F. P. C. v. TRANSCONTINENTAL GAS CORP.

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Argument of Rankin

Chief Justice Earl Warren: Number 45, Federal Power Commission, Petitioner, versus Transcontinental Gas Pipe Line Corporation, et al. and number 46, National Coal Association, et al., Petitioner, versus Transcontinental Gas Pipe Line Corporation et al.

Mr. Solicitor General.

Mr. Rankin: Mr. Chief Justice and may it please the Court.

This case involves the Natural Gas Act.

It is a question of a certificate to transport gas under Section 7 of that Act.

The particular part of the application that's involved here is what is known as the transportation of X-20 gas, which is somewhat unusual and I'll try to describe it.

Under the tariff, proposed tariff, the X-20 was gas that Consolidated Edison Company, New York, bought directly from the producers in Texas at $19.25 for 1000 cubic feet to have transported by the Transcontinental Gas Pipe Line Corporation to New York City with the restriction on the use of the gas that it could only be used as fuel for boilers.

The record is clear that the purpose of the restriction was for the producers to avoid any regulation of the price of their gas.

The examiner in considering it -- well there's a further factor that is of importance, and that is that Transco, Transcontinental Pipe Line Company, agreed that for a period of 60 days at the election of Consolidated Edison, they would furnish their own gas that could be used for resale in the New York City area, to Consolidated Edison in the portion of the pipeline that had otherwise been provided under this X-20, for the transportation of this gas, Consolidated Edison that Consolidated Edison bought directly.

Justice Potter Stewart: I don't quite understand that.

They do that for 60 days?

Mr. Rankin: Well, whatever Consolidated Edison elected to do so.

Justice William J. Brennan: Would that be presumably for a peak period?

Mr. Rankin: That's right.

That is what is called the peaking gas.

Justice Potter Stewart: I see.

Justice William J. Brennan: Well then what happens, Mr. Solicitor, what happens to the X-20 gas?

Mr. Rankin: Well, during --

Justice William J. Brennan: It's not been delivered?

Mr. Rankin: That isn't delivered.

It's what they --

Justice William J. Brennan: Is or is not?

Mr. Rankin: Is not.

Justice William J. Brennan: Is not.

Mr. Rankin: It's, what they call, a drawback and it's though the pipeline is there with that space available for Consolidated Edison to use and instead of using the X-20, they put into a Transco gas that can be resold.

Justice William J. Brennan: But that -- is there a condition against the use of that Transco gas for fuel or boilers?

Mr. Rankin: No.

It -- it can be resold.

It could be used for boilers too.

Justice William J. Brennan: Oh, I see.

Mr. Rankin: But the purpose of it, the purpose of the provision is to be able to resell -- sell it, to take care of the peak loads during that period that Consolidated Edison would have.

Justice Felix Frankfurter: The Transco would sell it or Edison?

Mr. Rankin: Consolidated Edison would sell it in the New York market.

Transco would merely carry the gas but it would be gas that Transco purchased itself and would be subject to resale, as distinguished from the restriction on the Consolidated Edison purchased gas which could not be resold in the New York market but had to be used according to the terms of purchase for a boiler fuel.

Justice William J. Brennan: Now this Transco gas, I gather, the price of that is regulable?

Mr. Rankin: It is regulable, yes.

And there was a general tariff covering that.

But the tariff that they -- that Consolidated Edison purchased that gas under was one in -- that was interruptible.

That is they had a right, Transco had a right to take the regular gas of what's called CD under the tariff and interrupt the Consolidated Edison being able to have that gas in order that they'd be able to put it in storage during a part of the year.

Justice William J. Brennan: Does that mean this is significant for the spending of gas, significant for the use in the United States?

Mr. Rankin: Well it is because of the peaking provision to understand, because that was one of the reasons, the justifications, by Consolidated Edison and Transco for having this arrangement.

Now as a matter of fact, it does seem important as to whether or not, air pollution was truly an important part of the consideration in this matter.

And I think that as I develop, that you'll see that the air pollution was an explanation or a justification that they gave for wanting this particular tariff approved by this transportation certificate.

But as a matter of fact, it did not loom nearly as important as the opportunity to be able to buy the gas direct without interference.

Justice Felix Frankfurter: Does the volume of X-20 gas as against the 60-day gas, is that a relevant factor in your -- in the problem?

Mr. Rankin: It becomes --

Justice Felix Frankfurter: I mean it depends how much is --

Mr. Rankin: It becomes --

Justice Felix Frankfurter: -- the relative -- the relativity volume?

Mr. Rankin: It becomes relevant in regard to how they might use it for air pollution that they really meant, that air pollution was important in this consideration.

Now this particular volume we're talking about that they contracted for, was 50,000 Mcf. of gas per day that they could -- they bought in Texas under this price of $19.25, to be used for boiler fuel.

There, they had a provision that they could get during the peaking period for the 60 days at their election up to 50,000, the same amount, from Transco of resalable gas.

Their testimony was that they were going to use only 25,000 because they were going to use 25,000 of the X-20 gas that they bought themselves in the boilers, in two boilers at water side, in order to take care of the air pollution and the rest, they would proceed to use for resale for their peaking purposes.

Justice Felix Frankfurter: What if -- I probably don't understand this.

But if they were going to use a fraction, in a sizable fraction, of the peaking supply in relation to air pollution, then that is just so much more in order to deal with it or to avoid air pollution.

Then they add that on to the main claim that they make, that they bought the 50,000 Mcf. for that purpose.

Am I wrong about that?

Mr. Rankin: Well, it's clear in the record that they didn't intend to use this peaking gas from Transco for air pollution.

Justice Felix Frankfurter: Well I thought you just said they use 20 – they were going to use 20,000?

Mr. Rankin: 25,000, but that was still the same gas that they had purchased directly from the producers at $19.25 and that they had to use for boilers.

Now what they used over the 25,000 was going to be gas that they could resell, and they wanted to have the benefit of that.

And it was a beneficial transaction to them because that would help them at least to the extent of 25,000 Mcf. to take care of the greater demands of their consumers in the New York market for gas that could be burned by the consumers.

That is gas for resale.

Justice Felix Frankfurter: So that they had themselves against resale potentially by the 60-day provision.

Is that right?

Mr. Rankin: That's right.

And that was --

Justice Tom C. Clark: Same gas, same type of gas?

Mr. Rankin: Well --

Justice Tom C. Clark: Peak gas is the only gas?

Mr. Rankin: It's all the same burnable, but there was no restriction on the resale as to the $19.25 gas, the X-20 gas.

And the gas they would get from Transco could be resold.

Justice Felix Frankfurter: But there -- I understand and I'd like to know too Justice Clark's question.

Was the quality of gas, forget the price, was the quality of gas the same?

Mr. Rankin: Apparently.

There's no dispute in the record that there was any difference.

It's --

Justice Tom C. Clark: There is a technical proposition that they could resell because they own the peaking gas, they could resell it.

It had nothing to do with the quality of the gas though?

Mr. Rankin: That's right.

Now the record is also clear although it is not involved in this particular case, but it has important bearing upon the decision of the Federal Power Commission that the program was within two years to increase this X-20 gas that they would buy directly and then have a restricted use of it to a 120,000 Mcf.

That is from 50 -- 70,000 Mcf. more within a two year period.

But -- and it was inferred at first that they would use this to take care of some more of the air pollution problem.

But the testimony was that when they got the whole 120,000 Mcf. of the X-20 gas, they would still, during certain periods of the year, use only 25,000 for air pollution purposes.

Justice William J. Brennan: Mr. solicitor, I am about a little confused and much confused.

But I don't quite understand this.

I thought you said to us that they take 25,000 of this X-20 gas, is that it?

Mr. Rankin: Yes, Mr. Justice.

Justice William J. Brennan: And is that the maximum that they've been using for boiler fuel?

Mr. Rankin: No.

Justice William J. Brennan: In other words that whole 50,000 that they get, which is conditioned for use only as boiler fuel, they are in fact, using as boiler fuel?

None of that can be resold, isn't it?

Mr. Rankin: No, it cannot.

But there would be -- during the peaking period, they wouldn't take the whole 50,000.

During part of the year except the peaking period, they would take the 50,000 --

Justice Potter Stewart: Right.

Mr. Rankin: And -- and use it for boiler fuel.

They were using large amounts of boiler fuel other than for air pollution at other stations.

And this particular station involved here, well there are two of them on the east river, one at 40th and the east river near the United Nations building, which would need 50,000 to take care of eight boilers that were bad.

Two of those were the only ones that there was a -- there wasn't even a violation of the ordinance, but they were worst and they would -- they were the real problem and they take 25,000 Mcf. to take care of.

The others were probably, it's a business reason for getting the others also to take care of gas according to the record or to have them burn the gas in the boilers, because the record is clear that the 71 and 72 boilers are the ones that are making the fly ash difficulty that is bothersome to the city.

Justice John M. Harlan: Mr. General, now suppose in this air pollution issues were not in case at all and these people have said, "We want this gas for boiler purposes and not resale for these keepers in coal."

Would your case be any different?

Mr. Rankin: Well, I don't think it is.

I do think there is a problem --

Justice John M. Harlan: I didn't take your point and as I was confused as to with all the talk and the brief was and that you're spending time on knowledge for what bearing really on this basic issue, the air pollution issue on that.

Mr. Rankin: Well, I don't think that in the base -- in regard to the basic issue that air pollution is anything except something too confusing, because I don't think there's any validity to the point.

On the other hand, I did feel that I had to deal with it because there is an act to the Congress that says that the United States has appropriated $5,000,000 to cooperate with the states, that the states have a primary obligation about air pollution and whatever research could be developed, in that regard, the United States would cooperate and then the President of the United States issued the Executive Order in which he directed that people in the United States Government cooperate with the states and cities to see that whatever could be done about our own industry that is governmental industries, did not contribute to air pollution.

So I thought there was a duty to try to show to the Court that air pollution was not a real problem in this case.

Justice Felix Frankfurter: There's a difference between validity to the point and relevance to the point.

Mr. Rankin: Yes.

I view that Mr. Justice.

But I think that the basic issue in this case is whether or not this end use, that is the difference between the use of gas for boiler fuel which is considered as an inferior use was so determined by the Federal Trade Commission Report in 1936 which this Court has said, and it's recited in the 1938 Natural Gas Act, was the reason for the Natural Gas Act to be passed.

And on the -- on the considerations of conservation, the superior use as compared with the inferior use, and whether that can be considered by the Commission in regard to determining whether certificates should be issued, is the basic issue in this case.

