Iowa State Commerce Commission v. Northern Natural Gas Co. , 1968 Iowa Sup. LEXIS 923 ( 1968 )

BECKER, Justice.

Defendant Northern Natural Gas Company is a pipeline company. Its principal business is purchase, transportation and sale of natural gas. It sells high pressure pipeline gas throughout Iowa to wholesale purchasers who sell at retail to the ultimate consumer. Northern also sells gas to two classes of ultimate consumers; i. e. 1) to land owners (usually farmers) located at or near the company’s main high pressure line and 2) to main line industrial or commercial users situated outside cities and towns and not within any specific franchise territory serviced by retailers of natural gas.

On August 9, 1966 plaintiff Iowa State Commerce Commission issued an order finding the direct line retail gas sales by Northern subject to regulation under Chapter 490A, Code, 1966. It directed Northern to file tariffs and rules and regulations under which the gas was thus sold and services rendered. Northern refused to do so, contending this part of its business was not subject to Chapter 490A regulation. The Commission sought a mandatory injunction from the district court. The court held with Northern that this phase of its operation was not subject to such regulation. We disagree.

Defendant operates some 20,000 miles of lines of which 5,000 miles are in Iowa. As of December 1966 it had approximately 5,000 “farm tap customers” of which 1740 were in Iowa and 93 nondomestic (industrial and commercial) retail customers were also in Iowa.

I. The bulk of defendant’s business is at wholesale. Regulation of sale of piped gas for resale is wholly within the jurisdiction of the Federal Power Commission and is not in dispute here. Panhandle Eastern Pipeline Co. v. Public Service Commission of Indiana, 332 U.S. 507, 68 S.Ct. 190, 92 L.Ed. 128. Eighty-five percent of defendant’s Iowa retail gas pipeline business, done in 92 communities through Peoples Natural Gas Company (a wholly owned subsidiary), is regulated by plaintiff and is not in dispute here. The other fifteen percent of defendant’s retail business is the direct line tap business referred to above. Plaintiff asserts the right to regulate that business also. Defendant denies that right and thus we have the issue.

The problem presented has been narrowed by defendant to one of statutory construction. Defendant concedes the state of Iowa has the power to regulate direct sales to ultimate consumers from interstate transmission lines. This is the holding in Panhandle Eastern Pipeline Co. v. Public Service Commission of Indiana, supra, and Panhandle Eastern Pipe Line Co. v. Michigan Public Service Commission, 341 U.S. 329, 71 S.Ct. 777, 95 L.Ed. 993.

II. A public utility can do business in areas not covered by its utility rights and obligations. In so doing the utility acts in a private capacity as distinguished from its public capacity and as to such actions it is subject to the same rules as any other private person. City of Phoenix v. Kasun, 54 Ariz. 470, 97 P.2d 210; City of Des Moines v. City of West Des Moines, 239 Iowa 1, 30 N.W.2d 500; Northern Natural Gas Company v. Roth Packing Company, 8 Cir., 323 F.2d 922.

A significant example of this type of business is defendant’s business dealing in liquefied petroleum gas (bottled gas) which both parties agree is not covered by Chapter 490A regulation. There is no dispute as to the above principle. The controversy centers on whether the sale of gas from high pressure pipelines directly to the consumer is included in the regulatory statute, Chapter 490A, section 1 of which reads in pertinent part:

“Applicability of authority. The Iowa state commerce commission shall regulate the rates and services of public utilities to the extent and in the manner hereinafter provided.

“As used in this chapter, ‘public utility’ shall include any person, partnership, business association, or corporation, domestic or foreign, owning or operating any facilities for:

“1. Furnishing gas by piped distribution system or electricity to the public for compensation.

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“Mutual telephone companies in which at least fifty percent of the users are owners, telephone companies having less than two thousand stations, municipally-owned utilities, unincorporated villages which own their own distribution system, and co-operative corporations or associations shall not be subject to the rate regulation provided for in this chapter; * * * ”

The legislature has defined public utility for the purposes of Chapter 490A in the above section. We therefore start with the familiar statement that the legislature is its own lexicographer when it deems it advisable to define a word or phrase. Graham v. Worthington, 259 Iowa 845, 146 N.W.2d 626, 632.

III. There is no doubt defendant is a “corporation”, “furnishing gas”, “for compensation.” The key phrases remaining are “to the public” and “by piped distribution system.”

