Utah Public Service Commission v. El Paso Natural Gas Company

PETITIONER:Utah Public Service Commission
RESPONDENT:El Paso Natural Gas Company
LOCATION:Chimel’s Home

DECIDED BY: Warren Court (1969)

CITATION: 395 US 464 (1969)
ARGUED: Apr 29, 1969
DECIDED: Jun 16, 1969

Facts of the case


Audio Transcription for Oral Argument – April 29, 1969 in Utah Public Service Commission v. El Paso Natural Gas Company

Earl Warren:

776, Utah Public Service Commission, appellant versus El Paso Natural Gas Company et al.

Attorney General Romney.

Vernon B. Romney:

Yes, sir.

Public Service Commission of Utah is present sir.

Earl Warren:

I beg your pardon.

Vernon B. Romney:

Mr. Chief Justice and Justices, if it please the Court.

The Utah Public Service Commission was an intervenor in this case filed a notice of appeal on September 18, 1969.

At that time, Mr. Phil L. Hansen was the Attorney General of the State of Utah.

The appeal was actually handled by Daniel L. Berman, a special assistant to the Attorney General of the State of Utah.

Upon taking office on January 6th of 1969 as the Attorney General of Utah, I began a careful investigation of the merits of prosecuting the appeal or of dismissing it and this I did in the association with the Governor of the State of Utah, Calvin L. Rampton.

We eventually determined that it was in the best interest of the State of Utah to move to dismiss the appeal thereupon took steps in February to perfect the dismissal and as stated in our short brief are reasons were among others that we felt no responsibility for the litigation of the Clayton Act and felt this was the responsibility of — if or anyone that is to appeal of the Justice Department and none of us.

We felt for one thing that would be a tremendous amount of expense to our small state that we did not have on our legal staff the experience and experts in the field that would be necessary for us to employ them and to reproduce the record and perform many activities and employ many people which would take a considerable amount of our money that was very difficult thing to do.

And we thought it would take a lot of time and would prevent the termination of this case which has dragged on, I understand for a period of about 11 years.

We determined that the issues which were involved in our jurisdictional statement were those which affected in the main other states are good deal more than they did to Utah and it appeared that the other states were not interested in appealing and took no effort to perfect their appeals.

We felt no obligation to carry out our appeal in the interest of these other states and other people at our own expense and a word we were left to go alone.

We also felt there was no evidence that another company then Colorado Interstate Gas Company would do a better job.

We felt the Colorado Interstate Gas Company had great experience, solid background, and the financial stability to do the work well and we felt that they were eventually we came to feel after getting to know them that they would be good neighbor with us and Utah would be very helpful to us and after we came to the point of determining that our principal real interest which were of an economic nature in this case would be provided for that is they will keep their headquarters in Salt Lake City that they would keep the employees who work there, all of them on the job at the same or at increased rates of compensation that indeed they would employ other people in those presently on a payroll in the El Paso Headquarters.

When all of these things were determined we felt that we would benefit materially from having Colorado Interstate Gas Company upheld as the company to take over the Northwest Pipeline System.

Some allegations have been made that this was unusual thing that the governor of the State of Utah signed the motion before the Court to dismiss the appeal but this was done only in the interest of time and the fact that the governor at that time was a member of the bar of the Supreme Court of United States and that Mr. Berman determined that he should do it in this manner.

No time has been any difference of opinion since I first learned of the governor’s attitude toward this case.

He felt that it should be dismissed.

I did and the Public Service Commission of the State of Utah joined me in this belief.

Thank you sir.

Earl Warren:

Mr. Payne.

Leon M. Payne:

Mr. Chief Justice and members of the Court.

I’m counsel for El Paso Natural Gas Company and have been serving as such since this Court’s decision in Cascade.

As I understand the questions which were before the Court for discussion this morning.

They relate to two questions.

One, should the motion of Utah to dismiss the case be granted or denied, and secondly, should Mr. Bennett’s motion for another hearing in the case be granted or denied.

I would argue to you that the motion of Utah should be granted.

Leon M. Payne:

I think that the rules are clear that an appellant who does not wish to follow an appeal has the right to be relieved.

I would be the last to argue to this Court however that the granting of the motion to dismiss filed by Utah is a bar to this Court’s ability or power to police its own mandates.

I am not arguing that, I think this Court can police its mandates.

I think the question presented therefore by the second of the two motions I described is not whether the Court can police its mandates but whether it should in this case reopen —

William O. Douglas:

Do you have a brief sir?

Leon M. Payne:

Yes sir, we have filed a brief in this case.

William O. Douglas:

Is it printed or —

Leon M. Payne:

It’s typewritten, Your Honor.

We didn’t have time to print it.

William O. Douglas:

Thank you, I’ll get it.

Leon M. Payne:

Yes sir.

The question then really should turn on whether this is the kind of case in which the Court should reach down into the District Court proceedings, bring them up and reopen them.

I submit to Your Honors that this is not a case in which that remedy should be employed.

I would like to just point out that the Court has in other cases reached down and policed its mandate and those cases however, and I believe I’m correct in all cases where the Court has written on the subject.

The matter has been properly before it on appeal.

I would suggest to you that this matter is before you on the written plate papers of three individuals.

And just as an example, I would like to give you three instances of why I don’t think this Court should reach down and reopen the decision below.

Running throughout the pleadings filed by Messrs. Bennett, Stewart, and Flynn are lured allegations that El Paso in some way has profited by the failure to divest these properties which Your Honors ordered us to do in U.S. v. El Paso.

And that this means that corporate crime pays and that in some way El Paso is pocketing $22,000.00 a day of ill-gotten gains.

I would like to set its record straight on that.

As all of us know who are in the court below, the lower court Judge Chilson made inquiry whether under the divesture proposed, El Paso stood to gain or lose by its divestiture of Northwest Properties.

We produced an exhibit, its exhibit 65 that was distributed to all counsel that was placed in the record and supported by sworn testimony.

That exhibit shows that El Paso’s total investment in these properties from 1957 on is a matter of some $579 million.

When that investment is reduced by the full amount of the investment in West Coast Stock and Northwest Production Stock which El Paso acquired in the acquisition but which it is not divesting to the new company here.

And when that investment is further reduced by every dollar that El Paso has recouped from its operation of these properties, depreciation, depletion, amortization, and importantly every dollar of income which has been derived from the operation of these properties, that’s the $22,000.00 a day, when all of that is subtracted, when the debt that is to be transferred to the new company is subtracted that El Paso has a net unrecouped investment in these properties of $146 million.

Now, stated in other way that means that when we have divested these properties which we have owned and operated for 12 years, but we are paid $100 million in the form of stock of new company.

We will have a loss over these years of operation of $46 million.

Now, someone will be quick to point out that we are retaining the West Coast Stock and the Northwest Production Stock both of those are ordered to be divested by the Court.

Our investment in those two assets is $75 million.

On the market today, they will bring approximately $35 million so that we have an additional $40 million of loss which we face when we divest these two assets that we are retaining.

Leon M. Payne:

Therefore, I say to you that this is not a case in which the Supreme Court should be concerned over the questions raised in the pleadings of Messrs. Bennett, Flynn, and Stewart as to whether or not the Clayton Act divestiture.

The Court should inquire into whether the divesting company has realized the profit or a loss.

This is a question of where the facts are undisputed that El Paso has realized an enormous loss in the operation and divestiture of these properties.

Two other points, we are told that El Paso has resisted a cash sale as Mr. Bennett puts it a clean cash sale without residual complications.

Mr. Bennett is correct, we have resisted that form of divestiture since the beginning and the reason is very simple.

We are engaged in a divestiture plan, not El Paso’s plan, the Court’s plan in which we will receive $100 million of preferred stock.

