In 1978, during a period of natural gas shortage, appellant
interstate pipeline entered into long-term contracts with appellee
Getty Oil Co. and others to purchase natural gas from a common gas
pool in Mississippi. The contract with Getty obligated appellant to
buy only Getty's shares of the gas produced by the wells Getty
operated. Demand was sufficiently high that appellant also
purchased, on a noncontract basis, the production shares of smaller
owners, such as appellee Coastal Exploration, Inc., in the Getty
wells. But in 1982, consumer demand dropped significantly, and
appellant began to have difficulty in selling its gas. It therefore
announced that it would no longer purchase gas from owners with
whom it had not contracted. Getty cut back production so that its
wells produced only that amount of gas equal to its ownership
interest in the maximum flow. This deprived Coastal of revenue,
because none of its share of the common pool gas was being
produced. Coastal then filed a petition with appellee Mississippi
State Oil and Gas Board (Board), asking it to enforce statewide
Rule 48 requiring gas purchasers to purchase gas without
discrimination in favor of one producer against another in the same
source of supply. The Board found appellant in violation of Rule 48
and ordered it to start taking gas "ratably" (
i.e., in
proportion to the various owners' shares) from the gas pool, and to
purchase the gas under nondiscriminatory price and take-or-pay
conditions. On appeal, the Mississippi Circuit Court held that the
Board's authority was not preempted by the Natural Gas Act of 1938
(NGA) or the Natural Gas Policy Act of 1978 (NGPA), and that the
NGPA effectively overruled
Northern Natural Gas Co. v. State
Corporation Comm'n of Kansas, 372 U. S.
84, which struck down, on preemption grounds, a state
regulation virtually identical to the Board's order. The
Mississippi Supreme Court affirmed.
Held: The Board's ratable-take order is preempted by
the NGA and NGPA. Pp.
474 U. S.
417-425.
(a) Congress, in enacting the NGPA, did not alter the
characteristics of the comprehensive regulatory scheme that
provided the basis in
Northern Natural for the finding of
preemption. The Board's order directly undermines Congress'
determination in enacting the NGPA that the supply, demand, and
price of high-cost gas be determined by market
Page 474 U. S. 410
forces. To the extent that Congress in the NGPA denied the
Federal Energy Regulatory Commission (FERC) the power to regulate
directly the prices at which pipelines purchase high-cost gas, it
did so because it wanted to leave determination of supply and
first-sale price to the market. In light of Congress' intent to
move toward a less regulated national natural gas market, its
decision to remove jurisdiction from FERC cannot be interpreted as
an invitation to the States to impose additional regulations. Pp.
474 U. S.
417-423.
(b) The Board's order disturbs the uniformity of the federal
scheme, since interstate pipelines will be forced to comply with
varied state regulations of their purchasing practices. The order
would also have the effect of increasing the ultimate price to
consumers, thus frustrating the federal goal of ensuring low prices
most effectively. Pp.
474 U. S.
423-425.
457 So. 2d
1298, reversed.
BLACKMUN, J., delivered the opinion of the Court, in which
BURGER, C.J., and BRENNAN, WHITE, and MARSHALL, JJ., joined.
REHNQUIST, J., filed a dissenting opinion, in which POWELL,
STEVENS, and O'CONNOR, JJ., joined,
post, p.
474 U. S.
425.
Page 474 U. S. 411
JUSTICE BLACKMUN delivered the opinion of the Court.
We are confronted again with the issue of a state regulation
requiring an interstate pipeline to purchase gas from all the
parties owning interests in a common gas pool. The purchases would
be in proportion to the owners' respective interests in the pool,
and would be compelled even though the pipeline has preexisting
contracts with less than all of the pool's owners.
This Court, in
Northern Natural Gas Co. v. State Corporation
Comm'n of Kansas, 372 U. S. 84
(1963), struck down, on preemption grounds, a virtually identical
regulation. In the present case, however, the Supreme Court of
Mississippi ruled that the subsequently enacted Natural Gas Policy
Act of 1978 (NGPA), 92 Stat. 3351, 15 U.S.C. § 3301
et
seq., effectively nullified
Northern Natural by
vesting regulatory power in the States over the wellhead sale of
gas. The Mississippi Supreme Court went on to hold that the
Mississippi regulation did not impermissibly burden interstate
commerce. Because of the importance of the issues in the
functioning of the interstate market in natural gas, we noted
probable jurisdiction. 470 U.S. 1083 (1985).
I
The Harper Sand gas pool lies in Marion County in southern
Mississippi. Harper gas is classified as "high-cost natural gas"
under NGPA's § 107(C)(1), 15 U.S.C. § 3317(C)(1), because it is
taken from a depth of more than 15,000 feet. At the time of the
proceedings before appellee State Oil and Gas Board of Mississippi,
six separate wells drew gas from the pool. A recognized property of
a common pool is that, as gas is drawn up through one well, the
pressure surrounding
Page 474 U. S. 412
that well is reduced and other gas flows towards the area of the
producing well. Thus, one well can drain an entire pool, even if
the gas in the pool is owned by several different owners. The
interests of these other owners often are referred to as
"correlative rights."
See, e.g., Miss.Code Ann. § 53-1-1
(1972 and Supp.1985).
Some owners of interests in the Harper Sand pool, such as
appellee Getty Oil Co., actually drill and operate gas wells.
Others, such as appellee Coastal Exploration, Inc., own smaller
working interests in various wells. Normally, these lesser owners
rely on the well operators to arrange the sales of their shares of
the production,
see App. 26, although some nonoperator
owners contract directly either with the pipeline that purchases
the operator's gas or with other customers.
Appellant Transcontinental Gas Pipe Line Corporation (Transco)
operates a natural gas pipeline that transports gas from fields in
Texas, Louisiana, and Mississippi for resale to customers
throughout the Northeast. Beginning in 1978, Transco entered into
35 long-term contracts with Getty and two other operators, Florida
Exploration Co. and Tomlinson Interests, Inc., to purchase gas
produced from the Harper Sand pool. In line with prevailing
industry practice, the contracts contained "take-or-pay"
provisions. These essentially required Transco either to accept
currently a certain percentage of the gas each well was capable of
producing, or to pay the contract price for that gas with a right
to take delivery at some later time, usually limited in duration.
Take-or-pay provisions enable sellers to avoid fluctuations in cash
flow, and are therefore thought to encourage investments in well
development.
See Pierce, Natural Gas Regulation,
Deregulation, and Contracts, 68 Va.L.Rev. 63, 77-79 (1982).
Transco entered into these contracts during a period of national
gas shortage. Transco's contracts with Getty and Tomlinson
obligated it to buy only Getty's and Tomlinson's own shares of the
gas produced by the wells they operated,
Page 474 U. S. 413
while its contracts with Florida Exploration required it to take
virtually all the gas Florida Exploration's wells produced,
regardless of its ownership.