Defendant argues strongly that the term “furnishing gas * * * to the public” means service to, or readiness to serve, an indefinite public (or portion of the public as such) which has a legal right to demand and receive its services or commodities. The term precludes the idea of service which is private in nature and is not to be obtained by the public. A public utility may perform acts in a private, as distinguished from public, capacity, in which case it is subject to the same rules as any other private person. Citing 43 Am.Jur., Public Utilities, Section 2 and City of Des Moines v. City of West Des Moines, supra, as authority.

The Des Moines v. West Des Moines case involved a sewer agreement between the cities and one of the challenges was : “a contract for public utility service and rates therefor cannot by contract be fixed for perpetually renewable ten-year periods.” The court held that while the business of disposing of sewerage is a public utility business, the City of Des Moines had no duty to dispose of West Des Moines’ sewerage and thus the contract between the parties was private and in no way subject to rate regulation by Des Moines. In so deciding we said at page 7: “The authorities quite generally refuse to attempt an all-inclusive definition of the term ‘public utility.’ 43 Am.Jur., Public Utilities and Services, § 2; 51 C.J. 4. ‘As its name indicates, the term * * * implies a public use and service to the public.’ 43 Am.Jur. [section 2], supra.

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“But even though the service be impressed with a public interest the question arises, what public? It is said ‘the principal determinative characteristic * * * is that of service to, or readiness to serve, an indefinite public * * * which has a legal right to demand and receive its services or commodities.’ 43 Am.Jur. [section 2], supra. (Italics supplied.)”

As between the two contracting cities we refused to impose public utility concepts on the agreement. This holding is not determinative of our problem. The question here is not the validity of the agreement between contracting parties but whether the legislature has exercised its admitted right to regulate those contracts. In that sense the instant case is also clearly distinguishable from Northern Natural Gas Co. v. Roth, supra. Here we have a different problem of statutory construction in connection with the question “What public?”. It is a problem faced by other courts in closely analogous situations.

In Industrial Gas Company v. Public Utilities Commission, 135 Ohio St. 408, 21 N.E.2d 166; 29 P.U.R.,N.S., 89 the commission sought to regulate a pipeline company. The company had a line 50 miles long, serving 19 industrial and 12 private consumers, all under written contracts stipulating the price to be paid for the gas. The 12 private consumers were given the privilege of buying gas in consideration for the right-of-way grants. The industrial purchasers obviously constituted the bulk of the company’s business. The company did not hold itself out to serve either the public or the users of industrial gas generally and had refused or failed to agree with, and consequently, did not serve certain industrial users.

In holding the company subject to utility regulation the court there said at page 168 of 21 N.E.2d: “The appellant with its fifty miles of pipelines running through four counties supplying nineteen industrial plants with natural gas, was rendering a service to a substantial part of the state that would ordinarily be serviced by public utilities under regulatory restrictions.

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“ * * * Yet, it is not a controlling factor that the corporation supplying service does not hold itself out to serve the public generally. It has been held that a business may be so far affected with a public interest that it is subject to regulation as to rates and charges even though the public does not have the right to demand and receive service. (Citing case).

“Regardless of the right of the public to demand and receive service in a particular instance, the question whether a business enterprise constitutes a public utility is determined by the nature of its operations. Each case must stand upon the facts peculiar to it. A corporation that serves such a substantial part of the public as to make its rates, charges and methods of operations a matter of public concern, welfare, and interest subjects itself to regulation by the duly constituted governmental authority. (Citing case). * * * Thus, changing the purpose clause of its charter, refraining from use of the right of eminent domain, avoiding a holding out to serve the public generally, and selling only to select consumers by private contract could be employed as subterfuges by many public utility companies. If the business is still affected with a public interest, it remains a public utility.”

In Natural Gas Service Company v. Serv-Yu Cooperative, Inc., 70 Ariz. 235, 219 P.2d 324 a cooperative started a natural gas distribution business, confining sales to its members. On rehearing in holding the co-op a public utility the court at pages 325 and 326 gave weight to the following factors.

“1. What the corporation actually does.

“2. A dedication to public use.

“3. Articles of incorporation, authorization, and purposes.

“4. Dealing with the service of a commodity in which the public has been generally held to have an interest.

“5. Monopolizing or intending to monopolize the territory with a public service commodity. Valcour v. Village of Morrisville, 110 Vt. 93, 2 A.2d 312.