That exchange, the assets for preferred stock will be tax free and we have a ruling from the IRS to that effect.

Where we to follow Mr. Bennett’s suggestion and sell the same properties for $100 million of cash, it would generate a tax unnecessary in the range of $50 million.

That is a residual complication which we consider we are entitled to take into account.

Now, in a minute or so I have left, I’d like to comment on the allegations that we have been dilatory in seeking relief.

El Paso has never fought for delay, El Paso has never taken an appeal to this Court, El Paso has never failed to meet the deadline imposed by the court below, we have tried our case, and we stand ready to divest.

Before the court’s order was even final, we apply to the Federal Power Commission for the necessary certificates to augment the Court’s decree.

That proceeding has been heard, the record is close, the briefs are in.

There has been no opposition from any party.

Messrs Flynn, Stewart and Bennett were not a party to that proceeding.

The Commission stands ready to issue its order authorizing the divestiture of these properties.

El Paso at this moment is ready, able, willing, and I may say without any ranker for the last 12 years.

We are anxious to divest these properties.

We can complete the divestiture in 90 days.

We await only to permission to do so.

I strongly urge this Court not to reopen these proceedings.

Thank you.

Earl Warren:

Mr. Hooper.

Richard B. Hooper:

Mr. Chief Justice, members of the Court.

I appear here on behalf of the eight intervenors named in the joint motion to affirm the judgment of the District Court or dismissed the appeal of the State of Utah and the brief in support of this motion.

This motion was served upon all parties of record in the lower court proceedings last February and filed on April 21 after entry of this Court’s order setting this hearing.

These intervenors are the three state commissions of Idaho, Oregon, and Washington.

And in addition, the principle gas distributors serving those states, oil and gas so distributed and regulated is obtained from El Paso Natural Gas Company.

Upon completion of this divestiture, it will then be obtained solely from the successful acquirer of El Paso’s Pacific Northwest Division.

Differing responsibilities and interests of these several parties have occasioned to full individual participation by all three commissions and most of these distributors in the District Court proceedings held during 57 days of trial over many months.

Richard B. Hooper:

These parties conducted cross-examination of witnesses for all nine applicants and presentations of affirmative evidence.

For the purpose of simplifying the pleadings and record on this appeal, these efforts have been united now by their strong common interest and promptly finalizing a judgment which will end the long period of adversity to which they have been innocently subjected as a result of this litigation.

We urged the granting of Utah’s motion to dismiss its appeal.

In so doing, I speak not only for the four commissions and distribution company counsel who are present today but also for those who are unable to be present in stating to you that these intervenors agreed.

First, that the District Court’s decision fully complies with your mandate in Cascade et al. versus El Paso and second, that the District Court selected the most highly qualified applicant to achieve the objectives of such mandate in the shortest possible time.

Like Mr. Payne, we do not question this Court’s authority to reexamine its mandate and compliance with it.

We do urge however that your review be confined to the question whether the mandate has been carried out upon the record before this Court.

The allegations of so-called facts contained in the all two recent pleadings of the self-styled protector of the public and amicus curiae would not seem fit to comply with the rules of practice must not be permitted a status equal to the findings of a judge who was carefully handpicked if you will to hear this case.

Findings based on a record at some 15,000 pages which was compiled by responsible counsel and their witnesses representing 33 parties and applications.

We are highly concerned over the prospect that such findings could be upset by these presumptuous and tardy challenges founded only upon contentions contained in Utah’s jurisdictional statement and as these persons have stated themselves a glance at a map of the west.

Far from being spokesman for the public which Mr. Bennett emphatically is not as to any Pacific Northwest Gas consumers, Mr. Bennett seeks to prolong indefinitely a cause whose continuance could only read further injury on those directly dependent on El Paso Pacific Northwest Division.

We can only conjecture as to his reasons for this but it is noteworthy that he did not present evidence on the record below to support his belated contentions.

Where was he, we may ask while the several intervenors and others were busy in court examining into possible conflicts of interests, possible antitrust implications, the extent of independence from El Paso of the proposed acquirer and other pertinent factors bearing on the relative qualifications of the applicants.

Likewise, we can only conjecture as to his contentions concerning our position in support of the judgment below.

We do state however that any implications that these intervenors were bought off are wholly without foundation in fact.

If we had any doubt about the propriety of the lower court’s decision we would not in view of our complete defendants upon an urgent need for adequate in increasing gas supplies which only are fully qualified applicant can furnish us to be here urging the finality of the selection of CIG.

Your guidelines have been met.

The District Court selected the most viable available entity capable of serving the existing and potential customers in the Pacific Northwest, and at the same time presenting a practical threat of competition in California.

Conjecture as to some remote possibility of curtailment of localized competition has no place in the present proceedings.

An adequate remedy exists when and as such may in the future be proven not just surmised by persons not participants in the hearings below.

As a practical matter, no competition has ever been provided or threatened by its CIG in the Pacific Northwest or California.

Likewise, as a practical matter, CIG by reason of its size, financial condition and experience will post after acquisition of the Pacific Northwest assets a threat to the giant (Inaudible) of El Paso, Pacific Gas Transmission Company, and Trans Western Pipeline Company.

To now select in substitute an embryonic entity in CIG instead as these persons suggest is to delay indefinitely if not to extinguish any hope of practical competition in California.

For any such entity must first developed and build an organization to serve the Pacific Northwest and to negotiate from a position of strength for additional gas reserves.

Such organization and power, we submit CIG already possesses the needs of our customers were amply documented on the record below.

They should not now for be further jeopardized for 14 years, the Pacific Northwest has sought a permanent certification for gas whereas California already has three permanent certificates without protected further hearings which can only be detrimental to the interest of both of Pacific Northwest and California.

There can be no assurance contrary to what Mr. Bennett lively contends that as fully qualified an applicant to CIG is can be selected.

Thank you.

Earl Warren:

Mr. Sonnett.

John F. Sonnett:

Mr. Chief Justice, if it please the Court.

John F. Sonnett:

I think I would be remiss in not noting in behalf of the bar, I regret this — we are told this is the last session of this Court over which you must the Chief Justice will preside, we shall miss you.

In terms of California Interstate Gas, I have in my main argument several points only to make.

First is we are not, we have not be in a potential competitor.

In 1965, when the Cascade case was before you in the record in that proceeding, Your Honors had proposed findings which had been submitted by the Government to the trial court to Judge Ritter.

I would like to summarize briefly two findings which the Government had proposed at that time over 14 years ago but which Judge Ritter never passed upon.

The first was proposed Government finding 60 which said for the several months Colorado Interstate has attempted to discuss with El Paso a purchase of the properties to be divested but has been rebuffed in its attempts.

The second proposed finding, our proposed finding 61 was Colorado Interstate would be interested in using the facilities to be divested as the basis for a project to enter and serve the California market.

It is improbable that Colorado Interstate would by itself and without those facilities be in a position to enter the California market.

Now Your Honors what is true in 1965, the Government stated in its proposed findings was true in the long hearing subsequent to your remand and in the proceedings before Judge Chilson.

Despite the fact that there were some six months of hearings that there were 26 parties, the two senior executives of Colorado Interstate testified and were cross-examined that late by everyone including the Government.

There is nothing in the record before this Court to cast the slightest doubt on the validity of the proposed finding which the Government itself tended to Judge Ritter in 1965.

The fact of the matter is that Colorado was not and is not interested, nor capable of competing in the California market without the facilities which it proposes here to acquire.

I don’t think that Your Honors will find a word of evidence in the record suggesting the contrary.

Those are certainly the findings of Judge Chilson.

They are meticulous findings as you suggested should be made.

He has made it and there is nothing that I am aware of in the record to cast the slightest factual doubt about amounting competition to California as Your Honor’s opinions have pointed out in this industry is the very expensive and difficult project because obviously what we are competing for is the incremental demand.

