CALIFORNIA v. FED. POWER COMM'N

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Argument of William M. Bennett

Chief Justice Earl Warren: Number 187, California, Petitioner, versus Federal Power Commission, et al.

Mr. Bennett.

Mr. William M. Bennett: Mr. Chief Justice Warren and members of the Court.

This is a case which has grave issues in it.

It's a case which is of some length and it's a case in which the gravity of the errors can be understood only by a comprehensive and complete understanding of the facts.

The facts are of great significance because they demonstrate the gravity of the three errors which I maintain exist in this record.

I maintain that the Power Commission in this case erroneously, unlawfully and excessive jurisdiction decided an antitrust question not given to them to decide.

I maintain that the Federal Power Commission absent evidence or upon inadequate evidence adopted an erroneous standard of public convenience and necessity in this case, and I maintain that California and other interveners in this case were denied a fair hearing and due process because of things done improperly or because of things omitted to be done and because of things done outside of the record in this case.

And so at the beginning, I should like to point out to the Court that we're concerned here with three principal characters in this drama of corporate intrigue.

We're concerned with the El Paso Natural Gas Company which at that time of this case was the sole out-of-state supplier of natural gas in the State of California.

It is a company with a capitalization of about $1,300,000,000.

It has a utility plant in service of approximately $800,000,000.

It delivers two billion cubic feet of gas per day to the State of California on an average basis.

It collects approximately $300,000,000 on an annual basis from the State of California and it did this at the time of this case without competition from any other pipeline.

It operates a pipeline system extending 6700 miles in length.

It extends from Mexico to Canada.

It extends from Oklahoma to California and it traverses the Rocky Mountain States.

This growth and this size which is relevant to this case, was caused by -- and I don't say this with any degree of criticism was caused by the growth of the State of California.

California with its 16 million people and its five million gas consumers is the number one gas consuming state in the United States of America.

And California as a State is unique with reference to natural gas.

This is not a luxury item.

This is not an automobile you may buy or choose.

This is natural gas which you must have whether you are a householder whether you are an industrialist.

It is essential to daily life in California presently and even more essential when we look into the future.

California does not have coal.

This heightens the dependence upon natural gas.

The homes of California are not so constructed that the householders of California may revert to fuel oil.

The industry of California even such industry as is adopted to converting the fuel oil on given days, peak days as we call them, generally speaking may not reject natural gas and utilize fuel oil because of small ordinances or small gloss.

For example in the County of Los Angeles, from May until November, the burning of fuel oil is prohibited.

This heightens the necessity and the need of my state for natural gas.

80% of the natural gas sold by the El Paso Natural Gas is purchased by the gas distributing utilities in California and they're in turn distributed and pass on the rates and charges to the ultimate consumers.

Justice Potter Stewart: El Paso is a pipeline company only?

Mr. William M. Bennett: The El Paso Natural Gas Company Your Honor is a regulated natural gas company.

It operates an interstate natural gas pipeline.

Justice Potter Stewart: What else does it do, if anything?

Mr. William M. Bennett: It does many other things.

It has 22 subsidiary corporations.

It explores and develops for oil and gas.

It has a --

Justice Potter Stewart: It's a gas producer also?

Mr. William M. Bennett: It's also a gas producer on its own right.

Justice Potter Stewart: And a pipeline?

Mr. William M. Bennett: And a pipeline.

Justice Potter Stewart: And then it sells to local utilities in California.

Mr. William M. Bennett: It sells to the Pacific Gas and Electric Company in the north, the largest utility in the United States; it sells to the Pacific Lighting companies in Southern California, the largest single gas distributing utilities in the Untied States.

It has two customers in the State of California both gas distributing utilities.

Justice Potter Stewart: And that's all -- only those two consumers.

It doesn't sell directly to any large industrial users or?

Mr. William M. Bennett: It sells directly to large industrial users in the States of Arizona and I believe New Mexico.

It makes no direct sales in the State of California.

It comes to the California border and its transmission stops at that point.

It is picked up by our gas distributing utilities.

I point out the size of El Paso, I point out the situation with reference to California because they will become exceedingly relevant as I get into the argument which I am about to make here and after.

Now, the third corporation in this case is the Pacific Northwest Pipeline Corporation.

This is a corporation formed in 1949 for the purpose of acquiring or obtaining a certificate from the Federal Power Commission authorizing it to transmit natural gas through an interstate pipeline, and it made a showing in support of that application that it filed to get this certificate.

The showing was believed by the Commission and on June 30th, 1954, the Federal Power Commission in a decision and order found that the Pacific project would be economically feasible, that it was in the public interest.

And the Pacific Northwest Pipeline was planned, conceived, engineered, designed and constructed to serve the States of Washington, Oregon, Idaho, Wyoming, Utah from a point on the western border between Canada and the Untied States extending down through Washington, Oregon, they're entering over down on through the Rocky Mountains and terminating in the San Juan Basin in the State New of Mexico.

This was the area and the root.

It was designed and authorized to serve.

Chief Justice Earl Warren: Mr. William, may I interrupt you to ask you what other corporation you have been talking about the Utah?

This is the third company.

El Paso was the only one that's stuck in my mind, what is the second one?

Mr. William M. Bennett: I misspoke myself, Your Honor.

I referred to three characters in this drama and one of those actors is the State of California not a corporate actor, however.

Chief Justice Earl Warren: Right.

Mr. William M. Bennett: But these are the three principles to this point in the case.

Now, Pacific, as I said, received the authority from the Commission to operate this pipeline to build it.

And this was done upon the showing and the belief that the Commission had that this would be a good pipeline economically feasible and it was on that basis that it was authorized to construct and operate.

And in April of 1955, the year after it acquired the certificate, its financing was completed.

Apparently, the investors had some confidence in the project as it was proposed to be operated.

Commencing in 1955, the El Paso Natural Gas Company commenced to make overtures toward the founders, the incorporators and the manage -- management of Pacific seeking to acquire it upon some basis or other.

The map discloses and the record in this case discloses that at this time when Pacific in 1954 received its certificate, there were no other pipelines serving gas to the State of California.

But while Pacific was authorized to serve in the States of the Pacific Northwest, the very fact of it serving in those States and the very fact that it was to extend its line to Portland, Oregon put it in a position to furnish gas to the State of California if it could make arrangements with California gas distributing utilities.

So that at this point, the factor of competition was created and it was at this point that the El Paso people begin efforts to acquire the Pacific Northwest Pipeline Company.

So far specific is concerned, there was never any question in -- in its mind that it could be competitive to El Paso and that it could furnish gas to the California markets.

Mr. Fish, the founder of Pacific testified in this record that they considered the California market as being available to them.

Mr. Fish, the founder of the Pacific Company came to California in May of 1956.

He talked to the President of the Southern California Edison Company.

He asked him whether or not they could get together on a gas purchase contract.

So serious with these negotiations that they entered into a letter agreement providing for the delivery of 300 million cubic feet to the Edison Company from the gas reserves of Canada which Pacific Northwest had.

This agreement was not consummated, however.

Now, the reasons were not particularly nor clearly known but the reasons are suggested.

The President of El Paso learning of the fact that negotiations were going on between Pacific and Mr. Quentin and Mr. Fish, Pacific and the Southern California Edison Company came to California, discussed these negotiations with -- with Mr. Quentin, told them he would oppose such a project and said such a project would not be in the public interest.

This is in the record which is before this Court.

Now, I can't say that this is why the Edison Company of California, a large electric distributing utility, did not consummate these arrangements.

We can never know that and we could not find it out before the Commission but it certainly is an inference one can draw.

Now, the record before the Commission on that regard shows that when I crossed examined Mr. Kayser of El Paso as to his interest in this arrangement between the Edison Company and the Pacific Company, that he said in answer to a question, “I said it was not in the public interest for him,” meaning Mr. Quentin “to buy his gas on a direct purchase outside and bring it in to the detriment of the business of the Southern California gas companies.”

And I asked him, “When you referred to the public interest at that time, did you also have in mind El Paso's interest or was it entirely just public interest?”

Answer, “I had in mind both.”

And then dropping down, “You also told him, you would oppose Pacific Northwest, didn't you?”

Answer, “I cannot say that I said that.”

“Well, would you mind thinking very hard about that and recalling whether you said it or did not.”

Answer,” Well, I don't remember saying it.”

“Well, is it possible?”

Answer, “Oh I could have said it sure.”

And this I might observed was the question put to him by an attorney from California and not the attorney from the Antitrust Division in an almost casual, unprepared pleasant bit of cross-examination but with none of the resources that the Antitrust Division might have had upon this point at that particular time.

So that in any event, there was competition, real potential, actual between Pacific in the north and El Paso in the south, and as a matter of fact, the Commission in its decision so found although it said it wasn't that kind of competition which could outweigh considerations coming from the Clayton Act.

There is also evidence of other competition in the record.

For example, in the Ana field which is a gas field in the Southwest part of the United States, the record shows that when the Transwestern Company, another pipeline which does now come to California as does PJT now come to California.

I want to make that clear that in that case when the Transwestern people were trying to get gas to build up their reserves in order to make a showing to justify the getting of a certificate from the Federal Power Commission, that El Paso competed for that gas.

The Transwestern people bid 14 cents then the bid went to 17 cents then the reserves, the gas went to El Paso at 20 cents.

And here, you have the interesting phenomena of a bid for gas of pushing up for the price, all of it serving to increase the rates and charges, the cost of purchased gas of the El Paso Company which got the gas ultimately and all of it of course going to further increase the heights -- the heights to which the cost of produce gas has risen and all of which of course ultimately will be paid -- paid for by the consumers as operating expenses and under the law properly so even though this might have been prevented.

Justice John M. Harlan: Is this -- (Inaudible)

Mr. William M. Bennett: This decision to merge Your Honor does it foreclose them?

I say realistically, yes for reasons which I shall develop here and after.

The answer to that question Your Honor despite the Natural Gas Act and coming from the realities of life, from the realities of Federal Regulation is yes, they are foreclosed.

Justice John M. Harlan: As a practical matter?

Mr. William M. Bennett: As a practical matter, yes.

One other instance of competition I should like to recite.

The Westcoast Transmission Company operates a pipeline in the western part of Canada and it endeavored to deliver Canadian gas through the Pacific System into the Northwestern States.

As the record shows, El Paso injected itself into this contract arrangement between Westcoast and Pacific became a party to a three-party contract and obtained the piece of that gas as we say and when Mr. Fish, the Chairman of Pacific described this arrangement to his stockholders, he described it as meaning, “That El Paso's California market will be protected against the future competition.”

The efforts which I've referred to previously of El Paso to acquire Pacific continued and all the time the efforts were continuing and negotiations were going on, Pacific was going head -- ahead with its building program.

It completed construction sometime in 1956 but in 1965 in latter part of the year, Mr. Fish of Pacific and Mr. Kayser of El Paso agreed to a stock exchange and a stock acquisition of Pacific by El Paso.

And here is where the case has its interesting aspects.

This wasn't done without resort to legal advice.

Apparently, there was some doubt as to the legality of that which was about to be done and so eminent counsel Sullivan & Cromwell were asked about the legality of this transaction.

And this opinion and the paraphrasing of it is in the record in this case in the exhibits which are before the Court.

But El Paso and Pacific were advised, put on notice, you might say, by Sullivan & Cromwell that statutory -- statutory immunity from Section 7 of the Clayton Act is not available.