See App. 107. But demand was
sufficiently high that Transco also purchased, on a noncontract
basis, the production shares of smaller owners, such as Coastal, in
the Getty and Tomlinson wells.
Id. at 155. In the spring
of 1982, however, consumer demand for gas dropped significantly,
and Transco began to have difficulty selling its gas. It therefore
announced in May, 1982, that it would no longer purchase gas from
owners with whom it had not actually contracted.
See, e.g.,
id. at 41-42. Transco refused Coastal's request that it be
allowed to ratify Getty's contract, and made a counteroffer, which
Coastal refused, either to purchase Coastal's gas at a
significantly lower price than it was obligated to pay under its
existing contracts or to transport Coastal's gas to other customers
if Coastal arranged such sales.
See id. at 66-69.
Fifty-five other noncontract owners of Harper gas, however, did
accept such offers from Transco.
See 457 So. 2d
1298, 109 (Miss.1984).
Getty and Tomlinson cut back production so that their wells
produced only that amount of gas equal to their ownership interests
in the maximum flow. The immediate economic effect of the cutback
was to deprive Coastal of revenue, because none of its share of the
Harper gas was being produced. The ultimate geological effect,
however, is that gas will flow from the Getty-Tomlinson areas of
the field, which are producing at less than capacity, to the
Florida Exploration areas; gas owned by interests that produce
through Getty's and Tomlinson's wells thus may be siphoned away.
Moreover, because of the decrease in pressure, gas left in the
ground, such as Coastal's gas, may become more costly to recover,
and therefore its value at the wellhead may decline.
Page 474 U. S. 414
II
On July 29, 1982, Coastal filed a petition with appellee State
Oil and Gas Board of Mississippi, asking the Board to enforce its
Statewide Rule 48, a "ratable-take" requirement. Rule 48
provides:
"Each person now or hereafter engaged in the business of
purchasing oil or gas from owners, operators, or producers shall
purchase without discrimination in favor of one owner, operator, or
producer against another in the same common source of supply."
Rule 48 never before had been employed to require a pipeline
actually to purchase noncontract gas; rather, its sole purpose
appears to have been to prevent drainage, that is, to prevent a
buyer from contracting with one seller and then draining a common
pool of all its gas.
See 457 So. 2d at 1306. The Gas Board
conducted a 3-day evidentiary proceeding. It found Transco in
violation of Rule 48, and, by its Order No. 409-82, filed Oct. 13,
1982, [
Footnote 1] ordered
Transco to start taking gas "ratably" (
i.e., in proportion
to the various owners' shares) from the Harper Sand pool, and to
purchase the gas under nondiscriminatory price and take-or-pay
conditions.
Transco appealed the Gas Board's ruling to the Circuit Court of
the First Judicial District of Hinds County, Miss. In the parts of
its opinion relevant to this appeal, the Circuit Court held that
the Gas Board's authority was not preempted
Page 474 U. S. 415
by either the Natural Gas Act of 1938 (NGA), ch. 556, 52 Stat.
821, 15 U.S.C. § 717
et seq., or the NGPA; that the NGPA
effectively overruled
Northern Natural; and that the Gas
Board's order did not run afoul of the Commerce Clause of the
United States Constitution.
The Mississippi Supreme Court affirmed that portion of the
Circuit Court's judgment.
457 So. 2d
1298 (1984). With respect to Transco's preemption claim, the
court recognized that, prior to 1978, the Federal Energy Regulatory
Commission (FERC) and its predecessor, the Federal Power
Commission, possessed "plenary authority to regulate the sale and
transportation of natural gas in interstate commerce."
Id.
at 1314. Under the interpretation of that authority in
Northern
Natural, where a Kansas ratable-take order was ruled invalid
because the order "invade[d] the exclusive jurisdiction which the
Natural Gas Act has conferred upon the Federal Power Commission,"
372 U.S. at
372 U. S. 89,
Mississippi's
"authority to enforce Rule 48 requiring ratable taking had been
effectively suspended -- preempted, if you will, and any orders
such as Order No. 409-82 would have been wholly unenforceable."
457 So. 2d at 1314. But the court went on to conclude that the
enactment of the NGPA in 1978 removed FERC's jurisdiction over
"high-cost" gas (the type produced from the Harper Sand pool).
Under § 601(a)(1) of the NGPA, "the Natural Gas Act of 1938 (NGA)
and FERC's jurisdiction under the Act
never apply to
deregulated gas" (emphasis added), 457 So. 2d at 1316, and "[t]hat
message is decisive of the preemption issue in this case."
Ibid.
The court also found no implicit preemption of Rule 48.
Transco's compliance with the Rule could not bring it into conflict
with any of FERC's still-existing powers over the gas industry. The
court noted that, under
Arkansas Electric Cooperative Corp. v.
Arkansas Public Service Comm'n, 461 U.
S. 375,
461 U. S. 384
(1983), a federal determination that deregulation was appropriate
was entitled to as much weight in determining preemption as a
federal decision to regulate actively.
Page 474 U. S. 416
Although the NGPA stemmed from Congress' desire to deregulate
the gas industry, the court found that
"[h]owever consistent a continued proscription on state
regulation might have been with the theoretical underpinnings of
deregulation, the Congress in NGPA in 1978 did not ban state
regulation of deregulated gas."
457 So. 2d at 1318.
In addressing the Commerce Clause issue, the court relied on the
balancing test set out in
Pike v. Bruce Church, Inc.,
397 U. S. 137
(1970): when a state law
"regulates evenhandedly to effectuate a legitimate local public
interest, and its effects on interstate commerce are only
incidental, it will be upheld unless the burden imposed on such
commerce is clearly excessive in relation to the putative local
benefits."
Id. at
397 U. S. 142.
In weighing the benefit against the burden, a reviewing court
should consider whether the local interest "could be promoted as
well with a lesser impact on interstate activities."
Ibid.
The court found that Rule 48 had a legitimate local purpose -- the
prevention of unfair drainage from commonly owned gas pools. It
identified the principal burden on interstate commerce as higher
prices for the ultimate consumers of natural gas. But, under
Cities Service Gas Co. v. Peerless Oil & Gas Co.,
340 U. S. 179,
340 U. S.
186-187 (1950), higher prices do not render a state
regulation impermissible
per se under the Commerce Clause.
Also, Congress expressed a clear intent in enacting the NGPA
that
"all reasonable costs of production of natural gas shall be
borne ultimately by the consumer. . . . Congress, within the scope
of its power under the affirmative Commerce Clause, has expressly
authorized such increases."
