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Colorado Interstate Gas Co. v. Federal Power Commission

May 16, 1944

COLORADO INTERSTATE GAS CO.
v.
FEDERAL POWER COMMISSION ET AL.; CANADIAN RIVER GAS CO. V. SAME; COLORADO-WYOMING GAS CO. V. SAME.



On Petitions to Review and Set Aside Orders of the Federal Power Commission.

Bratton

Before BRATTON, HUXMAN, and MURRAH, Circuit Judges.

BRATTON, Circuit Judge.

These cases bring here for review orders of the Federal Power Commission requiring Canadian River Gas Company, Colorado Interstate Gas Company, and Colorado-Wyoming Gas Company to make reductions in their respective rates for natural gas transported in interstate commerce and sold for resale for ultimate public consumption. Reference will be made to the companies as Canadian, Colorado, and Wyoming, respectively.

The City and County of Denver filed with the Commission a complaint charging that the rates of Canadian, Colorado, and Public Service Company were unjust and unreasonable; similarly, the Public Service Commission of the State of Wyoming filed with the Commission a complaint charging that the rates of Wyoming were unjust and unreasonable; and the Commission instituted on its own motion an investigation into the reasonableness of the rates of Canadian, Colorado, and Wyoming. Canadian and Colorado filed with the Commission their joint application for a stay of the order directing that the investigation be instituted; the Commission denied the application; the companies sought review; and it was denied on the ground that the order was merely preliminary and procedural and therefore not open to review. Canadian River Gas Co. v. Federal Power Commission, 10 Cir., 110 F.2d 350; Id., 10 Cir., 113 F.2d 1010, certiorari denied 311 U.S. 693, 61 S. Ct. 76, 85 L. Ed. 449. By order of the Commission, the three proceedings were consolidated for purposes of hearing. At the conclusion of extended hearings, the Commission found that the revenues and costs of the companies for 1939 were fairly representative of the relationship which would exist between such items in the immediate future, and that use of the figures for that year resolved most of the doubts as to future operating conditions in favor of the companies. Using the figures for 1939, the Commission determined that the rates and charges of Canadian for gas sold to Colorado and Clayton Gas Company were unjust and unreasonable to the extent of $561,000 annually; that the rates and charges of Colorado were unjust and unreasonable in the amount of $2,065,000 annually; and that the rates of Wyoming were unjust and unreasonable in the sum of $119,000. The Commission ordered the companies to reduce their rates and charges by not less than such amounts, respectively, and directed that schedules of rates be filed effecting the reductions. The companies applied for a rehearing; the Commission denied the applications; and the companies severally sought review.

Southwestern Development Company, through its wholly owned subsidiary, Amarillo Oil Company, owned gas leaseholds in more than 315,000 acres of land in the Texas Panhandle Field; Cities Service Company, through its wholly owned subsidiary, Public Service Company, at Denver, Colorado, and its wholly owned subsidiary, Pueblo Gas and Fuel Company, at Pueblo, Colorado, controlled the resale market for gas in the two cities, but did not have an adequate supply of natural gas or pipeline facilities for the transportation of natural gas to such cities. After extended negotiations, Southwestern, Cities Service, and Standard Oil Company of New Jersey, entered into an agreement denominated "Memorandum of Stipulations", and dated April 5, 1927. The primary objectives of the contracting parties, as expressed in the agreement, were the acquisition of natural gas properties in the gas field, the construction of a pipeline from the field to the City of Denver via Pueblo and Colorado Springs, the sale and delivery of natural gas at the city gate of Denver and other cities for distribution in such cities, and the supplying of natural gas to Colorado Fuel and Iron Corporation at Pueblo. Under the terms of the contract, Southwestern was to cause to be transferred to a new wholly owned subsidiary the leaseholds and gas producing properties, and to develop such properties into a source of supply of natural gas; Standard was to cause a corporation to be formed which would construct and maintain a natural gas pipeline and appurtenant facilities for the transmission and sale of gas; and Cities Service, through its subsidiaries, was to obtain franchises and rate ordinances in Denver and Pueblo, respectively, for the sale of natural gas, and convert the artificial gas distribution plants then in use in such cities into natural gas distribution plants. The newly formed subsidiary of Southwestern was to sell at cost gas to the pipeline company; and, with provisions for revision which need not be detailed, the pipeline company was to sell and make delivery at the city gate at the rate of forty cents per thousand cubic feet. The producing company and the pipeline company, and the pipeline company and the distributing companies, were to enter into contracts carrying out the commitments made in the Memorandum of Stipulations; and such contracts were to be for a term of twenty years from and after the execution of the first thereof, and as long thereafter as natural gas might be profitably sold by the pipeline company. The contract further provided that in case an acceptable rate ordinance should not be secured in the City of Denver, on or before July 1, 1927, the parties thereto, or any of them, might terminate participation therein, and each thereupon be free to act as though such stipulations and any agreements thereunder had never been made.