Pursuant to the decision below, we are already at work competing.

We are already at work competing to the extent that we can for the California market.

We have pursuant to the contract with California a copy of which we submitted to Your Honors.

We have engaged in negotiations with purchases in California.

We are making market studies, we are conducting feasibility studies, we are making engineering studies, we are trying to get ourselves into a position that we will have assurance of sufficient business in California that would warn us in acquiring the very great reserves of gas that will be required and I’m spending some $250 million to build a pipeline to get that gas to California.

Your Honors have in mind that of course that the California market is a very different thing today, the market was 10 years ago.

Today, California Interstate in attempting to go into competition in California faces entrenched strong competition from three companies, the smallest of which is twice our size but we are doing our best to go ahead.

If this Court sees fit to grant the motion of Utah to dismiss its appeal, we shall progress this summer with our work and hopefully be in a position to reach some final conclusion that we are able to go ahead because we have the business, we’re working on the acquisition of reserves and we are fortunately in a position to contemplate a substantial financing program.

So Your Honors, we are hard at work so far as the suggestion that we might have competed in the present markets of Northwest, there is nothing whatsoever in the record to support that suggestion.

I say to Your Honors we were not, we are not potential competitors with Northwest.

We have never in fact been competitors and the only way this Court is going to get the competition which should be additional competition which it desired in California was as Judge Chilson found here below after a full hearing that we can bring our strength to bear with the facilities of Northwest and take the risk of hundreds or millions of dollars of expense to go into that market.

That we proposed to do and we shall if the Court will allow us.

Earl Warren:

Mr. Skjeie.

Iver E. Skjeie:

Mr. Chief Justice, may it please the Court.

Iver E. Skjeie:

The people of the State of California wish to make two points today.

First, what is California’s position on the two motions which are pending and second, what is the basis on which we arrived at that position.

First, as to California’s position on the motions, it supports that District Court’s divestiture decree.

That means that California urges that Utah’s motion to dismiss should be granted forthwith and secondly that Mr. Bennett’s motion for a hearing should likewise be acted upon forthwith and denied.

Well, I used the word “forthwith” twice involves a redundancy.

This is intentional for it emphasize as what we believe as a vital passage of this proceeding as I’ll amplify shortly.

We believe and we are convinced that achievement of this Court’s objective restoration of competition for the sale of natural gas in California is and now perhaps or a probably never matter if divestiture is not completed in a very immediate future then it appears to us that the chances of achieving the Court’s objective and California’s objective will be so materially depreciated that such objective will not be possible of achievement by anyone Colorado Interstate Gas or any of the other applicants in the foreseeable future.

Turning to the basis of California’s position at the District Court’s initial hearing following the Cascade decision, the pretrial conference of June 9, 1967 it was indicated that there would be purchasers were or had been in the oil gas and pipeline business and could contribute their knowledge and experience and at such would be a real value in the divestiture proceedings.

This, California found to be very true.

Amongst other things, the trial proceedings and the evidence elicited by these purchasers and from them through cross-examination of them showed several things.

First, it showed that the chances of restoring the divestee to be named to a position where it could and hopefully to our point of view at least would compete in the California market were decreasing as each day passed.

For example, it showed that uncommitted gas supplies were becoming more scarce all of the time.

Those recently developed or proven as for example in the Permian Basin, the evidence showed were being bought up and diverted to Midwestern and Texas and non-California markets.

Secondly, the evidence made clear that for a purchaser to in fact to be able to compete under today’s conditions would require substantial strength or muscle for breaking into an established gas market is a major, a very risky and uncertain and an extremely costly venture.

It was in light of this type of situation that California sought divestiture of not merely the assets proposed by El Paso but additional assets and benefits which would have afforded the divestee the strength to be aggressive and to give it to us incentive to attempt by California project.

When the District Court indicated its tentative choice of CIG an applicant that we at the outset did not choose because of its lack of past aggressive expansion and because of the possibility which have been suggested that there might be a new Section 7 violation involved, we object it.

However, because of CIG’s strength and other qualifying attributes and because of the critical need for a strong divestiture now and not amongst in the future, we were not closed-minded when Colorado Interstate Gas offered a written commitment to attempt to California project.

At this point, as it’s indicated in the response the type of response we filed last week at pages 5 and 6.

We gave thorough detail and intensive considerations of the course of action which would best fill this Court’s mandate and further the interest of California at same time.

Our Attorney General and his two top assistants, personally, and I also had at least nine separate meetings with four of the five largest California gas users with representatives of our California Public Utilities Commission and also with three prospective purchasers including Colorado Interstate Gas.

It was in light of the views expressed in these meetings and our consideration of the fact that divesture now to a strong divestee was an absolute essential that we proposed, and by we, I mean the California Attorney General and spearheaded negotiation of the agreement which is exhibit A to our response and thereafter when the agreement was signed by four of the five largest gas users in California that we withdrew the protective notice of appeal previously filed by us.

I should like to note two things concerning the agreement.

First, it is patterned on the step program contract which Southern California Edison, an intervenor in the proceedings, proposed be accepted in the proceeding by purchasers.

Second, while the exhibit appended to California’s response does not itself show it was signed, in fact that is due of the lack of time we had in preparing our brief.

It was signed by the four that we have noted.

It was light — in light of this situation, a situation where the possibility of recreating competition in California was fast disappearing, and with CIG a strong and experienced gas pipeline operator willing to undertake the major program involved in trying to come to California that we dismissed our appeal.

We are extremely concerned that should the District Court’s decree not be sustained and not be implemented now that there will be no chance left to restore competition, the competition which this Court in California both sought and seek.

Accordingly, it is our position and we urge the Court to sustain Judge Chilson’s decree by granting Utah’s motion and denying Mr. Bennett’s.

Thank you very much.

Earl Warren:

Mr. Solicitor General.

Mr. Chief Justice and may it please the Court.

In response to the Court’s invitation, I have filed a memorandum on behalf of the United States and which we say that we have no objection to the dismissal of Utah’s appeal.

In developing the reasons which lay behind the position of the United States, it seems to me that it maybe helpful to summarize the process by which they were determined.

In this case, the judgment of the District Court was rendered on August 29, 1968.

At that time, I knew nothing about the case.

It is not a part of the responsibility of the Solicitor General to try cases in the District Court and the trial in this case had in fact begun before I had taken public office.

The case was in charge of the antitrust division which was the appropriate place for it to be handled in the Department of Justice.

Under the statute and rules, the notice of appeal must be filed within 60 days after the judgment was entered.

That expired on October 28, 1968 and on that day a notice of appeal was filed.

I knew nothing about that, made no authorization of it.

This is in accordance with the regular departmental practice.

It’s not a situation that I particularly like but neither I nor my predecessors have been able to change it effectively.

The practice is that a notice of appeal is more or less automatically filed and eventually a recommendation comes to the Solicitor General if he decides that the appeal should not be taken then the appeal is not perfected.

Under the statute, the time for docketing the appeal expired 90 days after the judgment was entered.

That would have been November 28, 1968 and on November 15, 1968 before the 10-day period specified in these — the rules of this Court and this was the first time that I heard about the case and an application was presented to the Chief Justice to extend the time for his docketing the case.

Actually, our application asked for an extension until January 31 which was based upon the September 3 date when the judgment was entered in the Court’s records but the decision of the Court was on August 29th and the Chief Justice in granting the extension granted it to and including January 26, 1969 which was the 90 days plus 60 days after August 29 and was the maximum extension that could be obtained.

There was no authority to grant any further extension.

As a result of this application for an extension of time, I became aware of the case.

I had talks with members of my staff.

I read the prior decisions of this Court in the El Paso case and the Cascade case.