The matter was not entirely free from doubt but nonetheless, the transaction would appear to be alright so far the present law is being construed.

And it also went on to state that the purpose of the transaction would be as you have represented to us in asking for our opinion.

So here was notice that this thing was not entirely free from doubt.

You can waive the doubt in your own minds as to whether it was great or small but at least it was noticed.

When the offer was made to the stockholders to -- to exchange, they were advised and the SEC prospectus of November 1956 shows that they were advised that if they exchange offer is successfully consummated, it expected that Pacific will continue to be operated as a separate corporation and the management of the company has no present intent of merging Pacific into the company or of having the company acquire Pacific's assets.

It is interesting to note that on January 8, 1957, 80% of the stock of El Paso had been -- of Pacific had been acquired by El Paso so that in reality, El Paso was now in control of Pacific.

This was before the end of January 1957.

In that same month, in that same year, January 1957, Pacific became operational and it became operational with El Paso having 80% of its stock.

Several months later, it had -- it had acquired 99.8% of its stock.

It became operational with El Paso owning 80% of its stock with the El Paso Company taking the President of El Paso and making him the Chairman of the Pacific Board with ten of the directors of El Paso becoming ten of the directors of Pacific.

In short, Pacific as of January 1957 was not an independent corporation.

Its policies, its decisions, its actions were those of El Paso.

Those are the realities of life.

The officers of Pacific who recommended to their stockholders that this stock exchange offer was good and indeed it was from their standpoint depute for money considerations were not entirely free from selfish reasons, understandable, but nonetheless perhaps inconsistent with the true public interest, the true public convenience and necessity of the rate payers of the Pacific Northwest.

The California brief in this case on page 15 sets out the directors and officers of Pacific and the common stock each owned.

And without mentioning each director and the holdings of each look to the fact that Mr. Fish, the Director and Chairman of the Board of Pacific had 118,892 shares of the common stock of Pacific.

And understandably, the handsome offer made was such that the average or perhaps any individual having this kind of holdings in the face of that kind of offer and one of them with the stock option applicable to 30,000 shares could hardly turn down an offer such as this, no matter what other considerations might have entered his or their minds.

The Department of Justice, the Federal Government enters the case at this point because of what has gone before.

They had a curiosity about the stock exchange here and they made inquiry of the El Paso people.

They had meetings with them and they ultimately advised them in July of 1957, that a complaint was going to be filed charging that this stock acquisition violated Section 7 of the Clayton Act.

On July the 16th, after the El Paso people had been notified of this complaint about to be filed, the Board of Directors of El Paso met and authorized the filing of applications to the Federal Power Commission.

On July 22nd, a complaint was filed in Utah charging violations of Section 7 of the Clayton Act.

On July 22nd this was and on August 7th, applications were filed with the Federal Power Commission asking that the very business venture, the very stock acquisition which was attacked in Utah be declared whole by a federal agency here in Washington D.C.

Now, it is true that they sought before the Commission, the authority to transfer the assets or the certificates.

They never pretended to be seeking authority as to the stock acquisition.

Justice John M. Harlan: (Inaudible)

Mr. William M. Bennett: That is correct, Your Honor.

Justice John M. Harlan: (Inaudible) application but there wasn't any suppressive (Inaudible)

Mr. William M. Bennett: Oh yes, I do Your Honor.

Justice John M. Harlan: As far as (Inaudible) of the acquisition.

Mr. William M. Bennett: Yes I do, I do.

I maintain that this was nothing more than a device to utilize a federal agency to defeat the action of the Court in Salt Lake City, Utah and the record in this case doesn't leave too much room for doubt on that score.

The Commission -- the Commission in this case found -- the Commission found that the decision to file with the Federal Power Commission was considerably stimulated by the fact that the Attorney General of the United States was prepared to file an antitrust suit against us.

This is in the decision of the Commission.

The application with the Power Commission was filed on August 7th, 1957 and then a motion was filed the court Judge Ritter in Utah seeking to dismiss upon the ground of primary jurisdiction, It was denied.

This Court denied certiorari from Judge Ritter's ruling in that case.

The matter was sat down for hearing before the Federal Power Commission.

I filed a motion on behalf of California asking the Power Commission to stay itself because of the confusion and difficulty which would arise and the trampling of the public interest which would occur, and that motion was denied.

Following which hearings were held and the decision of the Commission ultimately was issued.

Now, the examiner found that the Commission had the authority to authorize the transfer of one corporation certificates to the other even in the presence of things found to violate the Clayton Act.

He assumed a statutory authority which didn't exist.

He refused to examine economic impact or the effect of this merger upon rates and charges.

He refused to let cross-examination occur as to that, and the Commission adopted this.

The Commission was asked and changed its mind in a petition for rehearing filed in which the specific errors were pointed out to it.

And it refused and the Commission on December 10th, 1959 set the matter down for argument and on December 23rd, 1959, it issued its decision.

I sent a telegram to the Commission asking it to stay its order so that I could take a -- an effective appeal.

It was denied.

I filed a petition for rehearing in which I asked for a stay of the decision so that I could take an affective appeal, and that was denied.

It was pointed out to the Commission in this case from the beginning of it until the last time the Commission had jurisdiction of it that what it was doing was harmful in terms of future consequences to the public interest because of what might happen in the State of Utah when the Clayton Act came on for trial if we are successful here.

Now, those are the facts of the case, Your Honor.

And I should now like to address myself to what I contend to be the error of the Commission and of the court below in the manner in which each disposed of the question relating to Section 7 of the Clayton Act.

To begin with, I don't think there's any quarrel with the proposition that the Commission must consider the antitrust laws.

The City of Pittsburgh case is rather clear on that.

When it passes upon public convenience and necessity, one of the factors in that consideration or judgement is the monopoly question, and there was a monopoly question in this case.

The Commission in denying the motion, I had filed to stay its proceedings until the Utah case terminated, at that point committed error.

It denied unto itself, all of the proofs, all of the evidence and whatever judgement might have come out of Utah by electing to proceed despite the fact that there was an allegation filed by the Chief Law Officer of the United States saying that this was an unlawful stock acquisition.

The Commission went ahead.

And so we would ask ourselves, “Does the directive of the City of Pittsburgh case mean that when the agency considers or has to consider monopoly questions and antitrust questions, it can look to them read them and excuse itself from a duty to -- duty do anything more by saying we've considered them or does it have more meaning than that?”

First of all, the Power Commission has no jurisdiction over authority or at least it thought it didn't at the time this case proceeded before it.

Applicants didn't proceed in that premise nor did I, nor that did the Commission, the examiner nor anybody connect to the case of that point.

So there was no examination, no looking into all of the arrangements, facts and details concerning the acquisition of stock.

The Commission merely looked to the acquisition of so-called assets or acquisition of certificates, and it might be said here that California then nor the public got no hearing upon the lawfulness of the acquisition of the stock.

And we could now take ourselves to the next step in this case where Judge Prettyman passed upon this.

And he said that the stock acquisition in this case because it was so enormous, 99% of the stock is really tantamount an asset acquisition and the asset acquisition and the stock acquisition are on the same and it seems to be implying that the approval of the asset acquisition cures any deficiencies and the stock acquisition.

Well, let us assume he is correct and that where the merger of the stock acquisition as of sufficient size that that does give the agency authority through asset approval to approve impliedly or inherently the stock acquisition.

We then got no hearing upon it.

We got no hearing upon it all.

And interestingly enough, the Federal Power Commission just recently as I referred to our reply brief had set down an order to show cost, asking the Humble Oil Company and the Alden Corporation to show them why they should exchange stock one to the other, in view of the language in the California case and in Judge Prettyman's decision, so they are having a hearing in that case.

And it seems to come down to this.

If the Commission was right when it did not inquire into the stock acquisition then we got no hearing and properly so but the record was deficient as to whatever that might have disclosed in terms of its duty to comply with the doctrine of the Pittsburgh case.

If Judge Prettyman is right and the stock acquisition and the asset acquisition are one on the same, we did not get our hearing.

So in either event, there is error here.

Error on the part of the Commission in not doing, error as Judge Prettyman sees it in doing it.

So in either event, there is error, in the Commission decision or in the opinion of the court below.

Justice John M. Harlan: In what view (Inaudible)

Mr. William M. Bennett: The court below did not precisely suggest nor indeed would have ordered a dismissal of the proceedings in Utah.

But if you relate what it said to doctrines of primary jurisdiction and matters of committee which are inherent in this case, you read into it from his language that the asset acquisition embraces the stock acquisition and since the latter is lawful that there's hardly any point to looking into the stock acquisition.

And the reality is despite any legal through which might obtain the reality is them that when this goes back to Utah if it does, that judge will have a very persuasive thing in front if him by way of dismissing those proceedings.

And in view of the serious allegations here, if that event occurs, we will never have had a hearing upon the allegations made as to unlawfulness pertaining to Section 7 of the Clayton Act.

Justice John M. Harlan: The argument is very (Inaudible)

Mr. William M. Bennett: It comes down to that, Your Honor.

It comes down to that.

But it has certain other factors before we get to that point.

You will note that the examiner in this case said that the Congress gave to the Power Commission the authority -- the authority to excuse violations of the antitrust laws even in the presence of those things sought to be prevented by the Clayton Act.

Even in the presence of those things sought to the prevented by the Clayton Act, which must mean that even if a violation have been made note to him with the limited showing we're able to make in that case, it would have been of no moment because he was preceding under the erroneous notion that Congress gave the Commission the power to excuse violations of the antitrust law.

And of course it did not.

The RCA case, the Maryland Milk case are squarely inline with what powers this Commission has.

But he purported to excuse a violation which might have been his mind and he didn't specifically find one yes or no, but he suggested one at least.

He purported to excuse it upon the language in the opinion which he asserted that Congress gave the power to the Commission when a con -- when a transaction was duly consummated as Section 7 says to excuse a violation.

He was relying upon that Section of the Clayton Act which says that transactions duly consummated pursuant to authority given by name of the agencies, one of which is -- one of which is FPC shall be exempt, pursuant to such statute vesting such authority in such agency.

But that ignored the RCA case.

It ignored the fact that Congress never at anytime in the Natural Gas Act gave this agency any power as to antitrust questions.

The only power it has is under Section 20 where it must report a violation of such or may report it to the Attorney General.

It isn't equipped by nature or staff to handle antitrust questions and then ensured it was never intended by the Congress that it should pass it on antitrust questions as he purported to pass upon them.

The thrust of the decision of the Power Commission is that we may pass upon and excuse violations of the antitrust laws.

And this is more, this is more than just considering them, this is deciding them.

Now, aside from the authority, aside from the authority which I maintain doesn't exist, there was another question here and it goes to your question about abuse of discretion.

I don't think there's any quarrel at all with the proposition that this agency simply does not have the power to decide antitrust questions as such.

And if an antitrust violation appears before them in the case, they have no discretion to issue a certificate.

But even assuming they did, let's talk about this and not as the law dictates the conduct to be followed but as the best way or the sound way of doing it within proper discretion.

The Attorney General of the United States files a complaint saying Section 7 of the Clayton Act has been violated.

We are not to presume that that complaint was likely filed, that it wasn't fortified by a wealth of investigation and material and that there wasn't something to it.

That's the first thing.

California asks the Commission to stay its proceedings.