“6. Acceptance of substantially all requests for service. Consolidation Coal Co. v. Martin, 8 Cir., 113 F.2d 813, 817; Wingrove v. Public Service Commission, 74 W.Va. 190, 81 S.E. 734, L.R.A.1918A, 210.

“7. Service under contracts and reserving the right to discriminate is not always controlling. State ex rel. Bricker v. Industrial Gas Co., 58 Ohio App. 101, 16 N.E.2d 218; Industrial Gas Co. v. Public Utilities Commission of Ohio, 135 Ohio St. 408, 21 N.E.2d 166.

“8. Actual or potential competition with other corporations whose business is clothed with public interest. Industrial Gas Co. v. Public Utilities Commission, supra.”

Analyzing the case by such criterion the court held the co-op was in fact a public utility even though it limited sales to its members and concluded: “Under the issues made in this case we were not called upon to and did not decide that the appellee should or could by any order or statute be required to serve the public generally. What we did and now decide is that appellee Serv-Yu Cooperative, Inc., is a public service corporation subject to the jurisdiction and regulation of the Corporation Commission.” So also in this case, we do not decide Northern could or should be required to service all customer requests directly from its high pressure line. See Elk Run Telephone Company v. General Telephone Co., Iowa, 160 N.W.2d 311 (opinion filed July 18, 1968). We do decide that in servicing over 1800 customers in Iowa in such manner it is a public utility within the meaning of Chapter 490A.

Defendant distinguishes the foregoing Ohio and Arizona cases on the basis of language in the statutes and in the Arizona constitution. It is true those documents are broader than the language employed by our legislature but the definition of sales to the public is fully applicable here. We think the distinctions are more illusory than real. The real question is: What does the statutory phrase “to the public” mean? We conclude it means sales to sufficient of the public to clothe the operation with a public interest and does not mean willingness to sell to each and every one of the public without discrimination.

Natural Gas Service Company v. Serv-Yu Cooperative, supra, dealing as it does with cooperatives, illustrates an additional factor to be considered in “constructing” our statute. Admittedly cooperatives do not hold themselves out as ready to serve an indefinite public. In Iowa the legislature quite clearly intended to include cooperatives in its definition of “public utility” because it exempted cooperatives from rate regulation. If cooperatives were not included in the general definition there would be no reason to exclude them as to rates. If cooperatives are included in the general definition of “public utility” as promulgated by the legislature, readiness to serve the general public which has a legal right to demand and receive utility services cannot be a sine qua non to the definition. A cooperative need only, and can only, serve its members.

While not “on all fours” both Public Service Comm. v. Panhandle Eastern Pipeline Co., 224 Ind. 662, 71 N.E.2d 117, affirmed 332 U.S. 507, 68 S.Ct. 190, 92 L.Ed. 128 and Panhandle Eastern Pipe Line Co. v. Michigan Public Service Comm., 328 Mich. 650, 44 N.W.2d 324, affirmed 341 U.S. 329, 71 S.Ct. 777, 95 L.Ed. 993 support the conclusion reached here. See also Rural Electric Co. v. State Board of Equalization, 57 Wyo. 451, 120 P.2d 741, 747, 751, 122 P.2d 189, “While that feature [whether the public may enjoy the service by right or by permission] frequently comes into prominence, it is, perhaps, not quite correct to call it a ‘criterion.’ It is, rather, ordinarily, an incidence, a necessary result, an essential feature, of the dedication to public use. * * *

“These cases, we think, clearly establish the law to be that merely because an owner enters into contracts in connection with his service, and in some instances refuses service, is not a controlling factor. If that is correct that must be true also in connection with an owner with limited membership, as in the case at bar, since such limited membership is but another form of an attempted limitation by contract. And turning to the facts in the case at bar, all the prominent factors, announced by the foregoing authorities as indicative of a public utility, are present: (1) Plaintiff deals in a commodity in which the public as a whole is generally interested. (2) It is actually engaged in business and is supplying its commodity to some of the public. (3) It serves a substantial portion of the public, within the meaning of the cases cited.”

IV. The cases dealing with this phase of our problem are by no means unanimous. Defendant cites Public Utilities Commission v. Colorado Interstate Gas Co. (1960), 142 Colo. 361, 351 P.2d 241 where the commission attempted to regulate the pipeline sales direct to eleven customers for retail consumption. As here, the company was selling at.wholesale to most of the cities in its area; i.e. the eastern slope of Colorado.