I was thoroughly familiar with what might be called the traumatic experience of the Department of Justice and the Cascade case and knew how carefully this must be handled.

I was aware too of the interest of a newspaper columnist in the matter.

It would have been and easy way out from he simply to have said, oh, well of course we must take this appeal.

In due course, there came through from the antitrust division, the recommendations with respect to the case.

Mr. Zimmerman, the assistant attorney general was disqualified.

The recommendation came from the deputy assistant attorney general.

It was received in my office on January 3, 1969.

By that time, I am not only was aware of the case but I was aware of the time problem involved in the case in connection with the change of administration which occurred on January 20th.

If we were to file a jurisdictional statement it had to be filed by January 26.

If a jurisdictional statement is filed, it not only has to be decided upon, it has to be written, and then printed.

It became perfectly apparent that there was no prospect that such a decision could properly be made by the administration after January 20th.

It became apparent to me and I conclude it that the decision would have to be made before January 20th.

The recommendation which came from the antitrust division was comprehensive.

It occupies 31 pages, discusses the case in full including its difficulties and the recommendation as I recommend, no direct appeal.

He then went to a member of my staff who had been familiar with the case and who followed it and who wrote a memorandum on January 9 which begins somewhat reluctantly.

I concur in the recommendation of antitrust that we do not appeal this case to the Supreme Court.

On the following day, January 10th, a supplemental memorandum was received from the deputy attorney general in which he further supported the recommendation that no appeal are be taken and on the same day, there was prepared by the senior member of my staff a recommendation, I recommend no appeal.

I can — took all of these memoranda.

I studied them carefully; I found the question a very difficult one.

All of my instincts may I say from the beginning were that we should take the appeal but as I look into the matter I found more and more difficulties.

In the process, I had assigned the member of staff who had said somewhat reluctantly, I concur in the recommendation for no appeal.

I said, you make a skeleton, an outline or summary of what a jurisdictional statement would look like and he did that and he have presented it to me and it then became apparent to me that our position was an extremely difficult one.

In the process, I examined the briefs which the Department of Justice had filed in the District Court in this case.

The main brief, the department said it has not been our rule in these proceedings or others to nominate a purchaser.

It is not our intent now to intrude in any way upon the exercise of the broad discretion of this equity court or to enter upon any area which has traditionally been the Court’s prerogative.

It is within that limitation that we offer the comments with which follow.

And then again on page 32 of that brief, the government had said we do not think however that CIG should be automatically excluded from consideration here because it is now a potential competitor for the California market.

If the combination of CIG and the new company were to create a considerably stronger competitor for the California market then either one could possibly be alone, the Court could validly conclude that such combination is pro-competitive rather than anticompetitive and entirely consistent with the mandate of the Supreme Court.

And then later, following the preliminary decision of the Court, the Department of Justice had filed a final memorandum in which they took some exception to the fact that the Court’s findings were not adequate but said, while we do not flatly oppose the Court’s selection of CIG, we do submit here that the Court has not yet made findings of fact in conclusions of law adequate to support its choice.

Thus, I was confronted with a situation where I would have to —

Earl Warren:

Who wrote that memorandum General?

Who is that from?

That is from a Department of Justice of the United States.

Earl Warren:

The antitrust division?

The antitrust division, yes Mr. Justice.

I was confronted with the situation where I would have to file a jurisdictional statement saying that the District Court heard because it had decided in ways which the Department of Justice did not oppose.

Now, at first I found myself somewhat concerned about this.

The more I thought about it, the more it seemed to me that maybe the handling of the case in the District Court had been entirely sound.

The more I thought about it, the more it seemed to me that the District Court was probably correct in saying that CIG was the only one of the applicants who had any prospect of producing an effective competitor in California out of this situation.

There was further the question whether this wasn’t anticompetitive and that there might have been two competitors if Pacific Northwest was transferred to another company and CIG was left to its own resources.

It seemed to me tolerably clear that there was no prospect that CIG by itself would become a competitor for California.

There was little prospect that Pacific Northwest transferred to another company would become a competitor for California.

There’s been reference this morning to the embryonic nature of this other companies.

It seemed apparent that all or nearly all of them were speculative ventures which were organized for the purpose of hoping to be able to get these assets and then on them to being able to realize enough money to develop some kind of a structure which could effectively operate in the gas area.

But these other companies did not have the background or the manpower or the plans to operate and it became more and more apparent that the best prospect of effective competition for gas in California.

The most likely way to carry out the mandate of this Court was that which the District Judge had head upon after the extensive trial and that it may well have been that the most helpful thing that the Department of Justice could do with respect to the District Judge was to raise before him as it did.

The varying factors which more upon the question whether Colorado Interstate or one of the other companies would be the — provide the most effective competition.

There were extensive discussions between me and my associates, the then attorney general was aware of the situation and understood that the decision was going to be made and before January 20th we were aware that California had not appealed and that the California gas companies had filed the motion to dismiss and the antitrust interest was essentially in California.

We received strong representations from the states and public utility commissions in the Northwest that it would gravely hamper their interest if they were further delay and that an appeal was taken.

And finally on the afternoon of Friday, January 17th and I now find that I not only dated that January 17th, I wrote 5:30 p.m. after I signed a slip and wrote a brief memorandum in which I said, no appeal.

I should mention too that the deputy clerk of the court had issued an order in December providing that our time for filing a motion to dismiss or affirm with respect to any appeals that might be taken should extend for a period of 30 days from the filing of a jurisdictional statement by the United States or from notice by the United States that their appeal will not be perfected.

Since this action was taken late on Friday afternoon, there was no opportunity to give notice then.

Monday was a holiday and no notice was given.

We were rather anxious to keep that 30-day period open as long as possible in order that the new assistant attorney general might have an opportunity to consider what position should be taken with respect to a motion to affirm.

It was — there have been some suggestion that a caller in my office on Tuesday morning, January 21st, it says that I didn’t tell him that we had decided not to take an appeal and he was not in appropriate person to be notified, he was not a party or counsel in the case.

I left for Chicago for the meeting of the American Bar Association on the afternoon of Tuesday, January 21st and on January 23rd, in accordance with my instructions Mr. Friedman, the Deputy Solicitor General, sent notice to all counsel in the case that the Government would not have perfect its appeal.

We then undertook consideration as to what position we would take with respect to the appeal taken by Utah.

I may say that I have not taken Utah’s appeal very seriously into account in determining whether we would perfect our appeal or not.

It was claimed that Utah had no interest with the respect to California that its interest was a perfectly legitimate public interest but a very narrow one, as far as we were concerned, I felt no obligation to support that.

We worked with the antitrust division on the draft of a motion which we concluded should be a motion to affirm.

This was approved by Mr. McLaren, the new Assistant Attorney General.

In its final draft, I approved it and marked it to go to the printer and it was on that day that the motion to dismiss the Utah appeal was filed.

We understood from the clerk’s office that a motion to affirm would not be received and we put our draft in our file and did not file it.

Now, when the Court’s order of, we could go yesterday was issued, we brought it out, we cause it to be printed without any change, without bringing it down to date.

It seemed to me that it was in itself a document of records, so to speak, and we have filed that as an appendix to the response which we have made.

In summary then, my position is that the best prospect, the most likely way to carry out this Court’s mandate in the Cascade Gas case is the one which has been adopted by the District Court in this decision in this case allocating these assets to Colorado interstate.

There seems to be a considerably — a considerable likelihood that this may actually develops important competition with respect to gas in California.

It also it seems to me that this was not anticompetitive that neither Colorado Interstate nor the Pacific Northwest assets in the hands of a new inexperience company were likely competitors in California.

In my view, the best way to carryout the decision of this Court in Cascade is to dismiss the appeal of Utah and let the decision of the District Court go into effect.