457 So. 2d at 1321. Transco had identified one other potential
burden on interstate commerce: Rule 48 would require it to take
more gas from Mississippi's fields than would otherwise be the
case, thereby leading Transco to reduce its purchases from
Louisiana and Texas. But the Mississippi court rejected this
argument, noting both that Texas and Louisiana had their own
ratable-take regulations, which presumably would protect
Page 474 U. S. 417
their producers, and that the actual cause of any such effect
was Transco's imprudent entry into take-or-pay contracts, rather
than the State's ratable-take requirement. Transco knew of Rule
48's existence when it entered into its various contracts, and
should have foreseen the risk that it would be required to purchase
smaller owners' shares. Moreover, since Transco was permitted to
pass along its increased costs, the consumer ultimately would bear
this burden, which was
"simply one inevitable consequence of the free market policies
of the era of deregulation, with respect to which Transco is vested
by the negative Commerce Clause with no right to complain."
Id. at 1322.
Finally, the court rejected Transco's argument that the State
could have served the same local public interest through a
ratable-production order, rather than through a ratable-take order.
It held that it need not even consider whether less burdensome
alternatives to the ratable-take order existed, because Transco had
failed to meet the threshold requirement of demonstrating an
unreasonable burden on interstate commerce. [
Footnote 2]
III
If the Gas Board's action were analyzed under the standard used
in
Northern Natural, it clearly would be preempted.
Whether that decision governs this case depends on whether
Congress, in enacting the NGPA, altered those characteristics of
the federal regulatory scheme which provided the basis in
Northern Natural for a finding of preemption.
Page 474 U. S. 418
In that case this Court considered whether the "comprehensive
scheme of federal regulation" that Congress enacted in the NGA
preempted a Kansas ratable-take order. 372 U.S. at
372 U. S. 91.
Northern Natural Gas Company had a take-or-pay contract with
Republic Natural Gas Company to purchase all the gas Republic could
produce from its wells in the Hugoton Field. Northern also had
contracts with other producers to buy their production, but those
contracts required it to purchase their gas only to the extent that
its requirements could not be satisfied by Republic.
Id.
at 87. Northern historically had taken ratably from all Hugoton
wells, but, starting in 1958, it no longer needed all the gas the
wells in the field were capable of producing. It therefore reduced
its purchases from the other wells, causing drainage toward
Republic's wells. The Kansas Corporation Commission, which
previously had imposed a ratable-production order on the Hugoton
producers, [
Footnote 3] then
issued a ratable-take order requiring Northern to "take gas from
Republic wells in no higher proportion to the allowables than from
the wells of the other producers."
Id. at 88.
Kansas argued that its order represented a permissible attempt
to protect the correlative rights of the other producers. The Court
rejected this contention. Section 1(b) of the NGA, 15 U.S.C. §
717(b), provided that the Act's provisions "shall not apply . . .
to the production or gathering of natural gas." But the Court, it
was said,
"has consistently held that 'production' and 'gathering' are
terms narrowly confined to the physical acts of drawing the gas
from the earth and preparing it for the first stages of
distribution."
372 U.S. at
372 U. S. 90.
Since Kansas' order was directed not at "a producer but
Page 474 U. S. 419
a purchaser of gas from producers,"
ibid., Northern,
being a purchaser, was not expressly exempted from the Act's
coverage.
Although it was "undeniable that a state may adopt reasonable
regulations to prevent economic and physical waste of natural gas,"
Cities Service Gas Co. v. Peerless Oil & Gas Co., 340
U.S. at
340 U. S. 185,
the Court did not view the ratable-take rule as a permissible
conservation measure. [
Footnote
4] Such measures target producers and production, while
ratable-take requirements are "aimed directly at interstate
purchasers and wholesales for resale."
Northern Natural,
372 U.S. at
372 U. S.
94.
The Court identified the conflict between Kansas' rule and the
federal regulatory scheme in these terms: Congress had "enacted a
comprehensive scheme of federal regulation of
all wholesales of
natural gas in interstate commerce.'" Id. at 372 U. S. 91,
quoting Phillips Petroleum Co. v. Wisconsin, 347 U.
S. 672, 347 U. S. 682
(1954). "[U]niformity of regulation" was one of its objectives. 372
U.S. at 372 U. S. 91-92.
And, it was said:
"The danger of interference with the federal regulatory scheme
arises because these orders are unmistakably and unambiguously
directed at
purchasers who take gas in Kansas for resale
after transportation in interstate commerce. In effect, these
orders shift to the shoulders of interstate purchasers the burden
of performing the complex task of balancing the output of thousands
of natural gas wells within the State. . . . Moreover, any
readjustment of purchasing patterns which such orders
Page 474 U. S. 420
might require of purchasers who previously took unratably could
seriously impair the Federal Commission's authority to regulate the
intricate relationship between the purchasers' cost structures and
eventual costs to wholesale customers who sell to consumers in
other States."
(Emphasis in original.)
Id. at
372 U. S.
92.
Northern Natural's finding of preemption thus rests on
two considerations. First, Congress had created a comprehensive
regulatory scheme, and ratable-take orders fell within the limits
of that scheme, rather than within the category of regulatory
questions reserved for the States. Second, in the absence of
ratable-take requirements, purchasers would choose a different, and
presumably less costly, purchasing pattern. By requiring pipelines
to follow the more costly pattern, Kansas' order conflicted with
the federal interest in protecting consumers by ensuring low
prices.
Under the NGA, the Federal Power Commission's comprehensive
regulatory scheme involved "utility-type ratemaking" control over
prices and supplies.
See Haase, The Federal Role in
Implementing the Natural Gas Policy Act of 1978, 16 Houston L.Rev.
1067, 1079 (1979). The FPC set price ceilings for sales from
producers to pipelines and regulated the prices pipelines could
charge their downstream customers. But "[i]n the early 1970's, it
became apparent that the regulatory structure was not working."
Public Service Comm'n of New York v. Mid-Louisiana Gas
Co., 463 U. S. 319,
463 U. S. 330
(1983). The Nation began to experience serious gas shortages. The
NGA's "artificial pricing scheme" was said to be a "major cause" of
the imbalance between supply and demand.
See S.Rep. No.
95-436, p. 50 (1977) (additional views of Senators Hansen,
Hatfield, McClure, Bartlett, Weicker, Domenici, and Laxalt).
In response, Congress enacted the NGPA, which "has been justly
described as
a comprehensive statute to govern future natural
gas regulation.'" Mid-Louisiana Gas. Co., 463 U.S. at
463 U. S. 332,
quoting Note, Legislative History of the Natural
Page 474 U. S. 421
Gas Policy Act, 59 Texas L.Rev. 101, 116 (1980). The aim of
federal regulation remains to assure adequate supplies of natural
gas at fair prices, but the NGPA reflects a congressional belief
that a new system of natural gas pricing was needed to balance
supply and demand.
See S.Rep. No. 95436, at 10. The new
federal role is to "overse[e] a national market price regulatory
scheme." Haase, 16 Houston L.Rev. at 1079;
see S.Rep. No.
