United States v. El Paso Natural Gas Co.
376 U.S. 651 (1964)

Annotate this Case

U.S. Supreme Court

United States v. El Paso Natural Gas Co., 376 U.S. 651 (1964)

United States v. El Paso Natural Gas Co.

No. 94

Argued February 25-26, 1964

Decided April 6, 1964

376 U.S. 651




The Federal Government filed suit under § 7 of the Clayton Act charging that the acquisition by a natural gas company, then the sole out of state supplier to California, of the stock and assets of another gas company, one of the two major interstate pipelines serving the trans-Rocky Mountain States, which had made some efforts to enter the California market, "may be substantially to lessen competition." The District Court, without a written opinion, dismissed the complaint after trial, adopting verbatim the findings of fact and conclusions of law submitted by counsel for appellees.


1. A trial judge's findings will stand if supported by evidence even where they are not his own work product, United States v. Crescent Amusement Co.,323 U. S. 173, but such findings are less helpful on judicial review than those prepared by the trial judge himself. Pp. 376 U. S. 656-657.

2. A review of the record, composed mainly of undisputed evidence, clearly shows that the "effect of such acquisition may be substantially to lessen competition" in California under § 7 of the Act. Pp. 376 U. S. 657-662.

(a) The production, transportation and sale of natural gas is a "line of commerce," and California is a "section of the country," as used in § 7. P. 376 U. S. 657.

(b) The words "may be substantially to lessen competition" in § 7 manifest Congress' concern with probabilities, and not with either certainties or ephemeral possibilities. P. 376 U. S. 658.

(c) Although the acquired company had not gained entry into California for its gas, its effect as a potential supplier made it a substantial competitive factor in that continuously expanding market. Pp. 376 U. S. 658-659.

3. Since appellees have been on notice of the antitrust charge almost from the inception of the merger plans, the District Court is directed to order divestiture without delay. P. 376 U. S. 662.


Page 376 U. S. 652

Opinion of the Court by MR. JUSTICE DOUGLAS, announced by MR. JUSTICE CLARK.

This is a civil suit charging a violation of § 7 of the Clayton Act, [Footnote 1] by reason of the acquisition of the stock and assets of Pacific Northwest Pipeline Corp. (Pacific Northwest) by El Paso Natural Gas Co. (El Paso). The District Court dismissed the complaint after trial, making findings of fact and conclusions of law, but not writing an opinion. The case is here on direct appeal. 15 U.S.C. § 29. We noted probable jurisdiction, 373 U.S. 930.

The ultimate issue revolves around the question whether the acquisition substantially lessened competition in the sale of natural gas in California -- a market of which El Paso was the sole out-of-state supplier at the time of the acquisition. [Footnote 2]

Page 376 U. S. 653

In 1954, Pacific Northwest received the approval of the Federal Power Commission to construct and operate a pipeline from the San Juan Basin, New Mexico, to the State of Washington, to supply gas to the then unserved Pacific Northwest area. Later it was authorized to receive large quantities of Canadian gas, and to enlarge its system for that purpose. In addition, Pacific Northwest acquired Rocky Mountain reservoirs along its route. At the end of 1957, it had an estimated 3.51 trillion cubic feet of gas reserves owned outright in the San Juan Basin; 1.04 trillion under contract in the San Juan Basin; 1.59 trillion under contract in the Rocky Mountain area; and 2.33 trillion under contract in Canada -- 8.47 trillion in all. By 1958, one-half of its natural gas sales were of gas from Canada.

In 1954, Pacific Northwest entered into two gas exchange contracts with El Paso -- one to deliver 250 million cubic feet per day to El Paso in Idaho for transportation to California via Nevada, the other to gather gas jointly in the San Juan Basin for a five-year period. Under the latter agreement, El Paso loaned gas to Pacific Northwest from its wells in the San Juan Basin; to avoid duplication of facilities, Pacific Northwest agreed to gather gas with its own facilities from El Paso's wells in the eastern portion of the basin, and El Paso agreed to perform the same service for Pacific Northwest in the western portion. At the same time, Pacific Northwest undertook to purchase 300 million cubic feet per day from West-coast Transmission Co., Ltd., a Canadian pipeline.

An executive of Pacific Northwest called these agreements a "treaty" to "solve the major problems which have been confronting us." A letter from Pacific Northwest to its stockholders stated:

"This tri-party deal will benefit all concerned. It will give Westcoast what they have been fighting for -- a pipeline. It will mean that Pacific will expand

Page 376 U. S. 654

its facilities, be a larger company, will protect its market from future competition by a Canadian pipeline, and it caused the dismissal of the law suit of Westcoast against Pacific's present certificate. It means that El Paso's California market will be protected against future competition, and, further, it results in all parties' now working together for a common end, rather than fighting each other."

(Italics added.)

El Paso, however, could not get Commission approval to build the pipeline necessary to deliver the 250 million cubic feet of gas to California. Consequently, a new agreement on that aspect was negotiated in 1955 whereby El Paso undertook to purchase 50 million cubic feet a day to be delivered on an exchange basis in Colorado. Pacific Northwest, still obligated to take 300 million cubic feet per day from Westcoast, disposed of the balance in its own market areas.

Prior to these 1954 and 1955 agreements, Pacific Northwest had tried to enter the rapidly expanding California market. It prepared plans regarding the transportation of Canadian gas to California, where it was to be distributed by Pacific Gas & Electric (PGE). That effort -- suspended when the 1954 agreements were made -- was renewed when the new agreement with El Paso was made in 1955, and the negotiation of the 1955 contract with El Paso was conceived by Pacific Northwest as the occasion for "lifting of all restrictions on the growth of Pacific." In 1956, it indeed engaged in negotiations for the sale of natural gas to Southern California Edison Co. (Edison). The latter, largest industrial user of natural gas in Southern California, used El Paso gas, purchased through a distributor. It had, however, a low priority from that distributor, being on an "interruptible" basis, i.e., subject to interruption during periods of peak demand for domestic uses. Edison wanted a firm contract

Page 376 U. S. 655

and, upon being advised that it was El Paso's policy to sell only to distributors, started negotiations with Pacific Northwest in May, 1956. The idea was for Pacific Northwest to deliver to Edison at a point on the California-Oregon border 300 million cubic feet of Canadian gas a day. In July, 1956, they reached a tentative agreement. Edison thereupon tried to develop within California an integrated system for distributing Canadian gas supplied by Pacific Northwest to itself and others. El Paso decided to fight the plan to the last ditch, and succeeded in getting (through a distributor) a contract for Edison's needs. Edison's tentative agreement with Pacific Northwest was terminated. Before Edison terminated that agreement with Pacific Northwest, Edison had reached an agreement with El Paso for firm deliveries of gas; and while the original El Paso offer was 40

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