William O. Douglas:

Mr. Solicitor General, in page 12 of your brief or your memorandum, you state that the divestitures to CIG creates a strong new competitive force to the California market, is that quite accurate?

William O. Douglas:

Isn’t it more likelihood or a possibility or the probability?

I may have misunderstood Mr. Sonnett’s argument.

You’re suggesting Mr. Justice that restores these two basic stronger word?

William O. Douglas:

The first full paragraph, the first sentence at page 12, divesture CIG creates a strong new competitive force for the California, isn’t that all in procural?

Yes Mr. Justice, that is in procural but it’s a forced for the (Voice Overlap).

William O. Douglas:

A year from now, CIG may theoretically not be there at all.

That is perfectly true Mr. Justice, I cannot guarantee that —

William O. Douglas:

So, wouldn’t it be more accurate to say it creates a possibility or probability or (Voice Overlap) —

Grants a strong likelihood of a new competitive force for the California market.

I think might be more —

William O. Douglas:


— more active.

William O. Douglas:


It seems to me a greater likelihood than any other prospect that was available to the District Court.

Earl Warren:

Mr. Bennett.

William M. Bennett:

Mr. Chief Justice and members of this Court, I think it would be refreshing and helpful in novel here today to speak for the first time of the facts of the case, the Clayton Act, the Sherman Act and your decisions and to judge the award in that light and not so much in ad hominem argument.

And to understand this case and to know how your mandate has been frustrated, it is necessary to go back to the beginning which was 1956 when there was the possibility, the reality as you found in El Paso of competition to California from the Northwest.

Because of that threat of competition, El Paso acquired the common stock of Pacific.

Now, what is relevant to these proceedings today is that there was a meeting between El Paso and the Attorney General of United States in 1957 in which they were told that there were great antitrust consequences in their action.

The Securities and Exchange Commission by formal letter inquiry pointed out the antitrust difficulties.

As if that were not enough on July 27 — July 7, 1957 the Attorney General of the United States filed a complaint entitled U.S.A. versus El Paso charging that this stock acquisition was in violation of Section 7 of the Clayton Act.

Thereafter on August 22, 1957, El Paso went to the Power Commission filed an application there for asset acquisition and approval seeking to offset the effect of the action in the District Court in Utah.

And all of this began by the way with an opinion from counsel which is set forth in a prospectus on file with the Security and Exchange Commission in 1956 saying, in what has to be possibly the monumental error of the decade, counsel concludes that while the matter is not entirely free from doubt it is their opinion that the proposed transaction is not in violation of the antitrust laws.

Thereafter, commenced proceedings before the Power Commission in which I participated for approximately eight weeks and in that proceeding in September 1958, on behalf of the Attorney General of the State of California, I filed a motion to stay those administrative proceedings pointing out that it was fraud with danger to the consumers of the West to the shareholders of El Paso in the event that District Court should find this transaction violated Section 7 of the Clayton Act which it did.

And I point this out to you today because of the discussion I will make if the remedy I request in light of alleged hardship or lack of notice or surprise on the part of El Paso.

They were unnoticed as you stated in El Paso almost from the beginning.

From the determination by the Power Commission that this merger was lawful, there commenced a series of appeals taken by California, myself having the honor to represent that state.

And in the United States Court of Appeals for the District of Columbia Solicitor General Lee Rankin supported our cause and told that court in oral argument and in brief that this merger approval by the Power Commission was improper so long as there was a pending charge in the District Court in Utah.

Thereafter, came the appeal to this Court in which the new Solicitor General Mr. Cox upheld that FPC approval argued against California but you found that the Federal Power Commission could not approve that merger so long as there was a charge pending in Utah.

Now, it is significant to note that Justice Douglas in California versus the Federal Power Commission had this to say about the approval of this merger by that administrative agency.

William M. Bennett:

There are practical reasons why it should have held its hand until the courts had acted.

One is that if the Commission approves the transaction and the courts in the antitrust suit later hold it to be illegal and unscrambling is necessary.

Thus, a needless waste of time and money may be involved also these unscrambling processes often raised complicated and perplexing problems on tax matters and otherwise.

And that is where we are today.

Following that determination in California versus the Power Commission, we tried the matter before Judge Ritter in Utah who held there was no violation of the Clayton Act.

There came then the appeal to this Court and I might add after great, great pleading and persuasions of Department of Justice to perfect its appeal which they finally did almost upon a request made on bended knees so to speak.

And in that case, Justice Douglas pointed out having found the violation of Section 7 again since appellees have been on notice of the antitrust charge from almost the beginning indeed before El Paso sought Commission approve of the merger, we not only reverse the judgment below but direct the District Court to order divestiture without delay.

And we went back to Utah and we have the proceedings before Judge Ritter in which I participated briefly and those that decree there in my judgment did not comply with your mandate and we came back here in Cascade.

And now we’re in February of 1967 and in Cascade you said it is now nearly three years later and as we shall see no divestiture in any meaningful sense has been directed.

And you said again that mandate in the context of the opinion claim immense that Pacific Northwest or a new company be at once, be at once restored to a position where it could compete with El Paso in the California market.

Following Cascade, we went back to Salt Lake City and ultimately Denver before Judge Chilson, I participated most briefly.

I was a member of the Public Utilities Commission of the State of California.

My primary responsibility was there not my unpaid special counsel role before Judge Chilson.

We had a rush of rate increases in California and still have because of certain changes which have occurred in my native state and my presence in behalf of my consumers at California was sorely needed there.

The proceedings before Judge Chilson lasted from October of 1967 to March 21, 1968.

There were nine applicants for acquisition.

The Department of Justice presented no testimony, no witnesses, no showing whatsoever.

It did take a position.

Its position was quite clear for the most part.

It opposed Colorado Interstate Gas Company as an applicant and as I’ve pointed out in my brief according to brief for the Government, it said it would lead to anticompetitive consequences.

In oral argument following the award, the award to CIG the Department of Justice through Mr. Dorothy criticized that award quite clearly.

The State of Utah strongly criticized that award in a brief of some 35 pages but which it details its objections and the State of California in oral argument before Judge Chilson concurred in the Utah criticism.

I have the transcript here in which the California Attorney General said with respect to the written objections filed by Utah, I would like to advise the Court that we are convinced that they are well taken and we second them.

And Utah’s position was quite blunt.

They said in writing in that brief and orally the award to CIG violates the monopoly lose.

Thereafter, in support of those objections maybe Judge Chilson, Utah, the United States of America and the State of California filed appeals.

California dismissed first, then the United States and Utah is asking to dismiss.

Now, so far as Utah is concerned you should bear in mind that Utah in its jurisdictional statement has told you that the questions presented are so substantial as to require plenary consideration and then the brief itself submitted by Utah following the argument under that topic and title the question is substantial.

Utah again tells you the questions presented are substantial and are entitled to plenary consideration.

And plenary consideration is oppose to some reconsideration and it means you have before you under your Rule 15, the complete right to give a complete review and a complete decisions since Utah has represented to you as a sovereign state that they want a full complete review of the matter below.

William M. Bennett:

That’s why they told you the questions are substantial.

Now, you should also bear in mind in reviewing Utah’s request to dismiss the consideration for the dismissal of the appeals by Utah.

And I have appended in the brief I have submitted to you the contract between the Governor of Utah, its Attorney General, its regulatory public service commission and the Colorado Interstate Gas Company.

And it is quite claim and stating that the appeal is dismissed in consideration of substantial bank accounts in the State of Utah, a prominent member of the Utah community on the board of directors and a promise to purchase steel from the steel mill of U.S. Steel at Provo, Utah.

I suggest to you that that agreement is void as against public policy, I can’t conceive of myself as a California Commissioner entering into this type of contract for the El Paso Natural Gas Company.

