United Gas Pipe Line v. Federal Power Commission – Oral Argument – October 20, 1966

Media for United Gas Pipe Line v. Federal Power Commission

Audio Transcription for Oral Argument – October 19, 1966 in United Gas Pipe Line v. Federal Power Commission

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Earl Warren:

Number 49, United Gas Pipe Line Company, petitioner versus Federal Power Commission.

Mr. Schiff, you may continue your argument.

Peter H. Schiff:

Mr. Chief Justice, may it please the Court.

Yesterday afternoon I pointed out that from the consumer’s point of view and the question of whether the abandonment is initiated by Pipe Line or a producer is essentially the same.

United has suggested that if the Pipe Line purchaser initiate a — abandons facilities that approval may not be needed because Pipe Lines have a self-interest in keeping prices down.

This may very well be true in some situation and we do not say it isn’t but certainly the history of regulation does not suggest as this Court very well knows that the public inadequately protected by the contracting practices of Pipe Lines time and time again the Commission in this Court have found that the contract entered into by Pipe Line have resulted in excess of prices.

In addition to this, I would suggest that the holding in the Sunray case that the Commission should be free to consider all the factors relating to an abandonment before granting a producer approval to take gas which has previously been committed out of the market.

May I ask you when you say abandonment, abandonment of what?

Peter H. Schiff:

Facilities or the services —

What are those facilities?

Peter H. Schiff:

Well, in this case —

Is it the equipment, is it the equipment they are about to abandon?

Peter H. Schiff:

Yes, Mr. Justice Black.

Essentially, it’s the —

Or is it a contract?

Peter H. Schiff:

No, it’s the equipment that’s being abandoned and it’s also the commitment of a gas supply.

Well, that’s what the Commission found.

I realized that facilities can be read in a broader sense and sometime have been read to include contracts and accounts of the heart for electric case and which Judge Hand construed facilities in such a broad fashion.

I don’t say that that may not be a facility but as far as this case and the problems involved in this case are concerned the Commission didn’t have to reach whether there were facilities beyond the pipeline, a metering station or if not facilities in some situations of this sort or whether services rendered by means of such facilities would be abandoned.

It’s — there may be —

Suppose they had bought gas from somebody else, would you abandon this (Inaudible)?

Peter H. Schiff:

I’m sorry, I didn’t —

Suppose this company had bought gas from someone else and not abandon its equipment continued to supply.

Peter H. Schiff:

Well, yes.

I think their knowledge if the company had bought gas and still assumed — we assume that they used exactly the same equipment.

There would still be an abandonment here because the gas committed under the continental contract but it’s a statutory commitment, it’s not a contractual commitment.

Their gas was committed from the continental contract and this supply these reserves and the service of delivering, transporting these reserves would’ve been abandoned so that —

The same reserves but suppose they had substituted something else exactly like it and get it?

Peter H. Schiff:

Well, if —

What I’m getting at is this, as I gather this controversy, they say that you have taken provision which allows you to prevent the abandonment of equipment and facilities whatever they are and you have stretched that thereby you move beyond that and tell them that they’ve got to submit to the Commission any application to change the gas they’re using in any equipments, is that the controversy?

Peter H. Schiff:

Well, it’s — in this particular case, the controversy doesn’t even get that far because the equipment itself or the facilities are being abandoned or just called equipment but the statute specifically relate and not just —

Am I right about their contention?

Peter H. Schiff:

Well, their contention is I think that even if there is an abandonment we can’t reach it because we have no power —

Even if there is an abandonment they say you can’t reach that contract.

Peter H. Schiff:

Well, they —

You can’t say — I must say to pay for their gas from whom they have purchased on the ground that they are abandoning their plant.

They said the two are entirely separate and distinct.

Peter H. Schiff:

Well, that’s right but I think that is their contention and I pointed out yesterday that they’re trying to read an implied the exemption with respect to our affirmative jurisdiction over sales and transportation.

And they go on to stress that well that affirmative grant should be overlooked because that’s perfectly plain they say that the Commission can’t require them to make any purchases.

But can he?

Peter H. Schiff:

Well, I think yes, this is what I want to come to.

The — I do not say that the Commission can require a pipeline to a — to initiate a purchase.

I don’t think that question is — didn’t reach that because the question here is whether we can require them to continue purchasing.

But I would suggest that the very nature, the Commission’s jurisdiction over sales of independent producers necessarily means that they are the Commission examines the entire, all the elements of the purchase when the sale is made.

Or either just the two sides of the same coin.

All the elements of the purchase that they make?

Peter H. Schiff:

And purchase that —

Or they have (Inaudible) they make?

Peter H. Schiff:

No, that they make voluntarily.

This sale started voluntarily and —

But they want to abandon?

Peter H. Schiff:

Which they want to abandon and as this Court has also recognized in the — for example in the case of Transcontinental Pipeline Company against the Federal Power Commission in which Transco sought permission for transporting gas for Consolidated Edison to New York.

In that case, although no request was made for a sale certificate, the Commission concluded that the terms under which the gas would be purchased, the gas that would be transported would be purchased because those sales conditions were not within the public convenience necessity that this would at least one of the independent grounds for denying the transportation certificate.

And to say that the Commission has no jurisdiction or can’t exercise its jurisdiction over sales and transportation in such a way as to affect purchases just isn’t the case.