We predicted.

We didn't know how successful we were, but we predicted that we would one day perhaps be in this Court upon this very question.

We had in mind the mingling of assets, the public interests, the rates and charges that would be imposed by a combination said to be unlawful in which when the trial in Utah if it does conclude and may say that this was unlawful and the rates and charges collected, what happens to those in the meantime.

I don't know what the answers to these things are.

I do know that we've got a case in which the consumer interest because of the situation created by not waiting are being damaged greatly if the complaint in Salt Lake City be correct and it may well be proven to be correct.

And this was the abuse of discretion.

The other clear abuse use of discretion was in failing to state proceedings to take the material from Utah and have it before them to have their judgment one way or the other.

And not doing that, how then were they complying with the doctrine in the City of Pittsburgh case to give consideration of monopoly or antitrust questions.

It must mean meaningful and proper consideration.

Justice John M. Harlan: (Inaudible)

Mr. William M. Bennett: Yes, they did Your Honor.

There was a series of letters exchanged between the Power Commission and the Department of Justice and each one was apparently reluctant to proceed.

But it was not -- it was not until my motion was filed asking for a stay on September 8, 1958.

It was not until that motion was denied that in October then, the District Court stayed its proceedings.

And of course, the proceedings before the Commission had commenced in September.

The motion was denied on the 15th.

The proceedings commenced the 17th and the District Judge in Utah states his proceedings on October the 10th because the denial of California's motion as I take it was clear notice to the District Court, we are proceeding.

And I maintain of course that discretion must be lawfully exercised that it can be abused and it was abused here.

Justice John M. Harlan: (Inaudible)

Mr. William M. Bennett: That is correct, Your Honor.

Justice John M. Harlan: (Inaudible)

Mr. William M. Bennett: I realized that Your Honor but --

Justice John M. Harlan: There's a great deal to it more than that.

Mr. William M. Bennett: Yes, there's a great deal more to it than that because we are concerned here with whether or not jurisdiction has been properly exercise.

Now, let's approach this case from the interest of great pairs or consumers along the entire system which is now one.

The Power Commission has authorized the merger.

Stock has been exchanged, debts cancelled, contracts made.

There have been all manner of things done since that merger, that effect on January 1st, 1960.

There was a proceeding in Utah which says that this entire thing is unlawful.

The merger itself comes out of the stock acquisition.

It grew out of the stock acquisition in the first instance.

The stock acquisition may violate Section 7 of Clayton Act.

Now in the interim, let us assume we can go back to Utah and tried this case.

In the interim, and it's been two years now while we're in the limbo of non-determination as to lawfulness, what about the public?

What is being done which might not be done if the agency had waited and the Court in Utah had proceeded the judgment, could California for example have another pipeline today?

Is there a pipeline serving California today which is not being fully utilized because of this situation?

I could ask all manner and kinds of questions as to the public harm which I think exist today because of the fact that the Commission proceeded first.

The Attorney General of the United States filed the complaint.

He said this violates the law.

The Federal Power Commissions said it does not.

And the Federal Power Commission thought it had a Section 5, 11 power such as the Interstate Commerce Commission has to exempt these antitrust violations from the antitrust laws.

And in reality, it does not.

And I might observe at this point Your Honors that there was no compelling haste to rush into the Power Commission and they get a decision out of it as quickly as it did.

If the merger were that good, it would still be there after the judgment in Salt Lake City had been handed down.

And if it were determined to be lawful, it would have been a sound way of doing it.

As it is, whatever rights the public has in this case have been ignored now for almost three years.

And I stand here before you today, we are being served by a pipeline corporation which still stands today charged by the Attorney General of the United States with being unlawful.And there's never been any determination of that.

I should like to point out to this Court and this is suggested by the question Justice Harlan asked that there're seems to be inherent in his question the notion that we are being protected in some manner because this was done by a regulated Commission.

And the briefs of the Government and the briefs of the El Paso companies speak of this complete blanket of regulation which is to protect this in the interim.

There is a Natural Gas Act and there is regulation but there is not a complete and a pervasive scheme of regulation.

And let me spell out what I mean.

We're not dealing here with a public utility in the normal sense.

We're concerned with the pipeline corporation which is regulated because as the access, it's effective with the public interest and because it makes the sale and the gas is resold in interstate commence.

This Court in the CATCO case had occasion to comment about the inordinate delay on the part of the Commission in Section 5 proceedings.

And I don't say that critically.

There are reasons for that delay, but I say it factually.

You said that in the Atlantic Refining case, in 1958, when you talked of the Section 5 proceedings which appeared interminable and reference was made there to the fact that the Commission had not yet gotten around to regulating producers and that is a fact.

That fact has an impact upon other business before the Commission, rate cases, rate cases which have a priority under Section 4 of the Act or not getting that priority.

Let me relate the experience of my -- my state under Section 4 of the Act.

A docket known as G-4769 which was filed in October of 1954 took five years from the date of that filing to get a last order or decision from the Commission on it.

That was five years.

Since that time, we have had three other cases and we finally got hearings on them commencing in the middle of 1961.

I don't say it critically perhaps but I say it factually.

Committees of the Congress have criticized this factor which exists at the Commission.

The FPC itself in recommendations to the Congress has asked for answers and remedies to this.

The Power Commission has no complete authority or any authority over the security issuances of pipeline corporations.

In short, it does not have that complete type of regulation which is to be advanced here today I presume which would be presented as a reason for having this pipeline merger regulated because that would protect the public interest.

The answer to that is it is just not so.

For example, rates, rates are set not by the Commission upon its initiative but rates are set by the pipeline companies upon their initiative by filings they make or filings they choose not to make.

I should like to, at this point, take the Court through the chronology of events here to show the lack of discretion and to show also perhaps the lack of judgments on the part of the applicants below.

You will recall that legal advice suggested that there was no statutory immunity so far as this transaction is concerned and it was not free from doubt.

In December 1956, the Securities and Exchange Commission wrote a letter to the applicants asking about possible application of the antitrust laws to this transaction.

On July 12, the meeting was held with the Antitrust Division of the Department of Justice concerning the antitrust application to this.

On July 16th, they were advised by the Justice Department that complaint would be filed.

On July 22nd, the complaint was filed.

On August 7th, application was filed with the Commission.

On September 8, California asked the proceedings be stayed at oral argument.

The antitrust question was argued and the consequence is predicted.

And the petition for rehearing, a stay was requested.

Now, what I am saying is simply this, there is a great obligation here, a great obligation under the Natural Gas Act upon the part of management in this case to do that which is best and that which is right.

Let us look at this for the moment from the point of view of management as trustees, officers, fiduciaries.

Was it a wise thing regardless of whether it was lawful or not to take investor's money and put it into the state of hopeless confusion, which if the Justice Department succeeds in Utah, will be a condition which could have been avoided and certainly should have been avoided?

There's that side of it.

We're not just --

Justice John M. Harlan: The antitrust case might have been (Inaudible)

Mr. William M. Bennett: Your Honor, they were, to my memory, neither invited nor excluded.

They did not participate at all.

Of course, the RCA case points out quite clearly that there was no point for them to intervene in the RCA case.

There was no obligation to intervene before the FCC because the antitrust enforcement responsibilities rested in the courts in that --

Justice Felix Frankfurter: But they're not an independent legal entity with the right to intervene the antitrust division?

Mr. William M. Bennett: That is correct, Justice Frankfurter.

But I assume that Justice Harlan meant that the United States of America intervene and --

Justice Felix Frankfurter: Well, but Solicitor General of the United States is here.

The Antitrust Division is under that general umbrella of the Department of Justice.

This notion that separate divisions of the department can come in and litigate on their behalf, it -- it's a strange notion.

Mr. William M. Bennett: Well, it may be strange but they do intervene in proceedings before the ICC under that Act.

Justice Felix Frankfurter: Well, maybe they do but they have an understanding here as such.

Mr. William M. Bennett: But that -- that is not my family, Your Honor.

Justice Felix Frankfurter: Why not?

Mr. William M. Bennett: -- that's the other side of the table.

Justice Felix Frankfurter: That's what I'm suggesting, Mr. Bennett.

Mr. William M. Bennett: Yes.

But I was asked the question and I was giving it the answer the best of my ability.

Chief Justice Earl Warren: We'll recess now, Mr. Bennett.

Print this transcript Transcript: 

Argument of William M. Bennett

Chief Justice Earl Warren: (Inaudible)

Mr. William M. Bennett: Yes, Your Honor.

As I calculate my time Your Honors, I have approximately 45 minutes remaining and I shall save some to close.

And I would conclude my argument concerning the antitrust proportion of this case by reading from Judge Prettyman's opinion.

Now, this is what he said and this is what is being reviewed here today and it refers to the stock acquisition as compared to the asset acquisition.

He says, “It seems to us that the acquisition of all the stock of a company or as in this case, 99.8% of the stock with a consequent transfer of assets from the acquired subsidiary to the acquiring parent is an acquisition of assets.

It is indeed one of the most usual methods of acquiring assets.”

We think the transaction here involved cannot be split into two separate and independent transactions, one the acquisition of all the stock and the other, a transfer of the assets.

If this be correct, for the first time, the Federal Power Commission is being given power over securities and I'm not going to argue the proposition to this Court that it does not have such power.

If he'd be correct that they have acquisition or authority over the acquisition of the stock, we did not get our hearing, that matter remains to be determined in Utah.

And if he'd be correct that we did not get our hearing upon the acquisition of the stock, there was a lack of due process or less than a complete record upon which to make a judgment into -- in this case as to the lawfulness of what was done and certainly a clear abuse of discretion.

The second important factor in this case pertains to rates and since we're dealing here with the monopoly question, the question of rates is crucial, it's crucial.

Most monopoly questions concerns questions as to whether or not the public is going to have to pay more than otherwise would because of an unlawful monopoly.

And in this case, the Commission refused to permit cross-examination upon the question of rates.

Let me read to you what the examiner's decision relates.

He places a title upon one of the portions of the opinion -- his opinion this way, Lower -- lower rates in prospects, savings and operating expenses, reasonable anticipation of lower rates.

He says, “The unit cost of transportation of -- to all markets should be less.

He refers to economist, and then he comments upon some material placed into this record by the applicants at the request to the stuff of the Power Commission.

And he describes it this way, “In this material related to future rate base and rate of return, the money they need from the rate payers, gas expenses, depreciation -- depletion and depreciation, taxes and other information.”

This additional detailed information was submitted to the staff by El Paso.

It is at most merely certain thoughts or ideas.

These were accounting calculations as to revenue deficiencies.

This expression of El Paso's views, the applicant upon this subject is certainly not relevant to any issue rightfully and logically related to the basic issue of whether the proposed merger is in the public interest.

This is true because the merger herein authorized is to have no effect, whatever upon any rate being paid by any customer of either El Paso or Pacific.

He goes on to say, it must not be predicted here what the future rates will be and then he concludes despite that material before him and despite the contention of California that the economic impact or the cause to this was crucial in determining whether it was in the public interest despite that he says, “Therefore, all evidence relating to future rates to be charged from the unified system is irrelevant to the basic issue of whether the merger is in the public interest.”

And the court on appeal adapted that as to the Commission of course before that.

What was wrong with that?

In short, everything.

To begin with, the applicant's showing went into the question of rates and benefits.

