Panhandle Eastern Pipe Line Co. v. Michigan Public Service Commission ( 1951 )

Boyles, C. J.

The issue in this case is whether the direct sale of natural'gas to local consumers in Michigan by the plaintiff, an interstate pipe-line company, is within the jurisdiction of the Michigan public service commission.

The Panhandle Eastern Pipe Line Company (hereinafter called Panhandle), a Delaware corporation, is engaged in the interstate transportation of natural gas by pipe line from Texas and other States into Michigan. It is an interstate natural gas pipe-line company, subject to regulation by the Federal power commission under the Federal natural gas act (15 USC, § 717 et seq.). It sells the greater part of its natural gas to local public utilities for resale for ultimate consumption. A part of its natural gas is sold by it direct to local industrial consumers, known as “direct industrial sales.” In 1945, it entered into a contract with the Ford Motor Company to sell natural gas direct to said company at its Dearborn plant for its own consumption. The plant of said company is within a municipality already served by the Michigan Consolidated Gas Company, a public utility engaged in selling natural gas to consumers in said municipality after having been granted a certificate of public convenience and necessity to do so. Panhandle also sought other local customers, and publicly announced an intention to sell directly to other industrial consumers when possible.

The said Michigan Consolidated Gas Company filed a complaint with the Michigan public service commission and, after notice and a hearing, the commission ordered that Panhandle “cease and desist from making direct sales and deliveries of natural gas to industries within the State of Michigan, located within municipalities already being served by a public utility, until such time as it shall have first obtained a certificate of public convenience and necessity from this commission to perform such services.”

Section 2 of PA 1929, No 69 (CL 1948, § 460.502 [Stat Ann § 22.142]), under which the Michigan public service commission assumed jurisdiction to make said order, provides:

“No public utility shall hereafter * * * render any service for the purpose of transacting or carrying on a local business * * * in any municipality in this State where any other utility or agency is then engaged in such local business and rendering the same sort of service, * * * until such public utility shall first obtain from the commission a certificate that public convenience and necessity requires or will require such * * * operation.”

Panhandle, claiming that said order of the Michigan public service commission prohibited it from selling natural gas in this State direct to a local consumer for its own use, filed in the circuit court of Ingham county the bill of complaint in the instant case to set aside and enjoin enforcement of the commission’s order. It added to its bill of complaint the motion made by it before the Michigan public service commission, in which it sought the dismissal of the petition filed there by the Michigan Consolidated Gas Company, and making the claim:

“That the Michigan public service commission has no jurisdiction over the subject matter of the sale of natural gas, a commodity in interstate commerce, by Panhandle Eastern Pipe Line Company to Ford Motor Company,”

and that:

“Panhandle Eastern Pipe Line Company has the right to sell and deliver gas to industrial consumers without regulation by the Michigan public service commission of such interstate commerce.”

In the circuit court the Michigan Consolidated Gas Company intervened in the case and, after an extended hearing, the circuit judge entered a decree permanently restraining the Michigan public service commission from interfering in the direct sale of natural gas by Panhandle to the said Ford Motor Company or other industrial users in the State of Michigan. Prom said decree, the Michigan public service commission and the intervenor, Michigan Consolidated Gas Company, appeal.

Panhandle construes the order of the Michigan public service commission as an absolute denial of the right of Panhandle to sell natural gas in this State direct to local consumers for tlieir own consumption and use; in other words, that said order denies Panhandle a certificate of public convenience and necessity to sell natural gas direct to local consumers. We do not so construe the order. It is, however, a direct order by the Michigan public service commission, finding that it does have jurisdiction to determine whether a certificate of public convenience and necessity shall be granted to Panhandle to carry on said operation. It denies the right of Panhandle to sell natural gas to the Ford Motor Company or other local consumers for their own consumption, without first obtaining a certificate of public convenience and necessity from the commission. It leaves the door open for a hearing before the Michigan public service commission as to whether or not public convenience and necessity requires the granting of such a certificate to Panhandle, after a proper hearing on that question. The statute states what the commission shall take into consideration in determining the question of public convenience and necessity, and what the certificate shall provide. CL 1948, § 460.505 (Stat Ann § 22.145). If the commission, after such a hearing, should deny such a certificate to Panhandle, the statute affords it a remedy for review in the courts; and, on the contrary, if at such hearing the commission should grant such a certificate to Panhandle, the intervenor herein or any other interested party would likewise have the same right of review. The statute so provides. CL 1948, § 460.506 (Stat Ann § 22.146).

