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U.S. Supreme Court

United Gas Improvement Co. v. Continental Oil Co., 381 U.S. 392 (1965)

United Gas Improvement Co. v. Continental Oil Co.

No. 644

Argued April 28, 1965

Decided June 1, 1965*

381 U.S. 392


Texas Eastern, which operates an interstate natural gas transmission system, agreed with certain producers to purchase for resale in interstate commerce their natural gas production in a substantially developed field with proven reserves. Before the Federal Power Commission (FPC) acted on the examiner's recommendation that certificates be granted, the "Catco" case (Public Serv. Comm'n of New York v. FPC, 257 F.2d 717, affirmed sub nom. Atlantic Refining Co. v. Public Serv. Comm'n of New York, 360 U. S. 378) decided that the certificate applicants there involved had not satisfied their burden of justifying the natural gas sales price they proposed, which was lower than what Texas Eastern had agreed to pay. The parties here then framed a new plan in lieu of the previous conventional wellhead purchase arrangement, but the economic effect of which was much the same. They agreed that Texas Eastern would purchase the producers' leasehold interests, covering only natural gas and condensate, in the lands where the gas was located. The FPC, in proceedings reopened at Texas Eastern's request, issued it a certificate to build connecting pipeline facilities, and, in connection with objections that the leases were not justified, noted that it had no authority to issue a certificate authorizing the leases. Section 1(b) of the Natural Gas Act makes the Act applicable "to the sale in interstate commerce of natural gas for resale," but not "to the production or gathering of natural gas." On review of the FPC's action, the Court of Appeals for the District of Columbia Circuit set aside the certificate order and remanded the case on the ground that the FPC's opinion appeared to approve the pricing aspects of the gas lease acquisitions without evidentiary support. That the gas would be acquired by lease transactions not subject to FPC regulation was unimportant, the court thought, since FPC could regulate the purchaser through its certification authority over the connecting facilities. The FPC thereafter chanroblesvirtualawlibrary

Page 381 U. S. 393

reopened the proceedings and, concluding that it was not foreclosed by either its previous rulings or the Court of Appeals' mandate, decided that it had jurisdiction over the lease-sales. The FPC held that it would not be in the public interest to certificate the transaction, since it was not satisfied that the unit cost of the gas was reasonable, or could be accurately determined. The parties were given a period to reframe the transaction. Under the alternative appeal route provided by §19(b) of the Act, an appeal was taken to the Court of Appeals for the Fifth Circuit, which reversed on the ground that the FPC had no jurisdiction over leases, since they relate to the production and gathering of natural gas.


1. Sales of the leasehold interests in a proven and substantially developed natural gas field are "sales" of natural gas within the meaning of §1(b) of the Act. Pp. 381 U. S. 399-401.

(a) The purposes of the Act would be frustrated if regulation thereunder were made to depend upon technical title concepts of local law. P. 381 U. S. 400.

(b) The determinative economic fact is that the sale of the leases in a field where the supply was proven and the facilities were well developed accomplished the transfer of large amounts of natural gas to an interstate pipeline for resale in other States. P. 381 U. S. 401.

2. A sale of leasehold interests in proven reserves for transmission and resale in interstate commerce is not within the "production or gathering" exemption of the Act; the facts of this case are distinguishable from those in FPC v. Panhandle Eastern Pipe Line Co., 337 U. S. 498, where the leases were undeveloped and the sale of the natural gas was in intrastate commerce. Pp. 381 U. S. 402-404.

3. Neither the mandate of the Court of Appeals for the District of Columbia Circuit nor the original FPC order established as the "law of the case" that the FPC lacked jurisdiction over the leasehold transfers. Pp. 381 U. S. 404-406.

(a) The issue of the FPC's jurisdiction over such transfers was not before the Court of Appeals for the District of Columbia Circuit, which had held that the FPC could regulate the purchaser, regardless of the status of the seller. Pp. 381 U. S. 404-405.

(b) Any doubts about construction of the mandate of the initial reviewing court should be resolved in the FPC's favor, since routing of the appeal to a different court precludes clarification of the mandate by the court which issued it. P. 381 U. S. 405. chanroblesvirtualawlibrary

Page 381 U. S. 394

(c) The FPC was free, in considering the question of production costs on remand, to reconsider its initial erroneous position on the jurisdictional question. Federal Communications Comm'n v. Pottsville Broadcasting Co., 309 U. S. 134, 309 U. S. 145, followed. P. 381 U. S. 406.

336 F.2d 320, reversed.

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