So as a matter of fairness, we should have been permitted to cross-examine.

The examiner himself talks of lower rates.

Well, are these proceedings to be conducted in such manner that we can inquire as to lower rates but we can't test to see the possibility of higher rates?

We're dealing here remember, Your Honors now as to the public convenience and necessity, the public interest.

The Federal Power Commission has been directed for the Congress as set forth in this Court in the Hope case to protect the consumers against exploitation.

That's the sole purpose of the Act and exploitation takes the form of dollars and cents.

This agency itself consistently in cases and I've cited them in the appendix.

In Section 7 proceedings has inquired into rates and has authorized new projects upon a specific rate.

From the Kansas case which is cited in my brief up until 1962, you will find that every Section 7 case of any consequence, and mind now, they're not merger cases such as this but they're acquisition cases because that's all it is.

It's not a merger and the word isn't mentioned in the Act required specific rates.

In 1939, the Kansas case rejected the applicant's showing because of the present inadequate state of the record with regard to the proposed rates, proposed mind you.

In 1960, in the El Paso Docket G16 235, the rates proposed were considered and rates scheduled G1 was an exhibit in the case.

I'm not going to go through from 1939 to 1960.

They're in the appendix to California's brief in this case but they stand for the proposition at the very least that this agency was under the notion that consistent with its interpretation and duty under the statute, it must inquire into specific rates as to future things, and isn't it a matter of common sense here.

We're not talking just about present convenience and necessity.

We're talking about the future public convenience and necessity.

Now, the second thing I would point out to the Court or the third thing is that the Congress indicated in the legislative history in California's brief when it amended Section 7 of the Act that it was giving to this agency the power to study quote “characteristics of the rate structure.”

And so for these reasons, the purpose of the Act, the administrative meaning they put on Section 7, what Congress meant, this was gross error, was failure due process by way of cross-examination rights, not to go into this subject.

And in answer to the Government's contention that we were permitted to do it, I deny it but I could even concede it by saying as the examiner said it was irrelevant anyway.

He paid no attention to it.

Now, one of the things then that he didn't pay any attention to with the ignored rates and the evidence pertaining to rates was -- were Exhibits 420, 421 and 422.

And this Exhibit 421 or 420 rather was prepared by Mr. Simmons of the staff of the Federal Power Commission and it shows a revenue deficiency of $60 million as a consequence of this merger.

And in terms of antitrust questions and harm or impact because the position and the posture of the case today with reference to Utah and what isn't being done there or what was it done, there has been visited upon the El Paso system since these merger proceedings, a rate filing in the amount of $25,967,000, that was March 1st, 1959.

On August 24th, 1960 and increase filed and being collected in the amount of $21,216,100 making a total of rate increases of $47,283,100 since the merger was effective, since the stock acquisition.

Now, I don't say that this is entirely or all attributable to the merger.

But the point of what I am saying is this, nobody can say that it isn't because we weren't permitted to go into it and it's no excuse.

It's no excuse to say that California didn't make a showing or that you didn't make some precise (Inaudible) objection.

The answer is this Commission has a higher duty than that and it can't be taken on and off like a pseudo-close depending upon the chance, ability of an intervener.

This Commission has a duty under the Natural Gas Act to protect consumers and that duty never changes whether I'm equipped to appear before them as an antitrust lawyer, as an expert Federal Power Commission lawyer or as a chief counsel of the State of California Regulatory Commission.

Those things don't change.

And by failing to do that in this case under Section 7, they did not meet what Congress intended when it said to them decide what suites the public convenience and necessity.

In short, the customers of the merged system were told accept it, it is beneficial to you, whether or not it's going to be costly or efficient or good, we will get to those considerations here and after.

In the rate cases, Justice Harlan, where it does little good to talk about it because the door has effectively been closed.

Now, let me state one basic thing here.

How or in what manner could they ignore the future impact upon rates?

El Paso acquired a company which was never permitted to operate independently, a company which by the way sold gas at less than cost of service when El Paso managed it, a company which might have had as part of its revenues, $30 million but for the fact that the decision to charge the full cost of gas was not made.

El Paso owned all of the stock of that company.

El Paso diluted its earnings, wanted to acquire Pacific.

It issued $5 million shares of common to get Pacific common.

Pacific had no earnings to give.

It imposed a requirement upon El Paso to pay out $6 million more in earnings every year and that earnings on book went down from approximately $2.39 to $1.31 or $1.50.

I can't recall.

This was the impact.

This was what wasn't going in to and yet Moody is up in New York could see it right away.

Now, doesn't it seem reasonable that Commission could have done that and should have done that?

For example, if the authorized in fair return for El Paso alone before merger was 6% and there's imposed upon them a requirement to pay out $6 million more than previously, what happens to that 6% fair return?

It is affected and I don't care whether it was affected downwardly or upwardly.

The point is nobody looked into it.

And of course, I don't want to be in the position Your Honors of urging this simply as a matter upon the part of California and California alone.

All of the assurances about the benefits of this merger with reference to Pacific Northwest States, the Rocky Mountain States in California are still nothing more than talk in the realm of salesmanship and it may well be that the benefits predicted for the Pacific Northwest are true but on the other hand, they may be untrue just as with my state because nobody as a matter of the fact finding process knows.

It just wasn't going into.

I shall turn now to questions of due process in this case and I have referred in the brief of California to the chance remark, the examiner who heard the merger case made in a subsequent case.

And I don't talk about this now critically in the sense of personal criticism.

The Court doesn't sit long enough to listen to my shortcomings but that really isn't the point, is it?

The point is that we all have responsibilities as public officials and we meet them or we don't.

And the examiner in another case said that he didn't examine carefully more than 15 or 25 of the exhibits in the merger case.

The first question I would ask, “Did he examine Exhibit 420 showing the revenue deficiency?

Did he examine the Exhibit which shows that Pacific Northwest could have and presumably should have recovered full cost to service on some gas it was selling?”

He told this previously that this was irrelevant anyway.

What did he examine, what didn't he examine?

I don't know.

Now, certainly if this were the only error in the case, I wouldn't be here.

I practice law too long for that.

But this case is presenting an entire picture and it isn't the first error that makes a reversal and isn't the fourth and isn't the fifth but there comes a time in every case where the accumulation or body of mistakes constitutes grave error and so it is in this case and of course, just proceeding from the fact that this is a federal agency of the United States of America dealing with the sovereign state and not one person or two persons in private litigation.

The mistakes here again become crucial and critical.

First of all, what kind of a standard is going to obtain in these cases and secondly, in view the interest of the entire half of the Western United States which are really involved in this case is this to be permitted along with the other errors in the case.

I say it should not.

You will notice for example in disposing of the antitrust question that there is another error of due process and that's quite simple to relate.

The Commission found that competition existed because the Transwestern Pipeline had been authorized on August 10, 1959 which was a fact and because the Pacific Gas Transmission Company had filed an application which was not yet decided, still in the process of hearing which was still before the Commission and I suppose in some way, it was known it was going to be approved.

Now, I don't say they can't take official notice of their own proceedings but that isn't the point this time.

The point is could they take official notice that these other two projects were of such size as to furnish real competition to El Paso to the merged corporation and the answer to that is no.

They weren't equipped for it.

That was to be determined out in Utah.

They didn't do it and they couldn't do it but they purported to do it.

Now, this is somewhat like saying that if General Motors were the only automobile manufacturing corporation in the United States and a proceeding where before a court as to whether were monopoly that the court could excuse it by saying we take official notice that the Studebaker Corporation is about to open a plant in California.

It is just about as ridiculous as that and it is precisely that which was done in this case and that is error.

Now, the other thing about which I wish to talk and it may be a matter of some delicacy but it's not for me to waive the delicacy of the matter.

It's my duty to urge it and that pertains to what I call the lack of due process and the lack of fair hearing coming from the so-called ex parte contacts in the case.

I maintain that I have here and not just a suspicion but I have something that we can grasp because of the importance of this cur -- case in terms of that and that is the fact that in this case, time was an issue.

We've been through that.

We know time was an issue.

There were motions to stay.

There were arguments made to advance it because of tax savings and all the rest of it.

Time was an issue at oral argument.

Counsel for applicants asked that the case be decided within a week and I respond and I said, “Please gentlemen, not a week, not a week on a matter so grave as this.”

And there it was the way the lawyer should do it out in the open, we want more time.

Now, unbenounced to me, applicant's president had visited one of the commissioners and had asked him to expedite some of the cases.

This was brought out in proceedings before the so-called Harris Committee, a lobbyist retained by applicants according to the testimony of one of the previous commissioners, asked them occasionally to hurry along some of the case.

The cases weren't specified.

I will conceive that.

But these requests occurred during the period when the merger proceedings were before the Commission.

And what was it?

What was it which swayed the Commission to decide this case on December 23rd after oral argument on December 10th?

Was it counsel's requested oral argument?

I said don't do it.

I send a wire saying, “Stay your -- stay your judgment.”

I previously filed the motion asking him to stay the entire case.

Was it the persuasion of counsel saying we want it done within a week which did it or was it something else?

I don't know.

I will -- will concede it's merely a suspicion but if you look at the United Airline's case, decided in the Court of Appeals here, there was what they called marginal conduct.

And in that case, the Department of Justice in its brief said that, “For the preservation of the integrity of the administrative process, the matter should be remanded for self-investigation.”

Now, that is one event which occurred.

Let me relate something else.

And again, I'll be the first to state, this comes from suspicion.

On September 8th, 1958, I filed a motion to stay the proceedings.

On September 11, 1958, a man's employment is -- as a lobbyist for Pacific Northwest visit a commissioner.

On September 15, 1958, my motion was denied.

At the hearings before the congressional committee, what was said was not remembered.

This was not an investigation particularly to find out the truth of this matter or the non-truth of it either way but this is what occurred.

This agency voluntarily adopted the standard of ethics, which is the same as out of practitioners before the courts of District of Columbia ethics.

And so, I would say one way we should measure this is to imagine that type of case in which time is a crucial factor, a man's life, valuable property, whatever but time is a factor and argument is made as to time.

And then one of the parties or its representative asked the judge, please expedite some of the cases.

Does he have to tell that judge that this is the case?

What was the most important proceeding these applicants had before the Commission at this time?

It would not be proper to do it to a judge.

If it were known to me in California, I would move to disqualify a judge as my right.

This wasn't known to me until after these proceedings were over.

If you read -- if you read in the appendix to California's brief, the relations between the members of the Commission and the applicant's representatives, you will see a Christmas party, it's in the appendix.

It's in the reply brief of petitioner to briefs for the Federal Power Commission and El Pa -- it's this blue brief Your Honor when we were still seeking certiorari.

It makes interesting reading.

I won't purport to -- to read all of it now Your Honors but you will note on page 11 that one of the commissioners was asked by the counsel for the Committee and then they get into discussing the merits of the case, commissioner not necessarily.

Mr. Mack, while you're getting awfully close to discussing the merits of the case, Mr. Stuke, I think so sometimes.

So on page 11 of this blue brief, it's in the appendix, Your Honor.

Let me refer you to page 9, same commissioner.

Mr. so and so comes in to pay a special call more or less.

Frequently, he may have a new story to tell, occasionally the need for expedition or the need for handling of matters.

Now, this gentleman as the record here shows is the representative or lobbyist for the applicant.

