wholesale services to MichCon should have been imposed.

(Panhandle Eastern Pipe Line Co., 44 FERC (CCH) {§ 61,410 at

62,321 (1988), App. at 90a-92a.)

———— EE

4

tions like this one, however, they could seriously af-

fect our ability to foster the development of an eco-

nomically efficient system of interstate transporta-

tion. |

(42 FERC at 61,349, App. at 55a.)

On the merits, the Commission amply supported its con-

clusion that the overall public convenience and necessity

are served by Panhandle’s interstate transportation and

related facilities to serve National. As set forth in detail

in the ALJ’s Initial Decision, which was adopted in rele-

vant part by the Commission, the $10 million or more of

annual savings to National as a result of this transaction

would aid National in its “struggle to survive” in the

face of severe financial losses. (88 FERC at 65,042-43,

App. at 128a-129a.) As “a significant employer, with

5,500 employees at its Great Lakes Steel plant,” the sav-

ings to National generated by the project would help it

“to avoid further cutbacks in its operations and to avoid

further jayoffs at its Great Lakes plant where it has

already reduced its employment by half... .” (38 FERC

ot 65.943, App. at 129a.) This, the Commission found,

wou d “Se of benefit to the community where the National

Stee! plent is located.” (/d.) Although the Commission

considered the possibility of some cost-shifting in Mich-

Con's retail rates, it rejected arguments by MichCon that

this warranted disapproving the certificate. (88 FERC

at 65,043-44, App. at 129a-132a.) Indeed, the Commission

concluded that, irrespective of its approval of Panhandle’s

certificate, MichCon would lose National’s load inasmuch

as National was actively pursuing other supply alterna-

tives. (38 FERC at 65,043-44, App. at 1381a-132a.)

Furthermore, the Commission found that the proposed in-

terconnection and transportation service “would provide

Panhandle itself with a substantial incremental load,”

which was important “particularly in light of Panhandle’s

load losses.” (88 FERC at 65,044, App. at 132a.)* By

* The evidence showed that “because of capacity constraints on

Panhandle’s existing interconnection with MichCon, Panhandle can-

5

spreading Panhandle’s fixed costs over a larger volume of

throughput, the transportation to National would even-

tually lower Panhandle’s rates for the benefit of its cus-

tomers in all states. (Id.) The certificate authorizing

transportation from Oklahoma would also “preserve a

large load for the domestic interstate market” since Na-

tional was otherwise likely to turn to Canadian energy

sources. (Id.)

The Commission’s findings concerning the public con-

venience and necessity were succinctly summarized (38

FERC at 65,076, App. at 216a-217a) as follows:

[1] Based on an evaluation of the overall benefits

to National Steel, to Panhandle and its customers, to

the communities near National Steel’s plants and to

the public interest by fostering competition, versus

the potential detriments to MichCon and its other

customers from the Panhandle proposal to service

National Steel, it must be concluded that the benefits

outweigh the potential detriments and that the pro-

posal will serve the public interest. Therefore, grant-

ing of the application . . . is required by the public

convenience and necessity.

[2] The potential detriments to MichCon and its cus-

tomers will occur regardless of whether the applica-

tion . . . is granted because National Steel has a

viable other supply option, the underwater pipeline.

which it will be able to use in the near future and

which is more attractive financially to National Steel

than the current gas transportation arrangements

with MichCon.

In the decision below, the United States Court of Ap-

peals for the District of Columbia Circuit affirmed both

not serve both MichCon’s existing demands for transportation and

National Steel’s additional load” without constructing the proposed

facilities. (238 FERC at 65,034, App. at 108a.) This contradicts

Michigan's claim now that Panhandle’s proposed construction was

not necessary to accomplish the interstate transportation function.

Michigan Pet. for Cert. at 11.

6

the Commission’s findings on the merits and the Commis-

sion’s conclusion concerning its jurisdiction to grant the

certificate of public convenience and necessity. Without

undertaking an exegesis on “the precise boundaries of

FERC and state regulatory jurisdiction,” the Court unan-

imously declared “we have no difficulty in holding that

FERC has jurisdiction over the particular arrangement

involved in the present controversy.” (883 F.2d at 121,

App. at 8a-9a.) It wrote:

The arrangement in dispute involves merely inter-

state transportation of natural gas, a subject matter

clearly within the Commission’s jurisdiction. ... The

present arrangement is the subject of federal regula-

tion pursuant to the NGA because the arrangement

involves the transportation of natural gas in inter-

state commerce, not a local sale. It is undisputed that

title to the gas passes in Oklahoma, not Michigan.