The difference between sale to eleven customers and over eighteen hundred customers is at once apparent. We do not distinguish the case on that ground, but we should note that except for the cases involving cooperatives no case cited indicates an attempt by a utility to relieve itself from regulation in connection with an enterprise embracing over 1800 customers. The cases cited typically involve a dozen or two customers at most. It was the anticipated unregulated expansion to large numbers which, in part, determined the results reached in Ohio, Michigan and Indiana.

The Colorado case seems to be bottomed on the notion that a company must hold itself out to serve the public indiscriminately in, order to be a public utility subject to regulation. “The nature of the service must be such that all members of the public have an enforceable right to demand it.” City of Englewood v. City and County of Denver, 123 Colo. 290, 229 P.2d 667, 673 quoted in Public Utilities Comm. v. Colorado Interstate Gas Co., supra, 351 P.2d at p. 248. We reject this rigid test as did the case heretofore noted.

So also the case of Mississippi River Fuel Corp. v. Illinois Commerce Commission, 1 Ill.2d 509, 116 N.E.2d 394 holds contra to our conclusion here. In that case the pipeline company, as here, sold at wholesale to customers for resale and also sold direct to twenty-three large industrial consumers. A divided court held because the pipeline company “consistently and with great care confined its industrial gas sales to specific and selected customers, and has done no act by which. it has given the reasonable impression that it was holding itself out to serve gas to the public, or to any class of the public, generally.”, 116 N.E.2d at 399, the company was not subject to regulation. We find Chief Justice Schaefer’s dissent, like that of Justice Doyle in Public Utilities Comm. v. Colorado Interstate Gas Co., supra, more persuasive. Both dissents refuse to place undue emphasis on the test of whether or not there is a holding out of 'services to the entire public, and both cite the Ohio, Indiana and Michigan cases holding the pipeline company subject to regulation. At page 400 part of Justice Schaefer’s dissent should be noted: “Cases in which the concept of public use has been held to prevent control of essentially private operations such as the incidental sale of water procured or power generated for its own internal use by a concern primarily engaged in other activities, are, in my opinion, wide of the mark. (Cases cited.) Mississippi’s entire business is the transportation and sale of gas. To hold that by restricting its industrial sales to a selected group of the most desirable customers, Mississippi can require us to regard such sales as for private use is, in my opinion, to condition the application of the statute upon the willingness of a company to comply with it.”

In this regard the intent of the legislature is evidenced by the following sections. “490A.2 Powers — rules. The commission shall have broad general powers to effect the purposes of this chapter notwithstanding the fact that certain specific powers are hereinafter set forth.”

“490A.21 Extent of jurisdiction. The jurisdiction and powers of the commission shall extend as hereinbefore provided to the utility business of public utilities operating within this state to the full extent permitted by the constitution and laws of the United States.”

Considering the entire chapter and the legislature’s announced purpose to give the commission broad powers to effect the purposes of the chapter we hold defendant to be furnishing gas to the public for compensation within the meaning of section 490A.1.

V. Defendant contends it is not “furnishing gas by piped distribution system.” Much effort and argument is devoted to this proposition in the excellent record and briefs submitted here by both sides. Defendant carefully made a record to point to the differences between low pressure piped distribution used in cities and towns and the direct taps involved here. There is much that is persuasive about the differences and the trial court so found.

Neither the statute nor the dictionaries define “piped distribution system.” We find definitions for “pipeline or transmission line”, “low pressure distribution system” and “high pressure distribution system” in the American Standard Code For Pressure Piping Systems which was offered in evidence by defendant. They are: “805.62 PIPELINE OR TRANSMISSION LINE is a pipe installed for the purpose of transmitting gas from a source or sources of supply to one or more distribution centers or to one or more large volume customers or a pipe installed to interconnect sources of supply. In typical cases pipelines differ from gas mains in that they operate at higher pressures, they are longer, and the distance between connections is greater. * * *

“805.65 LOW-PRESSURE DISTRIBUTION SYSTEM is a gas distribution piping system in which the gas pressure in the mains and services is substantially the same as that delivered to the customer’s appliances. In such a system a service regulator is not required on the individual services.