Now, —

Potter Stewart:

How about the Rutherford case in the Commission itself which is cited and quoted from — on page 14 and 15 of the petitioner’s brief where a concurring opinion that one of the commissioners said, we cannot compel the Pipe Line to purchase gas?

Peter H. Schiff:

Well, that was —

Potter Stewart:

And what were the issues in that case (Voice Overlap)?

Peter H. Schiff:

That was the issue in that case in the Rutherford case was whether the producer should be allowed to abandon it sale.

I think it was to United as a matter of fact United did not appear, United had not been taking gas for quite awhile.

Peter H. Schiff:

Rutherford had a — before the Philips case that entered into a contract with a intrastate producer to make a sale and wanted to be relieved of its obligation to serve United saying that United didn’t have any need.

The Commission concluded in that case that on the basis of the record there presented it did not appear that there was a need and that the public convenience and necessity would permit the abandonment.

Commissioner Canole (ph) in that concurring opinion suggested, made the statement that you have read and I suppose that statement is —

Potter Stewart:

It expresses his views.

Peter H. Schiff:

It expresses his views and I think they are quite wrong.

But it doesn’t represent any long views of the Commission and wasn’t even a holding of the Commission in that case.

In this case, the Commission once United comes in and ask for abandonment authorization might very well reach the same conclusion.

The issue really in our view is only whether it has to come in and ask for permission or can it make, take this action on a unilateral basis.

Potter Stewart:

Unilateral basis is on the other side if you’re right, isn’t it?

I mean all that United is saying is we do not want buy gas at this high price.

Peter H. Schiff:

Well, as it was pointed out yes —

Potter Stewart:

Yes, and our contracts expired and we have no obligation to do so.

Peter H. Schiff:

Well, —

Potter Stewart:

Nobody can make it if we don’t want to buy prior gas at this very high price.

Peter H. Schiff:

As I think was brought out yesterday in an answer to a question the contention here is that even if United simply said, we don’t want to pay as much, we want to pay less that the argument would still be the same.

It’s not at all clear here that the facts that United by making this abandonment is really paying less.

The record shows that after they stated that they would not buy this gas at 15.75 cents they entered into some other purchase contracts at a higher price of about 18 cents.

How much high?

How much higher?

Peter H. Schiff:

About 3 cents higher.

Now, at least —

Potter Stewart:

If you’re right, if you’re right don’t you take away any bargaining leverage that the pipeline might have after the expiration of a contract.

Don’t you put the price entirely in the — at least initially subject of course I know that Commissioner view but at least initially put the price entirely in the hand of the seller.

If there’s an absolute duty on the part of the Pipe Line to buy it whatever the price the seller takes it.

Peter H. Schiff:

Well, initially —

Potter Stewart:

It’s the way any bargaining ability on the part of the purchaser, doesn’t it?

Peter H. Schiff:

Well, I think that’s — that could conceivably the case if one has to ignore the fact that the Commission does have jurisdiction over the rate.

And as the Commission pointed out in this case if for example Continental had filed a rate up to 25 cents and this I mean that a much higher rate than the — the United could quickly have requested abandonment authorization and the Commission very likely could’ve granted that authorization within the suspension period.

And I think that really the — if you give the Pipe Line a unilateral opportunity to abandon, the bargaining — there is no bargaining, they are the ones that can have full control —

Potter Stewart:

But if you’re right that abandonment means, as you answered to Mr. Justice Black that simply transferring the Pipe Line’s business for these facilities to another producer, if that’s abandonment, by then I suppose that’s abandonment.

Potter Stewart:

But that’s, I didn’t understand that that was complete agreement on breadth of that definition of abandonment.

Peter H. Schiff:

Well, the facilities were transferred.

I don’t think that there’d be any question in any for the abandonment.

Potter Stewart:

If for the use of these facilities, the United simply turn to another producer who would sell his gas at a lower price and thereafter fully utilize these facilities.

You say that would still be an abandonment as I understood your answer to Justice Black?

Peter H. Schiff:

Well, I said that would at least be an abandonment of — in that hypothetical situation, there would be an abandonment of the service rendered by means of those facilities.

I might say that that situation is not the case here.

These facilities are capable, as far as I can see being used only for this particular purpose at least there’s no — at this point, they are restricted.

I mean there some facilities that are restricted.

Abe Fortas:

Did the Commission anywhere in its rules or anywhere else advised Pipe Lines that if they enter into a contract to take natural gas and they come to the Commission and get a certificate of convenience and necessity that the contract term does not mean what an ordinarily means that’s really the position here, isn’t it?

That is to say if the Commission basic position here it seems to me is that the Pipe Line makes a contract with a producer that the term limitation, the limitation of the contract as to time is subject to nullification by the Commission or to quite add more accurately that the contract continues indefinitely regardless of the terms classified therein unless the Commission otherwise permits by order, is that what this is about?

Peter H. Schiff:

Well, I suppose it is and that is precisely what this Court held to be the case with respect to the producer’s obligations.

Potter Stewart:

Well, it’s even worst than Justice Fortas’ question suggested, isn’t it?

It’s the duties under the contract continue indefinitely but your rights end when the contract ends.

In other words, your duty continues to take the gas but then on the seller after the expiration of contract of sellers sets the price in which you take it.