In the instant case the bill of complaint was filed and the decree entered in the circuit court, and also the appeal therefrom taken to this Court, prior to the decision of the United States supreme court in Panhandle Eastern Pipe Line Co. v. Public Service Commission of Indiana (December, 1947), 332 US 507 (68 S Ct 190, 92 L ed 128). The statute law of the State of Indiana requires that a certificate of public convenience and necessity be obtained from the Indiana public service commission as a prerequisite to engaging in the operation of a public utility. Burns Indiana Stat Ann § 54.601. In that respect the Indiana law is substantially the same as the statute law of this State (CL 1948, § 460.502 [Stat Ann § 22.142], supra). The decision of the United States supreme court in the Panhandle-Indiana Case, supra, is so conclusive of the issue now before us that we quote from and adopt it at length, as follows:

“Broadly the question is whether Indiana has power to regulate sales of natural gas made by an interstate pipe-line carrier direct to industrial consumers in Indiana. More narrowly we are asked to decide whether the commerce clause, [US] Const, art 1, § 8, by its own force forbids the appellee, public service commission, to require appellant to file tariffs, rules and regulations, annual reports, et cetera, as steps in a comprehensive plan of regulation preliminary to possible exercise of jurisdiction over rates and service in such sales.

“Panhandle Eastern transports natural gas from Texas and Kansas fields into and across intervening States, including Indiana, to Ohio and Michigan. In Indiana it furnishes gas to local public utility distributing companies and municipalities. These in turn supply the needs of over 112,000 residential, commercial and industrial consumers.

“Since 1942 appellant also has sold gas in large amounts direct to Anchor-Hocking Glass Corporation for industrial consumption. Shortly before beginning this service appellant had informed a number of its customers, local distributing companies in Indiana, that it intended to render service directly to large industrial consumers wherever possible. Pursuant to that policy, since these proceedings began direct service has been extended to another big industrial user.

“In 1944 the commission initiated hearings relative to direct service by Panhandle Eastern to Indiana consumers. It concluded that ‘the distribution in Indiana by Panhandle of natural gas direct to consumers is subject to regulation by this commission under the laws of this State,’ notwithstanding any alleged contrary effect of the commerce clause upon appellant’s direct sales to industrial users. Accordingly it issued its order of November 21, 1945, for the filing of tariffs, et cetera, as has been stated.

“Early in 1946 Panhandle Eastern brought this suit in a State court to set aside and enjoin enforcement of the order. * * *

“The trial the orders the commission from enforcing them. It accepted appellant’s view of the effect of the commerce clause on its operations. The Supreme Court of Indiana reversed that judgment and denied the relief appellant sought. Public Service Commission v. Panhandle Eastern Pipeline Co., 224 Ind 662 (71 NE2d 117). It held first that the commission’s orders amounted to an unequivocal assertion of power to regulate rates and service on appellant’s direct industrial sales and thus presented squarely the question of the commission’s jurisdiction over such sales as affected by the commerce clause. The court did not flatly hold that the sales are in interstate rather than intrastate commerce. ■ But, taking them to be of the former kind, it held them nevertheless subject to the State’s power of regulation under the doctrine of Cooley v. Board of Wardens, 12 How (53 US) 299 (13 L ed 996). The court further held that appellant, in making these sales, is a public utility within the meaning and application of the State’s regulatory statutes, Burns Indiana Stat Ann §§ 54-105 and Indiana Acts 1945, ch 53, p 110. It is this decision we have to review pursuant to section 237 of the judicial code, 28 USC, § 344(a).