Franchises and rate ordinances were obtained in Denver and Pueblo; Canadian was incorporated as the subsidiary of Southwestern; and Standard caused Colorado to come into existence. Canadian and Colorado, Colorado and Public Service Company, and Colorado and Pueblo Gas and Fuel Company, respectively, entered into contracts as provided in the Memorandum of Stipulations; and by contractual arrangements, Colorado obligated itself to sell natural gas to the City of Colorado Springs for distribution by the city in its municipally owned distribution system and for sale to industrial and commercial consumers. Southwestern caused Amarillo Oil Company to convey the leases to Canadian. Canadian paid Amarillo Oil Company the sum of $5,000,000 for the leases and the then producing wells. Southwestern and Standard had agreed upon that amount, and it was paid with funds furnished by Standard. Canadian was financed through the issuance of bonds in the amount of $11,000,000, all of which were purchased by Colorado with funds furnished by Standard. Colorado issued 1,250,000 shares of common stock without par value, of which forty-two and one-half per cent was issued to Southwestern, fortytwo and one-half per cent to Standard, and fifteen per cent to Cities Service; and it issued preferred stock valued at $2,000,000, one-half to Standard and one-half to Southwestern. Standard paid Colorado $1,000,000 in cash for the common stock issued to it and a like sum for its preferred stock. No cash consideration was paid for the stock issued to Southwestern or Cities Service. Colorado issued bonds in the amount of $19,200,000. These were sold to Standard for cash at par, and the proceeds, along with the cash which Standard paid for the stock issued by Colorado, aggregating $21,200,000, was used to finance the project. Canadian developed the leaseholds, and constructed a main transmission pipeline from the field to Clayton Junction in New Mexico, a distance of approximately 86 miles; and Colorado constructed a main transmission line from Clayton Junction to the city gate at Denver, a distance approximating 254 miles, three compressors, and various laterals extending from the main line to customers of the company, including a lateral to the plant of Colorado Fuel and Iron Corporation. On December 31, 1939, Canadian had in operation a total of 94 gas wells; and its gathering system consists of about 144 miles of pipe, and has two terminals.One terminal is located at the Bivins Station where the gas there gathered is compressed and then transmitted through the transmission line to Clayton Junction where virtually all of it is sold to Colorado but a small amount is sold to Clayton Gas Company. The other terminal is located at Fritch Station where the gas there gathered is compressed and then transported through the facilities of Texoma Natural Gas Company to Gray Junction, in Oklahoma, where it is sold to Colorado. Colorado sells that gas to Natural Gas Pipeline Company, and it moves to its destination, known as the Chicago market.

The facilities of Wyoming consist of a main transmission pipe line extending from a point near Littleton, Colorado, to the city gate at Cheyenne, Wyoming, compressor stations, and a number of laterals extending from the main line to city gates and industrial plants in Colorado and Wyoming. From the inception of the project until the latter part of 1929, the company obtained its entire supply of natural gas from the Wellington Field in Colorado. But early in 1929, the supply from that field began diminishing rapidly; it became essential that the company secure another source in order to continue in business; in October of that year, it entered into a contract with Colorado for the purchase of gas from that company with which to supply its customers in the States of Colorado and Wyoming; and ever since Colorado has sold gas to Wyoming, deliveries being made at the point adjacent to Littleton.

In 1939, Canadian sold for resale approximately 46,000,000 Mcf of gas, of which about 41,000,000 Mcf were sold to Colorado; Colorado sold about 20,000,000 Mcf of such gas to Natural Gas Pipeline Company, about 7,000,000 Mcf to Colorado Fuel and Iron Corporation, and about 6,000,000 Mcf to Public Service Company; and Wyoming transported and sold 2,860,000 Mcf some to affiliates for resale through distribution systems in towns and communities in Colorado and Wyoming, some to other companies for like distribution, some to industrial consumers, and some to United States Army posts.