95-436, at 21 (NGPA implements "a new commodity value pricing
approach"). The NGPA therefore does not constitute a federal
retreat from a comprehensive gas policy. Indeed, the NGPA in some
respects expanded federal control, since it granted FERC
jurisdiction over the intrastate market for the first time.
See the Act's §§ 311 and 312, 15 U.S.C. §§ 3371 and
3372.
Appellees argue, however, that §§ 601(a)(1)(B)(i) and (ii), 15
U.S.C. §§ 3431(a)(1)(B)(i) and (ii), stripped FERC of jurisdiction
over the Harper Sand pool gas which was the subject of the Gas
Board's Rule 48 order, thereby leaving the State free to regulate
Transco's purchases. Section 601(a)(1)(B) states that "the
provisions of [the NGA] and the jurisdiction of the Commission
under such Act shall not apply solely by reason of any first sale"
of high-cost or new natural gas. Moreover, although FERC retains
some control over pipelines' downstream pricing practices, §
601(c)(2) requires FERC to permit Transco to pass along to its
customers the cost of the gas it purchases "except to the extent
the Commission determines that the amount paid was excessive due to
fraud, abuse, or similar grounds." According to appellees, FERC's
regulation of Transco's involvement with high-cost gas can now
concern itself only with Transco's sales to its customers; FERC, it
is said, cannot interfere with Transco's purchases of new natural
gas from its suppliers. Appellees believe that the Gas Board order
concerns only this latter relationship, and therefore is not
preempted by federal regulation of other aspects of the gas
industry.
Page 474 U. S. 422
That FERC can no longer step in to regulate directly the prices
at which pipelines purchase high-cost gas, however, has little to
do with whether state regulations that affect a pipeline's costs
and purchasing patterns impermissibly intrude upon federal
concerns. Mississippi's action directly undermines Congress'
determination that the supply, the demand, and the price of
high-cost gas be determined by market forces. To the extent that
Congress denied FERC the power to regulate affirmatively particular
aspects of the first sale of gas, it did so because it wanted to
leave determination of supply and first-sale price to the
market.
"[A] federal decision to forgo regulation in a given area may
imply an authoritative federal determination that the area is best
left unregulated, and in that event would have as much preemptive
force as a decision
to regulate."
(Emphasis in original.)
Arkansas Electric Cooperative Corp.
v. Arkansas Public Service Comm'n, 461 U.S. at
461 U. S. 384.
Cf. Machinists v. Wisconsin Employment Relations Comm'n,
427 U. S. 132,
427 U. S.
150-151 (1976).
The proper question in this case is not whether FERC has
affirmative regulatory power over wellhead sales of § 107 gas, but
whether Congress, in revising a comprehensive federal regulatory
scheme to give market forces a more significant role in determining
the supply, the demand, and the price of natural gas, intended to
give the States the power it had denied FERC. The answer to the
latter question must be in the negative. First, when Congress meant
to vest additional regulatory authority in the States, it did so
explicitly.
See §§ 503(c) and 602(a), 15 U.S.C. §§ 3413(c)
and 3432(a). Second, although FERC may now possess less regulatory
jurisdiction over the "intricate relationship between the
purchasers' cost structures and eventual costs to wholesale
customers who sell to consumers in other States,"
Northern
Natural, 372 U.S. at
372 U. S. 92,
than it did under the old regime, that relationship is still a
subject of deep federal concern. FERC still must review Transco's
pricing practices, even
Page 474 U. S. 423
though its review of Transco's purchasing behavior has been
circumscribed.
See App. 148-150, 170. In light of
Congress' intent to move toward a less regulated national natural
gas market, its decision to remove jurisdiction from FERC cannot be
interpreted as an invitation to the States to impose additional
regulations.
Mississippi's order also runs afoul of other concerns identified
in
Northern Natural. First, it disturbs the uniformity of
the federal scheme, since interstate pipelines will be forced to
comply with varied state regulations of their purchasing practices.
In light of the NGPA's unification of the interstate and intrastate
markets, the contention that Congress meant to permit the States to
impose inconsistent regulations is especially unavailing. Second,
Mississippi's order would have the effect of increasing the
ultimate price to consumers. Take-or-pay provisions are standard
industry-wide.
See Pierce, 68 Va.L.Rev. at 77-78; H.R.Rep.
No. 98-814, pp. 23-25, 133-134 (1984). Pipelines are already
committed to purchase gas in excess of market demand. Mississippi's
rule will require Transco to take delivery of noncontract gas; this
will lead Transco not to take delivery of contract gas elsewhere,
thus triggering take-or-pay provisions. Transco's customers will
ultimately bear such increased costs,
see App. 161, unless
FERC finds that Transco's purchasing practices are abusive. In
fact, FERC is challenging, on grounds of abuse, the automatic
passthrough of some of the costs Transco has incurred in its
purchases of high-cost gas.
See App. 177-178. [
Footnote 5] In any event, the federal
scheme is disrupted:
Page 474 U. S. 424
if customers are forced to pay higher prices because of
Mississippi's ratable-take requirement, then Mississippi's rule
frustrates the federal goal of ensuring low prices most
effectively; if FERC ultimately finds Transco's practices abusive
and refuses to allow a passthrough, then FERC's and Mississippi's
orders to Transco will be in direct conflict.
The change in regulatory perspective embodied in the NGPA rested
in significant part on the belief that direct federal price control
exacerbated supply and demand problems by preventing the market
from making long-term adjustments. [
Footnote 6] Mississippi's actions threaten to distort the
market once again by artificially increasing supply and price.
Although, in the long run, producers and pipelines may be able to
adjust their selling and purchasing patterns to take account of
ratable-take orders, requiring such future adjustments in an
industry where long-term contracts are the norm
Page 474 U. S. 425
will postpone achievement of Congress' aims in enacting the
NGPA. We therefore conclude that Mississippi's ratable-take order
is preempted.
IV
Because we have concluded that the Gas Board's order is
preempted by the NGA and NGPA, we need not reach the question
whether, absent federal occupation of the field, Mississippi's
action would nevertheless run afoul of the Commerce Clause.
The judgment of the Supreme Court of Mississippi is therefore
reversed.
It is so ordered.
[
Footnote 1]
Order No. 409-82 directed Transco
"forthwith to comply with Statewide Rule 48 of the State Oil and
Gas Board of Mississippi in its purchases of gas from the said
Harper Sand Gas Pool in Greens Creek and East Morgantown Fields,
and . . . ratably take and purchase gas without discrimination in
favor of one owner, operator or producer against another in the
said common source of [
sic] pool; and, specifically, in
the event it so chooses and elects to take and purchase gas
produced from the said common pool, Transco shall ratably take and
purchase without discrimination in favor of the operators Getty and
Tomlinson against Coastal, the Fairchilds, and Inexco."