Panhandle, the transporter of the gas, is not a party

to the sale. Panhandle’s role under the arrangement

is simply to transport National’s gas from one state

to another across several intervening states. It is

hardly conceivable that a transaction could fit more

neatly into the category of ‘transportation of natural

gas in interstate commerce.’

(883 F.2d at 121, App. at 9a.) Inasmuch as the transac-

tion merely involves Panhandle’s transportation of third-

party gas in interstate commerce, the D.C. Circuit had no

doubt the matter is within FERC’s jurisdiction: “Trans-

portation in interstate commerce is clearly a subject for

federal regulation under 15 U.S.C. § 717(b).” (883 F.2d

at 122, App. at 10a.)*

* Prior to FERC’s issuance, on September 10, 1987, of the certifi-

cate authorizing Panhandle to serve National, MichCon filed a com-

plaint with the Michigan Public Service Commission asking that it

assert jurisdiction over Panhandle’s proposed transportation and

facilities. After FERC issued the certificate, declaratory judgment

and injunctive actions were initiated in Michigan and were consoli-

dated before the U.S. District Court for the Western District of

Michigan. On September 29, 1987, the Michigan PSC issued an

7

REASONS FOR DENYING THE WRIT

I. SUMMARY

As set forth more fully below, a writ of certiorari is

not warranted in this case. The decision of the D.C. Cir-

cuit is consistent with decisions of other circuits and long-

standing interpretations of the Natural Gas Act by this

Court. It involves a clear-cut application of law to the

simplest set of jurisdictional facts.

Michigan’s arguments to limit FERC’s jurisdiction fly

in the face of fifty years of history in which FERC (or its

predecessor, the Federal Power Commission) has rou-

tinely considered and approved certificates of public con-

venience and necessity under NGA Section 7 for interstate

transportation of natural gas directly to gas users and for

pipeline facilities to effectuate direct transportation to gas

users. Michigan’s contention that the Commission’s inter-

state transportation jurisdiction is restricted to deliveries

to local distribution companies conflicts with holdings by

this Court. The claim that NGA Section 1(b)’s local dis-

tribution proviso overrides FERC’s jurisdiction over inter-

state transportation is rebuffed by clear legislative history

and holdings of this Court which state that the local dis-

tribution proviso is “surplusage”’ and in no way limits

the NGA’s affirmative grant of jurisdiction over interstate

transportation or sales for resale. Moreover, Michigan’s

argument, if adopted, would disrupt FERC’s ability to

regulate interstate pipelines and their transportation

order prohibiting Panhandle from constructing the FERC-approved

facilities and serving National. Eventually, the U.S. District Court

and the Sixth Circuit held that FERC has exclusive jurisdiction over

Panhandle’s interstate transportation service and facilities, which

preempts Michigan's regulation of Panhandle’s service and facilities.

Michigan Consolidated Gas Co. v. Panhandle’s Eastern Pipe Line

Co., 887 F.2d 1295 (6th Cir. 1989), aff’g National Steel Corp. v.

Long, 689 F.Supp. 129 (W.D. Mich. 1988), petition for cert. filed

sub nom. State of Michigan v. Panhandle Eastern Pipe Line Co.,

58 U.S.L.W. 3491 (U.S. Jan. 24, 1990) (No. 89-1160).

services and facilities. It would empower states to veto

interstate pipeline facilities and services found by the

Commission to be in the public interest, to order changes

in pipeline’s interstate facilities and services approved by

FERC, and to order premature abandonment of facilities

and services in violation of Section 7(b) of the NGA.

Il. THE CRITERIA FOR A WRIT OF CERTIORARI

ARE NOT SATISFIED IN THIS CASE.

There is nothing remarkab’e about the D.C. Circuit’s

decision affirming FERC’s jurisdiction over interstate

transportation of third-party owned gas and over facilities

needed to perform that interstate transportation service.

