Schneidewind v. ANR Pipeline Co.
485 U.S. 293 (1988)

Annotate this Case

U.S. Supreme Court

Schneidewind v. ANR Pipeline Co., 485 U.S. 293 (1988)

Schneidewind v. ANR Pipeline Co.

No. 86-986

Argued November 2, 1987

Decided March 22, 1988

485 U.S. 293

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE SIXTH CIRCUIT

Syllabus

Under a Michigan statute (Act 144), a public utility transporting natural gas in Michigan for public use must obtain approval of the Michigan Public Service Commission (MPSC) before issuing long-term securities. Act 144 directs the MPSC to approve a proposed security issuance when it is satisfied that the funds derived therefrom are to be applied to lawful purposes and that the issuance is essential to the successful carrying out of the purposes, or represents accumulated and undistributed earnings invested in capital assets and not previously capitalized. Respondent companies, which serve customers in other States as well as in Michigan, are natural gas companies within the meaning of the federal Natural Gas Act of 1938 (NGA), and are subject to the jurisdiction of the Federal Energy Regulatory Commission (FERC). They filed suit against petitioners, members of the MPSC, in Federal District Court, seeking a declaratory judgment that the MPSC lacked jurisdiction over their security issuances because Act 144 was preempted by the NGA and because it violated the Commerce Clause. The court rejected respondents' claims. The Court of Appeals reversed, holding that both the preemptive effect of the federal regulatory scheme and the Commerce Clause barred application of Act 144 to respondents.

Held: The MPSC regulation of respondents through Act 144 impinges on a field that the federal regulatory scheme has occupied to the exclusion of state law, and Act 144 therefore is preempted. Pp. 485 U. S. 300-310.

(a) Although FERC is not expressly authorized to regulate natural gas companies' issuance of securities, the NGA is a comprehensive scheme of federal regulation of all wholesales of natural gas in interstate commerce that gives FERC a number of tools -- such as its authority to fix rates and to withhold certificates of public convenience and necessity -- for examining and controlling the issuance of such securities in the exercise of its comprehensive authority. Pp. 485 U. S. 300-304.

(b) Congressional intent to preempt state regulation of securities issuances to finance the interstate transportation and sale of natural gas cannot be inferred, as respondents contended, from the mere fact that States might have been precluded from such regulation under "dormant" Commerce Clause principles at the time of the NGA's enactment in 1938. Nor can any inferences as to the States' authority to regulate be drawn,

Page 485 U. S. 294

as petitioners contended, from Congress' subsequent failure to enact proposed legislation that would have given FERC explicit authority to regulate the issuance of natural gas companies' securities. Pp. 485 U. S. 304-306.

(c) When applied to natural gas companies, Act 144 amounts to a regulation of rates and facilities used in transportation and sale for resale of natural gas in interstate commerce, a field occupied by federal regulation. Although every state statute that has some indirect effect on natural gas companies' rates and facilities is not preempted, Act l44's effect is not "indirect." Its central purpose is to regulate matters that Congress intended FERC to regulate exclusively. Pp. 485 U. S. 305-309.

(d) The conclusion that Act 144 seeks to regulate a field that the NGA has occupied is also supported by the imminent possibility of collision between Act 144 and the NGA. P. 485 U. S. 310.

801 F.2d 228, affirmed.

BLACKMUN, J., delivered the opinion of the Court, in which all other Members joined, except KENNEDY, J., who took no part in the consideration or decision of the case.

JUSTICE BLACKMUN delivered the opinion of the Court.

This case presents the Court once again with a question concerning a State's ability to regulate the activities of natural gas companies.