Now the Commission did determine that it would not issue a certificate in this case, and this is a Section 7 application, I want to make it clear.

It's not a rate case application.

It's a certificate for transportation in which Section 7 comes into play.

And the Commission held that in this kind of a situation, there were four basic reasons why in the public convenience and necessity under that condition as provided in Section 7, this -- at this certificate could not be required by the public interest -- by the public convenience and necessity.

Because, first, they felt it would breakdown the practice over a period of some 20 years of the purchase of gas and resale by the transmission companies and would be damaging to that established price.

Secondly, they felt that it would inflate prices in competition to have these various large users go into the marketplace and bid against the pipelines to require gas and resell it in this manner.

And it would drive the prices up.

Third, they said that the small consumers wouldn't have the buying power to engage in any such practices as this and they would be forced to have -- to acquire their purchases through the transmission companies of the pipelines in the same way and would be adversely affected by the fact that prices and the pipeline gas would be driven up, but they couldn't compete by going out and trying to get the gas at the lesser price.

Justice Potter Stewart: So it is kind of a trial, are you --

Mr. Rankin: That's right.

Justice Potter Stewart: The second --

Mr. Rankin: Yes.

They further took the position, this was an inferior use that the pollution issue was not a valid one under the showing made, and that it was therefore, not justified under their prior holdings and positions that boiler use is an inferior use unless there's special justifications, there should not be -- that use should not be certificated.

Chief Justice Earl Warren: General, I don't know whether it's pertinent or not, but is there any differential in this case as between the boiler gas and the gas that's for resale?

That is so far as the price paid for it.

I don't know -- I don't know whether it's relevant or --

Mr. Rankin: There -- there was.

The price that they paid in the field was higher, $19.25.

Chief Justice Earl Warren: Yes.

Mr. Rankin: And the gas for -- that CD gas, the Transco sold generally for resale, was based on accumulation of a number of prices that they put together over the years of the -- substantially below that.

The Commission was trying to hold gas in this particular area where Consolidated Edison went in and bought and paid $19.25.

They were trying to hold it below 18 cents.

Consolidated Edison, in order to get this large chunk of gas under these terms that would not be regulated, went in and bid $19.25 and got it.

And that had the effect of lifting prices in that area.

The -- the testimony from Transco on the other hand, was that they couldn't -- they did not dare try to buy this gas at -- in competition with Consolidated Edison and I think the inference is fair, probably lower than even $19.25, because it would escalate other prices they had on gas.

But there's no question to what they paid substantially, above the general market that the pipelines had been paying for this gas, but the producer said, “We don't want any regulation as a part of it.”

And they gave them that part of the agreement so they wouldn't get regulated and agreed to use it for this limited purpose.

Now, it's also clear this doesn't help Transco at all on getting its load factor railings like this type of gas sometimes does where there's a direct purchase and its run through the pipeline.

It doesn't help on that kind of a thing.

It does give them more money, because they get paid a fair price and there's no controversy about that for transporting the gas.

But the Court of Appeals reversed the Commission and held that it had no right because of what it said the legislative history was, to consider the conservation factors that is the end use of the gas in any way, that if could -- couldn't consider whatever was done about buying the gas.

It couldn't consider whatever was done about the use of the gas.

The only thing it had a right to do was consider whether or not the gas could be transported, and it said that in regard to that, it was to examine the conventional, as it described it, factors.

Now, it's the position of the Federal Power Commission that when the Court of Appeals so held, it disregarded the true legislative history of this Act.

In the first place, the 1938 Act was passed as you will recall, with a provision that the Commission would have jurisdiction of certificate cases in regard to transportation only where there was another gas line -- transmission line in the area and it would not have in other cases.

Now, it was found in 1942 that that was -- in the experience up to 1942, but that was not an adequate solution for the problems in the industry.

And there was a considerable -- there were recommendations that the conservation factors of having a number of lines come in to a particular area could not be adequately dealt with.

There were also the factors of the other fuel interests and the transportation interest of other fuels, were not permitted to intervene under the 1938 Act and present a showing as to the fact that coal or the transportation of coal could adequately take care of the fuel needs of a particular proposal of a certificate or application.

And therefore, that factor could not be properly taken into account by the Commission the Commission had so taken that position in some of its holdings.

And so that Congress, with expressed reference to conservation, had amended the Act so as to make it possible for the Commission to go into any application for extension or new transmission lines wherever there was application, wherever there was an attempt to do that.

And also, to allow the intervention of other fuel interests and transportation interests to show that other fuels could be used to greater advantage and conserve the gas.

Now, the Court of Appeals relied upon the 1944 statement of the Federal Power Commission in regard to conservation in which it had said in a report to Congress that it didn't have the comprehensive right to control conservation and disregarded the footnote to that statement, which was clearly set out to the effect that they didn't have the right to control the direct sales to industry or to suspend the rates on indirect sales to industry through the pipeline.

And it made it explicit that it was the comprehensive control of these other things that it needed.

And in 1944, the same year, the Federal Power Commission in reporting on a resolution by the Senate, which suggested a complete examination or investigation by the Federal Power Commission into conservation of gas and other fuels.

In reporting on that, the Federal Power Commission expressly told the Senate Committee that it had the power to regulate and it considered the end use under in certificate cases, and that it needed this comprehensive power to consider -- to be able to protect conservation in regard to direct sales to industry and suspension of rates on indirect sales.

Justice Tom C. Clark: That it direct sales where there'd be no certificate acquired.

Mr. Rankin: That's right, Mr. Justice.

And indirect sales where they can't suspend it, even though there is a certificate and they go under Section 5 for a regulation.

So that, the Commission was explicit about this, then time after time, they have taken a similar position and they have reported the various cases they've taken, the fact that they asserted the right to consider the end use of the product in regard to inferior and superior uses of gas and made a claim that they considered boiler fuel as the Federal Trade Commission had said, an inferior use.

Now, the practices of the Commission were that they did allow certificates for boiler fuel in various situations and those are set out in detail in the brief.

But there had to be a special justification for the use, this inferior use, or they would not allow it and some of the special justification was in a Transco case.

Transco, in its earlier applications, made justification showing that they needed the right to sell for industrial purposes in order to bring the rates down to their resales to other consumers, because of the lack of volume during their valley periods or their low periods in regard to resalable gas.

And therefore, they justified on that basis, but even then, the Commission said to the time after time, you should get busy and establish some storage, so you don't have to sell all this gas for this inferior purpose.

But you can put it in storage during your valley periods and then sell it out during the peak periods, sold to the consumers for the highest use, and therefore, conserve the gas.

And they pressured Transco time after time on that and finally in this application for the first time, Transco has come forward with what was called the Leidy Storage Project.

Now, this proposal is damaging to that project amongst other things, because it doesn't conceive that this particular gas that they will get during the 60-day peaking period or during the other period that they use this part of the pipeline which is the valley period, will go into the Leidy reservoir, but it'll be used for the special advantage of Consolidated Edison under this X-20 tariff.

But the Commission had insisted constantly as one example of their position that Transco get more into the storage business for the conservation of gas and it finally come around to that point.

Now, they'd also allowed it for the atomic energy plant at Oak Ridge.

They've allowed it for other installations where they needed to raise the amount of their volume, so as to reduce the price of the gas generally to the consumer.

They had allowed it for special industrial purposes, where it was shown that the gas, itself, would form chemical compound or help in that regard with the -- in the manufacture and so had a contribution other than just the use for the purpose of producing steam, which is a low value use as far as the amount of return from the Btus in it, and each of those situations we have analyzed at some length.

Now in regard to the legislative history, there's also expressed specific examples where the congressmen had come forward with the proposal to prohibit the Commission from considering end use, four different times and the Congress had not yet allowed it.

Chief Justice Earl Warren: We'll recess now.

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Argument of James Lee Rankin

Chief Justice Earl Warren: General, you may continue.

Mr. James Lee Rankin: Mr. Chief Justice and may it please the Court.

Before proceeding my argument further, I'd like to go back to the question of Mr. Justice Brennan, and I was suggested during the recess that I may not have made my answer clear or may have not answered it correctly or may have been misunderstood.

In regard to the direct sales, I meant my answer to mean that there was a power to regulate the transportation, but not the rates for such direct sales.

I don't know whether my answer meant that to you or not, but that is the correct answer and that's what I intended by my answer.

Now the Court of Appeals didn't think that the Hope Natural Gas case was of any help in the decision of this case.

Although they referred to it, we think that it followed -- it did not decide this particular question, you recall in that opinion, the Court did say that while conservation was not a factor in determining just and reasonable rates, and there were two strenuous dissents in which Mr. Justice Jackson went at some length, talking about the importance of conservation in preserving this important fuel for superior uses.

And Mr. Justice Frankfurter also brought the dissent and joined in Mr. Justice Jackson's dissent there.

But in addition, the Court in the opinion went into the fact that in a transportation case and certification, that under Section 7, it was proper to consider conservation considerations and the Power Commission had that power and referred in a footnote to statements by the Power Commission in that regard.

Justice Potter Stewart: Now it's unquestionable of course that the Commission has no direct power as such over the -- over the use by customer of gas.

Mr. James Lee Rankin: That is correct.

And it has no power as such to regulate the rates.

Justice Potter Stewart: At which he buys it.

Mr. James Lee Rankin: Which he buys, where there's this kind of a transaction.

Justice Potter Stewart: Yes.

Mr. James Lee Rankin: But the position of the Commission is that in determining the public convenience and necessity in whether to grant a certificate --

Justice Potter Stewart: For transportation?

Mr. James Lee Rankin: That's right.

They have the right to consider the use that is to be made of the gas as to whether or not it is in the interest of public convenience and necessity.

Justice Potter Stewart: In other words, if this gas had been purchased as it was in Texas by Consolidated Edison and transported by a ship, by a tanker around through the Gulf of Mexico and at the coast of New York and delivered to Consolidated Edison up there, The Federal Power Commission wouldn't be in the picture at all.

Mr. James Lee Rankin: No, I don't concede that point, Mr. Justice Stewart, because the Act says transportation interstate; it doesn't say by pipeline.

Justice Potter Stewart: So, it wouldn't be the use --

Mr. James Lee Rankin: So it's still a question.

Now the examiner did use that example as though it would be conceded that there was no right to regulate, but the Act is specific in its terms in saying transportation interstate and we certainly would insist that while it hasn't been ruled on by the parties.

Justice Potter Stewart: I guess it's not done, is it?