It’s worst —

Peter H. Schiff:

Well, the seller — this — well, it’s not — this, I don’t know that it’s worst but at least it’s the same situation that the — in which the distributors, the purchasers from the pipeline find themselves in all the time, if you recall the Memphis case in which United Gas Pipe Line sold two various distributors.

This Court agreed where the Federal Power Commission that a Pipe Line which had a service agreement which permitted to change rates whenever the Pipe Line wanted to was a perfectly valid service agreement and so that in fact at this time like the all Pipe Line sells at least to the distributors or made under contract if you will which permit the Pipe Line unilaterally to change the rates and so that while Mr. Woods suggest that the cost can’t be passed on and conceivably that may be true with respect to some of these if they have direct sale customers.

The normal situation is that the Pipe Line cost can be passed on, on the mere unilateral rate following of the Pipe Line Company.

But —

(Inaudible)

Peter H. Schiff:

Well, this is true but it is the situation in which the natural gas industry finds itself and there as just as much regulation we think over the producer’s rates is there over the Pipe Line.

It’s true they hasn’t been up to now the Commission has concluded the first area rate proceeding and three others are well in progress and the first area rate proceeding is now awaiting decision by the Tenth Circuit.

Abe Fortas:

Well, Mr. Schiff, why didn’t the Commission — let me ask you of the question this way, where the additional cost or had there been an increase in the cost to the producer of the gas that it produce to the point of the (Voice Overlap).

Peter H. Schiff:

Why did we permit the price to go into effect is that —

Abe Fortas:

Why didn’t the Commission say, all right, the pipelines got to continue but it will continue under the contract?

Peter H. Schiff:

The — well, in the Sunray case, it was held that once the Pipe Line’s obligations during the contract or the neutral obligations to control by the contract after the contract is over the producer may under the terms of the Gas Act file for an increase rate.

Abe Fortas:

Well, I understand that but the question is whether the contract is over or whether what the Commission has done here is to extend the contract or to write a new contract for the five years, it’s a —

Peter H. Schiff:

Well, as we believe that the Commission didn’t extend the contract when the contract is filed initially, as was pointed out in the Sunray case by this Court, the service is rendered as the contract but it also becomes the rate schedule which is legally enforced regardless to what happens to the contract.

Changes can’t be made without notice to the Commission.

Peter H. Schiff:

Now, the reason of the Commission didn’t permit this rate to become into effect is because the level was that the level at which the Commission has allowed all the rates in this area should become into effect and while it was increase there was still a rather low price and as I pointed out yesterday they’re just isn’t reasonable that this price has not been challenged and nobody in the area rate case for example has suggested that any lower price should be approved.

In many other cases, if the rate is high the Commission might not allow the rate to go in to effect perhaps because of the Pipe Line’s sales pattern.

That, we suggest is the question for an abandonment proceeding but it is not a question which relates to the Commission’s jurisdiction.

Now, I would like to point out that United says that the Commission cannot compel a purchase and therefore it should not be allowed to require a continuation of a purchase.

The Commission cannot require a producer to initiate a sale but still it’s well established that the Commission can require the continuation of the sale.

The point is that after a service has been initiated there are many other interests which become affected and therefore the abandonment provision attached for the reason that public protection is required.

I should also point out that when the Gas Act was originally passed in 1938, the abandonment provision existed as they do now.

They did not – the Act at that time contained very limited certificate provisions so that most sales were initiated without any certificate approval but nevertheless once the service is commenced they could not be withdrawn without Commission approval.

Finally, in this respect a reference is made to the fact that prior to the passage of the Gas Act a bill had been proposed to the Congress it’s HR 5711 which related to or which referred specifically to pipeline purchasers and that therefore and that since no such reference appears in the Act that passed that this shows that Congress didn’t want us to be able to control purchases.

Fact of the matter is that that bill in terms they, the Commission jurisdiction only over natural gas pipeline companies so that the only possible way that the Commission under the sort of a proposal could’ve treated with a sales purchase arrangement would’ve been from the purchase side.

But that’s became completely unnecessary when the Natural Gas Act was passed giving the Commission jurisdiction over the sale as such and I think just that nothing in the Gas Act suggest that the Commission would not intended to have comprehensive control over the Pipe Line segment of the industry and that United provision would merely result in a gap and would not support full protection to the ultimate consumers which are the prime beneficiaries under the Natural Gas Act.

Abe Fortas:

Excuse me, would you tell me really will that be a waste of gas in all probability, will they not if depending upon whether this management require to take this gas?

Peter H. Schiff:

It might very well be a waste of gas if United is not required to take this gas.

At least the Commission found that in most situations there would be drainage of this gas into other appeals and the gas —

Abe Fortas:

Can they make a finding here?

Peter H. Schiff:

No.

There’s no such finding here because this was purely a jurisdictional case.

There is some evidence to suggest drainage but this issue was not really involved in the Commission proceeding but the Commission did make the finding that in most instances there would be there might also be wastage because the facilities are being unused to make it later impossible to bring the steps from the ground at all.

I suggest that the problem here is a jurisdictional problem.

United has never avail itself to the opportunity to present all the facts and that we say is the only issue does it have to come to the Commission or can it take this action without any regulatory supervision.