And I can't conceive that his duties would be other than advancing the cause of the applicant and that's what he is doing here.

I cannot accept -- accept from this Court the judgment of the Government that California wasn't harmed because the Government simply doesn't know.

There's been no investigation of this, and I add what occurred here so the other errors in the case.

And I say that in this case because of the setting of it, this is indeed crucial.

And of course there's a -- there's a bigger and a higher reason for my criticism than that and that goes to the fact that we're dealing with the federal agency, which should have the highest standards that human beings could have and that they didn't exist in this case.

Now, the answer that's going to be made and always is made and the commissioners themselves told this to the Congress, there are certain matters where we need to help of the industry.

We have to get their point of view.

That's in the record on litigated matters mind you.

This Court is listening to this case and it's a difficult case to expound in one hour and a half.

But I'm sure you can decide it and I know you will and yet, you're doing it only upon the assistance such assistance as a lawyer can give through briefs and argument.

The Courts of Appeal have been placed by Congress to sit in judgment upon decisions of this agency and they don't have the assistance of the industry on matters like this.

But when you get down to the Commission, the notion exists that there must be a need for this type of thing.

Now, that's a false premise, it isn't true.

If it's true and if that's going to be the way the game is played, it should be set forth in some manner known to all so that all rights can be protected and of course, I don't advocate that for a minute.

Now, Your Honors, I have -- as I calculate it 14 minutes remaining and I will conclude and I shall reply to the Government, Mr. Dean.

Thank you very much.

Argument of Cox

Mr. Cox: Mr. Chief Justice, may it please the Court.

The difficult and rather complex issues in this case as I conceive it revolve around the relationship between the antitrust laws and the suit in the District of Utah and the Natural Gas Act and its administration by the Federal Power Commission.

I think it would be helpful if before addressing myself to the legal problems on that point, I would review the essential facts so far as a -- bear upon it.

And the Court if I'd helped -- find it helpful I think when I do that if you were to turn to the back of Mr. Dean's brief, which is the large white brief which contains map of pipelines in the western part of the United States.

El Paso Natural Gas Company is a company operating originally in the southwestern part of the United States and the great bulk of its business as Mr. Bennett told the Court now consists of taking gas to California.

The original line was the most southern.

It ran from West Texas, the Permian Basin which is a large dark blotch just about on the New Mexico, Texas line, west you will note to Blythe, California, the state line.

And at that point, El Paso delivered the gas to the Southern Californian companies which were the distributors for them -- to all retail consumers and as I understand it to virtually all industrial consumers.

It's important to bear it in mind that most of the gas from the Permian Basin, that is this southern one, was residue gas obtained from the operation of oil wells and therefore, it is gas of the supply of which is dependent and not only upon regulation by the State Commission as the amount of oil that can be produced but also dependent upon the habits of oil producers.

El Paso second line run from the San Juan Basin which is up in the Northwest corner of New Mexico over to Tupac, California, most of the -- in fact, the gas in the San Juan Basin as I understand it is dry gas, that is to say gas from wells which produced only natural gas.

And at Tupac, El Paso delivered the gas which it transported to primarily Pacific Gas and Electric, which then piped it by the black line you will note up to the Northern California, the San Francisco Bay area.

There was also apparently a link to the Southern California companies there.

And in time, these two systems were linked together.

I'm talking about what railroad parlance, what I guess we called the trunk lines, the two lines going west.

There was an enormous California market and a market, a demand in which was constantly increasing.

And as I shall explain later, one El Paso's problems and one of the great concerns of the Federal Power Commission, was to assure gas supplies which would meet the needs of the California consumers.

During most of the period of which we are speaking, El Paso was the only supplier to California.

There has since been certificated and I believe is now an operation.

A pipeline owned by Transwestern Pipeline Company, which is the black line running from the Permian Basin in the south and then the San Juan Basin up paralleling the line of El Paso.

That is now another certificated natural gas company.

In addition, there has been certificated and I am told there is an operation today, a line running down from Canada.

Its begin -- you'll see it's a black line made up of dots, up just about on the Canadian border, the state line between Idaho and Montana, and then it cuts down across Washington and Oregon, and eventually down into the Sacramento Valley, and so the populous areas of Northern California.

That line is owned and operated by Pacific Gas Transmission Company, which is a subsidiary again of Pacific Gas and Electric Company, the distributing concern in Northern California.

In coming to Pacific Northwest Pipeline Company, I would emphasize first that in dealing with this case, we're dealing not with all in the established operations, but for a very large part with plans, for example these last two companies I mentioned have built their pipelines during this litigation while we were arguing about the El Paso's monopoly, two new companies have come into the field.

Chief Justice Earl Warren: How big are they compared to the size of El Paso?

Mr. Cox: They, I'm sure, are good deals smaller than El Paso.

I don't recall that the record shows precisely, but they're considerably small, all of these companies are smaller than El Paso.

No question about that.

Pacific Northwest Pipeline Company is an enterprise which was not in operation during most of the period of which we're speaking.

It made it first application to build a pipeline to the -- and operate a pipeline, the Federal Power Commission in June of 1950.

The certificate was granted in June of 1954, and then it could begin to build its operations commenced on January 1, 1957, and 1957 was the first year of operation.

That pipeline was certificated to carry gas from the San Juan Basin where the dry gas was available to the Pacific Northwest, which at that time was the only major part of the country, which did not have natural available.

The line, you will know, again, it's in red on the map runs from the northwest corner of New Mexico, up through the -- what was must have been the very difficult Rocky Mountain territory cuts across the little corner -- southwest corner of Wyoming and then up through the Snake River country up to the Columbia, follows the Columbia down at the Dales and a bit beyond, and then goes up to Seattle, and eventually to the Canadian border.

There are several things to note about Pacific.

First -- the first dimension to with that it was certificated to carry gas from the San Juan Basin, a dry gas area up to Canada.

It also it runs very close to and indeed touches at some points, the Rocky Mountain fields, which are one of the large -- or a number of the large unexplored areas in the country from the standpoint of natural gas, where it is anticipated that reserves might be developed, and then it goes on up to Canada.

It should also be said, however, that at this time, there was a greatly increased interest in Canadian gas.

It was known there was gas there but exploration in development was being pushed and reserves of Canadian gas were becoming available.

So that I think it is only fair to say that this pipeline, as the promoters looked upon it, could have been a link going in either direction.

You could carry a domestic gas up to the northwest so they wouldn't dependent upon a foreign country or if the demand where for more gas and we could get coming from Canada into end of this country then it could be used to carry gas south.

The second thing I would emphasize -- or let me put little differently.

I want now to turn to the relationship of between El Paso and Pacific Northwest.

First, so far as markets, that is sales are concerned, there was at no time any actual competition between El Paso and Pacific.

Indeed, there was no actual competition because there was no pipeline leading from Pacific Northwest Pipeline to the California border, much less any California market.

There were unquestionably, some possible lines.

There was perhaps one should say potential competition.

And Mr. Bennett has mentioned the hope of Pacific's chairman, that he might be able to intro -- to interest some Californian distributors in taking gas from Pacific.

The -- that would have required -- the distributor or really user, with whom Pacific's chairman had spoken, was Southern California Edison, a large industrial user, who had been taking gas on an uninterruptible basis from El Paso, but who was in trouble with the local authorities because with the smog problem in Los Angeles.

And Pacific had had some talks with Southern California Edison, about Southern California Edison taking gas which would be Canadian gas presumably from Pacific Northwest.

Now, the President of the Pacific Northwest testified at the hearing in this case.

It does talks -- never got at all close to reality.

He said -- well, I've misplaced all these papers.

He said they never came close enough to worry about in terms of financing.

And there were some practical reasons for that.

You had to build a pipeline.

And the pipeline of course, would have to be financed.

Southern California Edison could not -- and everybody recognize this, use enough gas to justify building a pipeline from the Pacific Northwest Pipeline Company down to California.

What have to be done from the promoter's standpoint was to take this tentative agreement, with no price fixed, in which was subject to cancellation if it didn't prove economically feasible, take that agreement with the Southern California Edison, and then go to PG & E or to the Southern California Company, and persuade them to take the rest of the gas that it would be necessary to have contracts for in order build pipeline and then you would have to finance it.

Well, this just never came off because Pacific Gas and Electric didn't want to buy any gas from Pacific Northwest and there was never any suggestion that the Southern California Company were willing to take it.

Another difficulty which is spelled out in more detail in our brief, is that the price that which Pacific Northwest could get gas to the California border, as they were estimating, was around 40 or 50 cents unit of sales whereas El Paso was delivering it at around 25 or 30 cents a unit of sale so that of that time, the rates, potential rates were competitively out of the question.

I don't mean to say that Pacific in summary, that Pacific couldn't ever hope to come into this area.

I do mean to say that there was nothing that was anywhere close to actuality and as I will show a little later, they were very considerable obstacles to Pacific ever building these lots across Nevada down to California.

The other aspect of the relations between -- relationship between Pacific Northwest and El Paso that I would emphasize is that in many respects, their resources and facilities were complimentary.

Together, there would be a much better chance of breaking the potential supplies of natural gas available to the pipeline company as carrier in the balance with its markets.

El Paso had a vast sales potential in Southern California.

It had a difficulty in getting short supplies.

For example, even 1953, the Commission in the report began finding, the Southern California companies will experience deficiencies in meeting their requirements both for peak day and annual demands beginning with the year 1954.

And then a little later in the same opinion, the need for additional gas in the territories served by PG & E results from a decline in the availability of natural gas produced to California and then increase the load growth.

With additional gas to be purchased from El Paso, PG & E will experience deficiencies in meeting its requirements.

And this was brought home in later Commission opinions not in this case but in other cases involving certification of sales or other land brought home to El Paso.

For example in May 1956, the Commission said of El Paso, “The record conclusively demonstrates that after 1958, the requirements of present customers will exceed El Paso's ability to supply gas to them.”

And then I said that in next certificate proceeding, we will require El Paso to present a definite program demonstrating how its future system requirements are to be met and how ultimate consumers will be protected.

I read these passages to emphasize that everyone knows that El Paso needed gas.

Now, Pacific was in the reverse situation.

Pacific had access to this new --- to these Rocky Mountain areas.

It had gas contracts in the -- primary in the San Juan Basin and its -- during its early operation, it was not operating that peak load or at capacity of the pipeline and indeed, the development of the consumer markets had proved very disappointing.

In addition, in the background, Pacific did have access to this Canadian Gas which El Paso was physically a long way off road.

There was another respect in which putting the two together would make for a unit which was stronger in terms of its ability to satisfy the demand of California.

As I pointed out from the beginning of my argument, El Paso's supplies came chiefly from the Permian Basin and this was this residue gas.

This meant that they have to have some dry gas available to back up the residue gas so that you would be able to use it when oil production fell off therefore your supplies of residue gas fell off.

And this matter of the balance between residue gas and dry gas in the El Paso system had been a matter of concern to El Paso and to the Federal Power Commission.

Hooking up through a corporate link, Pacific Northwest supplies of dry gas would help to meet their problem.

There were two other things which in a sense made these systems complimentary.

In the first place, Pacific had in this very early stage some very serious problems.

The cost of building the pipeline had exceeded the estimated cost by 27%.

The markets were not up to expectations.

In terms of building any new pipelines, they certainly didn't have the capital whether they could raise it or not remains speculative, although the President said he'd never tried to finance anything that he wasn't able to finance still he didn't have wherewithal here in terms of fixed contracts even go out to begin trying to finance.

