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U.S. Supreme Court

United Gas Pipe Line Co. v. McCombs, 442 U.S. 529 (1979)

United Gas Pipe Line Co. v. McCombs

No. 78-17

Argued February 22, 1979

Decided June 18, 1979*

442 U.S. 529


In 1954, the Federal Power Commission, now the Federal Energy Regulatory Commission, issued a certificate of public convenience and necessity authorizing the sale to petitioner United Gas Pipe Line Co. (United) of natural gas produced from a leased tract of land. After the lease had been assigned several times and a replacement certificate issued, the lessee-producer notified United in 1966 that the existing wells were depleted and that no other gas was available at that time. Despite a warning from the Commission, the lessee never sought the Commission's authorization, pursuant to § 7(b) of the Natural Gas Act (Act), for abandoning the service in interstate commerce. The lease was subsequently assigned to a group headed by respondent McCombs, which group discovered new gas reserves underlying the tract and contracted to sell the gas to respondent E. I. du Pont de Nemours & Co. for uses in intrastate commerce. Upon learning of the renewed production, United asserted its contractual right to purchase the newly discovered gas and filed a complaint with the Commission. The Commission upheld the Administrative Law Judge's determination that the McCombs group could not divert the gas from the interstate market, because the gas had been dedicated to interstate commerce and the agency had never authorized an abandonment of service. In addition, the Commission refused to grant its approval retroactively, since the supply of gas was not, in fact, depleted. Accordingly, the Commission ordered delivery to United of all gas derived from the tract. The Court of Appeals set aside the Commission's order, holding that "strict compliance" with § 7(b)'s approval requirement was unnecessary in this case, the abandonment having been accomplished

"as a matter of law, when all of the parties recognized that the then known natural gas reserves were depleted in 1966 followed by failure to provide any service . . . for a period of five years."


1. Section 7(b) requires producers to continue supplying in interstate chanrobles.com-red

Page 442 U. S. 530

commerce all gas produced from a dedicated leasehold until they obtain permission for abandonment from the Commission. Pp. 442 U. S. 535-539.

(a) Congress could not have been more explicit in establishing Commission approval as a prerequisite for lawful abandonment of service within its jurisdiction. The statutory language simply does not admit of any exception to the procedure set forth in § 7(b), as this Court's previous decisions have recognized. Pp. 442 U. S. 535-538.

(b) The Commission's control over the continuation of service is a fundamental component of the regulatory scheme, and to deprive the Commission of this authority, even in limited circumstances, would conflict with basic policies underlying the Act. Requiring Commission approval of abandonment, "after due hearing," permits all interested parties to be heard, and therefore facilitates full presentation of the facts necessary to determine whether § 7(b)'s criteria have been met. Moreover, the obligation to obtain Commission approval promotes certainty and reliability in the regulatory scheme. Pp. 442 U. S. 538-539.

2. It need not be determined whether § 7(b) allows the Commission to approve an abandonment retroactively and disregard evidence of subsequent production, since the Commission did not abuse its discretion in declining to do so here. Given the potential for retroactive approvals to disrupt the regulatory scheme, it was within the Commission's discretion to reject allegations of good faith in failing to seek Commission approval as a sufficient justification, by itself, for determining whether the evidence available in 1966 warranted granting an abandonment. Pp. 442 U. S. 539-541.

3. Respondents' contention that the current production of gas is not subject to § 7(b)'s requirements is without merit. The Commission properly found that the certificates of public convenience and necessity cover all reservoirs located on the tract. And initiation of interstate service pursuant to the certificates dedicated all fields subject to the certificates. California v. Southland Royalty Co., 436 U. S. 519, 436 U. S. 525. Once so dedicated, there can be no withdrawal of that supply from the interstate market absent Commission approval. Sunray Mid-Continent Oil Co. v. FPC, 364 U. S. 137, 364 U. S. 156. Pp. 442 U. S. 541-543.

570 F.2d 1376, reversed.

MARSHALL, J., delivered the opinion of the Court, in which all other Members joined, except STEWART, J., who took no part in the consideration or decision of the cases. chanrobles.com-red

Page 442 U. S. 531


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