Potter Stewart:

Drainage is something different from waste, isn’t it?

Drainage means no gas is lost it’s just sold by somebody else.

Peter H. Schiff:

Well, it depends somewhat on to where if it’s drained.

It is considered wastage in conservation circle I think.

It may go into the intrastate market; it may go for inferior uses.

There can be wastage.

They’re not really —

Potter Stewart:

There’s an overlap?

Peter H. Schiff:

There’s an overlap.

Potter Stewart:

— (Voice Overlap) between the two, isn’t it?

Peter H. Schiff:

I think there’s probably a degree but there certainly in overlap.

Byron R. White:

Is United a producer also?

Peter H. Schiff:

United has a subsidiary union producing company, yes, Your Honor.

Byron R. White:

In the same area?

Peter H. Schiff:

Well, in South Louisiana I don’t know that in the same general pricing area and I may suggest that they have an interest in keeping the price up but I don’t know if they were selling for this particular part of the service area.

Byron R. White:

To what extent the Pipe Line is it in the gas (Inaudible) as just carriers?

Peter H. Schiff:

Well, I don’t have a percentage.

Some pipelines do — are just carriers and there are other pipelines which are very substantial.

Byron R. White:

Are all pipelines obligated to carry or not?

Peter H. Schiff:

They’re not common carriers.

I don’t think they’re common carriers.

I mean, they enter into a contract.

Byron R. White:

They are not obligated to —

Peter H. Schiff:

They’re not obligated to —

Byron R. White:

So, United — Continental couldn’t get its gas to market in the United Pipe Line unless United buys?

Peter H. Schiff:

That’s right.

Well, unless there is a — unless they could make an arrangement with some other Pipe Line which they might or might not be able to do.

William J. Brennan, Jr.:

No, but the Continental wouldn’t make a — whether this can be done in contract in some (Inaudible) and to get that gas to consumer that would require the use of United Pipelines —

Peter H. Schiff:

That —

William J. Brennan, Jr.:

The Commission could not force United to carry for that consumer with only Continental had a contract, it couldn’t?

Peter H. Schiff:

No, not in a normal situation.

I do want to make the reservation that this Court Your Honor in the Northern Natural ratable take case says that the states could not have ratable-take orders which affected the purchase that indicated that the Commission would have some jurisdiction.

Now, to what extent we could require a purchase under that hasn’t been determined but I don’t want to disavow that we couldn’t do it in some circumstances.

Byron R. White:

Well, so most of the gas around moves in the market by a purchaser by a pipeline companies?

Peter H. Schiff:

That’s right.

Yes, but most of the gas with the greatest percentage of it.

Byron R. White:

And so — and if a pipeline companies don’t want to purchase in the certain area or from a certain producer that gas isn’t going to reach the market.

Peter H. Schiff:

That’s right Your Honor.

Thank you very much.

Earl Warren:

Mr. Merrill.

Bruce R. Merrill:

Mr. Chief Justice and if it please the Court.

The Government has dressed itself to the jurisdictional aspects of this controversy.

I address the Court to make sure that the economic and equitable consequences of this decision will be fully understood.

This case is before this Court because in many, many instances gas for years continues to produce great qualities of gas long years after the termination of the contracts governing the gas sales.

In many other instances, the production after a contract termination is module.

The question from an economic and equitable standpoint as between the private parties is what rule should govern when the producer seller and the Pipe Line who buy do not reach a new agreement to control the terms under which continuing gas deliveries will be made.

A call or a question is what rules will come closest to creating bargaining equality between the buyer and the seller under such circumstances.

We must start with too clearly existing rules of law.

This Court held in CATCO and Sunray, that a producer must continue to sale and deliver his gas after contract termination unless the permission on the Commission to abandon has been first obtained.

Now, whether we producers like that rule or not that is the law.

This Court also has held that whether there is no contract a seller may unilaterally file a rate increase.

It is submitted that it has no remedy and no relief to producer to have the right to unilaterally file a rate increase in the absence of an obligation on the part of the bar to bar.

The second rule does not hold the producer harmless from the consequences in the first because the amount of their rate becomes a nullity where is there is no sale and delivery.

Moreover, this Court is aware that oil and gas leases are subject to forfeiture upon cessation of production over given period of time quite commonly 90 days.

Therefore, a producer if a pipeline can choose to cut off delivery underneath of time would not only suffer drainage and would not only suffer the lost of any return on its investment that might well lose its entire investment through his forfeiture.

Well, there are no rule require to buyer to buy.

The buyer would have unconscionable bargaining advantage and substantial control of the interstate’s supply as seller would be forced to take whatever rate the pipeline offered while the buyer at its selection could cause a considerable amount of gas supplied to be forever lost in intrastate market.

This Court should not condone a rule which will cause such an equities between the parties and such control over gas supply.

In the absence of a requirement on the part of a Pipe Line to continue taking gas deliveries neither the right to seek abandonment which might or might not be granted and which would be a remedy to a producer only if there’s a satisfactory ultimate market nor the right deal out of a file or rate increase afford the producer in a dependable solution to its needs or even the needs of the ultimate consumer who depends upon these committee gas supplies.

In rulemaking Section 7 (b), the abandonment section applicable to purchasers of pipelines however does not leave the Pipe Line without an adequate meaningful remedy.

