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J. M. Huber Corp. v. Federal Power Commission

decided: August 31, 1956.


Author: Mclaughlin

Before MARIS and McLAUGHLIN, Circuit Judges, and VAN DUSEN, District Judge.

McLAUGHLIN, Circuit Judge.

Petitioner, a New Jersey corporation, produces and gathers natural gas from twelve wells in Carson County, Texas, part of the West Panhandle Field. Gas from eleven of the wells flows into a T shaped control system of three valves. The stem of the "T" consists of two feet of pipe and a valve with which intervenor Northern's pipeline connects. Since April 21, 1936, Huber has been selling gas from those wells under a contract (as amended) to Northern at the connecting delivery point at well head pressures. Northern transports the gas to its main line transmission facilities where it continues on in interstate commerce transmission until delivered for consumption to ultimate customers or is sold for resale to ultimate customers. The contract is for the life of petitioner's leasehold interests in the producing acreage and as long as gas in taken from it in paying quantities. The remaining time under the contract terms is estimated at approximately ten years.

On June 7, 1954, the Supreme Court, in Phillips Petroleum Co. v. State of Wisconsin, 347 U.S. 672, 74 S. Ct. 794, 98 L. Ed. 1035, held that an independent natural gas producer who, though not engaged in the interstate transmission of gas from the producing fields to consumer markets, does sell to interstate pipeline transmission companies which transport and resell the gas to consumers and local distributing companies in various states, is a "natural-gas company" within the meaning of the Natural Gas Act, 15 U.S.C. § 717 et seq. As a result, the Commission prescribed regulations covering such companies. Petitioner, under protest, complying with these, filed an application for a certificate of public convenience and necessity under Section 7(a) of the Act covering its sales to Northern. It also filed its contract with Northern as a rate schedule under Section 4(c), together with a notice to Northern of cancellation of that agreement. The ground for cancellation alleged that the Commission has established a price for Huber's gas less than the contract price with Northern which permitted Huber to invoke the escape clause in the agreement.*fn1 The Commission rejected the notice "* * * in so far as it purports to effect an abandonment of a sale or service subject to the jurisdiction of the Commission without express permission and approval first had and obtained as required by Section (7) of the Natural Gas Act * * *." Prior to the hearing Huber filed a "Withdrawal" of its application for the certificate which stated that if this is not allowed it wished to amend its application, setting out that it is "not willing to do the acts and perform the service proposed and is not willing to conform to the provisions of Section 7(e) of the Natural Gas Act and the requirements, rules and regulations of the Federal Power Commission thereunder, and under the provisions of said Section 7(e) of the Natural Gas Act it is mandatory that the Federal Power Commission deny this application for certificate. J. M. Huber Corporation is not willing to accept a certificate covering the sale previously described herein with or without conditions appended to the issuance thereof. Huber is willing eo instante, upon denial of this application by the Commission, to cease delivering natural gas to Northern Natural Gas Company." Following completion of the hearings Huber filed a withdrawal of its notice of cancellation of the rate schedule based on its Northern contract. It stated that it was taking this action because it had erroneously assumed its sale to Northern was within the jurisdiction of the Commission.

Prior to any decision in the matter Huber advised the Commission it was terminating deliveries to Northern March 10, 1955. The Commission obtained a temporary restraining order against the threatened move in the United States District Court, District of New Jersey and thereafter in that suit Huber was enjoined from discontinuing its sales for resale to Northern pending final Commission decision in the present issue.*fn2 Appeal from that decision is pending before us.

The decision of the Presiding Examiner in this cause was filed June 14, 1955. It held that on February 7, 1942 Huber was engaged in the sale of natural gas subject to the jurisdiction of the Commission over the routes described in its application for a certificate of public convenience and necessity and exhibits attached thereto, and has so operated since that time; that the sale of gas from the eleven wells is made in interstate commerce and subject to the jurisdiction of the Commission; that the T valve and pipe system above referred to are necessary Huber facilities for the sale of the gas from the said wells; that the sale together with the operation of the said facilities is subject to Section 7(c) of the Act and of Part 157 of the Commission's regulations; that the Huber gas supply underlying the eleven wells acreage is not so depleted as to render unwarranted further sales by means of the referred to facilities and that neither present nor future public convenience and necessity permits the abandonment by Huber of said facilities or the sale rendered by means of such facilities.