I submit that the agreement to purchase steel from but one mill is in restraint of trade and as to the directorship all I can say about that is there’s no discernable benefit to the citizens of Utah so far as that is concerned.

But Your Honors you have before you an appeal by a sovereign state not likely taken and if there were other reasons for dismissal, we might not be here today.

But the clear stated reason advanced by the State of Utah for dismissing is that contract whereby these types of dubious considerations are forthcoming.

And I’ve suggest to you that this Court is being used, so far as Utah is concerned, that review is being sought to be denied you not for proper public causes but because of a contract of this nature and if nothing else because of the language you set forth in Dickson-Yates.

This should be condemned for what it is an abuse of your process, a contract against public policy and something which should not be tolerated.

You said in Dickson-Yates, a democracy is effective only if the people have faith in those who govern and that faith is bound to be shattered when higher officials and their appointees engaged in activities which arouse suspicions of malfeasance and corruption.

So far as the California appeal is concerned that was dismissed by an agreement between the California Utilities and Colorado Interstate Gas Company.

I have read it, it is before you.

It is a collection of dubious, illusory, unenforceable promises.

We gave up something for nothing and I might ask this, if the decree of Judge Chilson is so sound.

Why must it be implemented?

Why must the public be protected by a contract?

Isn’t a judgment of the United States District Court adequate so far as that is concerned?

Apparently not.

Now, there’s another thought about the California contract.

If that contract is a binding contract, we have them an agreement by the major California utilities to buy the next block of gas but from one pipeline, one bidder, one competitor and possibly that itself might be void as against public policy or some kind of an illegal combination or restraint of trade.

Now, so far as the award of Judge Chilson is concerned, it would be very helpful to discuss it in terms of the Clayton Act and the Sherman Act.

And what you have is an award to one monopoly of another monopoly.

Colorado Interstate Gas Company by law in fact is a regulated natural gas company a monopoly.

Pacific Northwest Pipeline or new company is a regulated natural gas company and in law and in fact a monopoly.

This award gives to one monopoly another monopoly and so far as I am concerned under your cases and the language of Clayton-Sherman is a per se violation of the monopoly law.

There is no escaping it.

It is as though to breakup general motors and possibly the Justice Department by way of example might be looking at them.

We were to give General Motors to Chrysler there to compete with Ford.

Per se that would be wrong or to give Southern Pacific to Union Pacific to compete with Santa Fe that would be wrong and so it is here.

William M. Bennett:

Your language in El Paso quite clearly covers the award of Pacific Northwest to CIG because just as it was wrong to give Pacific Northwest Pipeline Company to El Paso in 1959 so also is it wrong in 1969 to give to Colorado Interstate Gas Company Pacific Northwest Pipeline.

When Judge Ritter announced his plan of divestiture previously, he was quite candid in what he was doing and in speaking of the proposal which he had authorized, he said quite clearly you see what this plan proposes is a division of the market, a division of the resources one area to new company and another area to El Paso.

That’s what the root of this plan is and you condemned that as being a division of the markets.

Now, Judge Chilson has done exactly the same thing only he has failed to characterize it but this award gives to the north — to Colorado Interstate Gas Company the northwest portion of the United States and it gives to El Paso the southwest portion of United States.

It is literally a division of the market.

It cannot stand under any of the cases which this Court has decided recently under U.S.A. versus El Paso, under Cascade, under Von’s Grocery Company.

In the Von’s Grocery case, a mere 7% of market domination was condemned.

This gives to Colorado Interstate 100% of the pipeline capacity the Northwest not 7%, 100%.

Under the du Pont case, that stock ownership not 100% was struck down.

Here, you have 100% stock ownership and I suggest to you that under all of your precedents, under Clayton from a literal reading and under Sherman itself this is an unlawful award on its face — on its face.

Now, let us assume that otherwise the award to Colorado Interstate would be valid.

That award is still deficient in this respect.

You said repeatedly that divestiture should be without delay.

The Colorado plan contains delay simply because it is not a cash sale.

And the fact of a cash sale was not remote even to the trial judge because in his findings which are set forth on page 102 of Utah’s statement.

We find the Court saying this, the alternative methods or means of divestiture available to the Court are: one, cash sale not two or three or four but cash sale the first thing that occurred to Judge Chilson then he says, although a sale of assets to be divested for cash or a transfer of assets to a new company in the sale of all of the new company common stock for each would effectively accomplished the insulation of El Paso from control of the divested property El Paso would suffer adverse tax consequences.

Now, how familiar that is in these divestiture proceedings.

That’s what you were told in du Pont and Justice Brennan wasn’t persuaded by that nor was this Court.

That’s what you were told in the present case, that’s what you’ve been told time and time again from continental on forward and as the Solicitor General of the United States said to you in his brief in du Pont.

It is not for the Court’s to be concerned about the national tax policy.

They’re not to device remedies to avoid tax consequences and really and quite bluntly what we’re talking about in terms of hardship because there’s been an appreciation assets in El Paso just as the rest of us must, must pay a capital gains tax the public interest must be deferred to that consideration.

The payment of taxes, onerous still they may be, are the obligation of all of us including pipeline corporations.

And you made it quite claim that where the choice is between hardship and private injury and the public interest and relief and complete divestiture you resolve it in favor of the public interest and the tax consequences must be suffered by the private interest and so it is here and that is why I say to this Court, since you met without delay we must view this quite simply.

If I am compelled to divest myself of my house and home, my acreage and promptly the only way in law and our economic system I know to accomplish that is outright sale.

Not a lien, not a mortgage, not some type of security encumbrance but an outright transfer of title for cash consideration.

There’s nothing in the laws of the United States or of Texas or the Rocky Mountain States which prohibits or inhibits a sale by a pipeline company of its properties to a willing third party purchaser and there are applicants in this case who offered cash, a cash sale.

You were so impressed by the cash sale proposition that in Cascade you mentioned the fact that there were two willing cash buyers.

You referred to the fact in Cascade that if that time the Department of Justice recommended the advisability of a cash sale.

And it seem to me in that language in Cascade you were telling the lower court, Judge Chilson divest promptly do it by a cash sale.

Your Honors, there is no other way a divestiture maybe accomplished without delay especially this one after 11 long years unless it’s an outright cash sale and Pacific Western in this case, an applicant, offered a cash sale and Paradox Production Properties offered a cash sale, an outright purchase of the equity now and a transfer of the title of the assets immediately.

William M. Bennett:

That would be without delay, not the plan of Colorado Interstate Gas Company.

Other things must be said so far as Colorado Interstate is concerned.

For 40 years, they have been in business in the Rocky Mountain area as a pipeline corporation and never ever once attempted to compete for the great golden gas market which is California.

It’s almost a natural thing so to do when a pipeline business but never wants that Colorado look west to California.

No record whatsoever of competition.

Now, so far as remedy is concern Your Honors, I have pointed out that the public interest is paramount in the private interest are secondary and I have emphasized to you that El Paso has known even before formal proceedings going back as far as 1956 and 1957 that there would be a day of reckoning.

And the only way in which there can be meaning to the antitrust laws, the only way the integrity of your mandate may be respected is by a divestiture at once without delay and so far as I am concerned by cash sale.

Now, counsel for El Paso presented a case of corporate hardship in terms of the terrible burdens attacked to endure by virtue of acquired and unlawful asset.

Let me point this out, El Paso has had the income from the Northwest system ever since state of acquisition and more than that El Paso was had the benefit of no competition because of an acquisition.

And the divestiture plan of El Paso filed on August 4, 1967 in tab 13 thereof, points out from their figures that the net income from the northwest system for the calendar year 1968 is going to be and was $8,092,000.00.

That’s $8 million net income by a virtue of having violated the Clayton Act.

In addition to that, there is cash flow from depreciation, depletion and amortization of $10,123,000.00 or in short a cash flow of $18 million and that can hardly be described as a penalty for violating the Clayton Act.