App. to Pet. for Cert. 112a.
[
Footnote 2]
Transco's other claims, a void-for-vagueness challenge, a
Takings Clause argument, and various state law claims, were
rejected with one exception. The court found that, although the Gas
Board had the power to order Transco to take ratably from the
Harper Sand pool, it lacked the power to prohibit Transco from
paying different prices for gas owned by nonparties to its original
contracts. Therefore, Transco need pay Coastal only the current
market price, rather than the higher price it was paying Getty and
Tomlinson under its contracts with them.
[
Footnote 3]
A ratable-production order in essence allocates
pro
rata among interest owners the right to produce the amount of
gas demanded. For example, if one interest owner owns 75% of the
gas in a common pool with 100 units of gas and demand is 60 units,
then the majority owner will be permitted to sell only 45 of his
units, even though he owns, and is capable of producing, 75
units.
[
Footnote 4]
The Court noted, 340 U.S. at
340 U. S. 185,
that it had
"upheld numerous kinds of state legislation designed to curb
waste of natural resources and to protect the correlative rights of
owners through ratable taking,
Champlin Refining Co. v.
Corporation Commission of Oklahoma, 286 U. S.
210 (1932),"
but it is clear from the context of that statement that those
challenges had involved claims by gas owners under the Due Process
and Equal Protection Clauses, rather than claims of federal
preemption:
"These ends have been held to justify control over production
even though the uses to which property may profitably be put are
restricted."
Id. at
286 U. S.
185-186.
[
Footnote 5]
On October 31, 1985, FERC issued an initial decision,
Transcontinental Gas Pipe Line Corp., 33 FERC 1163,026,
finding that Transco's purchases of Harper Sand gas pursuant to the
ratable-take order were not imprudent. But the grounds on which the
Administrative Law Judge rested his conclusion demonstrate how
Mississippi's action impermissibly interferes with FERC's
regulatory jurisdiction.
FERC's staff had requested the judge to order Transco "to pursue
a least-cost purchasing strategy irrespective
of Rule 48."
Id. at 65,073 (emphasis in original). The judge
refused:
"In my view, Transco is entitled, indeed is required, to follow
the decisions of the Mississippi authorities until and unless they
be overturned by the Supreme Court of the United States."
Id. at 65,074.
Had the judge considered FERC's claim on the merits, the
conflict between the federal and state schemes would be patent. But
his belief that he was constrained to find Transco's practices
reasonable because they were undertaken in compliance with
Mississippi law is almost as demonstrative of preemption. First,
Mississippi cannot be permitted to foreclose what would otherwise
be more searching federal oversight of purchasing practices.
Second, the mere exercise of federal regulatory power, even if it
does not result in invalidation of the challenged act, shows
continued federal occupation of the field. Since no evidence exists
to suggest Congress intended FERC's power to be circumscribed by
state action, Rule 48 is preempted.
[
Footnote 6]
The dissent's complaint that Congress did not intend to
decontrol supply and demand,
post at
474 U. S. 433,
n. 5, misses the point. Congress clearly intended to eliminate the
distortive effects that NGA price control had had on supply and
demand. To suggest that Congress was willing to replace this
distortion with a distortion on-price caused by a State's decision
to require pipelines and, ultimately, interstate consumers, to
purchase gas they do not want -- the purpose of the order in this
case -- requires taking an artificially formalistic view of what
Congress sought to achieve in the NGPA.
JUSTICE REHNQUIST, with whom JUSTICE POWELL, JUSTICE STEVENS,
and JUSTICE O'CONNOR join, dissenting.
Section 601(a)(1) of the Natural Gas Policy Act of 1978 (NGPA),
92 Stat. 3409, 15 U.S.C. § 3431(a)(1), removes the wellhead sales
of "high-cost natural gas" from the coverage of the Natural Gas Act
(NGA), 15 U.S.C. §§ 717-717w. Section 121(b) of the NGPA, 15 U.S.C.
§ 3331(b), exempts such gas from any lingering price controls under
the NGPA. The Court nonetheless holds that Mississippi's
application of its ratable-take rule to high-cost gas in order to
"do equity between and among owners in a common pool of deregulated
gas," App. to Juris. Statement 28a, is preempted by the NGA and
NGPA. The Court's opinion misuses the preemption doctrine to
extricate appellant Transcontinental Gas Pipe Line Corp. (Transco)
from a bed it made for itself. I dissent because I do not believe
that Mississippi's ratable-take rule invades the exclusive sphere
of the NGA, conflicts with the NGPA's purpose of decontrolling the
wellhead price of high-cost gas, or runs afoul of the implicit free
market policy of the dormant Commerce Clause.
The imposition of a ratable-take rule is a familiar solution of
oil and gas law to the problem of "drainage" in a commonly
Page 474 U. S. 426
owned gas pool. [
Footnote 2/1]
When several individuals own gas in a common pool, each has an
incentive to remove and capture as much gas as rapidly as possible
in order to prevent others from "draining away" his share of the
gas reserves. This practice results in a much faster removal rate
than a single owner of the same pool would choose, and makes it
more difficult to obtain the last amounts of gas in a pool. A
ratable-take rule eliminates the perverse incentives of common
ownership that otherwise give rise to such economic waste and sharp
practice.
See Champlin Refining Co. v. Oklahoma Corporation
Comm'n, 286 U. S. 210,
286 U. S. 233
(1932).
The controversy in this case centers around the Harper Sand Gas
Pool (Harper Pool), which is a pool of "high-cost natural gas"
within the definition of that term in § 107(c)(1) of the NGPA, 15
U.S.C. § 3317(c)(1), because it lies more than 15,000 feet beneath
the ground and surface drilling for its gas began in 1978.
[
Footnote 2/2] By 1982, there were
six wells drawing gas from the Harper Pool. Three were operated by
Getty Oil Co., two by the Florida Exploration Co., and one by
Tomlinson Interests, Inc. These operators were only part owners of
the gas drawn up through their respective wells.
Page 474 U. S. 427
They shared ownership rights with a large number of other
parties, including appellee Coastal Exploration, Inc.
Appellant Transco is an interstate pipeline company that
purchases gas from the various owners of the Harper Pool. As each
well was drilled between 1978 and 1982, Transco entered into
long-term contracts with the well operators to ensure future gas
supplies at a fixed price. In this way, Transco bound itself to
purchase, and the well operators bound themselves to supply, the
well operators' shares of the gas drawn from the common pool.
Transco also agreed to a "take-or-pay" clause in each contract,
thereby promising to pay the well operators for their shares of the
potential gas streams whether or not it took immediate delivery of
the gas.