Mr. James Lee Rankin: There -- I think there are some possibilities of liquid gas and in relatively small amounts and it, as we say in the footnote to our brief, is a developing industry, and so -- but we do not concede, and we make it expressed in the brief that we do not concede that position.

Now the East Ohio case was completely disregarded by the Court of Appeals, it didn't even refer to it.

And you recall there the -- there was a basic issue in regard to whether or not, there had to be a coupling of the regulation of rates with transportation, in order to be able to control or have the power to control the transportation and the Court held two things.

One, was the right to regulate the rates within the State and also the power to certificate, power in the Commission, to certificate the transportation independently.

And in the Hinshaw Amendment when the Congress choused the holding of the Court in regard to the right to regulate the rates intrastate in such a transaction, it did not change at all, the power of the Commission to, as it was recognized by this Court, to control the transportation featured by the certification under Section 7.

Now, it's claimed that despite all of this, it is unreasonable; it's arbitrary because there isn't any showing that anybody else is going to do what the Consolidated Edison is trying to do here.

In the first place, they assumed that that price is so high $19.25 and the Transco prices were substantially less at the time that nobody else will be attracted to it.

Now, in taking -- you have to take into account in that regard, that Transco has raised its price twice so that now, with the compromised rate, and they haven't got a final rate on the last application, the rate is $37.06 as I recall against a little over $42, it's about in half.

I think it is $42.50 for this, with the transportation charge and the cost of the product together.

So that there's about five cents differential as distinguished from what it was more than 10 or 12 cents before.

So that the closer it gets to that $42.50 rate, the more attractive this is going to be.

But beyond that, at the very time, they had an application for boiler fuel in a substantial amount before the Commission, for VEPCO.

They had testimony of Long Island Lighting that they had been trying to make direct purchases, so that they could be able to have a comparable transaction to this.

They had testimony that Transco had told its other large consumers that they had better try to see what they could do by buying directly and handling the same kind of X-20 transactions.

They had the testimony that public service of New Jersey had been informed that if they'd -- if this was approved, they better get busy and buy directly too.

They had the due power application in regard to use of large quantities of boiler fuel for that power operation.

They had the -- they have the present applications of El Paso Natural Gas to use for their compressors, large quantities of boiler fuel by direct purchase and a claim that they're exempt from regulations just like the X-20.

And now, the Southern California Edison has come out for some 335,000 Mcf. per day that they want to take around through Mexico and up the coast in order to avoid the regulation by the Federal Power Commission at all.

Now, this is a crucial issue to the Federal Power Commission of its power to determine in the interest of this country, whether or not, this gas shall be used in such a manner that it is not in the public interest and convenience and necessity or is, and the statute says that, "Unless, it is required by the present or future public convenience and necessity of the country, that it shall be denied, is that specific.

And this power should be recognized in the Commission in accordance with its holding."

I'd like to reserve the rest of my time and I've divided part of it with my co-counsel.

Chief Justice Earl Warren: Mr. McGrath.

Argument of Jerome J. Mcgrath

Mr. Jerome J. Mcgrath: Mr. Chief Justice and may it please the Court.

I would like to advert to one preliminary matter, it was brought up by the Solicitor and in the questioning of Mr. Justice Brennan, having to do with the CD-3 gas as compared to the X-20 gas, that is the subject matter of Con Edison's and Transco's application here.

Now the CD-3 gas is so-called contract demand gas, which the distributor, served by the Pipe Line Company, can use for distribution, for resale to the general consuming public.

However, it has a limitation in the tariff which restricts the use of that gas as boiler fuel to a certain limited volume per day.

So that the pipeline company can take that gas end use it for storage purposes during the warmer periods of the year.

Now, because of that specific limitation in Transco's tariff in the CD-3 -- under the CD-3 rate, it was precluded from using the 25,000 Mcf. of that per day in the boilers at the waterside station in boiler 71 and 72.

Now, under the X-20 transportation arrangement, Transco is given the privilege which none the other customers of the pipeline company have to not only have the X-20 transportation gas but equivalent volumes on a 60-day basis of CD-3 gas unrestricted as to use.

In other words, the boiler fuel limitation is removed and so is the restriction that the producers imposed on the X-20 gas removed, so that it can be distributed to the general public.

Justice Potter Stewart: What does that have to do with the basic issue in this case?

Mr. Jerome J. Mcgrath: It -- it has this to do only Mr. Justice Stewart that Con Edison seems to place great emphasis and did so at the Commission in trying to promote this X-20 arrangement, otherwise, I don't say it has anything to do with the specific issue that's before the Court today.

The -- adverting now to the ruling of the Third Circuit.

The Third Circuit's ruling is much broader and transcends the particular issues that are in this case today.

The ruling of the Third Circuit is that the Commission has no power whatsoever to consider end use conservation matters in its -- in the exercise of its certificate powers under the Natural Gas Act.

Now that not only applies to the transportation of gas, but this was made clear in the Lynchburg case decided several months later, it applies to the resale gas as well.

The decision completely ignored as the Solicitor General stated, one of the primary objectors of the 1942 Amendment to the Act.

Now this Court will recall as it outlined in the Hope case that the 1942 Amendment was bought about at the insistence of the Commission, competitive fuel industries, the gas industry itself, because of the specific limitations on the Commission's authority under the old act, the 1938 Act.

Now the broadening of the Commission's powers in 1942 was to enable the Commission, number one, to give consideration to the broad, social, and economic effects of the use of various fuels with which natural gas, as a fuel, would be competing and to take into account the conservation aspects of the problem, recognizing that natural gas was an exhaustible natural resource.

Now one of the first cases that came up under the Act was the Kansas Pipe Line and Gas Company case in 1938.

And it was that case in which the Commission held, it didn't have this authority and it was that case which brought about the 1942 Amendment.

Now our interest in this case, as a competitive fuel, is that Congress has expressed concern over the fact that the expansion and extension of natural gas lines into competitive areas may have an impact on existing fuel, existing methods of transportation, which, in the broad overall public interest to the United States, should be given consideration.

Now if the Third Circuit's ruling is to be upheld, that would strike out completely any authority of the Federal Power Commission to give effect to end use considerations.

We submit --

Justice Potter Stewart: Is there -- is there anything in this record, Mr. McGrath as to the comparative price of coal and this gas into Consolidated Edison --

Mr. Jerome J. Mcgrath: Yes, Mr. Examiner.

There was a testimony of the --

Justice Potter Stewart: Testimony. [Laughter]

Mr. Jerome J. Mcgrath: Habit.

There was a testimony of the witness Thomas which set forth the comparative fuel prices and it indicated that the cost of the X-20 gas was in the neighborhood of 42 cents roughly and the coal that was used at the waterside station was in the neighborhood of about $42.06 per million Btu.

They are very close in cost.

In other stations of Consolidated Edison, however, coal cost range anywhere from 37 cents per million Btu up to 40 or not maybe with per million Btu, gas cost, the valley gas that they use, interruptible gas that Con Edison use, is around by, if I am correct, about 34.5 cents per million Btu.

Unknown Speaker: (Inaudible)

Mr. Jerome J. Mcgrath: Yes.

Yes, sir.

Yes, I would say that Your Honor, yes, sir.

Now the particular case that was confronting the Commission in this proceeding was but another manifestation of a new trend in the gas industry by which producers of gas were seeking outlets which were -- would not subject them to the jurisdiction of the Federal Power Commission.

As this Court would recall in the Phillips decision, it was held that producers who sell their natural gas in interstate commerce for resale, are subject to FPC jurisdiction.

Immediately before this case was -- this application was filed with the Commission.

The Commission had considered a similar transportation arrangement that of Houston Texas Gas and Oil Corporation to bring gas to under Florida. Florida Power Corporation, Florida Power & Light Company purchase gas in the field, engages the pipeline company to transport it, substantial volumes to market, and that was an effort by the producers to get around FPC jurisdiction.

At the time this case was pending, Transco had an application to transport gas from Louisiana to Virginia Electric and Power Company for use as boiler fuel in the power plant of Virginia Electric and Power Company in Possum Point, Virginia.

Duke Power Company, as the record shows, was negotiating with producers for transportation.

As Mr. Rankin pointed out, the Public Service Electric and Gas Company was thinking about doing -- going into the same type of arrangement, but as the record shows in the testimony of the witness Bonaface, they were awaiting to see what the Commission did with this case.

Long Island Lighting Company, another large distributor and power company in the east, was negotiating for transportation.

All of which would have had a serious impact on the coal industry by a reason of the use of this gas in electric generating stations, which is by far the largest single customer for coal.

Now, if the Commission is precluded from giving weight to these factors, from measuring in the public interest in making a value judgment as to whether the use of natural gas as boiler fuel is required by public convenience and necessity taking all of these factors into account, then I say that the Third Circuit has vitiated the 1942 Amendment and has deprived the Federal Power Commission of one of its most important functions.

It would strip the Commission of any real expertise.

As the -- as the Third Circuit ruled, the only thing the Commission could properly evaluate were the conventional factors, a market, a gas supply, rates, all technical factors which the Commission could merely list on a sheet of paper and check off and under the ruling of the Third Circuit, would be compelled to issue a certificate.

Now under Section 7 (c) of the Natural Gas Act, we say that the Commission's functions go beyond the conventional factors, these so-called, technical requirements.

The Commission must give consideration to other aspects of the public convenience and necessity.

And those aspects, Congress has said to the Commission, include conservation, impact on competing fuels, and other matters that are not so-called technical or checklist items of proof.

Now, the respondent Transco, in its briefs, states that the Commission -- or that Third Circuit was right and that the Commission is not required to give effect to these policy considerations which the Commission did take into account, but on the other hand, it says, that the Commission should have taken into account the air pollution law and given policy effect to that or to the antitrust laws, which are filled very much whoever in the case, but they say, the Commission should have given them some effect.

Well if that isn't exceeding, the balance which the Third Circuit has set, that I don't know what is.

Now much has been made of the fact that the Commission did not reach a rational judgment including that the public convenience and necessity had not been shown because of this so-called air pollution argument.

But we submit that the evidence of record is clear that the air pollution argument was greatly exaggerated, that the company had other means by which to solve its problem, one of which it's doing right now.

For years, ever since gas was made available to New York in 1951, it has had substantial volumes of natural gas, on a valley basis, available for use at waterside.

And it did not make use of that gas until 1959.

If my recollection is correct, it was in March of 1959, when Waterside first had natural gas for use in its boilers.

Now, those volumes -- that company had volumes of gas available to it all those years.

We argued on the record that the problem is as bad as you say it is, why didn't you use the gas that was available to you.