By an appropriate order (subject to review by the Commission), filed at the same time, a certificate of public convenience and necessity was issued to Huber and its application to abandon its sale of natural gas to Northern was denied, except as it related to the twelfth well which is not material to this litigation. Permission to abandon the T system facilities was also refused. On October 6, 1955 the Commission affirmed the decision in its entirety. An order denying the application for rehearing was issued November 29, 1955. The petition for review was thereafter filed.

The Phillips decision makes it very clear that Huber is a natural gas company directly within the jurisdiction of the Commission under the Act by reason of its sale of natural gas to Northern, admittedly a sale in interstate commerce of natural gas for resale.Huber would seem to accede to the jurisdictional view for its attempt to cancel the Northern contract, as has been noted, was based upon the Commission's action in its 174-A order which Huber claimed established a price for the contract gas less than the amount fixed by the contract itself. In so doing, Huber recognized the right of the Commission to control the price of the gas. That the cancellation maneuver was not justified and for its own purposes in no way detracts from Huber's plain acceptance of the authority of the Commission. Irrespective of that, in almost identical circumstances the Supreme Court held Phillips, just such an independent natural gas producer, to be a "natural-gas company" within the Act and that its sales in interstate commerce of natural gas for resale are subject to the jurisdiction of, and rate regulation by the Commission. In that action as here the contention was made that the sales by Phillips were a part of the "production or gathering of natural gas" and controlled by the second clause of Section 1(b) of the Act which provides that the authority of the Commission does not extend "to the production or gathering of natural gas". The Commission had found that the sales by Phillips were part of the production and gathering process or at least an exempt incident thereof but the Supreme Court at page 678 of 347 U.S. at page 797 of 74 S. Ct. flatly rejected that position saying:

"We are of the opinion, however, that the finding is without adequate basis in law, and that production and gathering, in the sense that those terms are used in § 1(b), end before the sales by Phillips occur."

The first clause of Section 1(b) of the Act establishes its application "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 transportation or sale * * *." And the Supreme Court said in Interstate Natural Gas. Co. v. Federal Power Commission, 1947, 331 U.S. 682, 690-691, 67 S. Ct. 1482, 1487, 91 L. Ed. 1742, regarding the jurisdiction thus conferred that "Exceptions to the primary grant of jurisdiction in the section are to be strictly construed." The assertion that the sale to Northern is part of Huber's gathering process and consequently not controlled by the Commission is almost identical with the unsuccessful argument urged in that cause by Interstate.

The suggestion that the legislative history shows that Congress intended to regulate only the interstate pipelines and that the Northern sale should be construed as an integral part of Huber's business of producing and gathering was also advanced in Phillips. The Court significantly and sweepingly disposed by that thought by saying:

"Rather, we believe that the legislative history indicates a congressional intent to give the Commission jurisdiction over the rates of all wholesales of natural gas in interstate commerce, whether by a pipeline company or not and whether occurring before, during, or after transmission by an interstate pipeline company."

And at page 685 of 347 U.S. at page 800 of 74 S. Ct. the Court laid down the general guiding principle with reference to the type of sale by an independent producer with which we are dealing in this petition. The court said:

"Regulation of the sales in interstate commerce for resale made by a so-called independent natural-gas producer is not essentially different from regulation of such sales when made by an affiliate of an interstate pipeline company. In both cases, the rates charged may have a direct and substantial effect on the price paid by the ultimate consumers. Protection of consumers against exploitation at the hands of natural-gas companies was the primary aim of the Natural Gas Act. Federal Power Commission v. Hope Natural Gas Co., supra, 320 U.S. [591], at page 610, 64 S. Ct. [281] at page 291 [88 L. Ed. 333]. Attempts to weaken this protection by amendatory legislation exempting independent ...

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