And in addition, there was one thing that no doubt was quite attractive to both companies, Pacific Northwest cutting $23,000,000 tax loss which could be carried over only for a limited time longer because the five-year period was beginning to run and this was unquestionably one of the reasons where the urgent desire for haste.

There were, as Mr. Bennett has told you, beginning in 1955 negotiations to merge the two concerns.

They broke down in 1955 on two occasions because El Paso and Pacific Northwestern had different ideas as to how they should be accomplished.

El Paso wanted to acquire the assets and if El Paso did acquire the assets then everyone was agreed that they would have to go to the Federal Power Commission and obtain a certificate of public convenience and necessity for the acquisition.

Such a proceeding could be expected to take as indeed it did eventually two or three years.

Pacific Northwest deemed this very objectionable.

They were at that time engaged in trying to carry on their initial finances.

They were trying to build an organization to run this pipeline which was still under construction and to have said, “Well, we're going to turn all our assets over to El Paso maybe if the Commission approves would have made it hard to acquire personnel and would have made it harder they thought to carry on the finances,” so that they were unwilling to go the sale of assets route and El Paso was unwilling to go the stock acquisition route.

In 1956, however, the negotiations for the merger were resumed and in November of that year, they were consummated by El Paso's acquiring 99.8% of the stock of Pacific Northwest.

I'd like to pause here in the account of events simply to find out what was the legal situation at the time that El Paso had acquired almost all the stock of Northwest Pacific.

On page 3 of my brief, 2 and 3, we've set out the critical provisions of Section 7 of the Natural Gas Act.

It provides -- I read the essential words starting at the bottom of page 2, “No natural gas company shall engage in the transportation or sale of natural gas or undertake the construction or extension of any facilities therefore or acquire or operate any such facilities unless there is enforced a certificate of public convenience and necessity.”

Everyone assumed in November 1956 that this purchase of nearly all Pacific Northwestern stock by El Paso was not an acquisition of Pacific Northwestern's pipelines.

That was the everyone's assumption at that time.

Now, I emphasize this for two reasons, First, until the case came to this Court or certainly until Judge Prettyman wrote his opinion.

That was the assumption on the basis of which the entire proceedings both here and in Utah went forward.

Judge Prettyman's opinion does seem to suggest that where one company acquires 99.8% of the stock of another that that is an acquisition of assets.

The Commission as Mr. Bennett said has within the -- within the last 12 months and I think a good deal less than that now, taken proceedings in which it has paused for a decision in the case involving Humble Oil the question whether the statute does apply under those circumstances.

I take time to emphasize this for two reasons, First, the entire litigation having been conducted on the assumption that the acquisition of assets did not violate sections.

The acquisition of stock did not constitute an acquisition of asset.

I propose to argue the case on the basis of that assumption.

On the other hand, it's not been trashed out before the Commission, it's not been the subject of argument in the lower courts and it seems to me that it was inappropriate here to introduce what's a far-reaching question of importance where I don't think it's essential to the disposition of this case.

What I do want to emphasize for the Court's attention precisely because it is a live and currently debatable issue which I should think ought to be held open for the future in any opinion this Court quite delivered.

The other reason I emphasize it is of course that it was on the basis of this assumption that the proceedings under the Clayton Act were intuitive.

The Clayton Act, Section 7 is set forth beginning on page 5 of our brief.

You'll recall that it forbids one corporation engaged in commerce to acquire directly or indirectly the whole or any part of the stock of another where the effect to such acquisition may be substantially to lessen competition or to tend to create a monopoly.

Now this, if the effect of this acquisition was to tend to substantially lessen competition, then it would if one stopped here, have been a violation of the Clayton Act.

However, there's another sentence to Section 7 of the Clayton Act which is a very important part at least to the background of all these proceedings.

Down at the bottom of page 5, nothing contained in this Section shall apply to transactions duly consummated pursuant to authority given by the Civil Aeronautics Board, Federal Communications Commission, Federal Power Commission.

The proviso, the meaning of the proviso is a matter of dispute.

Again, it's an issue which I do not believe has to be resolved in this case but it's so much a part of the background that I think it conduces to clarity to refer to it here.

If Section 7 of the Natural Gas Act did not apply to the stock acquisition, then of course this last sentence or the proviso would have no application to the stock acquisition and if the required effect on commerce would prove, the stock acquisition would violate Section 7 of the Clayton Act.

That was the theory on which the Department of Justice, and if I fall into saying antitrust division, let me make it clear that I mean the Department of Justice.

Alright, that was the theory on which the Department of Justice brought sought on July 22, 1957 in the District of Utah under the Clayton Act.

Almost immediately thereafter, it was 15 days roughly, El Paso and Pacific Northwest filed an application with the Federal Power Commission seeking a Certificate of public convenience and necessity for El Paso to acquire the physical assets or all the assets but specifically the pipeline of Pacific Northwest.

I think it's fair to say that there were three factors which was testimony indicated led to that.

One was the complimentary character of the facilities which I explained before.

Second, and there was specific testimony on this was that the officials of El Paso had discovered that in operating Pacific Northwest through a separate corporation.

They were not able to achieve all the economies and facility of operation that they had earlier anticipated.

And third, it was testified that the asset merger if I may call it that, was considerably stimulated by the fact that the Government had brought this antitrust suit.

I don't think that that is a point in any dispute at all.

That certainly was one of the things that led to the filing the application with the Commission.

Now, I would like to run through the ensuing procedural steps, as quickly as I can, leading up to what seems to me to have been the critical event.

The letter written by the Chairman of the Federal Power Commission to the judge in the Utah Court about which should go first and the Utah Court's decision that the Commission should go first.

The first move was a motion filed by El Paso to stay the antitrust suit until the Commission should have made its decision.

That motion curiously enough was supported by Mr. Bennett.

The motion was denied and El Paso sought to bring the case here directly by an extraordinary writ of certiorari.

In response to the application for that writ, in 1957 this was, the Solicitor General then took what has been the position of the United States consistently throughout this litigation.

Whatever the District Court's decision maybe, this was assuming that the antitrust Case would go forward.

Whatever the District Court's decision may be, it cannot oust the Commission of jurisdiction to decide the asset consolidation proceeding just as a prior decision by the Commission could not oust the District Court of its jurisdiction to decide the Clayton Act case.

And that is essentially my position here.

The District Court case can and unless something happens in this case that changes the situation, the Department of Justice intends to prosecute.

We thank that they -- each body had authorities.

I shall argue in the moment.

I'm just trying to show now that we've been consistent all the way through that each body had authority to go ahead and deal with its responsibilities under two different statutes.

The antitrust suit -- the antitrust suit is still pending and I will read in just a moment the final order in the sense of the last order that has been entered in that case.

What happened to the -- this Court denied the extraordinary writ of certiorari so that the denial of El Paso's motion for a stay stood.

The trial of the antitrust suit was set for March 1958, but it was postponed at the request of the Department of Justice.

During spring and summer of that year, the Department of Justice sent several letters to the Federal Power Commission urging it to withhold any action on the applications -- on the application for approval of the merger until the antitrust case had been decided.

At first, the Chairman replied politely and said that the Commission would consider this, and we've glad to have the antitrust -- antitrust division of the Department of Justice's views.

But eventually, on July 29, he wrote back saying that in view of the evidence before its staff, the representations by a number of state public utilities commissions and the pending condition of Pacific, that the Commission had decided that its hearing should go ahead.

And in that letter, Mr. Justice Harlan, Chairman Crookendall invited the Department of Justice to participate in the proceeding.

The Department of Justice chose not to participate in the Federal Power Commission proceeding and it has never been an inform -- never been a formal party to them in any sense at all.

Unknown Speaker: (Inaudible)

Mr. Cox: I honestly don't recall but I think certainly not an aluminum case or a brand of shoe case.

It -- it was originally thought it could be gotten out of the way quite quickly.

Unknown Speaker: (Inaudible)

Mr. Cox: Yes, but I presume it would have been some months.

The Commission scheduled its hearings and its hearings began on September 17, 1958.

The hearings went on for roughly ten days.

The applicants put their case in and the hearings were then recessed until November 17, 1958.

I omitted to say but Mr. Bennett has already mentioned it that the hearings went on over his objection when he moved to stay the hearings as indeed he did until the antitrust case should be completed.

Unknown Speaker: (Inaudible)

Mr. Cox: We're right -- we're right there Your Honor.

During the recess, the Department of Justice wrote still another letter to the Federal Power Commission and pointed out there was a conflict between the date of the -- to be resumed hearings before the Federal Power Commission and the pre-trial conference in Utah on the antitrust case.

And again, he asked the Commission to stay its hand until the antitrust case could be disposed of.

The Federal Power -- the Chairman of the Federal Power Commission then wrote a letter to Judge Ritter who is the Judge in the District of Utah which appears at page -- beginning at page 75 of our brief and I think that it's -- whereas taking some of the time of the Court to call attention to parts of that letter.

On page 76 in the latter part of the paragraph on top of the page, Mr. Crookendale (ph) wrote and this was to the Judge, in view of the urgency of the matter as indicated by our staff investigation and the pleas of various public bodies.

We felt that it was proper for us to proceed with the testimony in our cases and to determine at the time of considering the merits of the case whether the application for merger should await the judicial determination of antitrust charges.

Then he went on and said that the anti -- that the Department of Justice had been invited to participate and it wasn't there that there was therefore no proper way of having argued before the Federal Power Commission of the Department of Justice's wish to have the Federal Power Commission proceedings stead.

Justice Felix Frankfurter: (Inaudible)

Mr. Cox: Oh yes, this is not the California Utility Commission.

Justice Felix Frankfurter: (Inaudible)

Mr. Cox: There -- the other -- the utility commissions in the Northwest and indeed a number of them all through the western part of the United States came in in support of the application.

Justice Felix Frankfurter: (Inaudible)

Mr. Cox: Of the application for the merger and in addition, we're strongly urging a speed.

Justice Felix Frankfurter: (Inaudible)

Mr. Cox: That's correct, that's correct.

And they came in as formal parties.

Then by Mr. Crookendale (ph) went on to say, “We understand that El Paso filed in your Court on October 2, 1958, the motion to postpone the antitrust trial and that this motion will be before you and you will have an opportunity to hear both parties on this question as to whether we should proceed with the merger hearing or you should proceed with the antitrust case.”

If you -- I'll skip a sentence.

“If you deny El Paso's motion and decide to proceed with the antitrust trial, we will continue our merger proceedings to a date which will not conflict with your court trial.

If you sustain the motion of El Paso for a continuance, we will proceed with our hearings.”

The motion was thereafter argued in the District Court and Judge Ritter entered a formal order Mr. Chief Justice staying further proceedings in the antitrust case until the Commission should have completed its action upon the application for approval of the merger.

There's one further thing which I think is worth mentioning about the district judges' action.

During the oral argument on the motion, he did indicate his view tentatively of the posture in which the antitrust case would be left.

He said, “If the Federal Power Commission denies the merger you, meaning the attorneys from the Department of Justice will go right ahead with this.

If the Federal Power Commission allows the merger, then I want to hear you out of question of law involved in that provision” referring to the last paragraph that I read, the last sentence that I read in Section 7 of the Clayton Act that shall not apply to transactions duly authorized by the Federal Power Commission.