The Motions to Dismiss - The City and County of Denver filed separate motions to dismiss the petitions for review of Canadian and Colorado, and Public Service Commission of Wyoming filed a like motion to dismiss the petition for review of Wyoming. We denied the motions, but thereafter the City and County filed a brief, and later its counsel participated in the oral argument, renewing the contention that the petitions should be dismissed for want of jurisdiction. The grounds of each motion are that it appears from the face of the petition for review that the petitioning company is a private corporation organized and existing under the laws of Delaware; that the petition fails to allege that the company is located in this circuit; and that it affirmatively appears from the face of the petition, the face of the record, the testimony of the company's own witnesses, and facts dehors the record that the company is not located and does not have its principal place of business in this circuit. These companies were incorporated under the laws of Delaware, and therefore their legal residence and domicile is in that state.Shaw v. Quincy Mining Co., 145 U.S. 444, 12 S. Ct. 935, 36 L. Ed. 768; Southern Pacific Co. v. Denton, 146 U.S. 202, 13 S. Ct. 44, 36 L. Ed. 942; Home Powder Co. v. Geis, 8 Cir., 204 F. 568; Continental Coal Corp. v. Roszelle Bros., 6 Cir., 242 F. 243; Dryden v. Ranger Refining & Pipe Line Co., 5 Cir., 280 F. 257, certiorari denied 260 U.S. 726, 43 S. Ct. 89, 67 L. Ed. 483; In re Hudson River Nav. Corp., 2 Cir., 59 F.2d 971.

But section 19(b) of the Natural Gas Act, 52 Stat. 821, 15 U.S.C.A. § 717r(b), provides that any party to a proceeding under the act who is aggrieved by an order of the Commission made in the proceeding may obtain a review of the order in the Circuit Court of Appeals of any circuit in which the natural gas company to which the order relates is located or has its principal place of business, or in the Court of Appeals of the District of Columbia, by filing in such court within the time specified a petition in writing praying that the order be modified or set aside in whole or in part. It is to be noted that the statute provides in clear language that review may be had either in the circuit where the company is located or in the circuit where its principal place of business is located, the pivotal language being stated in the disjunctive. It is commonplace for a corporation chartered in one state to conduct much or all of its business in another state far distant from that of incorporation. No doubt mature considerations of convenience gave rise to the deliberate care with which Congress, in the exercise of its discretion, authorized review in the circuit within which the principal business of the company is conducted. And the principal place of business is where the actual business of the corporation is conducted or transacted. It is a question of fact to be determined in each particular case by taking into consideration such factors as the character of the corporation, its purposes, the kind of business in which it is engaged, and the situs of its operations. Cf. In re Guanacevi Tunnel Co., 2 Cir., 201 F. 316; In re Hudson River Nav. Corp., supra; Chicago Bank of Commerce v. Carter, 8 Cir., 61 F.2d 986.

Section 5 (2037), chapter 65, Revised Code of Delaware, provides that the certificate of incorporation shall set forth the name of the county, and the city, town, or place within the county, in which the principal office or place of business of the corporation is located in that state; and section 32 (2064) provides that every corporation shall maintain a principal office or place of business in the state.Here, in each instance, the certificate of incorporation states the location of the principal office of the company in Delaware, but it is completely silent in respect of the place of business. All of the physical properties and business operations of Colorado and Wyoming are located and conducted within this circuit. Wyoming maintains offices in Denver where its executive officers and agents supervise and administer its properties and operations. Canadian transports almost ninety per cent of the natural gas which it produces into this circuit, part into New Mexico and part into Oklahoma, where virtually all of it is sold to Colorado. The properties of Canadian and Colorado are operated as a unit. The two companies have a single general manager and jointly maintain an office in Colorado Springs, under the charge of such manager, where the supervision, direction, and management of the affairs of both companies are conducted. There are approximately thirty-six employees in the office, some devote their entire time to the business of Colorado and are paid by that company, some divide their time between the business of the two companies, and their salaries are paid partly by each company. The general manager is in charge of all operations of Canadian, including the gas fields and a field operating office in Texas; the chief dispatcher, who keeps in constant touch with the expected demands for gas and gives orders for the amount of gas to be piped, has his office in Colorado Springs and is under the supervision of the general manager. The principal books of account are kept in Colorado Springs, under the direction of the assistant treasurer of the company who maintains his office there. All major purchases for both companies are made and all bills for materials purchased are paid by vouchers issued out of the office there; all dealings between the two companies in connection with the purchase and sale of gas are conducted in and through the office there; and the principal bank account of Canadian is kept in banks in that city. We think it is clear that the principal place of business of each company is in this circuit, within the meaning of the statute. Continental Coal Corp. v. Roszelle Bros., supra; Dryden v. Ranger Refining & Pipe Line Co., supra; In re Lone Star Shipbuilding Co., 2 Cir., 6 F.2d 192. And we therefore adhere to the view that the motions to dismiss are illfounded.