If it is the unilateral rate to which the Pipe Line objects, the pipeline is protected under the rate review functions of the Commission under Sections 4 and 5 of the Act and under the usual escalation clauses in the Pipe Line sales contract.

Abe Fortas:

Is there any way for — to supersede the price provision of the contract during the contract’s term in your judgment?

Bruce R. Merrill:

No, Your Honor.

Abe Fortas:

I think there has been a small amount of controversy about that.

Bruce R. Merrill:

I believe (Inaudible) has pretty well answered that question that if there is a contractual impediment there may be no unilateral rate increase.

Memphis on the other hand says that if there is no contractual impediment.

There may be a unilateral on its face as just as unreasonable is that the rate increase that left up to decision of the Commission.

Sierra says that if the rate increase is necessary to prevent confiscation maybe of the pipeline that under that circumstance there may be an increase but he say that it’s matter just loosing money on an improvident contract that they will — that abrogate the contracts.

Earl Warren:

Mr. Merrill, you may have five minutes more.

Your time has expired but you may have five minutes more and Mr. Woods may have it also.

Bruce R. Merrill:

Thank you, Your Honor.

One more moment, if the Pipe Line does not want to take the gas at any price for some peculiar reason the Pipe Line may seek abandonment which is granted but always provide a meaningful remedy to the Pipe Line.

With it simplest terms is either the buyer or the seller is to be bound by Section 7 (b) then the rule of fair play requires it both be bound.

William J. Brennan, Jr.:

Mr. Merrill, may I ask you?

Mr. Merrill, you suggested that the Pipe Line Company is not without remedy because of the powers to determine the reasonableness of some of the rate under Section 4 or 5 on the unilateral filing by the producer.

Now let’s see, how does that work if let’s say unilateral filing by the producer and the rates are suspended under 4 and then ultimately there’s a determination of the rates too high, does that permit they were companied by the pipeline?

Bruce R. Merrill:

Yes, Your Honor, that permits to recover by the Pipe Line if the Commission finds the rate was too high that the increase shouldn’t have been permitted, we have to refund all the increase and interest of 7%.

Byron R. White:

But I take it merely the — if the Pipe Line goes to another source of supply that were permitted to but with another source of supply that it wouldn’t have to pay the same price.

Bruce R. Merrill:

Well, Your Honor of course in initiating the purchase, the Pipe Line displayed the bargain —

Byron R. White:

There’s an area of price there.

Bruce R. Merrill:

Well, there’s a guideline rate in South Louisiana area rate has not yet been established.

Byron R. White:

What was the — was Continental new rate that that guideline price?

Bruce R. Merrill:

Continental’s new rate is that the guideline rate for all gas or for increase price, yes.

William J. Brennan, Jr.:

Fifteen or some cents?

Bruce R. Merrill:

Fifteen and three quarter cents including tax reimbursement.

It’s actually 14 cents net to the producers.

Byron R. White:

So, for all practical purposes the — if United wanted to replace this gas the economic across it would be —

Bruce R. Merrill:

Greater.

Almost certainly would be greater.

I don’t believe that United would contend that they could buy gas on their new contract in South Louisiana for 15 and 3 quarter cents.

Byron R. White:

And then you got the old contract.

Bruce R. Merrill:

Even — well, I don’t think they could buy it at their contract rate most.

No, sir.

Byron R. White:

Yes.

But they — should they buy at the new continental rate?

Bruce R. Merrill:

Or on question they could buy a gas at 21 and a quarter cents in South Louisiana which is the guideline rate for new gas.

Byron R. White:

Yes.

But why are they objecting to your contract(Voice Overlap)?

Bruce R. Merrill:

Mr. Justice Black, they’re not objecting to the level of contracts unilateral rate.

They didn’t raise that issue, they didn’t attack the level of the rate at all, they’re only attacking our right to file the unilateral rate and require them to continue taking at all.

Bruce R. Merrill:

They say —

Byron R. White:

Well, you say that this that — would they say they got too much gas, they can’t use this gas.

Bruce R. Merrill:

If that is the case Mr. Justice White, they should’ve availed themselves and the remedy of seeking abandonment.

Byron R. White:

Yes, but isn’t that their contention?

Bruce R. Merrill:

Well, there are some evidence in the record by their vice president that they were into take to pay position and that they didn’t need that chaos but the truth of the matter is they were perfectly happy to take it at 10 cents but they just were didn’t want to take it at any higher price.

William J. Brennan, Jr.:

Incidentally, I just want to — when you filed your 15 cents of rate, goes no suspension proceeding in the Court.

Bruce R. Merrill:

The Commission accepted our rate filing without suspension —

William J. Brennan, Jr.:

Yes.

Bruce R. Merrill:

— over the protest of United.

What is the real controversy?

You don’t find things on the (Inaudible).

Bruce R. Merrill:

There is —

What does United want to do?

And what are the other company want, to do?

What’s going to be the result on gas prices?

Bruce R. Merrill:

Mr. Justice Black, I think there are two different controversies here.

One, is the jurisdiction reached or the Commission or is it going to be the Pipe Line or the Commission who is going to decide whether gas which is being committed to the interstate market and which is being used in support of the certification of Pipe Line facilities is going to be removed from the interstate market at election of pipeline recollection of the Commission.