The Federal Power Commission case then went ahead to the conclusion and the merger was approved.

Unknown Speaker: (Inaudible)

Mr. Cox: No, no, it was not -- it was not represented as a commission in any way in the Department of Justice which alone spoke for the Government was urging that the case to go ahead, the motion be denied.

Unknown Speaker: (Inaudible)

Mr. Cox: Just about, just about.

Justice Felix Frankfurter: The Department appeared (Inaudible)

Mr. Cox: Yes, yes.

Justice William O. Douglas: Will the -- will the antitrust suit now be tried or --

Mr. Cox: The -- our view with respect -- I think I'm going to answer you in one moment.

It'd be a little more orderly if I might get in two or three sentences first.

The answer in general is yes, but I'll explain it.

I was just going to state because I think it's helpful as background although a little broader than the issues that have to be decided.

I'd like to set forth what I understand to be the ultimate aims of the -- Mr. Bennett's argument, El Paso's argument and the Government's position with respect to these two proceedings then I will narrow myself to this particular case.

As I understand Mr. Bennett, he says that the Federal Power Commission should have yielded to the District Court and has not gone beyond that.

I do not understand what effect he thinks the Federal Power Commission's order if approved will have in the District Court proceeding.

I guess he takes no position on that.

Now, El Paso's ultimate position and it's argued in the brief here is that the final sentence in Section 7 of the Clayton Act plus the order of the Federal Power Commission approving the merger takes the whole transaction out from under the Clayton Act and that the order of the Federal Power Commission will be a defense in the antitrust case in Utah.

My position is in between.

It is that both the Court and the Federal Power Commission as I said before had jurisdiction and both could go forward or either as a matter of committee could yield to the other.

That the effect of the Federal Power -- Federal Power Commission certificate should be argued out in the antitrust case and in the antitrust case when that is done, we will urge that it should be held that the Federal Power Commission certificate does not immunize the transaction from prosecution under the Clayton Act.

Now, to answer your question directly, unless something in the opinion or outcome of this case stands in a way, it is the -- intention of the Department of Justice to proceed with the antitrust case as soon as Judge Ritter's order permits which would be upon the disposition of this proceeding here assuming there's a -- an affirmance.

So we do subject to something that may develop in the opinion.

We do intend to go ahead.

Justice Felix Frankfurter: And that would lead you where?

Mr. Cox: Well the -- the complaint as it stands request that completely divestiture.

And I intend to make incline that we retain freedom to ask for that.

Justice Felix Frankfurter: (Inaudible)

Mr. Cox: You mean phys -- I couldn't tell you how difficult the physical unscrambling would be to a considerable extent, the counts have been kept separate.

We sought a temporary injunction but it was denied and it has not -- in the past, appeals have not been taken in antitrust cases from that kind of order.

Justice William O. Douglas: What will you do with Justice Frankfurter's opinion in the National Broadcasting case or I don't have it in front but as I remember, we said that a non-convicted, an unconvicted violation of the antitrust law would be a basis for denial of a certificate by the administrative of agency.

Mr. Cox: And what you said that it what?

Justice William O. Douglas: An -- an unconvicted I think were unconvicted violation where there had not been a conviction before the agency was in his mind sure that there had been, that they would then be justified in denying a certificate

Mr. Cox: Well, I would certainly say, I don't recall anything in that case or in any other case that says that an agency must deny a certificate if there has been a prior violation.

As I remember that case, Justice Frankfurter does say that in regulated industries, the notion of competition has a somewhat different meaning.

It calls for an application in the light of the specific conditions of that industry not quite as generally as one would do in unregulated industries.

Perhaps my memory is at fault but I don't --

Justice William O. Douglas: (Voice Overlap)

Mr. Cox: -- so violating stands in the way here.

It would seem to us that the case closes to that point is the opinion of the Chief Justice in the United States against RCA dealing with the radio station in Philadelphia where it was held that an approval by the Federal Communications Commission of a transfer of the license to a radio station did not immunize the transaction under the antitrust laws, and we would argue that the same thing is true here.

Justice William J. Brennan: Mr. Solicitor may I ask, am I right within the Court of the Appeals, the Department of Justice take the position that the order, the Commission should be vacated to await the outcome of the antitrust litigation?

Mr. Cox: You are.

Justice William J. Brennan: And you'd now change the position, is that it?

Mr. Cox: Well, we do -- yes.

The position that I'm urging here is -- is not the same as the position that was urged in the Court of Appeals.

I should point -- I should point this out.

Justice Hugo L. Black: And you urged here in some.

Mr. Cox: Oh, I'm sorry Mr. Justice, I didn't --

Justice Hugo L. Black: We -- you urged that we have told the -- for the Commission to go ahead, should we pass on, in effect, with their order.

Mr. Cox: I think you should not.

I think that should be left to be determined in the District Court.

Mr. Justice to answer your question -- the answer to your question lies in the internal governmental organizational arrangements.

The Solicitor General here you as you know represents all the branches of the government, and I represent all the branches of the Government in the contentions I'm making except I should have said that the Commission -- Federal Power Commission does have some doubt of the wisdom of the position that the Department of Justice will urge in the District Court in Utah that is to say it does not want to be associated with the view that its order does not immunize the transaction under the antitrust laws.

But with the -- except -- except for that, I am today, speaking for everyone.

Now, under the arrangements that prevail in the circuit courts, the Government not infrequently is on opposite sides of the case.

Justice Potter Stewart: Basically, that would mean Antitrust versus Commission --

Mr. Cox: It would mean -- it meant specifically Antitrust versus the Commission, the Solicitor General Rankin signed that brief because the Court's rules required responsive that the Solicitor General.

I -- I don't think that he faced the question as I have to face it in a somewhat broader capacity.

But I want to make it clear that I'm speaking here for the Department of Justice too and not just for the Federal Power Commission.

Justice Felix Frankfurter: And the question of construction of the Section 7, if there'd be diversions of view between the Department of Justice and Federal Power Commission, the Federal Power Commission would have an independent position to present its view even against the contrary view of the Department, I gather.

Mr. Cox: I presume it would.

How those would be presented in this Court is a problem to which I'd rather not address myself now because this is one of the difficulties the Solicitor General faces sometimes.

Justice Felix Frankfurter: Maybe -- maybe I wrong I supposed that the Federal Power Commission hasn't got the -- hasn't the status of the ITC has.

Mr. Cox: If the Federal Power Commission does not have the same status as the ITC.

Justice Felix Frankfurter: But in here, we have frequently as a party -- as a party litigant.

Mr. Cox: Yes.

Justice Felix Frankfurter: As the Antitrust Division couldn't.

Mr. Cox: The Antitrust Division could not that's correct.

Justice Felix Frankfurter: And it appears -- I suspect when it appeared as an independent litigant to the party litigant, in order to file a brief to Solicitor General has to get the sense, am I right about that?

Mr. Cox: That's practice, yes.

Justice William O. Douglas: In page number in the broadcasting opinion as Mr. Solicitor General is 223 on Page 319, the unconvicted violation of antitrust laws in -- as basis for denial of an action of the certificate by the agency it says here.

Mr. Cox: I don't think it is such point was necessarily involved in the case.

Beyond that, I'm afraid I just have to plead guilty of ignorance.

Justice William O. Douglas: 223, page 223.

Justice John M. Harlan: Raise another procedure of --

Justice William O. Douglas: It was argued in the case.

Justice John M. Harlan: -- you ever mentioned, the certiorari had been denied in this case.

I assumed that antitrust cases have gone its course and whatever happened to the merger in the meantime would have happened, have might happen.

What about holding this case until the antitrust case is tried and deciding all cases altogether?

Mr. Cox: Well at the moment, Judge Ritter has an order that he doesn't intend to proceed until the Federal Power Commission case is terminated.

I suppose if this Court entered such an order, he would (Voice Overlap) --

Justice John M. Harlan: He could make any sense because this would mean that under your view, we didn't reach any questions here, as to the effect of Section 7 proviso.

We have another appeal coming up.

Mr. Cox: That's true.

Justice William O. Douglas: What you're saying --

Mr. Cox: This is a question which I had not considered to what --

Justice John M. Harlan: Maybe it doesn't worth anything.

Mr. Cox: Well, I wouldn't say that but I -- I am reluctant.

I'd be glad to say to the Court a formal response in view of the number of interest in the Government.

I'm reluctant to give and I'll come in answer to that.

May I outline because my time is rushing by.

What seem to me to be the four questions that are presented clearly, with relation -- with respect to the relationship between the Federal Power Commission case and the antitrust case.

The first is, whether the filing of the antitrust suit, outstood the Federal Power Commission of jurisdiction, of power to act upon the application for Federal Power Commission approval of the merger.

And we think that clearly it did not.

The second would be, whether the Federal Power Commission committed reversible error it's sailing as a matter of committee to defer action until the antirust case had been completed.

The third and fourth are substantive questions.

Did the Federal Power Commission applied proper standards with the respect to the effect on competition in determining that this merger was required by the public convenience and necessity.

And then the fourth which seems hardly debatable is whether the Commission's finding in that respect, are supported by substantial evidence.

We think --

Justice Felix Frankfurter: May I take you one minute out of your order?

To face the practical problem, if the Commission and the Court, the particular District Court laid out a gas law, you go ahead and you go ahead then the only way to resolve, where there'll be -- the only way to resolve that (Inaudible) would be some kind of a mandamus proceeding by this Court and make the District Court act.

Mr. Cox: Yes.

That seem to me that if the -- if there had been -- if it had been felt that the District Court's decision was wrong that relief could have been sought by some kind of mandamus proceeding in this Court to make it go first.

That wasn't done.

I should have -- perhaps the mandamus is -- well, we have a question as to whether it should go to this Court or the Circuit Court of Appeals but mandamus in an appellant court.

Justice Potter Stewart: But only the Department of Justice could have done that in that case, California had not become a party.

I guess California had not become a party.

They could no doubt have intervened.

Justice Potter Stewart: (Voice Overlap) either Section 7 (c)

Mr. Cox: Yes.

Justice Potter Stewart: By the United States again (Voice Overlap).

Mr. Cox: Yes, sir.

That's true.

Justice William O. Douglas: Hardly, expected defendant in an antitrust suit to apply for mandamus to get his case tried.

Mr. Cox: Well no, the defendant -- the defendant didn't want to.

There's no doubt about that.

It would have to be for the United States and possibly California could have intervened, so they didn't and I don't want to assert if they could.

I simply suggest --

Justice Felix Frankfurter: Possibly the Power Commission to say we've got -- we don't want to have a swollen docket, would you make the District Court room so we can go ahead, power for those.

Mr. Cox: Those are -- none of those things happened.

The fact is --

Justice Felix Frankfurter: And the question is not whether they didn't happen but what was required that they do happen.

I mean, that the Commission should all the time --

Mr. Cox: Well, I would say first that it was -- certainly, there was nothing with ousted the Commission of jurisdiction.

Justice Hugo L. Black: I suppose Mr. Solicitor, any -- any effort California might have made to inter -- intervene, might have ran up against the consideration replaced and ask that question, was it not?

Mr. Cox: As to whether they had the right?

Justice Hugo L. Black: Right,

Mr. Cox: Yes, yes.

Although, that came as I remember came later after a decree and had to do with reopening a case.