And their answer was, "Well, physically, it couldn't be done but we didn't have a pipe down into the station."

Well, they've got a pipe there now and they're using these substantial volumes of gas.

Justice Hugo L. Black: (Inaudible)

Mr. Jerome J. Mcgrath: Pardon.

Justice Hugo L. Black: (Inaudible)

Mr. Jerome J. Mcgrath: I think, it would probably be less, Your Honor.

I don't know what the cost of the facility was, but if they're using valley gas, under the CD-3 rate, the average cost is less than the X-20 gas.

We submit that the policy considerations which the Commission took into effect were well within its legal competence to make.

We submit that the legislative history is clear, it couldn't be clearer than that the Commission does have authority to consider conservation in its administration of the Natural Gas Act.

We submit at this Court itself, in the Hope case and in the East Ohio case, found no problem in reaching that identical conclusion, that is that the 1942 Amendment, by broadening the Act, gave the Commission authority to deal with this most important problem in the public interest.

We submit, therefore, Third Circuit's ruling is an error, that the Commission probably discharged its responsibilities under the Act, that the decision was within its legal of competence, and that its orders denying a certificate application to the pipeline company to transport its boiler fuel gas was correct and should be affirmed.

Thank you.

Chief Justice Earl Warren: Mr. LeBoeuf.

Argument of Randall J. Leboeuf, Jr.

Mr. Randall J. Leboeuf, Jr.: May it please the Court, I'd be very happy if I could meet the distinguished, Solicitor General to debate much of what he has said in the proper forum which would be the holds of Congress.

In our view, he has not answered the controlling issue, the issue which is disposed in this case at all, and that if that portion of his argument, which relates to end use or the reasonableness of the Commission in deciding a case on evidence, a no evidence report that on policy considerations outside the record, 100%.

I -- those matters are not reached at all until the primary question is met.

Did the Congress rest in the Commission the power to regulate in this subject matter that it did here?

That was the question that was decided by the Court of Appeals, that's the question we've raised.

We've stressed it in our brief.

We've pointed out the decisions of this Court, Hope, Panhandle, Indiana and so forth on which this Court has passed on that question in a number of different forums, he has not replied in his brief or in his argument.

Now, let's get right down to the facts.

Con Edison had a serious air pollution problem in New York City, in the vicinity of the United Nations at its Waterside plant which was an old plant, built 57 years ago, when it was an area of slums and slaughter houses.

Now, it is the most congested area of the world with great tall buildings, as well as the United Nations.

I've read this morning's papers, as to this being a makeweight argument where the commissioner of pollution, because of an inverted condition such as we're familiar with in Los Angeles, having occurred in New York, is asking industry to cut back on every possible use.

Asking people not to use cars, not to burn leaves.

This was no makeweight argument but as was suggested by Mr. Justice Harlan, that question is not reached with the Commission lacked the power to make the decision it did.

Our basic objection with the Commission's decision is that if denied the transportation certificate to Transco for no reason whatsoever, related to the transportation function, but for the sole reason, as the Solicitor General has stated when he gave you the four purposes, for this primary purpose, that it disapproved of the public policy and wisdom of Con Edison's going to Texas, making a direct non-jurisdictional purchase of this gas and, may I say, that when Con Edison made that direct purchase in Texas, there was no power of the Commission over that.

If he could've used the gas in Texas, as approximately half of all the natural gas produced in this country is used in the state production, there would be no Federal Power Commission question.

If Con Edison had built his own pipeline from Texas to New York, according to the decisions of this Commission, that Commission would have no jurisdiction.

The Montana Power Company built a line into Wyoming and made a direct purchase of gas for boiler fuel in transport and it submitted the matter nine years ago.

Think of the nine years in this argument that a great flood is going to be unloosed by this and the Commission held that it had no jurisdiction.

Now what happened --

Justice William J. Brennan: What was the -- the facts were that the Montana Power Company built its own pipeline into the --

Mr. Randall J. Leboeuf, Jr.: Into Wyoming, crossing state lines for its own use and consumption, not, of course, for resale, electric company alone.

And it submitted to the Commission and said, "Do we have -- do you have jurisdiction over this transaction?

If so grant this certificate, we think not, if so deny it on the ground of lack of jurisdiction.”

And the Commission denied it on that ground.

Now, here, a purchaser, a direct purchaser from the producer, may use his gas as he sees fit.

So that Edison was in the position, it had made a non-jurisdictional purchase, it could use the gas, and I disagree with the Solicitor General in his answer that if the gas were bottled and transported by a truck or a ship, that it would be the subject of regulation.

I call Your Honors' attention to the well-known fact that a large part of the household supply of gas in the United States is bottled gas that we have outside, and which has been clearly understood, not within the scope of the Natural Gas Act.

Now, after that was -- Edison was in the position that it bought its gas, it could use it, whether the air pollution of the United Nations is good or bad.

It could use it as it saw it fit.

It then went to Transco and it said, "Will you build, for our account, additional facilities and will you operate those facilities to bring our gas from Texas to New York City for our use?"

And let me say that the examiner, the Commission itself, found that there was no disadvantageous effect in that transportation service.

It was found that all of the standards prescribed in Section 7 of the Act had been matched.

It found that the standards, which since 1938, it had it evolved and applied in case after case for a transportation certificate, had been met.

That's what was called, the conventional ones.

It found that the charge which Transco made was compensatory to it.

It found there was no burden on any of the services rendered by Transco in making that transportation.

Justice Felix Frankfurter: Con Edison have any interest in Transco?

Mr. Randall J. Leboeuf, Jr.: None, whatsoever.

Con Edison's interest in Transco is to get as much gas as it needs at the time when it needs it for, including the peak periods and at the lowest possible price.

And it -- No, as a matter of fact, it is quite contrary to what Solicitor General had suggested that this price was out of line, was out of line by a decision that Commission made years after of this matter had come up, not and at that time.

And actually in the case where that was up, the Commission itself referred to this charge by Texas producers for the direct sales to Edison.

I -- the majority thought it was a good precedent to use because it was honestly, the minority that had some questions.

Justice Felix Frankfurter: It -- it would be -- amount of the charge to be relevant Mr. LeBoeuf?

Mr. Randall J. Leboeuf, Jr.: No, it is not, sir.

Justice Felix Frankfurter: Then it doesn't make any difference that it's all --

Mr. Randall J. Leboeuf, Jr.: It is not.

We don't reach that question at all.

The Commission -- I think possibly the basic mistake that it made was that it thought it was dealing with a producer rate case that is a certificate for sale or for resale, such as you had in CATCO and other situations.

I think that perhaps led it astray.

Now, we had no other -- Edison had no other place to get this case, if it was to use it for this purpose of air pollution at Waterside.

Justice Felix Frankfurter: It -- because if you are right, am I wrong in taking if you're right in any arrangement that Con Edison made with Transco is irrelevant to the problem of regulation?

Mr. Randall J. Leboeuf, Jr.: I do not think I could go that far and I do not go that far, Mr. Justice Frankfurter.

I -- I say that when the Commission came to consider the transportation of this gas, it was entitled to consider the specific elements involved in that section and everything else that related to the public convenience and necessity of that transportation function.

Now, if -- carrying through the suggestion that was -- you were trying to clear up, this was an affiliated company.

And the pipeline was making two lower charge for the transportation service so that it was a burden on the customers of Transco to take gas for resale, then I think that was properly considered -- would be -- would've been properly considered by the Commission.

Justice Felix Frankfurter: It would be a burden in the sense of being discriminatory?

Mr. Randall J. Leboeuf, Jr.: Yes.

Justice Felix Frankfurter: But not with the Wyoming case.

Was it Wyoming that you referred to me a minute ago?

Mr. Randall J. Leboeuf, Jr.: Not -- no.

The -- the Montana case.

Justice Felix Frankfurter: Montana.

Mr. Randall J. Leboeuf, Jr.: I --

Justice Felix Frankfurter: If Montana built its own pipeline --

Mr. Randall J. Leboeuf, Jr.: Well, there is no --

Justice Felix Frankfurter: -- it's none of the business of the Commission whether it did it extravagantly --

Mr. Randall J. Leboeuf, Jr.: That's right.

Justice Felix Frankfurter: -- as a waste of money, so that it does make a difference if you have an intervening independent transportation line.

Mr. Randall J. Leboeuf, Jr.: I think it -- I think it does make a difference.

And real question which the Solicitor General has failed to deal with in his briefs or argument is whether the undoubted power to certificate the transportation by Transco, can be used as a device to regulate and prohibit because that's what it is, to prohibit the Edison purchase which is a matter not within its jurisdiction.

Now, I am being somewhat positive in my statement that the Commission and the Solicitor General, I believe, agrees with it, that the Commission made no of hypocritical claim that it was regulating -- denying this certificate for any transportation reason.

It found these benefits, these conventional standards had been met and in a recent case filed with the DC Circuit here, the Commission referring to X-20 decision, used these words that, “its action was an attempt to foil that transaction by denying the transportation certificate.”

And I could refer you to -- rather strange perhaps, but I suggest an uneasy conscience on the part of the Federal Power Commission but it's been prolific in case after case, which is decided subsequent with the X-20 to going back and trying to explain what it did decide in that case.

And one that is very interesting, I now refer to it by means of pointing out something that I don't think the Solicitor General has been informed about.

He said that these sales had been authorized and they have been last year.

The sales of natural gas in this nation were about 13 billion Mcf. of which 3 billion went to householders.

The other 10 billion went to industry, commercial, well drilling, all kinds of uses of that sort.

In this Midwestern case, there is a dispute among the commissioners as there was here.

The -- the vote here was 3 for the opinion 1 for the result, but for not going long with the reasons, in the third trial dissent.

In the Midwestern case, the evidence showed that the pipeline was proposing to sell gas to industry below its cost.

And certain of the commissioners, realizing that that would make the householder, the small user which is supposedly the cherished person, pay more than he should pay.

I objected.

Now, the majority in referring to X-20 decision, said that was -- their action was one of denying an application to permit the sale of natural gas for boiler fuel, not a word about transportation.

In another one, the Trunk Line, the interesting question there was whether the price that Edison had negotiated could be used in the Trunk Line case as a good precedent, because of its arms-like nature.

The majority said, referring to X-20, "The sales failed by reason of our denial of a transportation certificate.

The dissenting commissioner, Connole, a man of great ability said, "The certificate was denied in part, because the direct purchase of these volumes of gas would tend to raise the rates unduly."