“The effect of the State statutes, whether permitting the filing of the tariffs, et cetera, as information unrelated to further regulation or requiring the filing as initial and integral steps in the regulatory scheme, and thus as presenting at the threshold of the scheme’s application the question of the State’s power to go further with it, is primarily a question of construction for the State courts to determine. In view of the commission’s position, as construed by the State supreme court, we cannot say that the only thing presently involved is the State’s power to require the filing of information without reference to its further use for controlling these sales. Cf. Arkansas Louisiana Gas Co. v. Department of Public Utilities, 304 US 61 (58 S Ct 770, 82 L ed 1149). Here the orders constituted ‘an unequivocal assertion of power’ to regulate rates and service. Indeed they involve something more than a mere threat to apply the regulatory plan in its later phases. They represent the actual application of that plan in its initial stage. In such a situation appellant was not required to await a further regulatory order before contesting the commission’s jurisdiction. Cf. Public Utilities Commission of Ohio v. United Fuel Gas Co., 317 US 456 (63 S Ct 369, 87 L ed 396). * * *

“The controlling issues therefore are two: (1) Has Congress, by enacting the natural gas act, 52 Stat 821 (15 USC, § 717), in effect forbidden the States to regulate such sales as those appellant makes directly to industrial consumers; (2) if not, are those sales of such a nature, as related to the Cooley formula, that the commerce clause of its own force forbids the States to act.

“We think there can be no doubt of the answer to be given to each of these questions, namely, that the States are competent to regulate the sales. * * *

“Three things and three only Congress drew within its own regulatory power, delegated by the act to its agent, the Federal power commission. These were: (1) The transportation of natural gas in interstate commerce; (2) its sale in interstate commerce for resale; and (3) natural gas companies engaged in such transportation or sale.

“The omission of any reference to other sales, that is, to direct sales for consumptive use, in the affirmative declaration of coverage was not inadvertent. It was deliberate. For Congress made sure its intent could not be mistaken by adding the explicit prohibition that the act ‘shall not apply to any other * * * sale.’ (Emphasis added.) Those words plainly mean that the act shall not apply to any sales other than sales ‘for resale for ultimate public consumption for domestic, commercial, industrial, or any other use.’ Direct sales for consumptive use of whatever sort were excluded.

“The line of the statute was thus clear and complete. It cut sharply and cleanly between sales for resale and direct sales for consumptive uses. No exceptions were made in either category for particular uses, quantities or otherwise. And the line drawn was that one at which the decisions had arrived in distributing regulatory, power before the act was passed.

“Moreover, this unusual legislative precision was not employed with any view to relieving or exempting any segment of the industry from regulation. The act, though extending Federal regulation, had no purpose or effect to cut down State power. On the contrary, perhaps its primary purpose was to aid in making State regulation effective, by adding the weight of Federal regulation to supplement and reinforce it in the gap created by the prior decisipns. * * *

“Congress, it is true, occupied a field. But it was meticulous to take in only territory which this court had held the States could not reach. That area did not include direct consumer sales, whether for industrial or other uses.”

The Federal natural gas act, which the court in the Panhandle-Indiana Case thus construed as permitting State regulation of the sale of natural gas by Panhandle direct to industrial users for their own consumption, reads as follows:

“The provisions of this chapter shall apply to the transportation of natural gas in interstate commerce, to the sale in 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 or gathering of natural gas. (June 21, 1938, ch 556, § 1, 52 Stat 821.)” 15 USC (1946 ed), ch 15B, § 717, subd (b).

Since this case was argued and submitted, we have requested counsel to file further briefs limited to the question now before us, and such briefs have been filed. The questions asked of counsel were:

“1. If plaintiff now concedes that the rates may be regulated, how can this be done except through the Michigan public service commission? How can the latter legally regulate without Panhandle submitting itself to its jurisdiction by securing a certificate ?

“2. Has Panhandle the right to sell natural gas direct to consumers for their own use and not for resale without a certificate of public convenience and necessity from the Michigan public service commission—in other words, is the authority of Michigan public service commission over such sales limited to regulation of rates and services?”

The issue in this Court has been narrowed down since the decree was entered from which the defendant and the intervening defendant have appealed. The bill of complaint filed in the circuit court by Panhandle, likewise the decree entered there by that court, and the appeal to this Court, in 1946, preceded the decision of the United States supreme court in the Panhandle-lndiana Case, supra (December, 1947). Originally, the bill of complaint filed by Panhandle asked that the Michigan public service commission be permanently restrained from interfering with the sale of natural gas by Panhandle to the Ford Motor Company or any other industrial consumers in this State. The decree, as entered, permanently restrains the Michigan public service commission “from interfering in the sale of natural gas by the Panhandle Eastern Pipe Line Company, its successors or assigns, to the Ford Motor Company or any other industrial consumers in the State of Michigan.”