The D.C. Circuit’s decision involves a clear-cut applica-

tion of law to the simplest possible set of facts relevant

to jurisdiction. As held by that court, “It is hardly con-

ceivable that a transaction could fit more neatly into the

category of ‘transportation of natural gas in interstate

commerce.’”’ (883 F.2d at 121, App. at 9a.) Michigan’s

requests for rehearing and for rehearing en banc were

rejected without any judge asking for a vote thereon.

App. at 19a.)

Nor is there any conflict among the circuits. In a com-

panion case, the Sixth Circuit reached the same conclu-

sion concerning FERC’s jurisdiction to approve Pan-

handle’s interstate transportation and deliveries to Na-

tional and the facilities associated therewith. MichCon v.

Panhandle, 887 F.2d at 1300. That case is now pending

before this Court on Michivan’s separate petition for a

writ of certiorari in No. 89-1160. Other courts directly

or indirectly addressing this issue have reached a similar

conclusion that FERC has jurisdiction over direct trans-

portation to end-users, even if it lacks authority over

direct sales. See, e.g., FPC v. Louisiana Power and Light

Co., 406 U.S. 621 (1972): International Paner Co. »v.

F PC. 488 F.2d 1349 (2d Cir.). cert. denied, 404 T1.S. 8°

1971). Cf. Public Serv. Elec. & Gas Co. v. FPC, 3

F.2d 1 (3d Cir.), cert denied, 389 U.S. 849 (1967).

9

Ill. MICHIGAN’S ARGUMENT CONFLICTS WITH THE

STATUTE, THE LEGISLATIVE HISTORY, LONG-

STANDING PRACTICE, AND DECISIONS OF THIS

COURT.

At the heart of its position, Michigan would have this

Court fundamentaly rewrite the Natural Gas Act. Michi-

gan claims that the Commission exceeded its jurisdiction

under the NGA by certificating interstate transportation

for hire directly to a consumer and facilities needed to

perform that interstate transportation service. In effect,

Michigan seeks to break up the FERC’s plenary authority

over interstate transportation of natural gas by limiting

the Commission’s interstate transportation authority only

to approving physical connections and deliveries to local

distribution companies, not to gas users. Such a rewrite

of the Act would nullify certificates of public convenience

and necessity issued by FERC for the interstate transpor-

tation and delivery of gas to end users since the earliest

days of the Natural] Gas Act.°

The Commission’s jurisdiction under the NGA reflects

the limits of state regulation of interstate commerce in

natural gas as they were understood by Congress at the

time of enactment. When the NGA was enacted, it was

understood that the states could regulate neither inter-

state transportation of natural gas nor sales for resale

in interstate commerce. As explained by the Solicitor of

the Federal Power Commission (FERC’s predecessor) in

hearings preceding enactment, “The States cannot contro!

the wholesale rates extracted for natural gas thus trans-

ported, nor may they regulate any other of the phases of

the interstate transportation.”* As this Court held in

5 See, e.g., Louisiana-Nevada Transit Co., 2 FPC 546 (1939),

aff'd sub nom, Arkansas Louisiana Gas Co. v. FPC, 113 F.2d 281

(5th Cir. 1940).

® Natural Gas: Hearings on H.R. 11662 Before a Subcommittee

of the House Committee on Interstate and Foreign Commerce, 74th

Cong., 2d Sess. 16 (1936) (Brief in Support of Constitutionality).

10

Pennsylvania v. West Virginia, 262 U.S. 553, 596-97

(1923) :

A state law, whether of the state where the gas is

produced or that where it is to be sold, which by its

necessary operation prevents, obstructs, or burdens

such transmission [of natural gas], is a regulation of

interstate commerce, a prohibited interference.

Only retail sales of natural gas and low pressure, local

delivery systems for making retail sales were understood

to be within the jurisdiction of the states. See FPC v.

East Ohio Gas Co., 338 U.S. 464 (1950). Michigan cites

no cases which hold that pure interstate transportation

could be regulated by the states.

Congress reflected its understanding of that division

of authority in Section 1(b) of the Natural Gas Act, 15

U.S.C. § 717(b), which gives jurisdiction over interstate

transportation exclusively to the Commission:

The provisions of this Chapter shall apply to the

transportation of natural gas in interstate commerce,

to the sale in interstate commerce of natural gas for

resale for ultimate public consumption for domestic,

commercial, industrial or any other use, and to

natural-gas companies engaged in such transporta-

tion or sale, but shall not apply to any other trans-

portation or sale of natural gas or to the local dis-

tribution of natural gas or to the facilities used for

such distribution or to the production or gathering

of natural gas.