Until May, 1982, Transco also purchased the production shares of
all of the nonoperating owners. It did so by spot market purchases
at prices roughly equal to those it was paying to the contract
owners, rather than pursuant to fixed-price long-term supply
contracts. But Transco announced in May, 1982, that, because of a
glut in the natural gas market, it would no longer purchase gas on
the spot market from the noncontract owners of the Getty and
Tomlinson wells. Coastal, which had an ownership interest in gas
from one of the Getty wells, thereupon attempted to sell its share
of the gas on the spot market to another pipeline company. Failing
in this attempt, it then offered to sign a long-term supply
contract with Transco on terms identical to those in Transco's
contract with Getty. Transco refused Coastal's offer, and made a
counteroffer to Coastal which was in turn refused.
Coastal and various noncontract owners then sought relief from
the Mississippi Oil and Gas Board (Board), arguing that Transco's
disproportionate purchasing of gas from the Harper Pool violated
the Board's ratable-take rule (Rule 48), which provides:
"Each person now or hereafter engaged in the business of
purchasing oil or gas from owners, operators, or producers shall
purchase without discrimination in favor
Page 474 U. S. 428
of one owner, operator, or producer against another in the same
common source of supply."
Statewide Rule 48 of the State Oil and Gas Board of Mississippi
as set forth in App. to Juris. Statement 129a. Transco opposed the
relief sought by Coastal because enforcement of the rule would
require Transco to purchase the same percentage of each owner's
share of the pool's allowable production as it purchased from any
other owner's share. Because of the "take-or-pay" obligations in
its contracts with the operating owners, this would require it
either to take more gas than it could profitably sell to its
interstate customers or to pay the operating owners for the
percentage of their shares that it did not presently take. Transco
therefore urged the Board to reduce the allowable production from
the common pool to reflect current market demand or to substitute a
"ratable-production" rule for the existing "ratable-take" rule. Had
the Board acceded to Transco's proposals, Transco's liability for
its realized downside contractual risk resulting from the
take-or-pay clauses would have been limited or avoided at the
expense of the operating owners with whom it contracted. The Board
instead ruled in favor of Coastal and against Transco, finding,
inter alia:
"Transco's course of conduct has been to discriminate against
the owners (like Coastal) of relatively small undivided working
interests in the . . . [w]ells and the common pool produced by the
wells simply because they are owners of relatively small undivided
interests."
"
* * * *"
"The Board finds that Transco's refusal to ratably take and
purchase without discrimination Coastal's share of gas produced
from the said common pool from which Transco is purchasing the
operators' gas produced from the common pool by [the] very same
wells and other wells completed into the common pool (1) is
discriminatory in favor of the operators against Coastal and
thereby violates Rule 48 . . .; (2) constitutes 'waste' . . .
Page 474 U. S. 429
because, among other things, it abuses the correlative rights of
Coastal in the common pool, results in nonuniform, disproportionate
and unratable withdrawals of gas from the common pool causing undue
drainage between tracts of land, and will have the effect and
result of some owners in the pool producing more than their just
and equitable share of gas from the common pool to the detriment of
Coastal. . . ."
App. to Juris. Statement 110a-111a. The Board's order was
affirmed by the Circuit Court of Hinds County, Mississippi, and
affirmed by the Supreme Court of Mississippi insofar as it required
ratable taking, despite Transco's claims of federal preemption and
violation of the Commerce Clause.
457 So. 2d
1298 (1984).
ratable-take rule as applied to high-cost gas is preempted under
the reasoning of
Northern Natural Gas Co. v. State Corporation
Comm'n of Kansas, 372 U. S. 84
(1963), even though the NGPA removed the wellhead sales of such gas
from the coverage of the NGA. I believe that the NGPA's removal of
such gas from the NGA takes this case outside the purview of
Northern Natural, and that a ratable-take rule such as
that imposed by Mississippi is consistent with the NGPA's purpose
of decontrolling the wellhead price of high-cost gas.
Congress passed the NGA in 1938 in response to this Court's
holding that the Commerce Clause prevented States from directly
regulating the wholesale prices of natural gas sold in interstate
commerce.
See Missouri v. Kansas Natural Gas Co.,
265 U. S. 298
(1924). The purpose of the NGA was "to occupy the field of
wholesale sales of natural gas in interstate commerce."
Exxon
Corp. v. Eagerton, 462 U. S. 176,
462 U. S. 184
(1983). Section 1(b) of the NGA, 52 Stat. 821, 15 U.S.C. § 717(b),
defined the NGA's scope:
"The provisions of this Act shall apply to the
transportation of natural gas in interstate commerce, to
the
sale in
Page 474 U. S. 430
interstate commerce of natural gas for resale for ultimate
public consumption for domestic, commercial, industrial, or any
other use, and to natural gas companies engaged in such
transportation or sale,
but shall not apply to any other
transportation or sale of natural gas or to the local distribution
of natural gas or to the facilities used for such distribution or
to the
production and
gathering of natural
gas."
(Emphasis added.) Initially, the Federal Power Commission
(predecessor to the Federal Energy Regulatory Commission (FERC))
interpreted § 1(b) to extend the NGA's coverage to gas sales at the
downstream end of interstate pipelines, but not to sales by local
producers to interstate pipelines.
See, e.g., Phillips
Petroleum Co., 10 F.P.C. 246 (1951);
Natural Gas Pipeline
Co., 2 F.P.C. 218 (1940). In 1954, however, this Court gave §
1(b) a broader reading.
See Phillips Petroleum Co. v.
Wisconsin, 347 U. S. 672
(1954). It interpreted the NGA as creating exclusive federal
jurisdiction over the regulation of natural gas in interstate
commerce, and § 1(b) as extending the NGA's coverage to both
downstream and local sales, though not to the production and
gathering of natural gas.
Id. at
347 U. S.
677-678;
see also id. at
347 U. S.
685-686 (Frankfurter, J., concurring).
Northern Natural Gas Co. v. State Corporation Comm'n of
Kansas, supra, was decided against this backdrop. In
Northern Natural, the Court held that a state ratable-take
rule, as applied to the purchases of natural gas by interstate
pipelines, was preempted by the NGA because it constituted an
"inva[sion into] the exclusive jurisdiction which the Natural
Gas Act has conferred upon the Federal Power Commission over the
sale and transportation of natural gas in interstate commerce for
resale."
Id. at
372 U. S. 89.
The Court rejected the argument that ratable-take rules
"constitute only state regulation of the 'production or
gathering' of natural gas, which is exempted from the federal
regulatory domain by the terms of § 1(b) of the Natural Gas
Act."
Id. at
372 U. S. 89-90.
It
Page 474 U. S. 431
explained that, because such rules apply to purchasers, they
involve the regulation of wellhead sales.
Id. at
372 U. S. 90. It
also rejected the argument that they do not
"threate[n] any actual invasion of the regulatory domain of the
Federal Power Commission since [they] 'in no way involv[e] the
price of gas.'"