It is a bonus.

Now, there’s a certain detriment to the bonus, I assume on it they will have to pay federal income taxes but other than that it is free and clear.

And so I would say to you that since El Paso has known ever since California versus FPC in 1962, what might occur to it, and I’m sure that they read du Pont and all those other cases, you should make the monopoly laws effective by taking the bonus out of violation.

And not only should all of the properties go back, all of them are not exception, but as well the income from those properties commencing with California versus the Federal Power Commission.

Now, if that seems too harsh, you then at the very least should begin in the year 1964, I believe it is when in U.S.A. versus El Paso you pronounced a clear violation of Section 7 of the Clayton Act.

Certainly as of April 6, 1964, El Paso knew from the Supreme Court of the United States that the continued operation of the northwest division was in violation of the Clayton Act.

And we must bear in mind that but for the acquisition of northwest by El Paso that same income would be going to Pacific Northwest Pipeline and so far as I am concern in my judgment with that income that pipeline would be in the California gas market today.

Now, I do not say this lightly I ask you to view this case lasting more than a decade, I asked you to view the deliberate calculated violation by El Paso.

These are not crimes of passion.

These are knowing-calculated acts of corporations through officers indulged in pursuant to legal opinion, meetings, authorizations of directors and all those myriad of detail steps which must be gone through before a corporation decides to violate the Clayton Act.

And if you fail to do something of this nature, then what you were saying is that the Clayton Act is there and the divestiture is there but in terms of taking the profit of law violation we know of no way to do it and the reference I made in the brief to the article in that publication entitled “Antitrust Law and Economics Review” by a Dr. Kenneth G. Elzinga has a study therein of the unlawful acquisitions over the past few years pointing out that in each and everyone of them there was a purchase in one year for a certain dollar figure, there was a divestiture three or four years later and a great increase in property value, a great increase in profit to the corporation as well as the unlawful income in the interim.

Now, if the monopoly laws are to be meaningful, this is the remedy which must be imposed.

It is not harsh particularly in this case where they have been on notice as you yourself said almost from the very beginning.

Now, Your Honors there’s something which must be discussed here about this case and your mandate and that is the history of it, the frustrations of it, the delays of it.

When I come here sometimes, it occurs to me that you only see the top of the iceberg and that we’re here simply because we filed the proper pleadings.

I come before you, address you and then leave.

But this case represents an abuse of the economic and therefore the political power of the world’s first natural gas pipeline company.

The very appeal I took to you in California versus FPC was made below on the 60th and last day.

William M. Bennett:

Because of the great influence of El Paso in my state persuading public officials there should be no appeal and but for the perseverance we would never had California versus FPC and we would never but for that case have had returned to our state $155 million by way of refund.

The same with U.S.A. versus El Paso again, all of the forces they can bear to persuade public officials not to pursue proper appeals before this or other courts.

The appeal which is symbolized in your decision known as Cascade was preceded by a deliberate, public, calculated attempt by the attorney for El Paso to remove me, a public official from the case and as the record before you shows, they almost succeeded.

They did succeed in getting Oregon to drop its appeal.


By telling Oregon, no more gas the other side of the Columbia.

And so it is with the case here today.

These appeals of the parties were not dropped so far as I am concern for any proper considerations but for agreements which are highly suspect and they involved not just California, not just Utah, not the West but the integrity of Government and of this Court itself.

This Court if it drops the Utah appeal is being used by the parties and the instrument is that suspect agreement.

Now, it seems to me that in view of all I’ve said about the time, the delay, the contracts, the dubious arrangements that this is one case in which the Court should be quite severe in its judgment should be quite prompt in ordering divestiture and should take the profit out of monopoly law violation by removing from El Paso all of the profits since the decision of this Court in U.S.A. versus El Paso.

Your Honors, I have another 30 minutes.

I have completed my argument, if you have questions I would be happy to answer them but other than that I feel I’ve completed what I have to say here today.

There’s one last thing I would like to say Mr. Chief Justice then.

I’ve been here on many occasions for over a decade and I can only speak for myself and I think my family but I think I speak for a great, great many other Americans.

We are grateful to the Supreme Court of United States under Chief Justice Warren and I think our children will long remember all we’ve done for us and the greatest honor I’ve had as a lawyer is to have appeared in the time of the Warren Court to address you.

Thank you.

Earl Warren:

The other counsel exhausted their time.

So we will adjourn.

John F. Sonnett:

Mr. Chief Justice, we had saved some time for rebuttal.

I think the marshal has advised that we have something like 17 minutes but actually I only need several minutes.

Earl Warren:

Very well.

John F. Sonnett:

If that meets with Your Honor’s approval?

William O. Douglas:

What happens in this case Mr. Sonnett if a year from now would turns out that after all the studies have been made, the surveys that have been, economic analysis have been made, the search for gas reserves has been made, and Continental decides and is not going to California?

John F. Sonnett:

Well, I think Mr. Justice Douglas that it will be like the wonderful operation but the patient died.

If it is the fact —

William O. Douglas:

But why should we, in view of our mandate, why should we take any action on this appeal until we know what is actually going to happen?

John F. Sonnett:

Because the only way that we can compete is the way we are competing.

As you pointed out competition is for the incremental demand.

Now, as a practical matter —

William O. Douglas:

I’m not at that point here, I’m thinking about in order to get into California you have to go out and get some gas reserves, right?

John F. Sonnett:

First, we have to go and see if we can get some customers and we are doing that.

William O. Douglas:

Well, but you have gas reserve too, doesn’t it?

John F. Sonnett:

We have to do that as well.

William O. Douglas:

Because the gas reserve that you have, as I understand the District Court are sufficient to service only the Northwest properties, is that right?

John F. Sonnett:

Well, may I give you a little fuller answer Mr. Justice Douglas to what, what we have in doing.

Let me say in more detail why I think that since the decision below, we are competing for California in the only effective way that competition can occur in this industry.

What have we done?

William O. Douglas:

Well, I’ve read Article III of your contract in your — is the best efforts contrary.

John F. Sonnett:

Yes, which is all anyone can do Mr. Justice Douglas.

That’s all anyone can do and that we have been doing.

We have turned all of our resources to work to make a market study in California.

And it’s been done in depths, it’s been done intensively to see whether there is room in that market to buy gas from us three or four years from now if we’re in a position to deliver it.

As you know, as you have pointed out in this kind of business, it isn’t like selling groceries on the corner grocery store.

It’s for the incremental demand only that we can compete.

Now, we have dedicated, trained knowledgeable people which is one of the fortunate things about —

William O. Douglas:

I’m not impugning motives —

John F. Sonnett:


I realize that.

William O. Douglas:

— anything but I’m just saying the cold reality is that a year from now this —

John F. Sonnett:

Mr. Justice Douglas.

William O. Douglas:

— we may end up where we started.

John F. Sonnett:

It is possible.

It may be that the competition in California today which is much more difficult than it was 10 years ago is so entrenched that we can’t get in there, maybe.

But I say that if a new company is going to get in there at all and compete, it will be under our control and with our help because there’s no other way it can do it.

That’s my point.

We stand ready assuming we can develop that market so that we know we got customers for gas we can deliver in three or four years to go out and get the reserves and we are negotiating very actively for reserves right now in competition with others which if we get them we’ll be ample to supply this market.

But with everyday of delay, our problem of getting access to sufficient reserves to move in to the California market becomes more difficult.

The competitive handicap is greater.

Now, if we have reasonable assurance that we have the business, we have the customers and these people are interested in talking about meeting their needs in the future, not all of them obviously, not all of them, but enough to make the project feasible.

And we can get the reserves on which we are currently working very hard then we are planning a pipeline which will cost about $250 million to move this gas to California.