(Emphasis added.) In Section 7(c) of the Act, 15 U.S.C.

§ 717f(c), Congress required that, before intiating any

interstate transportation service or constructing any fa-

cilities to render such service, an interstate pipeline (“‘nat-

ural gas company’) must first obtain a certificate of pub-

lie convenience and necessity from the Commission.

In contrast to the Commission’s sales jurisdiction,

which is limited to interstate “sales for resale’ and ex-

cludes retail sales, the Commission’s jurisdiction over in-

11

terstate transportation of natural gas is complete and en-

compasses transportation for hire and transportation to

users for consumption. NGA Section 1(b), 15 U.S.C.

§ 717(b). In United Gas Pipe Line Co. v. FPC, 385 US.

83, 89 (1966), this Court succinctly summarized the

NGA’s broad grant to FERC of transportation au-

thority :

The Act gives the Commission jurisdiction over inter-

state transportation of natural gas as a separate and

distinct matter, whether the transportation is for

hire or for sale and whether the sale is for consump-

tion or resale. FPC v. East Ohio Gas Co., 338 U.S.

464; FPC v. Transcontinental Gas Pipe Line Corp.,

365 U.S. 1; Panhandle Eastern Pipe Line Co. v.

FPC, 359 F.2d 675.

In East Ohio, 338 U.S. at 468, this Court rejected efforts

to limit the Commission’s transportation jurisdiction to

transportation in conjunction with wholesale deliveries.’

See FPC v. Louisiana P&L, 406 U.S. 621.

Throughout its history, the Commission has exercised

transportation jurisdiction over (1) interstate pipelines’

construction and operation of facilities to transport and

deliver natural gas directly to consumers and (2) the

7Even the dissenting Justice in East Ohio conceded that the

Commission’s jurisdiction over interstate “transportation for hire”

was exclusive. Section 1(b) “would quite obviously within the

words of the statute give exclusively to the Power Commission juris-

diction over companies which might act in the nature of common

carriers transporting in interstate commerce for hire.” 338 U-S.

at 487 (Jackson, J., dissenting).

Pursuant to NGA Section 1(c), 15 U.S.C. § 717(c), which was

enacted in response to the East Ohio decision, a state may now

regulate natural gas transportation by companies which (a) are

located wholly within the boundaries of the state and (b) redeliver

entirely within the state gas received from other states. While Sec-

tion 1(c) resolves possible conflicts over regulation of companies

operating entirely within one state, it does not give any support to

state regulation of transportation hy an interstate pipeline such as

Panhandle.

itl

12

interstate transportation and delivery of gas through

those facilities. See FPC v. Transcontinental Gas Pipe

Line Corp., 365 U.S. 1, 24 (1961); supra note 5. His-

torically, the Commission typically exercised its transpor-

tation jurisdiction over interstate pipelines’ deliveries to

users and related delivery facilities in conjunction with

retail sales made by interstate pipelines even though the

Commission did not exercise authority over those retail

sales. See Panhandle Eastern Pipe Line Co. v. Pub. Serv.

Comm’n of Indiana, 332 U.S. 507, 523 and n.23 (1947)

‘hereinafter Panhandle/Indiana|; Panhandle Eastern

Pipe Line Co. v. FPC, 232 F.2d 467, 471 (3d Cir.), cert.

denied, 352 U.S. 891 (1956) (“This control over gas

transportation by the Commission is completely indepen-

dent of the sale of the gas and just as important.”).

In FPC v. Louisiana P&L, 406 U.S. at 636, this Court

squarely upheld the Commission’s exclusive power to regu-

late interstate transportation of natural gas directly to

industrial consumers:

Each of [the factors of Section 1(b)] is an inde-

pendent grant of jurisdiction and, though the Act’s

application to “sales” is limited to sales of interstate

gas for resale, the Act applies to interstate “trans-

portation” regardless of whether the gas transported

is ultimately sold retail or wholesale.