Ibid. (emphasis added). The Court reasoned that the
NGA
"leaves no room either for direct state regulation of the prices
of interstate wholesales of natural gas, . . . or for state
regulations which would indirectly"
regulate price.
Id. at
372 U. S. 91.
Because ratable-take rules apply to purchasers, they indirectly
regulate price, and therefore "invalidly invade the federal
agency's exclusive domain" of sales regulation. [
Footnote 2/3]
Id. at
372 U. S. 92.
Finally, the Court explained that, although "States do possess
power to allocate and conserve scarce natural resources upon and
beneath their lands,"
id. at
372 U. S. 93,
they may not use means such as ratable-take rules that "threaten
effectuation of the federal regulatory scheme."
Ibid.
The NGPA was passed in 1978 in response to chronic interstate
gas shortages caused by price ceilings imposed pursuant to the NGA.
Its purpose was to decontrol the wellhead price of natural gas sold
to interstate pipelines, allowing prices to rise according to
market conditions and causing shortages to vanish. To accomplish
this purpose, it divided
Page 474 U. S. 432
the supply of gas into three major categories: high-cost gas,
new gas, and old gas.
See Pierce, Natural Gas Regulation,
Deregulation, and Contracts, 68 Va.L.Rev. 63, 87-89 (1982). It
removed the wellhead sales of high-cost and new gas from the
coverage of the NGA. NGPA § 601(a)(1)(B), 15 U.S.C. §
3431(a)(1)(B). It then established formulas for the gradual
decontrol of the wellhead prices of such gas.
See NGPA §§
102(b), 103(b), 107(a), 15 U.S.C. §§ 3312(b), 3313(b), 3317(a). The
wellhead price of high-cost gas was totally decontrolled in
November, 1979.
See NGPA § 121(b), 15 U.S.C. § 3331(b);
Pierce,
supra, at 87-88. Ceilings continue to apply to the
wellhead prices of old gas.
See id. at 88-89. Because gas
from the Harper Sand Gas Pool qualifies as high-cost gas, the NGA
no longer covers its wellhead price. Moreover, to the extent the
NGPA ever controlled the wellhead prices of such gas,
cf.
Public Service Comm'n of New York v. Mid-Louisiana Gas Co.,
463 U. S. 319
(1983), those controls have long since been eliminated. [
Footnote 2/4] Therefore,
Northern
Natural does not govern this case. Rather, the issue is
whether Mississippi's ratable-take rule stands as an obstacle to
the full accomplishment of the NGPA's purpose.
See Silkwood v.
Kerr-McGee Corp., 464 U. S. 238,
464 U. S. 248
(1984).
The purpose of the NGPA with respect to high-cost gas is to
eliminate governmental controls on the wellhead price
Page 474 U. S. 433
of such gas. [
Footnote 2/5]
State regulation that interferes with this purpose is preempted.
See Arkansas Electric Cooperative Corp. v. Arkansas Public
Service Comm'n, 461 U. S. 375,
461 U. S. 384
(1983). State regulation that merely defines property rights or
establishes contractual rules, however, does not interfere with
this purpose. Markets depend upon such rules to function
efficiently.
Ratable-take rules serve the twin interests of conservation and
fair dealing by removing the incentive for "drainage." On its face,
the ratable-take rule here is completely consistent with the free
market determination of the wellhead price of high-cost gas. Like
any compulsory unitization rule, it gives joint owners the
incentive to price at the same level as a single owner. But it will
not affect the spot market price of gas in any other way. It is
similarly price-neutral in the context of long-term contracting.
The rule is merely one of a number of legal rules that regulates
the contractual relations of parties in the State of Mississippi as
in other States. The
Page 474 U. S. 434
Court, however, seems to equate Mississippi's rule requiring
equitable dealing on the part of pipeline companies purchasing from
common owners of gas pools as akin to a tax or a subsidy, both of
which do tend to distort free market prices.
Unlike taxes or subsidies, however, rules regulating the
conditions of contracts have only an attenuated effect on the
operation of the free market. Their effect is often to promote the
efficient operation of the market, rather than to inhibit or
distort it the way a tax or subsidy might. A ratable-take rule
applied to a common pool eliminates the inefficiencies associated
with the perverse incentives of common ownership of a gas pool. It
is different from a rule that would require any out-of-state
pipeline that purchases gas from one in-state pool of gas to
purchase equal amounts from every other in-state pool. This latter
type of rule might well burden interstate commerce or violate the
free market purpose of the NGPA. But a ratable-take rule applied to
a common pool promotes, rather than inhibits, the efficiency of a
competitive market. Moreover, States have historically included
ratable-take rules in developing the body of law applicable to
natural gas extraction.
See, e.g., Champlin Refining Co. v.
Corporation Comm'n of Oklahoma, 286 U.
S. 210,
286 U. S. 233
(1932);
Cities Serice Gas Co. v. Peerless Oil & Gas
Co., 340 U. S. 179
(1950). One may agree that Congress wished to return to the free
market determination of the price of high-cost gas without
concluding that Mississippi's ratable-take rule frustrates that
wish.
Rule 48 was promulgated by the Mississippi Board long before the
enactment of the NGPA, and the fact that it had not previously been
applied to this type of transaction affords no argument against its
validity based on federal preemption. Indeed, the implication in
the Court's opinion that a midstream expansion in the coverage of a
state regulation justifies preemption if the party to whom the rule
is applied claims disappointed expectations is nothing less than
Contract Clause jurisprudence masquerading as preemption. A
Page 474 U. S. 435
party runs the risk of reasonably foreseeable applications of
new principles of state law to its activities,
see Energy
Reserves Group, Inc. v. Kansas Power & Light Co.,
459 U. S. 400
(1983), and that is the most that can be said to have happened
here. The only reason the ratable-take rule has any adverse effect
on Transco is that Transco entered supply contracts with the well
operators that included "take-or-pay" obligations. The NGPA gives
Transco no basis for insisting that state law be frozen as of the
moment it entered the "take-or-pay" agreements, protecting it from
the imposition of any additional correlative obligations to
noncontracting owners. [
Footnote
2/6]
Because of my conclusion that Mississippi's ratable-take rule is
not preempted, I also address appellant's contention that the rule
violates the "dormant" Commerce Clause. The analysis is much the
same as under the NGPA. Indeed, the implicit "free market" purpose
of that Clause would seem to add little to the express
congressional purpose to decontrol prices, which is the focus of
the preemption analysis. Here, the statute regulates evenhandedly
to effectuate a legitimate local public interest -- the interest in
both fair dealing on the part of joint owners and conservation --
and its effects on interstate commerce are incidental, at most. The
question of burden, therefore, is "one of degree,"
Pike v.
Bruce Church, Inc., 397 U. S. 137,
397 U. S. 142
(1970).