Now, I should correct myself, it was Mr. -- Commissioner Klein in the Midwestern case who was objecting to the sale of the industry below cost and the effect on the householder that he used the words I quoted.

Now, I don't have the time and I don't suppose it's material to go into some of the basic facts.

Edison supplies 1,300,000 gas customers, mostly small ones of the nature of the Act is intended to protect 2,000,000 of electric customers and quite unusually, it supplies steam to about 2000 customers, but those customers or for example, Rockefeller Center, that vast complex of 15 large buildings, is one customer.

The heat largely from the steam manufactured at Waterside with the X-20 gas if that had been available, goes to that Rockefeller Center and those people in Rockefeller Center and other business offices and departments I suppose, are small people.

But, I mentioned that because the notion that Edison was selfishly trying to get this gas and that that the charge that -- the air pollution was not a true consideration, it was a makeweight.

Edison, from its own selfish economic interest, would not have an adverse effect on the gas it has to purchase from Transco and other pipelines for resale to the public, if it would have the effect that is suggested here.

I can't --

Justice William J. Brennan: Waterside is a --

Mr. Randall J. Leboeuf, Jr.: Pardon.

Justice William J. Brennan: Is Waterside an electricity generating station?

Mr. Randall J. Leboeuf, Jr.: It is an electricity and a steam generating station.

Justice William J. Brennan: Selling the steam itself?

Mr. Randall J. Leboeuf, Jr.: It sells the steam itself.

It's a by -- it's a bleeder process by which the high pressure steam is used in the electric end and certain amount is bled off and by pipes run to all of midtown New York in order to prevent separate fuel installations in all these buildings.

And if you notice in the opinion of the Court of Appeals, they said they couldn't see any inferior use in distributing that steam from the central station, which is the whole electric art, or and in the gas run by pipes in running each householder and apartment building have its own apparatus.

I -- I -- there is so much been said about the record on this air pollution question that I'd just like -- or I get to the real legal question.

Just like to make one or two observations.

An unwary reader particularly at part -- point 3 in the Solicitor General's brief might think that the Commission was weighing evidence for and against this problem of air pollution.

There was no evidence in the record offered on the subject, except by the officers of the City of New York and by Con Edison's offices.

There was no evidence to weigh at all.

Now that bears and what I regard is the less question to be reached, the utterly arbitrary and unreasonable reckless character of the Commission's action.

Now, I do want to say one thing too further on pollution and then drop it.

There's a bitter attack it seems to me, an unwarranted attack on the testimony of Dr. Greenburg.

He was the Director of the Air Pollution of New York.

He's probably the most distinguished scientist in the world in this field.

He's a physician, an engineer, public health officer.

Dr. Greenburg is not the typical hired professional witness.

He came in not with pat-statements.

He came in with his heart in this thing and he talked with gravity, like a man making a plea.

He said, "I can't prove that this pollution, which is occurring in New York is the cause of the lung cancer, but I think there is a great reason to suspect it."

Now, the word suspect in there, the indefiniteness has been the subject of an attack.

Well naturally, he referred to, what was it, 4000 deaths that occurred a few years ago over in one week's time in London, because of air pollution.

Well there and again in the Donora, Pennsylvania, where I think there were 50 deaths, the mass autopsies was able to establish it to be sure that couldn't be established.

But what was established?

That this Waterside plant, each and everyday, pours out into the atmosphere 27,000 pounds of fly ash and soot.

And what the Solicitor General failed to mention, 42,000 pounds of toxic sulfur dioxide.

They -- in the attack on the indefiniteness, there is a testimony by Dr. Greenburg of the collecting station that are all over New York City.

And on the lured side, because you can't put the stations out in the East River, on the lured side, they make a great point as to wind direction.

It shows a pollution -- I mean, a deposit that is sought, which had been microscopically examined and connected with the soot coming out of these chimneys of Waterside, it -- of many times that occurring at any other place in the City.

Now, it seems to us that there are four decisions that bear on this question.

Briefly, our point is that Section 1 (b) of the Act is the jurisdictional section.

The other sections, I think, are fairly described as operational sections.

Once you have the jurisdiction established and one day grants jurisdiction over to transportation of natural gas or the sale for resale of natural gas or natural gas companies.

And then, as this Court had occasion to say in Panhandle, the Indiana Public Service Commission in 1947 that this legislation in 1 (b) is of unusual legislative precision, because then it goes on with a prohibition against regulation in any other field.

And this Court said and I'd like to read these two short sentences, "The omission in Section 1 (b) of any reference to other sales, that is direct sales for consumptive use in the affirmative declaration of coverage, was not advertent, it was deliberate."

Congress made sure its intent.

It could not be mistaken by adding the explicit provision that the Act shall not apply to any other sale, direct sales for consumptive use of whatever sort, were excluded.

I am reading from the decision in the Panhandle, the Indiana Public Service Commission, 332 U.S. 507.

I -- it's set forth in our brief at -- I think it's about page 40 -- no, it isn't.

It's – it's referred to at pages 18, 26 and 29.

I think the first time we had rather full quotes.

Then another case that we rely on, that Solicitor General has mentioned, is the Hope case.

Hope was a rate case.

It was under operative Sections 4 and 5 of the Natural Gas Act relating to rates.

The State of West Virginia having large interest in natural gas, coal, and oil intervened.

It sought to -- it objected to the rate schedule the Federal Power Commission had prescribed, and it objected because it wanted a high rate for industry in order to promote the conservation of its resources.

Now, the majority writing to Mr. Justice Douglas held specifically that the operative rate sections could not be perverted to invade a jurisdiction which Congress had withheld from the Federal Power Commission.

Justice William O. Douglas: I haven't looked back at this recently, but didn't we reserve the problem under Section 1?

Mr. Randall J. Leboeuf, Jr.: What -- what you did, Mr. Justice Douglas, is just this --

Justice William O. Douglas: I know, we refused to allow the --

Mr. Randall J. Leboeuf, Jr.: You -- you referred --

Justice William O. Douglas: -- consideration of rate in the present rate structure.

Mr. Randall J. Leboeuf, Jr.: You referred -- that's right.

You -- you said that the -- that the rate section meant the rate fixing in a normal sense, and to try end use it for a conservation purpose of controlling end use, was not a proper construction of the statute.

That you'd have to -- that have to go to Congress to get the support for that, but then you did say whether it's dictum or not.

You did say that under the transportation or certificate Section 7, that conservation might be considered.

Now, you referred to the 1942 Amendment and -- I see, I have five minutes.

I -- I think I'd better refer to that, that 1942 Amendment had three objectives.

One was to give the Commission power to pass on the certification of all expansion of pipeline not just in the competitive areas it's had been.

Two, it was to give the Commission power to consider in granting the certificate, initial breaks.

In other words, your decision recently in CATCO, which we do not have any quarrel with, that's a sale for resale, where you have said that under those circumstances initial rates could be prescribed, is soundly founded on the legislative history of the 1942 Amendment.

Now, the third thing was that the Commission might consider the interest of the producers or carriers of competing fuels.

Now, in that sense, of course that was a conservation element and therefore, I think the -- if I read Mr. Justice Douglas' wording in Hope, in referring to that, that he was referring to that element of conservation, then I -- whether it's dictum or not, I think it's entirely correct, entirely supported by the history and I think that's the way it should be read.

Now, I -- time does not permit, there was another fourth case -- another Panhandle one in 1951, where the question is whether Michigan could regulate these direct sales and this Court upheld the power of Michigan and said that the Federal Power Commission had no such power.

And the last case, which is really very close in point and solves any question that may in the Hope case, again it was the Panhandle case in 337 U.S., where the certain gas leases had been included in the pipeline certificate as reserves.

The Company then tried to sell the gas leases.

The Commission tried to block or foil that sale and this Court held, it had no such power.

And in that connection, this Court stated specifically that their certificate provision Section 7 could not be used as an indirect means to violate or invade an area which Section 1 (b) had prohibited.

Justice Felix Frankfurter: Is your -- the core of your argument that the Commission and without power to withhold a certificate under Section 7 to be granted in the public interest, in the public interest not being particularized, it can't withhold that certificate because the purchased gas, which it is carrying, was being carried for a purchaser, whose purchase is not subject to regulation.

Mr. Randall J. Leboeuf, Jr.: I -- I think I can answer Your Honors question --

Justice Felix Frankfurter: Isn't that -- isn't that --

Mr. Randall J. Leboeuf, Jr.: Yes.

That -- that's it.

I -- I think I can answer even more narrowly.

The -- you cannot construe an operative section, like 7, to violate the expressed prohibition governing the jurisdiction in Section 1 (b) and that's what this case is.

Justice Felix Frankfurter: Was the -- was the purchase contract conditioned upon a grant of a certificate?

Mr. Randall J. Leboeuf, Jr.: The purchase contract could not become effective unless we could get gas from Texas to New York.

I haven't --

Justice Felix Frankfurter: In other words --

Mr. Randall J. Leboeuf, Jr.: I haven't read the reporting of it for some years and I can't be more specific than that.

Justice Felix Frankfurter: In other words, it isn't -- you simplify the situation by saying that Con Edison could go down to the field and buy gas and then dispose of it as it treated down there and --

Mr. Randall J. Leboeuf, Jr.: That's right.

Justice Felix Frankfurter: -- without buy or lease?

Mr. Randall J. Leboeuf, Jr.: That's right, except for conservation regulation of the sale, of course.

Justice Felix Frankfurter: Yes, but I'm -- but the point is that that isn't what this is.

This is the purpose in the field which requires the enjoinment from the transportation.

Mr. Randall J. Leboeuf, Jr.: I say that all there is in this case, the Con Edison made an exempt purchase and he could use that gas for any purpose it wanted.

It turned to Transco, instead of building its own pipeline under the Montana case doctrine, to build extra facilities, nothing to interfere with anybody else, and I say that the Commission, in denying that certificate for reasons having no relation whatsoever to the transportation function, was attempting to exert a jurisdiction which Congress had deliberately, as this Court has held at least four occasions, deliberately withheld from it in the scope of its jurisdiction.

And I say that the argument with respect to the interpretation that the Solicitor General has advanced, disregards to the fact that in each and every year in the last decade, this Commission has gone in different words to the Congress and asked for the power that it tried to exert here and Congress maybe because of the pendency of an attempt to draw a national fuels policy, maybe for other reasons, Congress denied it, because Senator Magnuson, at his request in the year 1959, they put in a bill, which would give this Commission the power to do the -- to control the uses as to whether they were in the public interest.