(Emphasis added.) Further, the Court wrote:

Congress’ grant of sales jurisdiction as to sales for

resale and the prohibition as to direct sales were

meant to apply exclusively to ra‘e setting, and in no

wise limited the broad base of “transportation” ju-

risdiction granted the FPC.

(Id. at 640). That decision also confirmed the Commis-

sion’s certificate authority over transportation directly to

a user: “A ‘jurisdictional’ pipeline transports natural

gas in interstate commerce and for that reason is sub-

ject to FPC certification jurisdiction.” (Jd. at 626, n.1.)

See FPC v. Transcontinental, 365 U.S. at 4 (“[Blecause

13

it does not entail a sale for resale in interstate commerce,

[this transaction] is not subject to the Commission’s jur-

isdiction except insofar as §7 requires the Commission

to certificate the transportation of gas pursuant to the

sale.”” (Emphasis added.) ).

Michigan rests its argument to limit FERC’s jurisdic-

tion over interstate transportation deliveries to users

upon the weak reed of Section 1(b)’s “local distribution”

exemption. As this Court has recognized, however, that

proviso was merely intended to clarify Congress’ decision

not to include retail sales within the scope of the NGA:

it does not limit the Commission’s jurisdiction over inter-

state transportation. This is explicitly stated in the

House and Senate Committee reports, H.R. Rep. No. 709,

75th Cong., Ist Sess. 3, and S. Rep. No. 1162 (1937),

75th Cong., lst Sess. 3 (1937):

That part of the negative declaration stating that the

act shall not apply to ‘the local distribution of na-

tural gas’ is surplusage by reason of the fact that

distribution is made only to consumers in connection

with sales, and since no jurisdiction is given to the

Commission to regulate sales to consumers the Com-

mission would have no authority over distribution,

whether or not local in character.

On at least two occasions, this Court has recognized

the “local distribution” exemption to be surplusage, citing

the explicit legislative history. East Ohio, 338 U.S. at

470-71; FPC v. Louisiana P&L, 406 U.S. at 637 n.14. In

FPC v. Louisiana P&L, this Court wrote:

It is well established that the proviso [concerning

local distribution] was added to the Act merely for

clarification and was not intended to deprive [the]

FPC of any jurisdition otherwise granted by § 1(b).

(Id. (emphasis added). )

The two cases principally relied upon by Michigan do

not call for a different result as both cases involved only

the ability of states to regulate retail sales by interstate

14

pipelines—not interstate transportation services—in the

absence of federal regulation of retail sales under the

NGA. See Panhandle/Indiana, 332 U.S. at 516-20; Pan-

handle Eastern Pipe Line Co. v. Michigan Pub. Ser».

Comm’n, 341 U.S. 329, 3384 (1951) [hereinafter Pan-

handle/Michigan].®

In neither of those cases did the Supreme Court doubt

that the federal Commission has exclusive authority to

regulate the interstate transportation of the gas to be

sold or the facilities to perform such transportation. In-

deed, in Panhandle/Indiana, the Court recognized with

approval the fact that the Commission had issued a cer-

tificate of public convenience and necessity ‘under § 7(c)

of the Natural Gas Act to extend [the pipeline’s] facili-

ties to serve the DuPont plant”—the very action which

Michigan now declares is beyond FERC’s legal authority.

332 U.S. at 523 and n.23. Moreover, the Court reiterated

that interstate transportation deliveries to a user are

within the Commission’s jurisdiction: “the matter of in-

terrupting service is one largely related, as appellees say,

to transportation and thus within the jurisdiction of the

Federal Power Commission to control... .” (Id. at 523

(emphasis added). )

Nor is it possible, as Michigan would have it, to break

up Panhandle’s interstate transportation service for Na-

tional so as to separate Panhandle’s “delivery” and asso-

ciated facilities from the “interstate transportation” sub-

ject to FERC’s jurisdiction. Regulation of interstate

transportation for a shipper necessarily involves the

pipeline’s receipt, transportation and delivery of the

shipper’s natural gas, plus the facilities, rates, and terms

for rendering such service. Without control over an in-

terstate pipeline’s delivery of gas, the NGA’s grant of

8 Panhandle/Indiana approved state regulation of rates charged

by a pipeline for retail sales, while Panhandle/Michigan held that

a state could require an interstate pipeline to obtain a state certifi-

cate permitting a retail sale.