John F. Sonnett:

But there’s nothing we can do over and beyond what we are doing.

There’s nothing anybody else can do.

There is no way to go in and sign up a contract today to deliver gas in three years and guarantee that you can do that until you know you’ve got the market you can get the gas and you can finance the pipeline.

And this is a complicated difficult business in which to move, it’s very difficult to compete particularly when you’re competing for the incremental demand.

And as Your Honor knows, what do you do with the reserves in the meantime?

You’ve got pay or take —

William O. Douglas:

I would think you’d be making a strong argument to a District Court not to approve a plan at this stage in.

John F. Sonnett:

Well, unless we have the assurance of the plan.

Why should we go out and spend very substantial amounts of money to try to make it work?

I believe it was (Inaudible) that spent $9 million trying to get into California and dropped it, they couldn’t get in.

Now, we are a successful company but we’re not one of the giants for us to dedicate manpower, financial reserves, engineering talent and we’ve been up this for sometime.

We’ve got to have some optimist that if we’re capable, we will get the reward that comes.

Colorado is a hardheaded company.

They’ve been interested acquiring these facilities because they have been convinced it’s the only way they can compete in the California market.

They’ve known for years and the record is abundantly clear they couldn’t do it without these facilities and they will not do it.

It’s either do it this way or they can’t do it at all.

Now, obviously the new company Northwest divested to some new owner who by the way “cash” let’s say 20% of the stock and then trying to sell that to raise the money to do it.

There isn’t any of the contender for these properties whose got where was all the money, the resources and management, the skilled people and the experienced to do this that’s why Judge Chilson chose our company.

That’s why he thought we would be the most effective enter it but the commitment Mr. Justice Douglas to enter into this market runs into the hundreds of millions.

So, that’s why we were to happy to give California that agreement in which we outline the particular program we would follow to try to get as soon as possible to the conclusion that we could do the job.

That’s the reason; we couldn’t do it any other way.

It is impossible for anybody to do it in the other way.

We can’t go out and acquire the reserves before we have the market because the reserves can become surplus and you pay and leave it in the ground or take that is an enormous financial burden and the reserves required for this a tremendous so we have to go forward and steps.

We have to be — have an assurance of the market if we can deliver then we have to get the gas to be sure that we can meet that market and then we have to build $250 million pipeline to get the gas to the customers.

That’s the kind of competition I think Mr. Justice Douglas you were talking about.

It’s all ready have an impact in the California market because in the feelings of the California customers with the present suppliers they are aware of our program and the California customers today are benefiting from our threat to enter the California market in their present negotiations.

It’s competition at work in this complicated industry.

So, I say to Your Honor that if there is anyway to set up a viable competitor, a new competitor for California it’s got to be this way.

Otherwise, this Court and the lower courts would’ve labored in vain.

There will be a successful operation but the patient will have done it.

John F. Sonnett:

It comes down to that.

Hugo L. Black:

Where did you say you’re trying to build that $250 million pipeline to?

John F. Sonnett:

From Canada, Mr. Justice Black, to California.

Assuming the program is feasible.

It’s a bold project and we are actively negotiating now to try and get adequate reserves in Canada.

I don’t want to mention where because we are in competition and there’s two other large companies right now engaged in the negotiating for the reserves.

For the extent they get them for other projects obviously we will not have access to them for us.

Hugo L. Black:

Was that —

John F. Sonnett:

So that —

Hugo L. Black:

— all?

Today, I thought I heard someone say there have been lines to build or would be lines to build pipelines from California to Texas.

John F. Sonnett:

Well, that certainly is not part of our planned entry.

William O. Douglas:

There will be another (Voice Overlap).

John F. Sonnett:

Justice Black, that would be other competitors.

You see, since the 10 years when first gone into when you had one company, you’ve now got three and those three companies if I can just take one minute more.

Hugo L. Black:

Well, I was interested in that because of sending gas to Texas.

John F. Sonnett:

The three companies who now confront us in the California market will be El Paso.

Now, El Paso even after this divestiture will have five times our revenues and it’s twice our size.

The second company confronting us in California is Texas Easton and Transwestern.

They have over five times their earnings and they are twice our size and they in the market.

The third is specific gas and electric and Pacific Gas Transmission they have over four times our revenues and they are in the market now.

So, I say Mr. Justice Black that the market in California now for out-of-state gas suppliers being supplied by three strong entrenched companies makes the competition for the incremental demand so much more difficult and so much more expensive to build a pipeline that they cost so much more than it cost 10 years ago.

I don’t know how any new company can enter that market unless it’s a combination of facilities which Northwest has and money know-how and desire and determination which Colorado Interstate.

It’s the only way to do it.

Hugo L. Black:

But if the FPC now allowing pipelines to built from Texas to California and from California back to Texas?

John F. Sonnett:

Well, I can’t give you a complete answer Mr. Justice Black.

There have been authorized enlargements of the facilities now in California which have been approved by the Federal Power Commission.

We of course have our applications pending for certificates to take over the operation of Northwest and all that — all the FPC is waiting for there as for this Court’s disposition of this problem and then I believe we shall have very promptly the certificates and be lawfully entitled to operate the Northwest properties.

Now, we have not filed any application yet.

William O. Douglas:

And those properties take it down into Oregon now?

John F. Sonnett:

Yes, Your Honor.

William O. Douglas:

But not to California?

John F. Sonnett:

Not to California.

We’re not in a position to file an application yet for a new pipeline because of the two threshold questions.

Can we get enough market?

Can we get enough for the incremental demand to make the project feasible and if so can we get off gas to supply it and where is the gas coming?

We’re far enough down the road so that the California interstate executives believe it is still feasible to become a worthwhile competitor in the California market but only by doing at this way.

Otherwise, the program is impossible.

They could not and would not attempt to do it by themselves without the facilities which they proposed to acquire here with this Court’s permission.

William O. Douglas:

When you stated you had to build a pipeline from Canada to California, I think you misstated record didn’t you because your pipeline runs down to Oregon now?

John F. Sonnett:

Well, there is a segment Mr. Justice Douglas if we get access to the reserves we’re now negotiating for.

There will be a segment of pipeline that will have to be built in Canada as well as in the United States.

If my recollection is correct I think the total line of the pipeline involved, the total mileage of the pipeline that would be involved, there is something like 2000 miles.

It’s a terrible pipeline and it will cost $250 million.

To get that kind of financing obviously we have got to have some market, we got to have some contracts, and we got to have some reserves at end.

Now, may I just make one other observation?

All of the mystery that’s been created about the Utah contract by counsel and the California contract, I think I can dismiss briefly as I think the Court should.

When our executives testified in the District Court before Judge Chilson, they described what Colorado’s policy was generally and what they would do generally.

They mentioned that it was company policy as it was in this to try and put local men on boards of directors.

To encourage local participation wherever the pipeline runs and that they were going to do and that they had done.

The Utah contract which the Attorney General of Utah and the Governor regards as in the local economic interest of Utah most certainly is but it hasn’t the one with thrust significance nor was it kept to secret, it was announced by the Governor publicly.

The other thing is this reference to the so-called secret California agreement by counsel is absurd in the papers before this Court.

Counsel makes bunch of the fact that he couldn’t find the copy of this so-called secret agreement.

Well, all he had to do is call us up; it’s been on file at the Federal Power Commission for months.

It’s been a public record that’s why we appended both of them to our papers, the Utah agreement, the California agreement so that Your Honors could see there is nothing vicious, corrupt, or wrongful about either one.

They’re perfectly normal sensible agreements.

And I’m sure that we take as much pride in both of them as California does and Utah do and their officials are very proud of them and so are we.

I have nothing further Mr. Chief Justice.

Thank you.

Earl Warren:

Very well.

Earl Warren:

We’ll recess.