And Congress --

Justice Felix Frankfurter: You're saying -- you're saying the statute implied that -- what it gets down to is that the statute impliedly prohibits an out of town, a long distance purchases in the -- in the field unless it uses it in the field or has a pipeline of its own or carry it away in bucket.

Mr. Randall J. Leboeuf, Jr.: I say that the statute expressly prohibits regulation in that area.

And I say that the action of the Commission was intended in violation of antitrust laws which are not defended here at all.

It was intended and deliberately and they so state to give a monopoly to the pipelines and never to allow, any and the Solicitor General in the opening sentence of his reply brief, argues that no out of state purchaser should come to a production state and buy gas.

It would strike down the Montana doctrine as well, of course.

Justice Tom C. Clark: Mr. LeBoeuf the law, as it can be, while permitting opinion isolation, doesn't allow the opinion isolation to be hooked up with something else, which produces a different situation.

That's the essence of what you decided yesterday in totally different situation.

Mr. Randall J. Leboeuf, Jr.: Let me answer that and I don't want to transgress on my friend's time, the counsel for Transco.

I say that they may consider Commission in issuing a certificate, may consider, look at non jurisdictional factors.

Take the very simple thing, all gas producers are -- oil producers and vice versa.

Now, one of the great headaches that the Federal Power Commission caused in the tremendous delay in its functioning under the Gas Act is trying to fix rates where they have to allocate cost between gas and oil.

Now, I say that it's perfectly proper for the Federal Power Commission to consider oil cost in order to effectively regulate the gas cost.

That's proper, it's a non-jurisdictional fact, but it's properly considered.

But I do not say because of that, that the Commission may direct that oil company to do something which is regulating the oil business which hasn't been vested, and that is exactly what the X-20 case is about.

They don't -- they're not interested in the transportation.

It's a device to fraud.

They're trying solely to block the sale to use their own words.

We attempted to foil the sale of the Texas producers, Con Edison.

Justice William O. Douglas: Are you acquainted with the Houston Texas case, Houston Texas Gas & Oil case?

Mr. Randall J. Leboeuf, Jr.: Oh yes, I am very well.

Justice William O. Douglas: I can -- how is that distinguishable from -- there I gather that the Commission authorized what it refused to authorize here.

Mr. Randall J. Leboeuf, Jr.: It has in every case, where our – and there's a foundation that I haven't time to get into, of gross discrimination in this case.

Justice William O. Douglas: What do you mean to say, in every case?

Mr. Randall J. Leboeuf, Jr.: I -- I say this.

The new -- our briefs cites the case and it can be checked for accuracy.

I believe that in every case where the issue of a sale for boiler fuel or industrial use was up, the Commission granted the certificate, approved it, and the cases like the Texas case and the Florida case, we call it, that went up, the Court sustained the Commission's power to order or permit the sale.

Now, there were four cases where it denied that power.

Three of them it's subsequently granted in some degree and the fourth one, never went up or never went to any court.

And --

Justice William O. Douglas: When you say every case, then you're talking about the three cases that went to the court?

Mr. Randall J. Leboeuf, Jr.: I'm -- I'm saying that every case that I know of before the Commission --

Justice William O. Douglas: Oh.

Mr. Randall J. Leboeuf, Jr.: They have granted permission for boiler fuel, except those four cases, three of which were modified.

And in the Florida case, the transportation of natural gas for boiler fuel use of the two electric utilities in Florida, was volumes many, many times here involved.

This is only 50,000 Mcf. out of 10 billion that are being used in 1959 for several purposes.

Thank you Your Honor.

Chief Justice Earl Warren: Mr. Connor.

Argument of Richard J. Connor

Mr. Richard J. Connor: Mr. Chief Justice.

I think we have to reemphasize chiefly in connection with Justice Frankfurter's question that insofar as the transportation element of this X-20 arrangement was concerned, that every single regulable item, connected with that transportation, was specifically gone into.

The Commission would have authority to determine whether or not, we had gas to back it up.

They made the determination that we had the gas.

They would have to inquire as to whether we had a market which would support that transportation.

They found that we had a firm demand and market for the gas.

They then would have to determine whether our facilities were physically adequate to do the job.

They made the determination that the facilities were adequate.

They then had to make a determination whether the whole project was economically feasible.

They made the determination that it was feasible.

Justice Felix Frankfurter: Which project was that?

Mr. Richard J. Connor: I beg your pardon.

Justice Felix Frankfurter: You said, the project, you mean the transportation project?

Mr. Richard J. Connor: Yes, the transportation project.

Justice Felix Frankfurter: Your facility, exactly.

Mr. Richard J. Connor: That is correct.

Justice Felix Frankfurter: (Inaudible)

Mr. Richard J. Connor: These are our facilities.

That is correct.

And then the rate was fully compensatory.

They had one minor tiny little exception with respect to an insignificant little rate aspect which the government concedes is not a part of this case.

They found that as Commissioner Hussey in his dissent noted, that's also a fact, now taken issue with the majority, that the X-20 service would make available additional volumes of gas for peaking loads.

That's the 60-day gas which has been explained and re-explained here.

And then, it was specifically found by the examiner, and this is important, that there will be no adverse effect on Transcontinental's other customers or Transcontinental's other regulated business.

And then as it has been indicated here, while I feel that at the point I just suggested, the inquiry on this particular record was at an end and the Transco should have been granted its certificate, we went further in what might be surplusage and put on this very extensive testimony in which was done on the great benefits that would accrue to the City of New York by the suppression of air pollution.

Now the Commission acknowledge that we did all of these things, but they said, there are certain policy considerations, which militate against the grant of this certificate.

Now let me give you a brief history as far as the record is concerned in respect to these policy considerations.

During the course of this trial, before the examiner, there was only a single issue raised, which ultimately became one of the five policy considerations.

And that issue was the displacement of coal or what is then loosely called, end use.

Now we knew that that would be an issue because Mr. McGrath, representing the coal people had been permitted to intervene and that issue was cross-examined by Mr. McGrath extensively.

The only evidence, as Mr. LeBoeuf has told you, that was put into this record, was put into the record by Transcontinental, Consolidated Edison and the City of New York.

No other evidence was put into this record by anybody.

At no time during the course of the trial of this proceeding, was any issue even suggested, vaguely intimated, or hinted, other than the so-called issue of displacement of coal or end use.

None of these, all the four policy considerations that I will come to shortly, were tried on the record, suggested, or even remotely intimated in the course of the record.

The record was closed.

Some three weeks later, the Commission staff brief to the examiner was filed.

And then for the first time, there was recited four or five -- five arguments against the grant of certificate, four of them were completely novel.

One of them, of course, was end use or boiler fuel use.

And you will note in the Commission's opinion that after reciting what the staff and the coal people argued, they list them first, second, third, fourth, and boiler fuel use, the Commission devotes the next two pages to merely paraphrasing those contentions of counsel, which made up the brand new four policy considerations, adopts them as their own, and then they say, that taking these four policy considerations, in conjunction with end use, they served to tip the balance against the denial of the certificate.

Now in the -- against the grant of the certificate, I beg your pardon.

Unknown Speaker: (Inaudible)

Mr. Richard J. Connor: Without going specifically to the record, it's in the order denying rehearing.

And they state specifically that end use -- they are not treating as determinative of this case.

And contrary to the impression that is brought back directly here would seem that this whole case turned upon end use.

Justice Hugo L. Black: Turned upon what?

Mr. Richard J. Connor: Turned upon what has been called end use of the gas.

I'll now proceed to take up each of the so-called denial factors.

Justice John M. Harlan: Did the dissenting commissioner write an opinion, I don't – I can't find it.

Mr. Richard J. Connor: Yes, he did.

Justice John M. Harlan: Where is that?

Mr. Richard J. Connor: 215 in the volume --

Unknown Speaker: In this volume.

Mr. Richard J. Connor: It's in -- in the --

Unknown Speaker: Volume -- Volume 2, is (Voice Overlap) over the place.

Page 260.

Mr. Richard J. Connor: Now the first of these novel policy considerations was that if the Commission granted this request, they would be confronted with many requests of the same general character and granting the X-20 proposal, they would have no fear or rational basis for denying similar such requests.

Now, we assume that the Commission is talking about -- I will assume first, they're talking about a case very closely analogous to this, where large quantities of gas are being bought in the suppression of air pollution.

I submit in that connection, if Your Honor please, that, yes, there are other cities, probably the worst affected city, is the City of Los Angeles.

I presume that it would be fair to say that New York is probably a very close second.

And we may have similar air pollution conditions in some of the other cities.

But I submit in that regard that if they were submitted to the Commission, applications for the use of gas for the suppression of an air pollution condition, such as exists in New York, then it would be arbitrary and capricious not to grant the use of gas for those purposes.

On the other hand, if the Court -- if the Commission, for chances, enlarging its thinking to include the typical industrial customer.

And I'm sure that in the opposition briefs, when they speak of this great insatiable mark, it's going like a gigantic sponge down to soak up all the available gas in Texas so that not a single thousand cubic feet will be left for the resale market, they can only be talking about the broad general, what I call, typical industrial market.

Now the typical industrial market buys gas for one purpose, not for the purpose of suppressing air pollution, but for the single purpose of saving dollars and cents.

Very frequently, these big industrial plants will have two or three valves, an oil valve, a coal valve, and a gas valve, and they will buy the fuel that is the cheapest and that's the sole criterion for the purchase.

Now, let's pause for a moment and see how colossal this market is or is going to be in the light of the constantly rising prices of gas in the field.

In the very Midwestern case, talked about by Mr. LeBoeuf, Midwestern could only be certificated, because the competition from other fuels was so terrific.

It could only be certificated, providing it sold the gas that it purchased from its parent Tennessee at a lesser price than it actually paid to its parent.

And Commissioner Klein, in that case, dissented and took the position that he felt the end result there was one, where the domestic and the small commercial consumer was, in effect, subsidizing the industrial sales.

Well known to the Commission, here is Northern Natural Gas Company.

Some two or three years ago, actually lost the sale of a boiler fuel load to the Council Bluffs Power Plant, right across the river, from its own offices for gas laid down in Council Bluffs, not purchased in Texas, but laid down in Council Bluffs at 22 cents.

Now, to bring the picture closer to Hope as a demonstration of the lack of this insatiable typical industrial market, here's Transcontinental, it had one large industrial customer for boiler fuel, that was the Duke Power Company in the Carolinas.

Ten years ago, we were authorized to sell them a substantial block of gas.

They were interested in the gas because at that time it was cheaper than coal.

And then five years ago, that project was renewed.

It's running out this December.

Duke Power no longer wants any gas from Transcontinental.