15

jurisdiction over “transportation of natural gas in in-

terstate commerce” would be ineffectual. See FPC v.

Louisiana P&L, 406 U.S. 621. It would leave FERC

powerless to control the size, location, nature and use of

interstate transportation facilities, as well as the rates,

curtailments and myriad other attributes of the trans-

portation services. Moreover, this Court has held that

| “lglas crossing a state line at any stage of its move-

) ment to the ultimate consumer is in interstate commerce

| during the entire journey.” Maryland v. Louisiana, 451

U.S. 725, 755 (1981) (emphasis added). Interstate

transportation begins with receipt by the pipeline and

ends only after delivery by the pipeline. See United Gas

Pipe Line v. FPC, 385 U.S. 83; Missouri v. Kansas Na-

tural Gas Co., 265 U.S. 298, 308 (1924). Indeed, just

as the principal cases cited by Michigan held that the

pipeline’s retail sales to users were sales in interstate

commerce,’ so is it clear that the pipeline’s transporta-

tion deliveries in this case are transportation in inter-

state commerce—a matter in FERC’s exclusive jurisdic-

tion under NGA Section 1(b).

Unlike the retail sales cases cited by Michigan, no

“regulatory gap” is left after the Commission has exer-

cised its jurisdiction over the interstate transportation

service to National. All aspects of Panhandle’s interstate

transportation from receipt through delivery are regu-

lated by FERC. In the proceedings below, the Commis-

sion performed a comprehensive review of the term, rates

and interruptibility of the service; the nature and iden-

tity of the shipper; the source of the gas; the point of

receipt and delivery; the existing facilities to be used and

® Panhandle/Indiana, 332 U.S. at 513; Panhandle/Michigan, 341

U.S. at 333. In East Ohio, the Court indicated that interstate trans-

portation ends when the gas is reduced in pressure and enters com-

munity systems of local mains for distribution. 338 U.S. at 469-470.

That is not at issue here since Panhandle will deliver at high pres-

sure directly off its mainline, and a low pressure community dis-

tribution system is not involved in this case.

a

16

the new ones to be constructed; ana the project’s impacts

on the pipeline’s existing customers, on producers, on the

pipeline, on community and national interests, on Mich-

Con, and on the shipper, National. (Panhandle Eastern

Pipe Line Co., 40 FERC (CCH) {| 61,220 at 61,751-754

(1987), App. at 67a-73a; 38 FEKU at 65,034-46, App.

at 105a-136a; 38 FERC at 65,076, App. at 216a-217a).”

The Commission concluded that the public convenience

and necessity is served by the project as conditioned by

its orders, and it granted a certificate for the interstate

transportation of gas and the construction of facilities

therefor. The D.C. Circuit affirmed the Commission’s

findings. (883 F.2d at 121-124, App. at 8a-1l5a.)

At this time, no aspect of Panhandle’s service is left

to be regulated by the State of Michigan. Indeed, any

effort by Michigan to impose state certificate and regula-

tory requirements on the same interstate transportation

and facilities would necessarily lead to direct, irreconcil-

able conflicts." As recognized by the Commission below,

state vetoes or overlapping regulation of FERC’s certifi-

cates would disrupt FERC’s “ability to foster the devel-

opment of an economically efficient system of interstate

transportation.” (42 FERC at 61,349, App. at 55a.)

Such state regulation of interstate transportation would

also place Panhandle in the impossible dilemma of being

unable “to serve two masters.” What could Michigan do

at this point? Would it change the point of delivery? the

10 Although uncontested below and therefore not discussed, FERC’s

orders, as well as its regulations and Panhandle’s tariffs, also gov-

ern many other aspects of the service to National, including the

quality of gas to be delivered, the pressure at which deliveries are

to be made, the priorities for interruption and curtailment, the re-

quirements for maintaining balance between a shipper’s injections

and withdrawals, procedures for scheduling Panhandle’s receipts and

deliveries, penalties for noncompliance, warranties of title, and the

ability of a customer to change receipt and delivery points.

11 MichCon v. Panhandle, supra note 4, 887 F.2d at 1300-02.

17

ee nD.

rate? the nature or location of the facilities to be con-

structed? the identity of the customer? the priorities for

Panhandle curtailments of deliveries? the terms of the

service? Would it impose an additional “delivery” charge

or alter the pressure or quality specifications? Or would

it simply “st[and] at the state line and impose[] its reg-

ulation upon the final step in the process at the moment

the interstate commodity enter[s] the state’? Missouri v.