Jurisdiction of Production and Gathering Properties - Canadian attacks the order relating to the reduction in its rates and charges on the ground that the Commission erroneously undertook to exercise unauthorized rate-regulatory jurisdiction over the production and gathering properties, facilities and business of the company. Section 1(a) of the Act, 15 U.S.C.A. § 717(a), supra, declares "that the business of transporting and selling natural gas for ultimate distribution to the public is affected with a public interest, and that Federal regulation * * * relating to the transportation of natural gas and the sale thereof in interstate * * * commerce is necessary in the public interest." Section 1(b) limits the act in its application "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 naturalgas companies engaged in such transportation or sale", and further provides in express terms that it "shall not apply * * * to the production or gathering of natural gas." Section 2(6) provides that a natural gas company is a company engaged in the transportation of natural gas in interstate commerce, or the sale in interstate commerce of such gas for resale. Section 4(a) declares that rates and charges in connection with the transportation of natural gas subject to the jurisdiction of the Commission "shall be just and reasonable, and any such rate or charge that is not just and reasonable is hereby declared to be unlawful." Section 5(a) directs the Commission to "determine the just and reasonable rate * * * and shall fix the same by order." Section 6(a) empowers the Commission to "investigate and ascertain the actual legitimate cost of the property of every natural-gas company, the depreciation therein, and, when found necessary for rate-making purposes, other facts which bear on the determination of such cost or depreciation and the fair value of such property." Section 7 vests in the Commission certain powers relating to the improvement, establishment of physical connections, abandonment, construction, or extension of transportation facilities of natural gas companies. Section 8 enables the Commission to require natural gas companies to keep and maintain accounts and records. Section 9 charts the authority of the Commission in relation to rates of depreciation and amortization of the several classes of property of natural gas companies. Section 10 concerns the filing with the Commission of periodic and special reports. Section 11 is addressed to the duties of the Commission respecting state compacts dealing with the conservation, production, transportation, or distribution of natural gas. And section 14(a) authorizes the Commission to "investigate any facts, conditions, practices, or matters which it may find necessary or proper in order to determine whether any person has violated or is about to violate any provision of this Act." The primary legislative purpose in the passage of the Act was to provide comprehensive regulation of the wholesale distribution to public service companies of natural gas moving interstate, and to vest in the Commission as the instrumentality of Congress power to exercise such regulation. Illinois Natural Gas Co. v. Central Illinois Public Service Co., 314 U.S. 498, 62 S. Ct. 384, 86 L. Ed. 371; Public Utilities Commission v. United Fuel Gas Co., 317 U.S. 456, 63 S. Ct. 369, 87 L. Ed. 396. And the grant of powers expressly conferred upon the Commission carried with it by implication all authority reasonably necessary and fairly appropriate to make such powers fully efficacious, and to render effectual the discharge of the duties of the Commission. But, under section 1(b) the Commission does not have express or implied rateregulatory jurisdiction of the production and gathering of gas.

Canadian is engaged in the business of producing, gathering, transporting and selling interstate natural gas for resale for ultimate public consumption.It therefore is a natural gas company, subject to the jurisdiction of the Commission in respect to its rates and charges for the gas transported and sold in such commerce. Its production and gathering properties and facilities are parts of its integrated operations. Still, under section 1 of the Act they lie beyond the range of the rate-regulatory jurisdiction of the Commission. But the Commission did not prescribe charges for the production; did not fix rates for the gathering of gas; and did not exercise other rate-regulatory jurisdiction over production or gathering as such, within the meaning of the limiting and forbidding provisions of the Act. The Commission did not attempt to affect in any manner the acquiring and maintaining of gas leaseholds, gas rights, or gas wells. Neither did it undertake to affect anywise the location, construction, extension, or physical connections of pipelines, or the operation of pipelines or other facilities constituting the gathering properties. The rate-regulatory jurisdiction of the Commission was exerted only in respect of rates and charges for natural gas transported in interstate commerce and sold in such commerce for resale for ultimate public consumption. The Commission inquired into and considered the production and gathering properties in respect to cost, depreciation, operating expenses, and revenues. But the inquiry was merely in their relation to the fixing of reasonable rates to be exacted and received for the natural gas moved in interstate commerce and sold for resale. And the order of the Commission in each ...


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