Why?

The price is too high.

They can buy coal cheaper.

They're taking a little tiny amount of gas from us, for what they call fuel ignition purposes, but the blocks of boiler fuel gas are no longer wanted because of the competitive price of coal.

And that situation is becoming more and more acute and more and more nationwide so this vast insatiable market spoken up in my friend's briefs, I think is in the land the imaginary.

Justice William O. Douglas: Well, if you were selling gas, I mean you, I mean the Transcontinental selling gas to -- distributing gas or bringing gas to New York for sale in the retail market, you could consummate this transaction, I gather.

Mr. Richard J. Connor: If we ourselves were --

Justice William O. Douglas: Or if you were selling to a distributing company that was selling to retailers as well as to Con Edison that would be alright, I suppose --

Mr. Richard J. Connor: Yes.

I am coming to that point a little later, if Your Honor --

Justice William O. Douglas: In your own time then.

Mr. Richard J. Connor: -- please.

Justice William O. Douglas: Don't let me interrupt you.

Mr. Richard J. Connor: Now next policy consideration was the policy consideration number three to wit, the impact of large demand or relatively limited supply is certain enough to raise rates and prices in the fields, if only one bidder is bringing that demand there.

Now how much more serious is that impact when as the form of multiple bidders, each attempting to reserve to itself a firm supply.

Inevitably, there would be upward pressure on the rate levels in the fields.

We do not believe we ought to encourage such when it's unnecessary.

Now what, in effect, is the Commission saying?

That because Con Edison goes down and buys non-jurisdictional gas that that has a tendency to raise the prices which go through the fully resale regulated channel that the Commission can regulate.

But the plain fact is that price pressure in the field is dependent upon the totality of the demand.

In other words, it, Transcontinental itself, had gone down and purchased this gas and then sold it to Consolidated Edison, the end result, as far as price pressure is concerned, would have been absolutely identical.

But as I will point out so long --

Justice Potter Stewart: That is -- it was said somewhere earlier in your argument that if -- that if the Commission upheld here, Consolidated Edison would find it impossible to get this boiler gas, but actually couldn't they do it just by the method you've just suggested in the -- in the conventional way of buying from the department.

Mr. Richard J. Connor: Oh, yes.

We -- we could buy -- we could buy the gas.

We could buy gas and sell it to Consolidated Edison.

However we'd again be met with the problem that we seem to be run into – run into here, we don't know whether the Commission would let us sell that chunk of gas to Con Edison for boiler fuels despite the fact that it was selling best amounts of sort of combination gas or regular CD gas, a large part of which goes under their boilers.

Justice Potter Stewart: Yes.

Justice Felix Frankfurter: Isn't there another problem that it is raised by the question just put by Justice Stewart?

If the only reason from withholding the certificate was that there was a sale -- a sale or no resale purchase, then it might be argued that the denial of the certificate means they're going to use the certificating power in order to prevent -- to prevent what otherwise are non-regulatable sale, non-sale research.

Mr. Richard J. Connor: That is precisely the point, Your Honor.

And I think that the real basic thrust of the Commission's position, one of the veneers stripped from the other three or four denial factors, is that here, the Commission was very, very reluctant to see any sale made by a producer, which was not subject to the Commission's regulation.

That I think that the whole thrust of the opinion points very strongly in that direction.

I even would venture the notion that since they take the view that end use is not determinative, that had we gone -- we Transcontinental bought the gas and then resold it to Con Ed, we probably wouldn't be here today.

Certificate – Commission might well have certificated that.

But it's been mentioned by Mr. LeBoeuf, this particular gas, Transcontinental didn't dare to buy, and why, because it would have triggered Transcontinental's favored nations contracts to the extent that our gas cost would have gone up -- the cost of our other gas would have gone up by $15,000,000.

And that's one basic reason why Transcontinental was virtually shut out of this field and shut out from making this purchase.

Now, when the Commission talks about the effect that this purchase being to raise the price in the jurisdictional channel, shall I say, I think there's a pretty fair answer to that.

That Congress has given the Commission machinery to regulate those prices in the jurisdictional, purely jurisdictional channel, and irrespective of what the influences are that moved those prices up, the Commission has Section 4 of the Act, Section 5 of the Act, and Section 7, in respect to initial prices.

And they have adequate machinery of control for those prices.

I will get to cut some portions of my discussion of each of these policy considerations, because I'd like to spend a moment on the so-called 1942 Amendment.

The impression is given throughout the briefs that the 1942 Amendment of the Gas Act, in some fashion, gave the Commission authority over the conservation of gas.

As the lower court said that -- as they read this Commission's opinion, the Commission was attempting herein to exercise that general conservation authority over the totality of the gas research.

Now what briefly was the situation?

In the original 1938 Act, the Commission had an extremely straitjacketed, geographical jurisdiction.

They could only certificate another -- a pipeline going into the territory or market already served.

And as Commissioner Manley (ph) points out in his testimony, there were tremendous number of difficulties involved with the administration of that.

One, the question, what was that market?

Was it merely a market served that the actual towns it was served, was it a geographical area, what was it?

He spells out in detail what difficulties we had trying to administer that section.

So that the basic fundamental broad purpose of the 1942 Amendment was to release that straitjacket and give the Commission authority nationwide, and that was its one and total purpose.

And in the course of his testimony, it was indicated that because of the restricted nature of prior certificate authority, the coal people had not been granted full participation so that Commissioner Manley pointed out that a secondary effect of this Act would be to permit the coal people to be treated as interveners in Section 7 certificates.

For what purpose?

For the purpose of them showing the economic effect upon them and that is made specific in the Manley testimony.

Now the implication is that there were recitals in the Hope case and a recital in the East Ohio case that seemed to make reference to the fact that the 1942 Amendment gave the Commission conservation powers.

I happen to have here a copy of the report and I would enjoy having my friends, I have two copies, pointing out anywhere in that report where there is any reference or suggestion of a conservation power.

I don't happen to have Commissioner Manley's testimony here, but I have reviewed it and I think that by no stretch interference, can it possibly be said that there was a single word in that 1942 testimony of his in respected conservation.

And there was a real reason for it.

When this matter was being drafted in Federal Power Commission, Commissioner Manley had one strong objective.

He wanted to get that legislation through rapidly, and in that interest, we brought into the meetings of the Federal Power Commission, the coal people, the railroad people, the representatives of the pipelines, and the NARUC.

For what purpose?

To get every last difficulty straightened out so that this amendment would move through the Commission rapidly or through the Congress rapidly and to have put in any suggestion that we were -- wanted a power over conservation, would have opened the Pandora's Box and that legislation might still be pending.

Justice Felix Frankfurter: Mr. Connor, but the provision as to the large undefined phrase that is required by the present or future public convenience and necessity, that phrase isn't restricted to the explicit jurisdiction or power of the Commission, that includes other consideration, doesn't it?

Mr. Richard J. Connor: Yes, but -- Mr. Justice Frankfurter, it does.

But as you pointed out and I'm sure, it was your decision in the Edison case when you drew a distinction between the broad type of statute like the Interstate Commerce Act and the National racial -- relations -- Labor Relations Act and I think the Federal Communications Act.

And you said when Congress wants to give broad sweeping powers, it uses broad vague language.

And the broader the language and the vaguer, the more is the power to the administrative agency to fill in.

And -- but you then went on the point the distinction in the case of the more restricted statute, such as the Fair Labor Standards Act with which we were dealing.

And I think you must remember that -- and you particularly pointed out the denials of authority that were given to the Fair Labor Standards Administrator and indicated that those were restrictions on the concept of – or the breadth of the powers.

Justice Felix Frankfurter: And your restrictions – can you find the restriction to be in Section 1, in the three categories of regulatable situations.

Is that it?

In 1 (b)?

Mr. Richard J. Connor: Yes, I find -- I find them there.

And in respect to this notion of the Commission that they could give to the pipeline companies, the net result of the Commission's decision is that there is only one group of people that come down into the fields and buy gas, pipelines.

Distributing companies are out, whether they're buying it for direct sales such as this one or whether they're buying it for resale.

The import of the Commission's decision is that they don't want them down there because they raise prices.

I say that they're answered thrust implications or at least the spirit of the antitrust acts are being violated when the Commission restricted them to a limited group of pipelines, when as a matter of fact, the Federal Trade Commission in its report, which is also recited, have that as one of the reasons why they put Section 20 in the Act.

So I think that each section of the Act must be read as a limitation on the concept of public convenience and necessity as it's contained in the given statute and here particularly you have 1 (b) which says that they cannot regulate a direct sale.

I think that's definitely to be read into the concept of public convenience and necessity.

Thank you, gentlemen.

Chief Justice Earl Warren: Mr. Solicitor General.

Rebuttal of James Lee Rankin

Mr. James Lee Rankin: Mr. Chief Justice and may it please the Court.

I'd like to deal briefly with the inquiry of Mr. Justice Douglas about the Houston case, which is also called --

Justice William O. Douglas: May I indicate the thing that's back in my mind.

Mr. James Lee Rankin: Yes.

Justice William O. Douglas: I don't know this industry well enough to know what percentage of the total natural gas is produced and sold to industrial users today, but it must be a very substantial percentage, isn't it?

Mr. James Lee Rankin: Yes, Mr. Justice Douglas.

Justice William O. Douglas: So the policy of the Commission is not to prohibit the sale of gas to industrial consumers.

Mr. James Lee Rankin: That is true, Mr. Justice Douglas.

But there has to be --

Justice William O. Douglas: But they had done it in another way they could do, Con Edison could do what it's doing here, it bought through an intermediary company.

Mr. James Lee Rankin: Well the policy is there must be some special reason to justify because it is an inferior use.

Now in the Houston case, which is called the Florida case because it was to get gas to Florida --

Justice William O. Douglas: But is it -- is it the question of the inferior users, or is it the question of doing it, provided that you do it through a company that is regulated?

Mr. James Lee Rankin: No.

That was a direct purchase in the Florida situation, in the Houston case.

Justice William O. Douglas: I know.

That's -- that's something like this thing.

Mr. James Lee Rankin: That's exactly the same.

And the reason that they permit it with the dissent by Commissioners Connole and Klein at that time was that was the only -- the showing was it was the only way that they could make the pipeline to Florida so that natural gas would be available to people in Florida, economic.

The proof was that was the only way they could get it there, and it was, for that reason and that reason alone, that the Commission proved it.

Now --

Justice Felix Frankfurter: Now, is -- is the --

Mr. James Lee Rankin: Yes, sir.