“805.66 HIGH-PRESSURE DISTRIBUTION SYSTEM is a gets distribution piping system which operates at a pressure higher than the standard service pressure delivered to the customer. In such a system a service regulator is required on each service to control the pressure delivered to the customer.” (emphasis supplied)

All three definitions envision a piped distribution system and none limits the term to service of two or more customers off a smaller gas main. We do not feel that the illustrative schematic drawing showing how multiple service is supplied by low pressure systems takes these technical definitions out of the phrase “piped distribution system.” Defendant clearly owns and operates a high pressure distribution system as above defined. The definition includes “a gas distribution piping system.” While not controlling, we take this to be persuasive evidence that defendant’s sales at retail off this system are by piped distribution system and thus are to be regulated.

It seems to us that a “system”, even though it utilizes the high pressure gas main, that distributes gas all over the state of Iowa, utilizes thousands of miles of pipe, hundreds of gas pressure regulators or pressure reducers, tap off piping, and furnishes gas to over 1800 customers, can, and should, be called a “piped distribution system” within the meaning of the section.

Defendant’s witnesses testified there has been growth the last several years in rural domestic and nondomestic sales since the filing of the petition because of Northern’s aggressive expansion program to run laterals to new communities. The reported case Re Northern Natural Gas Company, F.P.C. No. CP 64-228, 57 P.U.R.3d 417, 419 would indicate the company has also been quite aggressive in acquiring the commercial and industrial direct tap customers that numbered 93 at the end of 1966. There the Power Commission found: “We must ask the question whether the sale here in issue would, or could have been made through any of Northern’s distributor customers. The record shows that CCA was considering several sites, including some in areas not served by Northern. The lowest price offered CCA by Northern’s distributor customers was 34.64 cents per Mcf. Iowa Power and Light Company, an in-tervener here, actively competed for the sale but proposed a southwestern Iowa location where-lower priced gas was available from Natural Gas Pipeline Company of America (Natural), Northern’s pipeline competitor. On review of the evidence we are convinced that Northern was justified in concluding that a direct sale was required if CCA’s plant was to be located in its area, of service.” This case involved the Consumers Cooperative Association direct tap which is one of the customers among the 93 heretofore noted. The record here shows revenues accruing to Northern from that operation to be $8000 a day.

In this regard we should note the main line direct tap customer does not always receive his gas at the main line and become responsible for it at that point. From time to time, for large consumers, the pipeline company runs its own line to the plant for direct sales. When it does this it must have Federal Power Commission approval, but it is not otherwise regulated as to such business.

The domestic use tap is no longer confined to property owners who have a right to service by virtue of an easement contract. The determination of easement rights became so complicated that Northern largely dropped easement rights as a requirement and has furnished domestic gas service simply on request if the customer could take care of necessary easements to his property.

Plaintiff commission argues the use of the phrase “furnishing gas by piped distribution system” was used to distinguish piped gas sales from liquefied petroleum gas sales; the phrase simply distinguishes the one from the other and has no further significance. This argument is persuasive but we need not turn our interpretation of the statute on an argument which goes more to motivation than meaning. As indicated, the apparatus supplied by Northern is sufficient to satisfy the phrase “by piped distribution system” and we so hold.

VI. The commission attempted to have the 61st Session of the General Assembly amend section 490A.1 to clarify the statute we now interpret. The legislature took no action. Defendant urges this failure to act as indicative of lack of intent to regulate this portion of their business. It cites no authority for this proposition.

We think the citation of part of 50 Am. Jur., Statutes, section 330, p. 323 is peculiarly applicable here: “There are, however, several decisions holding that, in construing a statute, rejected amendments may not be considered, or at least should be given little weight, since the court can have no means of knowing the reasons that influenced the legislature in such rejection.”

We have cited this section with approval but under different statutory historical situations, Independent School District of Cedar Rapids v. Iowa Employment Security Commission, 237 Iowa 1301, 25 N.W.2d 491 and Lever Bros. Co. v. Erbe, 249 Iowa 454, 87 N.W.2d 469. In this case we have no means of determining why amendment was not passed. The reason may well have been that the legislature thought the statute clearly subject to the interpretation we give it here. Naught in the record appears to the contrary. We do not consider this circumstance controlling.

For the reasons given we reverse and remand for judgment consistent with this opinion. Reversed and remanded.

All Justices concur, except GARFIELD, C. J., and STUART and SNELL, JJ., who dissent.