Page 485 U. S. 295

I

Respondents ANR Pipeline Company (Pipeline) and ANR Storage Company (Storage) are wholly owned subsidiaries of American Natural Resources Company (Resources), a Delaware corporation which, like Pipeline and Storage, has its principal place of business in Michigan. Both Pipeline and Storage are natural gas companies, within the meaning of the Natural Gas Act of 1938 (NGA or Act), ch. 556, 52 Stat. 821, as amended, 15 U.S.C. § 717 et seq. [Footnote 1] Thus, both are subject to the jurisdiction of the Federal Energy Regulatory Commission (FERC), the regulatory body charged with implementation of the NGA. See § 1(b) of the Act, 15 U.S.C. § 717(b). [Footnote 2]

Pipeline is a Delaware corporation that owns and operates an interstate natural gas pipeline system transporting gas, exclusively for resale, to 51 gas distribution centers in Michigan and eight other States, where the gas is either delivered to customers of Pipeline or stored for future delivery. Pipeline

Page 485 U. S. 296

purchases its natural gas from producers in Texas, Oklahoma, Kansas, Louisiana, and Wyoming.

Storage, which operates independently from Pipeline, is a Michigan corporation organized by Resources in 1978 to develop and operate gas storage reservoirs for nonaffiliated customers. Storage receives gas from outside Michigan and, on demand, redelivers it for sale outside that State. Storage operates four storage fields in Michigan.

Petitioners are members of the Michigan Public Service Commission (MPSC). Under Michigan's Public Utilities Securities Act, 1909 Mich. Pub. Acts No. 144, as amended (Act 144), Mich.Comp.Laws Ann. § 460.301 et seq. (1967 and Supp.1987), [Footnote 3] a public utility exercising or claiming the right

Page 485 U. S. 297

to transport natural gas in Michigan for public use [Footnote 4] must obtain MPSC approval before issuing long-term securities. Act 144 directs the MPSC to approve a security issuance

Page 485 U. S. 298

when it

"is satisfied that the funds derived . . . are to be applied to lawful purposes and that the issue and amount is essential to the successful carrying out of the purposes, or that the issue of the stock fairly represents accumulated and undistributed earnings invested in capital assets and not previously capitalized."

§ 460.301(3). The MPSC may conduct an investigation, including an appraisal of the company's property at the company's expense, in deciding whether to allow the issue, § 460.301(2), and it "may impose as a condition of the grant reasonable terms and conditions that [it] considers proper." § 460.301(3).

Pipeline and Storage filed in the United States District Court for the Western District of Michigan an amended complaint against petitioners in their official capacities, seeking a declaratory judgment that the MPSC lacks jurisdiction over their security issuances, and thus that they may lawfully issue and market securities without MPSC approval. [Footnote 5] Respondents argued that Act 144 was preempted by the NGA, and that Act 144 violates the Commerce Clause, U.S.Const., Art. I, § 8, cl. 3.

The District Court concluded that Act 144 was neither preempted by the federal regulatory scheme nor in violation of the Commerce Clause. 627 F.Supp. 923 (WD Mich.1985). On the preemption issue, the court concluded that

"compliance with both federal and state regulations is not a physical impossibility, and Act 144 does not stand as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress."

Id. at 930. As to the Commerce Clause, the court concluded that Act 144 was

"an evenhanded and relatively limited state regulation which, as applied to [respondents], has historically had an indirect and minimal effect

Page 485 U. S. 299

on interstate commerce,"

while serving legitimate local interests. 627 F.Supp. at 933.

The United States Court of Appeals for the Sixth Circuit reversed, holding that both the preemptive effect of the federal regulatory scheme and the Commerce Clause bar application of Act 144 to respondents. 801 F.2d 228 (1986). The Court of Appeals concluded that Act 144 was preempted because, by omitting any requirement of advance approval of the issuance of securities

"in an otherwise 'comprehensive' regulatory scheme, Congress has implicitly determined that the States should not impose such regulations,"

801 F.2d at 233-234, and because of the possibility of a conflict between federal and state regulation of natural gas company projects and financing plans, id. at 235-236. Furthermore, the court reasoned, inasmuch as

"the burdens of expense, delay, and administrative hassle of 'advance approval' securities regulation far outweigh the benefits, if any, of Michigan's interests in protecting consumers and investors . . . Act 144 unconstitutionally burdens interstate commerce."

Id. at 238.

Because of a conflict between the views of the Sixth Circuit and those of the Michigan Supreme Court set forth in Michigan Gas Storage Co. v. Michigan Pub. Serv. Comm'n, 405 Mich. 376, 275 N.W.2d 457 (1979), we granted certiorari to decide whether Michigan may require respondents to obtain MPSC approval before issuing and marketing securities.