Justice Felix Frankfurter: Is the objection -- the objection, the cited objection, that this is a purchase for an inferior use -- this is a transaction which leads to an inferior use?

Is that at the heart of the business?

Mr. James Lee Rankin: That is --

Justice Felix Frankfurter: There are -- there are priorities and anything -- that the consumer purchase is the main aim of the statute you say.

And anything that derogates from that is an inferior use.

Is that it?

Mr. James Lee Rankin: Well it's a combination.

It's clearly recognized that this is an inferior use as far as --

Justice Hugo L. Black: What do you mean by inferior use?

Mr. James Lee Rankin: That the superior use is a use by consumers for house heating, domestic use of heating water and cooking.

Justice Hugo L. Black: Is that the -- do you consider that one of the important bases for the Commission's holding in?

Mr. James Lee Rankin: That is part of it, because the Federal Trade Commission, in its report, which was this Court has referred to as the reason for the Natural Gas Act, in which is recited in preamble or the first part of the Act, as being the reason, as said in so many words that boiler use was an inferior use.

Justice Hugo L. Black: But -- but inferior and superior are not synonymous with allowable and non-allowable.

Mr. James Lee Rankin: That's right and --

Justice William O. Douglas: In Con Edison, that the officers of Con Edison, were about to go to prison for polluting the air and that was no other way to prevent it except this and you'd say the Commission would be authorized to – you would be here justifying the Commission's grant of a certificate of this kind.

Mr. James Lee Rankin: I think that the Commission would take that into consideration under public convenience and necessity properly, and it would be one of the factors waived with all the rest of them here to determine.

Justice Felix Frankfurter: Well did the Commission find that the inferior use, the claim of, what is called the end use, air pollution was a (Inaudible) if they find that that was just a screen and a pretense.

Justice William O. Douglas: Well they find other way, but they didn't.

Mr. James Lee Rankin: They found it and didn't justify it.

So that -- but they didn't weigh it.

They took it into account and found that it would not support the award of the certificate.

Justice Felix Frankfurter: All I'm suggesting is the inferior and superior were not written into the statute.

Mr. James Lee Rankin: Yes, sir.

Justice Felix Frankfurter: It's not written into it.

Mr. James Lee Rankin: That's right.

I recognize that.

But on the other hand, conservation is a consideration that this Court has recognized and the Commission has and it's tried to weigh these things.

Now, what the basic issue in this case is that they claimed, they would have a right to buy this gas in Texas and flare it, just let it go out in the air and burn it or just let it go in New York.

And the Commission has no power, except to say whether they'll permit it to be transported regardless of that use.

And the basic issue of the Government -- the Federal Power Commission is that pubic convenience and necessity is such that and has always been conceded to include the various considerations that would make up that and they can deny the transportation even though the purchase is valid and the use would be valid but they don't have to permit transportation that is not in the public convenience and necessity for that kind of use.

Justice Felix Frankfurter: Isn't it a fact though that the fact that the purchase was not regulable was an important consideration in denying the certificate?

Mr. James Lee Rankin: The fact that -- no, the fact that the effect of the purchase on the whole industry was such that it would damage the interest of the consumer was what was the denial of the case.

Justice Felix Frankfurter: But all none -- but all non principle cases, non-resalable sale has some effect on the industry.

Mr. James Lee Rankin: That's right.

But they don't all have this damaging effect.

Justice Felix Frankfurter: Well, this specific case or that the general attitude of looking a sketch at large non-regulable purchases in the field that the Commission was ruled by.

Mr. James Lee Rankin: I think it was be the effect in this particular case plus the fact that this is demonstrated by the record to be something that Transco has held out.

They said to every purchaser they had, but they finally changed what we couldn't hold it out to little purchasers, they couldn't do it.

But they held it out to everyone in their big purchasers if you -- if Con Edison gets it, then the rest of you get the same thing.

And that would destroy the whole gas industry that was to protect the little consumers throughout this country.

Justice Felix Frankfurter: Well nobody -- well there's no pollution problem, never mind whether it's valid in this case or not.

Mr. James Lee Rankin: Yes, sir.

Justice Felix Frankfurter: Where there's no pollution problem, the pollution blame can't be made.

Mr. James Lee Rankin: Well but they used, as I pointed out, case after case here, where they're trying to use it in regard to their burrs, they're using it -- they want to use it in regard to their compressors.

They want to take it all the way around to California through Mexico, to have it not regulated by the Federal Power Commission.

Millions and millions of thousand cubic feet of gas, they're all shown here that these various considerations so that I don't see how the Federal Power Commission could disregard these other potential cases right before their eyes.

Justice Felix Frankfurter: Suppose they made a general rule that no large scale industrial purchasers in the field for non-resale will be allowed.

They couldn't regulate that.

Mr. James Lee Rankin: No, I don't -- I don't claim to have any such power.

Justice Felix Frankfurter: But they could say, we'll give no certificate to, what did they call it, carrier to transport that which you legally bought, they could do that?

Mr. James Lee Rankin: I think so, because I think that they have to apply the public convenience and necessity and if they don't find that affirmatively required, they do not grant it, and here, the fact that this would be damaging to the whole industry and the protection of the consumer and also this business of conservation is not any mere bug of the lure or something that's threatened.

When you think of how the gas passed the reserves that this country have gone down, as far as the estimate is concerned, so that they're talking now in terms of 20 some years in exhaustion, rather than 30 some years.

It's a real consideration, and the Commission says that it has the power to consider all of those elements.

Now, this wasn't a new proposition.

There were 20 years of regulation under the term, public convenience and necessity, prior to the Natural Gas Act and under the ICC and, of course, this Court's recognized that that was the source of that term.

And when you took public convenience and necessity in case after case, in regard to the ICC, you didn't say, why if there can be -- if you can find the consideration that weather or not, this line has got the money and has got the route and whether or not, there's somewhat else competing with it, that those are the only things you can look at about public convenience and necessity.

This Court has said you can look at the whole thing, the whole fabric, to see what it does for the people of this country in the area that's applied for.

And in that, you take all of these considerations to protect the top, the real purpose of the Act which is to protect consumers.

Justice Felix Frankfurter: I don't -- you may recall, I do not recall any comparable institute in the field of -- under the Interstate Commerce Act whereby, the certificating power was used in order to prevent an otherwise congressionally authorize power to block an otherwise specifically authorized congressional, non-regulatable power, I mean, purchase not for resale.

Mr. James Lee Rankin: Of course, I don't --

Justice Felix Frankfurter: I don't think, they're wrong, all I am saying is the situation.

Mr. James Lee Rankin: I don't concede that's the case here.

I say --

Justice Felix Frankfurter: Yes, because they -- they said, the purchase by Con Edison is non-resalable, isn't it?

Mr. James Lee Rankin: Well, nobody's complaining about it.

Justice Felix Frankfurter: Well I know.

Mr. James Lee Rankin: They can buy as much as they wanted.

Justice Felix Frankfurter: What I'm saying is what you're arguing here is that the convenience and necessity power of the Commission can be utilized in order not to reference to itself, but primarily and predominantly isn't just made so clear.

They cleared that moments ago, predominantly, to prevent an exercise of power, which Congress has authorized people to exercise.

Mr. James Lee Rankin: No, Mr. Justice Frankfurter, I think this is different, because I think this particular facility, when you certificate a carrier, you're talking about a capacity of the pipeline, and pipelines don't have indefinite or unlimited capacity.

They are dependent upon their capital power, their power to borrow the money, and the extent of their ability to build such pipelines.

And they can only build so much with any capital structure.

So that you're talking about, shall this portion of the pipeline be used, preempted, dedicated anywhere you want to use for it, for the purpose of this kind.

Is it in the public convenience and necessity interest?

And I think that's where -- that's the test.

Justice Felix Frankfurter: But I'm accepting your argument that this would be adverse to the natural gas industry, but that which is adverse specifically allowed by Congress namely, to purchase not for resale.

Mr. James Lee Rankin: And I concede that the purchase is allowed and they can purchase and nobody is saying they can't.

But I say there is no place that Congress said that if it isn't in the public convenience and necessity, they have a right to transport.

Justice Felix Frankfurter: They can purchase but they -- they have the legal right to purchase, but they can't make that right effective.

Mr. James Lee Rankin: Well they can make it effective for many things but they can't make effective, as far as being transported, because Congress said that has to be subject to the public convenience and necessity.

Justice Hugo L. Black: Your time's up but I'd like to ask just one question.

In regulating sale or resale, issuing certificates of convenience and necessity, has the Commission heretofore taken into consideration the elements that it has taken into consideration here in determining the certificate necessity for transportation?

Mr. James Lee Rankin: Yes, in regard to the end use, it has in the number of cases.

There are some --

Justice Hugo L. Black: What I mean particularly is that it said, some instances that you're going to use to boiler for industry and not enough for homes?

Mr. James Lee Rankin: Yes.

They have in this way, they have said where they applied for gas for boiler use, you can have that gas for boiler use, you can have it for starting the boiler or for the preliminary heating up.

Justice Hugo L. Black: What was the basis for that?

Mr. James Lee Rankin: They took the position that they had a right to control the conservation aspects of end use.

Justice Hugo L. Black: You mean the end use?

Mr. James Lee Rankin: That's right.

Justice Hugo L. Black: So as to a certain extent of bring about an apportionment for certain use for it.

Mr. James Lee Rankin: Well, they were trying --

Justice Hugo L. Black: That's what I gather, you're arguing here --

Mr. James Lee Rankin: That's right.

Justice Hugo L. Black: -- by domestic use of another.

Has that been utilized in our exercise of the Commission's power generally, by it does have power regularly.

Mr. James Lee Rankin: I'm advised that it has and as far as we've set out in the brief in detail, the cases and I think they show that they have tried to exercise it in that manner.

Justice Tom C. Clark: Can you set out in next (Inaudible) that have been approved?

Mr. James Lee Rankin: Well I can answer that Mr. Justice Clark in this way that boiler fuel user contracts have been set out.

We don't -- I don't know of any just like X-20.

This is a peculiar animal, not the way it's come up.

But the comparable boiler use cases have been set out.

Justice Potter Stewart: For direct purchase?

Mr. James Lee Rankin: Yes -- No, the only direct purchase that I know of --

Justice Potter Stewart: The Florida case.

Mr. James Lee Rankin: -- would be the Florida case.

The others are I think, more of the other kind.

Justice Potter Stewart: Purchase of the pipeline.

Mr. James Lee Rankin: But there maybe some direct purchases too.

They're all -- we tried to deal with all.