Kansas Natural Gas, 265 U.S. at 308.

Presumably, under Michigan’s conception of its pow-

ers, it could do all of the above; and, under Michigan’s

logic, a state could order the modification, reduction or

termination of service in violation of NGA Section 7(b),

15 U.S.C. § 717f£(b), which obligates Panhandle to con-

tinue rendering services until permitted by FERC to ter-

minate them. In fact, after FERC authorized Pan-

handle’s service to National, the Michigan PSC issued an

order to Panhandle prohibiting Panhandle’s construction

and service to National—in effect vetoing FERC’s orders

—pending the Michigan PSC’s separate decision on

whether Panhandle’s FERC-approved transportation ser-

vice should be permitted.'? However, it cannot seriously

be believed that Michigan is free under the NGA and the

Constitution to countermand FERC’s regulation of Pan-

handle. As this Court held in United Gas Pipe Line v.

FPC, 385 U.S. at 88, “the responsibility of the Commis-

sion could not adequately be met if it were powerless to

assure that facilities ‘certificated to transport this gas’

... continued to operate.”

There is likewise no merit to Michigan’s argument that

the Commission’s NGA jurisdiction over interstate trans-

portation should be circumscribed because the exercise of

that jurisdiction may “affect” state regulation of local

distribution companies’ rates and rate designs. Unques-

12 MichCon v. Panhandle, 887 F.2d at 1298, 1201.

—————

18

tionably, the Commission’s regulation of interstate pipe-

lines’ rates and services and the construction and opera-

tion of facilities affects both ‘local interests’? and state

regulation of local distribution companies’ costs, rates

and services in myriad ways and in every state. See,

e.g., Nantahala Power & Light Co. v. Thornburg, 476

U.S. 953 (1986). That is the inevitable consequence of

federal regulation of interstate pipelines’ facilities, rates

and services under the NGA. That fact does not, how-

ever, overturn federal regulation of interstate pipelines.

Indeed, given the broad repercussions of FERC’s actions,

the Commission cannot be fau!ted for having weighed all

factors affecting local and national interests, including

possible impacts on MichCon’s rates,’* in concluding that

the project was required by the public convenience and

necessity. See FPC v. Transcontinental, 365 U.S. 1.

While Michigan may not agree with the merits of the

orders below, FERC certainly does not lose its subject

matter jurisdiction simply because it considered the full

range of factors affecting the overall public interest.

Further, contrary to Michigan, the recent increase in

stand-alone (“unbundled”) interestate transportation

services for shipper-owned gas, i.¢., interstate transpor-

tation for hire, does not justify a novel statutory con-

struction that limits the Commission’s long-established

jurisdiction over interstate transportation and the facili-

ties used therefor. Changes in the industry are the stuff

of which legislation is made; they are not a basis for a

judicial rewrite of the fundamental jurisdictional struc-

ture of the Act.

13 MichCon itself introduced evidence concerning possible impacts

on its rates in the hopes of persuading the Commission to disap-

prove the certificates. (App. at 116a-117a, 129a-130a.)

19

CONCLUSION

The petition for writ of certiorari should be denied.

This case presents a pure case of interstate transporta-

tion for hire of natural gas. It is a matter clearly within

the jurisdiction of the Federal Energy Regulatory Com-

mission under Section 1(b) of the Natural Gas Act. No

conflict exists among the circuits or with any decisions of

this Court.

Respectfully submitted,

Of Counsel: WILLIAM H. PENNIMAN

DoucLAS H. WEST (Counsel of Record)

HILL, LEwIs SUTHERLAND, ASBILL & BRENNAN

100 Renaissance Center 1275 Pennsylvania Avenue, N.W.

Suite 3200 Washington, D.C. 20004-2404

Detroit, Michigan 48243 (202) 383-0100

(313) 259-3232 Attorney for Respondent

RICHARD M. ZoMNIR National Steel Corporation

BABST, CALLAND, CLEMENTS

AND ZOMNIR

Two Gateway Center

Pittsburgh, Pennsylvania 15222

(412) 394-5400

March 28, 1990