In this Court, since the decision of the United States supreme court in Panhandle-Indiana, supra, Panhandle concedes that “sales of natural gas transported in interstate commerce, when made directly to consumers, are subject to State regulation as to rates.”

Therefore, Panhandle now limits the issue, in this Court, to the claim that it has the absolute right in this State to sell natural gas direct to consumers for their own consumption and not for resale, subject only to the State’s “regulation” of rates and services. To further delimit the precise issue now before us, Panhandle now specifically claims the right to sell natural gas to the Ford Motor Company and other industrial consumers for their own use, not for resale, in a 'municipality where the defendant Michigan Consolidated G-as Company is engaged in such local business and rendering the same sort of service; and claims the right to do so without any express authority, certificate, or approval from the Michigan public service commission, except as to ■rates.

Since the Panhandle-Indiana Decision, Panhandle now necessarily concedes that the Federal natural gas act has not occupied the field of sales of natural gas direct to consumers for their own consumption, not for resale (for example, the proposed sale to Ford Motor Company). In construing the Federal natural gas act, the United States supreme court in that case said:

“The omission of any reference to other sales, that is, to direct sales for consumptive use, in the affirmative declaration of coverage was not inadvertent. It was deliberate. For Congress made sure its intent could not be mistaken by adding the explicit prohibition that the act ‘shall not apply to any other * * * sale.’ (Emphasis added.) Those words plainly mean that the act shall not apply to any sales other than sales ‘for resale for ultimate public consumption for domestic, commercial, industrial, or any other use.’ Direct sales for consumptive use of whatever sort were excluded.

“The line of the statute was thus clear and complete. It cut sharply and cleanly between sales for resale and direct sales for consumptive uses.”

Panhandle also concedes that the defendant Michigan public service commission is the only State agency with power to exercise regulatory authority over the sales of natural gas in this State by a public utility. It now claims, however, the right to make sales of natural gas under the circumstances here involved, without the approval of the Michigan public service commission by the issuing to Panhandle of a certificate of public convenience and necessity from that State agency. As we have pointed out, such sales, without such a certificate, would be in direct violation of PA 1929, No 69, § 2 (CL 1948, § 460.502 [Stat Ann § 22.142]), which expressly declares that no public utility shall render any service in any municipality in this State where any other utility is rendering the same sort of service, until such public utility shall first obtain from the Michigan public service commission a certificate of public convenience and necessity. Furthermore, the defendant commission, were it to enter an order approving rates and services of Panhandle in the absence of such certificate, would also be acting in contravention of the express inhibitions contained in said statute.

Obviously, Panhandle seeks to skim the cream off the local market for natural gas in the municipality where the intervening defendant now provides such services, by selling gas to Ford Motor Company and other industrial users, without regard to the public convenience and necessity for natural gas by other users in the Detroit area, particularly for domestic use. If Panhandle is free to compete at will for such local markets, and take the cream of the business, any other utility providing the same service in the same area might be forced to obtain higher rates for its services when it must obtain its natural gas from Panhandle, and thus would face a distinct disadvantage. The right to exclude such competition, where the general public convenience and necessities so require, has been delegated by the legislature to the Michigan public service commission. It is within the power of that commission, after a proper hearing and upon a proper showing of the facts and the necessities, to determine whether Panhandle, by selling natural gas direct to industrial users in Detroit, would thus serve the public convenience and the necessities of users of natural gas in that area where Panhandle now claims the absolute right to engage in such service.

The Panhandle-Indiana Case controls decision here. The right to sell natural gas in this State by Panhandle direct to consumers for their own use and not for resale, in a municipality where another public utility is rendering the same sort of service, is within the jurisdiction of the Michigan public service commission. Any other conclusion would allow Panhandle to engage in such business without either Federal or State control over the right to engage in such services. As a prerequisite to engaging in the business over which the Federal power commission has authority to control, Panhandle must obtain a certificate from that commission. As a prerequisite to engaging in that part of such business in this State over which the Congress has expressly relinquished control, the State regulatory commission has a like power. It has long been the general policy of the law that a public utility should be subjected to governmental control.

The decree enjoining the Michigan public service commission from interfering in the sale of natural gas by Panhandle to industrial consumers is Vacated and a decree may be entered in this Court affirming the order of the Michigan public service commission, with costs to appellants.

North, Butzel, Bushnell, and Sharpe, JJ., concurred with Boyles, C. J.