In
Cities Service Gas Co. v. Peerless Oil & Gas Co.,
supra, this Court held that ratable-take rules do not violate
the dormant Commerce Clause because they do not place a significant
burden on the out-of-state interests in a free market.
Page 474 U. S. 436
That analysis should control this case. Transco's interest in a
free market is not significantly burdened, because the ratable-take
rule creates no discriminatory burden independent of Transco's
supply contracts. The validity of a state rule should not depend on
whether, in combination with private contracts, it contributes to a
short-run burden. Similarly, enforcement of the ratable-take rule
in combination with the take-or-pay obligations does not
significantly burden the free-market interest of out-of-state
natural gas consumers, because the combination will have virtually
no effect on consumer prices. High-cost gas makes up only a tiny
fraction of the aggregate supply of natural gas.
See
Pierce, 68 Va.L.Rev. at 88, n. 98 (about 1%). Thus, any increased
costs associated with it will tend to be a mere drop in the bucket.
Moreover, the rule leaves pipelines free to minimize their losses
by simply paying the contract owners their contractual due, and to
pay no more than the current spot market price for any noncontract
gas it takes. Therefore, enforcement of the rule is unlikely to
affect the downstream price that consumers will pay in any
significant way.
Nor was it unreasonable for Mississippi to enforce its
ratable-take rule when a "ratable-production" rule might have been
a less restrictive means of serving the State's legitimate
conservation interest. The burden on interstate commerce imposed by
the "ratable-take" rule is so minimal and attenuated that there is
no occasion to inquire into the existence of a "less restrictive"
means. Moreover, a "ratable-production" rule, as even appellant
Transco agrees, would place greater administrative and enforcement
burdens on the Mississippi regulatory authorities:
"[A]n order directed to the purchaser of the gas, rather than to
the producer, would seem to be the most feasible method of
providing for ratable taking, because it is the purchaser alone who
has a first-hand knowledge as to whether his takes from each of his
connections in the field are such that production of the wells is
ratable. An
Page 474 U. S. 437
order addressed simply to producers requiring each one to
produce ratably with others with whose activities it is unfamiliar
and over whose activities it has no control would create obvious
administrative problems."
Northern Natural Gas Co. v. State Corporation Comm'n of
Kansas, 372 U.S. at
372 U. S.
100-101 (Harlan, J., dissenting) (footnotes
omitted).
I believe that Mississippi's ratable-take rule, as applied to
high-cost gas, offends neither FERC's jurisdiction, the applicable
provisions of the NGPA, or the Commerce Clause. I would therefore
affirm the judgment of the Supreme Court of Mississippi.
[
Footnote 2/1]
The withdrawal of gas from a common pool causes changes in
pressure, resulting in the migration and spreading out of the
remaining gas over the entire pool. This migration is called
"drainage" because, from the viewpoint of each owner, the
withdrawal of gas by another causes gas to migrate or "drain" away
from his end of the pool.
[
Footnote 2/2]
The NGPA defines "high-cost natural gas" as any gas
"(1) produced from any well the surface drilling of which began
on or after February 19, 1977, if such production is from a
completion location which is located at a depth of more than 15,000
feet;"
"(2) produced from geopressured brine;"
"(3) occluded natural gas produced from coal seams;"
"(4) produced from Devonian shale; and"
"(5) produced under such other conditions as the Commission
determines to present extraordinary risks or costs."
NGPA § 107(c), 92 Stat. 3366, 15 U.S.C. § 3317(c).
[
Footnote 2/3]
In
Silkwood v. Kerr-McGee Corp., 464 U.
S. 238 (1984), this Court explained that "state law can
be preempted in either of two general ways."
Id. at
464 U. S.
248.
"If Congress evidences an intent to occupy a given field, any
state law falling within that field is preempted. . . . If Congress
has not entirely displaced state regulation over the matter in
question, state law is still preempted to the extent it actually
conflicts with federal law, that is, when it is impossible to
comply with both state and federal law, . . . or where the state
law stands as an obstacle to the accomplishment of the full
purposes and objectives of Congress."
Ibid. The reasoning of
Northern Natural is
that a state ratable-take rule is preempted if it invades the
jurisdictional coverage of a statute that falls within the first
category of the
Kerr-McGee preemption test -- statutes
designed to "occupy a given field" to the exclusion of state
regulation.
[
Footnote 2/4]
FERC's remaining jurisdiction to prevent interstate pipelines
from fraudulently, abusively, or otherwise illegitimately passing
on higher wellhead prices to ultimate consumers,
see 15
U.S.C. § 3431(c)(2), does not include jurisdiction over wellhead
price levels.
Cf. Exxon Corp. v. Eagerton, 462 U.
S. 176,
462 U. S. 184
(1983) (state statute directly prohibiting interstate pipelines
from passing on severance tax to consumers invades FERC's pass-on
jurisdiction);
Maryland v. Louisiana, 451 U.
S. 725,
451 U. S.
746-752 (1981) (state statute indirectly requiring
interstate pipelines to pass on severance tax to consumers invades
FERC's pass-on jurisdiction);
id. at
451 U. S. 747,
n. 22 (question whether tax conflicted with FERC's authority to
control price of gas expressly reserved).
[
Footnote 2/5]
The majority also mentions "supply" and "demand" as economic
variables that Congress intended to decontrol. There is no support
for this in the legislative history, and the use of these variables
unnecessarily complicates and distorts the preemption analysis. The
NGPA was concerned with supply only to the extent that price
ceilings create shortages. The Court has always acknowledged that
conservation of the supply of natural gas is traditionally a
function of state power.
See, e.g., Northern Natural Gas Co. v.
State Corporation Comm'n of Kansas, 372 U. S.
84,
372 U. S. 93
(1963). Thus, it has upheld the common state practice of placing
ceilings, called "allowables," on the amount of gas that a
particular well or pool may produce during a given period.
See,
e.g., Champlin Refining Co. v. Corporation Comm'n of Oklahoma,
286 U. S. 210
(1932). Such absolute restrictions on output have the potential of
raising wellhead prices above competitive equilibrium. Ratable-take
rules, by themselves, do not.
There is even less reason to infer a purpose to decontrol
demand. To the extent central planners even have the power to
control demand, their control is limited to the manipulation of
output and price. Planners have no obvious control over individual
preferences. It therefore makes little sense to consider "demand"
to be an independent object of the NGPA's decontrol purpose.
[
Footnote 2/6]
Nor does the ratable-take rule conflict with the NGPA's alleged
uniformity or consumer protection purposes. While the congressional
desire to decontrol prices uniformly throughout the Nation includes
an intent to prevent States from enacting regulation to recontrol
them, it does not imply an intent either to create an anarchistic
regulatory gap free from property rights and contract rules or to
create a national law of contracts to govern natural gas
relationships.