That’s the jurisdiction taken.

Or whether it’s committed there and the Commission got a right to see that (Voice Overlap).

Bruce R. Merrill:

Stays to it, yes sir.

That’s between private parties I think, it’s a question of bargaining equality.

Earl Warren:

Mr. Woods.

Vernon W. Woods:

Mr. Chief Justice, may it please the Court.

Mr. Justice Black, the real controversy in this case is whether we can be forced to buy a gas and pay a price fixed unilaterally by the seller and that’s the controversy.

We take the position and we really can’t stay in business if we are faced to that prospect.

William J. Brennan, Jr.:

Well, is it fixed unilaterally by the seller?

Vernon W. Woods:

Yes, sir.

William J. Brennan, Jr.:

Well, why would ultimately the Commission can determine that the prices (Inaudible)?

Vernon W. Woods:

Mr. Justice Brennan, this price is fixed by Continental of 15.75 —

William J. Brennan, Jr.:

Initially?

Vernon W. Woods:

That’s right.

Now, the Commission —

William J. Brennan, Jr.:

But they can’t get away with it if the Commission thinks it’s too high.

Vernon W. Woods:

Well, the point is that the Commission can review it of course.

But it reviews from Continental’s needs.

Now, the question has been asked whether we could —

William J. Brennan, Jr.:

Well, that’s Continental’s needs, I still insist that of course I dissented on this whole area of business you may call but nevertheless I thought that introduce the new concept —

Vernon W. Woods:

They review it by the producer’s needs if that’s the new concept but still it’s not the Pipe Line’s needs.

In other words, the 15.75 cents is what’s required to permit the producer to make a fair return in his investment.

All the producers has a group, it doesn’t have anything to do with what we make, the Pipe Line.

Now, the answer to this question about whether we can get yes, cheaper or not; there’s been a lot of conjecture but the answer is we can and if we — as act after Congress intended (Voice Overlap) —

William J. Brennan, Jr.:

In that seal you can get a cheaper?

Vernon W. Woods:

We can get it cheaper other than this.

We can get a cheaper then they can eventually raise these prices unilateral and we can bargain with Continental, we can probably get a cheap in 15.75 cents.

The point is that Congress intended that we buy gas on contract and we sell it on contract and if we are left to our bargaining position we can protect ourselves in the public.

Now, we are trying to get its Continental.

We’re competing with these people but in markets in South Louisiana and South Texas, they can take that gas that they say to us, you’ve got to pay 15.75 cents and they can sell it to the City of like Charles or somebody of 14 cents but we can’t necessarily prove it except we can see the end-result and where the companies got to deal with that.

We’ve got to protect ourselves and we’ve got to protect the public and we can a buy gas cheaper in intrastate market than we can buy in interstate market than they will sell it cheaper and it can be both cheaper and after our bargaining strength we can buy a cheaper.

Not, not only applies in this case, it applies to us all across South Louisiana because everyone of our gas contract is going to expire down there.

And if ever producer can tell us, you got to pay the maximum price the Commission will allow now and in future and we’re down to business.

And Mr. Black and Mr. Justice Black sir, that’s a controversy.

There’s nothing that that Commission can do to protect us.

We sell our gas to be in, we sell 46% of our gas, the record is in —

The Commission can’t do anything about that, it’s completely beyond jurisdiction.

They can’t affect those rates.

They can’t help us in any respect.

We sell that gas, we fix the price with the industry and if we sell a gas at 16 cents, we’ve got to buy it about 12 cents or 13 cents and we have got the bargaining strength that we have all through the history of this Natural Gas Act, we can buy it that way by a particular sale.

Why do you buy a cheaper for intrastate users?

Vernon W. Woods:

You mean, why can we?

Yes.

Vernon W. Woods:

For the very good reason sir, I think I’m conjectured as to why the producers will sell it cheaper.

It avoids a great deal of red tape in Government regulation.

There’s no regulation that reduce the price intrastate.

He just sell it us over a contract and the day the contract expires, his gas again and he will sell a cheaper because of that fact.

Does that sound like maybe the Commission has not been (Inaudible)?

Vernon W. Woods:

Well, I don’t know but I’m saying that left up to us.

Left up to us, we can keep it from a down and we can protect ourselves and we can protect the public.

This is the public’s interest we’re protecting here and to conclude my argument, Mr. Justice White, Congress considered doing what you were talking about and that is making Pipe Lines common carriers and common purchasers.

It did so in the Senate Resolution 1919 and it’s federal resolution we referred to and it refused to do so, it didn’t adopt it.

Now, the effect to that would’ve have been done what you’re talking about that is to make us buy and the transport but had it done so, sir?

Had it done so, it would given the Commission a power the Commission doesn’t have and that’s the power it’s been talked about in common purchasers statutes before this Court and that is the regulatory commission would had the authority to look at Continental’s rate with reference to our needs and with reference to the market conditions and to be able to insure that their price is long enough to us so that when we sold it that we would make a fair return in our investment and our facilities.

Abe Fortas:

But it is quite, is it what the Commission is saying is that if this is an impossible situation to come before abandonment proceeding and maybe they will do the wrong thing over abandonment proceeding but that’s what they are saying.

Vernon W. Woods:

Yes sir, that’s what they’re saying.