II

The circumstances in which federal law preempts state regulation are familiar. See Arkansas Elec. Coop. Corp. v. Arkansas Public Serv. Comm'n,461 U. S. 375, 461 U. S. 383 (1983). See also Fidelity Federal Savings & Loan Assn. v. De la Cuesta,458 U. S. 141, 458 U. S. 152-154 (1982). A preemption question requires an examination of congressional intent. Id. at 152. Of course, Congress explicitly may define the extent to which its enactments preempt state law. See, e.g., Shaw v. Delta Air Lines, Inc.,463 U. S. 85, 463 U. S. 95-96 (1983). In the

Page 485 U. S. 300

absence of explicit statutory language, however, Congress implicitly may indicate an intent to occupy a given field to the exclusion of state law. Such a purpose properly may be inferred where the pervasiveness of the federal regulation precludes supplementation by the States, where the federal interest in the field is sufficiently dominant, or where "the object sought to be obtained by the federal law and the character of obligations imposed by it . . . reveal the same purpose." Rice v. Santa Fe Elevator Corp.,331 U. S. 218, 331 U. S. 230 (1947). Finally, even where Congress has not entirely displaced state regulation in a particular field, state law is preempted when it actually conflicts with federal law. Such a conflict will be found

"'when it is impossible to comply with both state and federal law, Florida Lime & Avocado Growers, Inc. v. Paul,373 U. S. 132, 373 U. S. 142-143 (1963), or where the state law stands as an obstacle to the accomplishment of the full purposes and objectives of Congress, Hines v. Davidowitz,312 U. S. 52, 312 U. S. 67 (1941).'"

California Coastal Comm'n v. Granite Rock Co.,480 U. S. 572, 480 U. S. 581 (1987), quoting Silkwood v. Kerr-McGee Corp.,464 U. S. 238, 464 U. S. 248 (1984).

In this case, we conclude that Act 144 regulates in a field the NGA has occupied to the exclusion of state law, and that it therefore is preempted.

III

A

The NGA long has been recognized as a "comprehensive scheme of federal regulation of all wholesales of natural gas in interstate commerce.'" Northern Natural Gas Co. v. State Corporation Comm'n of Kansas,372 U. S. 84, 372 U. S. 91 (1963), quoting Phillips Petroleum Co. v. Wisconsin,347 U. S. 672, 347 U. S. 682 (1954). [Footnote 6] The NGA confers upon FERC exclusive

Page 485 U. S. 301

jurisdiction over the transportation and sale of natural gas in interstate commerce for resale. Northern Natural Gas Co., 372 U.S. at 372 U. S. 89. 2FERC exercises authority over the rates and facilities of natural gas companies used in this transportation and sale through a variety of powers. Sections 4, 5, and 7 of the NGA, as amended, 15 U.S.C. §§ 717c, 717d, and 717f, give FERC a number of tools for examining and controlling the issuance of securities of natural gas companies in the exercise of its comprehensive authority.

First, in exercising its authority to determine a "just and reasonable" rate for the transportation or sale of natural gas subject to its jurisdiction, FERC may conduct hearings and undertake a detailed examination of a company. § 4 of the NGA, as amended, 15 U.S.C. § 717c. For example, to calculate a reasonable rate of return on invested capital, FERC examines a company's capital structure (the percentages of its capital that come from debt, common stock, and preferred stock), establishes the rate of return allowable on each type of capital, and determines an overall rate of return as a weighted average, in accordance with the amount of each kind of capital. Public Service Comm'n of New York v. FERC, 259 U.S.App.D.C. 86, 96, 813 F.2d 448, 458 (1987). Thus, a natural gas company's capital structure is related directly to the rates FERC allows it to charge. When a company's "equity ratio moves beyond generally accepted limits," however, FERC may calculate a company's rates on an imputed "reasonable capital structure" rather than on the actual structure. Alabama-Tennessee Natural Gas Co., 38 FERC

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