Abe Fortas:

Right.

Vernon W. Woods:

But excuse me.

Abe Fortas:

They’re saying in what you’re doing is short circuiting the administrative process and you may have a complaint after abandonment proceeding but you ought not to be heard prior to abandonment proceeding and that to my mind is the issue in this case.

Vernon W. Woods:

No, sir, here’s the issue in the case sir, if I may, if you may excuse me.

The issue in this case is where the Commission is right in saying that.

Abe Fortas:

(Inaudible)

Vernon W. Woods:

Well, sir —

Abe Fortas:

The issue in this case is whether the Commission is right in saying that you got to come in for an abandonment proceeding and that before you’d be heard to attack this Commission.

Vernon W. Woods:

Alright, so then it comes back to this basic proposition.

The Commission is saying that it has a right to compel us to purchase gas and the law is clear that it does not have that right to compel us to purchase gas, sir.

Earl Warren:

Mr. Woods, I understood counsel to say that shortly after your protest of this rate you bought gas at 3 cents higher.

Vernon W. Woods:

Sir, the record is quite clear on that.

We bought some gas and we did pay some more money for it but the record is quite clear that we did it under a circumstances where we were faced with a producer coming to us and saying, it isn’t — it wasn’t this area, it was in part to the east but it came to us and said, I’m going to lose my well, I got one well here, will you buy this gas?”

Well, now we’ve lived in that area for 40 years down there and we didn’t want him to lose his well and we did buy his well.

It didn’t go in this whole amount of area, it went over to New Orleans there and we bought the gas for 18 cents but it was not substitute for this gas and the record reflects that it was.

Earl Warren:

Just sort of a (Inaudible) —

Vernon W. Woods:

Well, (Voice Overlap).

Vernon W. Woods:

Well, I’ll put it this way sir, we bought the gas down there because and the male was going to lose his well and it took 18 — I mean their 18 cents to go and rate down there and it was a contractual arrangement.

That’s a going rate?

Vernon W. Woods:

Well, that was a rate in that area at that time yes sir for buying gas and contractual arrangement and we bought it rather than seeing those as well.

That of course if you paid more part than you should that wouldn’t look at for the public, wouldn’t it?

Vernon W. Woods:

Well, sir that was a new — that was a new sale, new small amount of gas and not a new sale I think you could get at that time about 20 cents or something of the FPC jurisdiction.

We still didn’t pay the maximum price the FPC would allow to interstate.

Our buyers —

You still hadn’t got enough to the FPC’s price?

Vernon W. Woods:

No sir, we had not.

How is it?

Vernon W. Woods:

Sir?

How is it?

Vernon W. Woods:

What is it?

It’s a — the area guideline is 21 and a half, isn’t that if when you got?

21 of course.

Vernon W. Woods:

21 of course, sir.

And your price for Continental is what?

Vernon W. Woods:

Well, this is old gas down there.

I mean this whole contract, if your part (Inaudible)?

Vernon W. Woods:

You mean, what we’re paying them?

Yes.

Vernon W. Woods:

We were paying them 10.79 cents per MCF.

We started that contract 11 or 12 years ago, (Inaudible).

Byron R. White:

Can I ask you one more item?

I gather that the Commission would still take the same position it does even if there were no physical facilities could be abandoned here at all that if all these facilities actually bring the gas right to your pipeline that belong to the seller and all you did was say, we don’t want anymore that we want to buy anymore gas.

You had to abandon nothing, they would still say you were abandoning a service, the service being the service of buying gas.

Is that your position that’s why you want to understand it?

Vernon W. Woods:

I assume they would take our position that of course –

Byron R. White:

Don’t they say it here or not?

Vernon W. Woods:

Suppose to me they have said this, they have —

Byron R. White:

They say facilities and the service.

Vernon W. Woods:

Well, they say facilities and they ought to, counsel here to appreciate talks about services, maybe the Commission did mention service somewhere sir.

But service once again, be it facilities or service that still doesn’t give the Commission power they just otherwise have.

And I don’t think it makes any difference Mr. Justice White where they talked about facilities or service.

If they don’t have power to force us to purchasing — to purchase gas then they don’t have a power to do so.

It just simply begs the question to say well, we can force you to purchase it because we got jurisdiction of your billing or your pipeline or something of that nature.

The days going to come when our pipelines will be full of gas because of the perhaps the theory in production or something and they’re going to — are they going to move in and say you’ve got to go out and buy gas some place to Philadelphia, that’s read of the question and you’ve got to pay the price that we tell you.

We don’t really object to that if the bills amended to take care of us in term but we don’t think it’s in the public interest, we don’t think Congress thought in the public interest to do so.

Earl Warren:

Do you think — Mr. Wood, do you agree with Mr. Schiff when he says that when the producer once commits his gas to this interstate traffic that it cannot abandon, cannot quit serving this gas without going to the Commission and getting permission to do so?

Vernon W. Woods:

Yes, sir.

May I explain just one moment?

The producer is an absent no different position from what the pipeline or any other utility had been in all the existence of utility law.

Once a pipeline begins to serve a customer, an account boarded customer, a distributor, he can’t stop serving that distributor.

Earl Warren:

Yes.

Vernon W. Woods:

And neither can the producer stop serving us but here’s the other side of the coin, sir.

Earl Warren:

Yes.

Vernon W. Woods:

That distributor doesn’t have to buy a foot of gas from us, he doesn’t have to pay one cent for that gas that he doesn’t contractually agree to and maybe that’s the whole point of this argument.

And we’re in the same position that distributor yes.

We are the bar here and the Natural Gas Act doesn’t compel that distributor to buy one foot of gas from us or to pay one cent for it.

He doesn’t contract to agree to and if the FPC increased our price, he doesn’t have to buy if he doesn’t contract to agree to it.

The FPC has said, it can’t force the distributor to buy gas from us and it can.

Earl Warren:

Yes.

Well, but if the producer cannot refuse to sell anymore to the pipeline and thus put the burden on you, is it fair for you to be able to say without any regulation we won’t buy anymore and leave these people without any protection?

Vernon W. Woods:

Well, sir they have protection.

Earl Warren:

What is their protection?

Vernon W. Woods:

They can go to the Commission and say, is they did in Rutherford case.

This company won’t buy a gas from us —

Earl Warren:

Yes, but why shouldn’t — that submits them to regulation which you don’t accept?

Vernon W. Woods:

Well, sir I accepted under my in the deal when I sell the distributor.

The point is that the Act regulates the sale and it was intended to continue the sale of gas.

Vernon W. Woods:

It never was intended to force the purchasing of gas.

So long as the purchaser owns gas, the sellers got to sell it but he’s got protection sir.

He can file unilaterally, a rate is fair and reasonable from his point of view and we can do it when we sell the distributor.

We have lots of distributors refuses on the contract with these ones who initiated service but the man that we continue service.

Now, we’re complaining that that distributor can’t be force to buy from us.

We don’t think that’s an equitable regulation and we don’t think it’s inequitable when the Pipe Line isn’t force to buy up and the seller in the form of producer.

Now, the Act might have been written differently.

We might have been made it common carrier or common purchaser and there would be a lot of remedies to us under the Act, but Congress didn’t arrive that way sir.

Congress intended to do one thing really and that’s to regulate the sale of gas in interstate commerce.

It did not adopt that Act that would regulate the purchase of gas.

It did not choose to make us common purchasers and it done so we’ve been entirely different act.

Now, this been about getting a gas to the market and about protecting the Continental and so forth in these circumstances, it may well be the common purchase allows the good thing, it ought to be adopted by Congress.

As a matter of fact, Louisiana, sir has a Common Purchaser Act and Continental maybe in the wrong court.

It could have gone to the court such as Louisiana Department of Conservation and said, I want to exercise my rights in the common purchase of law of Louisiana and I want you to force United to buy my gas that had been done so.

We could’ve told Continental.

We’ll give you to go in to your rate under Louisiana law.

But the difference is that the Natural Gas Act is not a common purchase of law and that’s really what’s this whole thing is about and if it were written to common purchase of law and if we had the protection that the common purchase of law would give us, then we wouldn’t be here complaining.

But we don’t have that protection (Voice Overlap).

Byron R. White:

And if you’re forced to go and buy, and the price he has to pay is a price that’s fair from the standpoint of Continental not in the stand point of you?

Vernon W. Woods:

Yes, sir.

And we have to protect ourselves and we protect the public.

We’re competing with this.

This gentleman right here for the same market in that area, and if we go and buy this gas cheaper, it helps us in the public.

You’re covering both the producer and the distributor?

Vernon W. Woods:

Yes sir.

We have an affiliate that produces gas.

What?

Vernon W. Woods:

We have an affiliate that produces gas but my point is if not necessarily Continental, there are numerous producers who have a supply of gas to that area and if they can arrange the city gate or with the big initiate to buy the gas they will build a pipeline right straight up for that city gate to that industry and they were selling to him and they’re going to sell us, while they — at the same able to tell us what we got the pay for gas.

Now, that’s a problem we have to meet and so that’s the reason we’re up here is to stay in this, wherever they must.

Now, conceivably we can have alone some of these (Inaudible), we can absorb some of these cause of course.

Vernon W. Woods:

The fact that it jump from 10 to 15 cents is not going to let us go out of business, but all of our contracts.

Byron R. White:

Well, what did Commission say to you when you told them that?

Vernon W. Woods:

What did they say to us?

They said, —

Byron R. White:

And what they did they say, we just don’t care of this same business, they didn’t say that?

Vernon W. Woods:

They said, yes exactly what Mr. Schiff has said.

That if you come to us and ask us, if you can stop this purchase and our position is that we’ve got to ask you we’re in trouble to begin with but there’s no point in asking but the law doesn’t require us to do it and that’s really what we are arguing about, the way the Natural Gas Act is written.

Now, of course if we’ve got to ask some of it, if it turns out that the date of the abandonment of facilities means that they’ve got the right to force us to buy gas and we’ll go back to that and I know what they’re going to say.

They’re going to say, well, please go and absorb that, that’s not much.

Byron R. White:

What are they’re going to say?

Vernon W. Woods:

Basically absorb this increase cost.It doesn’t matter that you got fixed contract down the line that you sell to end user, I really think that’s what they would say.

But the point is, sir, they don’t have the power to do it.

They don’t have the power to require us to purchase gas, the Natural Gas Act just as written that way.

Earl Warren:

Very well Mr. Woods.