Justice Hugo L. Black: What if, yes.

Mr. Cox: -- rather than when the case was pending, which also they might have come in a permissive status without independent control of the suit which is I remember was the situation there.

Justice William J. Brennan: When did the Commission proceed after the order of the District Court?

What date was that?

Mr. Cox: The Commission where its hearing in November as -- with the completion of the hearings in November is scheduled, the examiner's report came within a year but the best part of the year later, the Commission's final decision was handed down very, very late in 1959.

Justice William J. Brennan: The Judge's order was when?

Mr. Cox: The Judge's order was back in --

Justice William J. Brennan: October.

Mr. Cox: October '58.

With respect to the jurisdiction of the Commission, all I have time to say now is that the Natural Gas Act upon reading, clearly sets up a comprehensive scheme of regulation which nowhere suggests that the proceedings of that Commission are to be subordinated to the antitrust policy.

And this is also implicit, we think, in the standard of public convenience and necessity by which the Commission is to guide itself in making decisions.

For that standard although, it requires the Commission to consider the effect upon competition of any proposed action, it simply thinks that one factor in the total analysis and obviously doesn't require it to subordinate all other factors to consideration of the effect on competition.

And the legislative history as we point out shows that the Congressman most postly associated with the measure recognize that the concept of the public interest might involve decisions which lessened rather than increased competition.

Now, with respect to the question of Committee, I would simply urge that taking all the factors into account, the Commission here did not abuse its discretion, did not err in any reversible way in concluding that it should go first.

There was a good deal of evidence in front of it that the situation of specific was while not desperate certainly that it was in some financial strays.

There were tax savings to be achieved by going ahead.

The antitrust case had been filed a year before and hadn't been tried and if it'd be true as it would be true that the decision in the District Court would have been some help to the Commission is equally possible that their decision by the Commission would be a help to the District Court.

Finally and most important, I call attention again to Chairman Crookendall letter to the District Judge and having received the District Judge's response in the form of an order, we submit that the Commission did the only reasonable thing.

Justice William O. Douglas: Unless they have a very core opinion of the antirust suit to say that it's alright to go ahead and scramble up all these aims.

Mr. Cox: Well there was an effort --

Justice William O. Douglas: I think there's a clear violation of the antitrust laws, I would think that the better course to be not the scramble at all.

Mr. Cox: Well, we've tried to --

Justice William O. Douglas: -- or wait in here.

Mr. Cox: We're trying to prevent the scrambling Mr. Justice.

There was an effort to get an injunction from District Judge and he denied it.

As you know those temporary orders are not normally taken up under the expediting act so that sometimes these mergers unfortunately are consummated pending the determination of the litigation.

Now, I do not have the time to -- because I agreed to give Mr. Dean half an hour.

I do not have the time to dwell on the Commission's resolutions of substantive issue concerning competition.

But I think anyone who reads the examiner's opinion and the Commission's opinion will find that there were various substantial reasons for concluding that Pacific as things then stood offered little potential competition, the situation -- they're speculative at best and that there were prospects of much greater competition from two other pipeline company, Pacific Gas transmission and Transwestern.

Furthermore, the consideration as to which I adverted my statement to facts where the strongest of countervailing argument that the merger would benefit the consumers of California by giving them an assured supply which without the reserves of Pacific where it was at least somewhat uncertain.

I want to say just one word in the moment remaining about Mr. Bennett's argument with respect to rates.

This requires one do -- define a little more particularly what he means when he charges that the Commission refused to investigate what the ensuing rates would be.

It's perfectly plain that the examiner and the Commission itself did investigate in general of what the probable effect and costs would be and of course cost are the things that you start with including capital cost in fixing rates.

And there, it was found on good deal of evidence that while the precise amount couldn't be stated that there would be a lowering of cost on the whole system.

Now, the second thing Mr. Bennett seems to say is that the Commission failed to go into the question whether Pacific's higher costs and its cost were higher than El Paso's would be rolled into El Paso's cost so that the California consumers would be paying part of the cost to getting gas to the Pacific Northwest.

The short answer to that is, that the Commission carefully attached to the certificate, a condition reserving for future rate proceedings were it belong, all questions of the allocation of cost and in order the El Paso to keep its books in a way that we keep separates for all purposes of the cost of the Pacific Northwest as parts of the merged company and the El Paso part so that that question as to the proper allocation of cost will remain entirely open and there is no possible prejudice to the California consumers in that respect.

Now, Mr. Bennett also says he was denied the rank to cross-examine with respect to cost.

I -- there's no record reference in his brief for that and I frankly don't know just what he refers to.

If he is referring to this question of rolling in Pacific Northwestern's higher cost, that is true, the answers to what I gave.

If he is referring to cost in the broader sense then I simply don't know the basis for the contention.

I think he's mistaken.

The -- I've forgotten what the one additional word.

I wanted to say was Mr. Chief Justice so I'll turnover to Mr. Dean.

Chief Justice Earl Warren: Well, let me ask you just --

Mr. Cox: Yes.

Chief Justice Earl Warren: -- question.

Would you mind stating in just a few words, reinstating what your attitude would be toward the suggestion that Justice Harlan made about the mandamus this page of construction for the commission to impose in order to --?

Mr. Cox: It's bad.

Well, I understood his suggestion was that the case be held on the docket here.

Chief Justice Earl Warren: Well, even where he wanted to put it to you.

In other words --

Mr. Cox: I didn't -- you didn't understand my answer because I requested leave to defer answering that because of the number of Government agencies involved.

I'd be happy to supply a written answer and send copies to counsel but I don't think I ought to answer of that question off the Court

Chief Justice Earl Warren: Very well.

Mr. Cox: Thank you.

Chief Justice Earl Warren: Mr. Dean.

Argument of Arthur H. Dean

Mr. Arthur H. Dean: If the Court please.

I think what's presented to the Court here is essentially a question of what is the entered relationship of the very broad policy adopted by the Congress with respect for a wasting asset, natural gas which it turned over to the Federal Power Commission, that are very broad in all pervasive scheme of regulations where they have the right to pass on all rates and where no one can engage in the transportation of natural gas without a certificate of convenience and necessity from the Federal Power Commission, which it has found to be in the public interest.

You are not permitted to sell any of your properties or to acquire any of your properties or they're not committed to build any properties without their specific permission.

Now, El Paso, which the Solicitor General has very correctly described, originally started in the western part of Texas and went up to the southwest part of United States to the southern border of California.

El Paso itself has always followed the policy of selling the gas at the border of the state to an intrastate pipeline company.

It sells its gas there to intrastate company which in turn, supplies the Southern California Edison Company, the largest distributing company in lower California and the Pacific Gas and Electric, the largest distributing company in central and northern California.

El Paso itself is primarily and almost entirely an interstate pipeline company.

It has some producing gas wells, but they're almost entirely incidental to the gas that it carries in its pipeline.

In the mid 30's, shortly after El Paso got started, natural gas was bold into the atmosphere.

You can travel from the State of Kansas to Texas, and is tremendous low sulfurous cloud overhung.

The entire atmosphere and this natural asset was being completely wasted.

El Paso was the first and probably the primary interstate carrier that decided to put this residue gas to use, carrying it to market.

Now, the big problem of a company such as El Paso, primarily purchasing residue gas, is the fact that the state commissions particularly the Texas Railroad Commission, under their laws decreased that wells in that state can only have a certain number of days of allowance.

So although you have to supply gas for 30 days or 31 days in a month, you have to have enough dry gas to supplement this residue gas on the days when the oil companies are not operating.

So therefore example the Railroad Commission should cut back the number of days of allowables from ten to six, you would automatically have to get millions of cubic feet of gas per day from your dry gas in order to supply your market.

Now, the Federal Power Commission's records and almost everyone, tell El Paso, you don't have enough gas reserves.

You only got gas reserves sufficient for three years.

You must get more gas reserves.

California was not only growing in population, a large part of the major defense plants were located there.

They grew very rapidly during the war in El Paso as a public service company and it's been complemented by every one of the states, including the governors of all of the states for the job that it is done in bringing this gas to market.

It tried its best to get additional reserves in this basis, and it was unable to get enough either to satisfy the market or to satisfy the Federal Power Commission.

And also, is having difficulty in selling its securities because you had to amortize its bonds at about 15 years because of this lack of dry gas.

Pacific Northwest as the Solicitor General has described, was never designed.

It was never certificated and it was never laid out from an engineering standpoint to serve the California market.

It went from California -- it went from Colorado up through Utah and Idaho to the Pacific Northwest.

It was a very bold, and a very ingenious undertaking to sell this pipeline across the Rocky Mountains and to bring gas to the Northwest which had previously been without a fuel that was solid and substantial.

But about the time that it --

Justice Hugo L. Black: Did you say Colorado?

Did you say Colorado?

Mr. Arthur H. Dean: It starts in Colorado, goes up through Utah and Idaho and then --

Justice Hugo L. Black: (Voice Overlap) start in New Mexico.

Mr. Arthur H. Dean: It start --

Justice Hugo L. Black: And what is that in New Mexico and the basis there, I thought it should that Solicitor General (Inaudible) as I understood it.

Mr. Arthur H. Dean: Yes sir, Your Honor, it does start in New Mexico.

But it's primarily, if you look at the -- look at the line that goes up -- the red lines that starts up at Washington.

Justice Hugo L. Black: (Inaudible)

Mr. Arthur H. Dean: It goes down -- it goes east, then comes down Oregon or Idaho, then crosses a small park into the southwestern part of Wyoming and comes down into Colorado in the northern part of New Mexico.

San Juan Basin is just below the southern part of the Colo -- of the Colorado there.

But it was never designed as you can see, it starts off in a roughly north -- northerly direction and then goes when it gets into Idaho, into northwesterly direction up to the middle of Oregon, then up to the State of Oregon to connect up with the gas reserves at Canada.

Justice Hugo L. Black: But the starting point as I saw it, goes to the El Paso line, it was much closer to California that it was --

Mr. Arthur H. Dean: There is no pipeline --

Justice Hugo L. Black: Yeah.

Mr. Arthur H. Dean: There is no pipeline from the Pacific Northwest either to Nevada or California.

Justice Hugo L. Black: It's not in Nevada but cost of California.

Mr. Arthur H. Dean: Well there -- the original cost of Pacific Northwest, Mr. Justice Black was about a 160 million and it -- there's never in any of the perspectives or any of the certificates or any of the engineering reports, they never was designed to sell any gas in California.

It was designed almost entirely to bring gas into the Pacific Northwest.

Justice Hugo L. Black: That was this plan but as opposed to that, was it?

Mr. Arthur H. Dean: Well, it had no pipeline in there.

Justice Hugo L. Black: I understand that.

Mr. Arthur H. Dean: Yes sir.

That couldn't -- it didn't have any certificate from the Federal Power Commission to supply the California market, and there was never any statement of intent to do it.

What the testimony in the record is that as referred, well -- Mr. Bennett refers to it.

Because of the -- of what's called an inferior use, that is the burning of natural gas under borders for the purpose of generating electricity, which was sell at California Edison wanted for and Pacific Gas and Electric wanted for is inferior to supplying natural gas for house heating, so that on very cold days, the public utilities used might be interrupted.

So that was Southern California Edison and the PG & E were interested in building their own lines in order to get non-interruptible gas.

There never was at anytime, any possibility even remotest possibility of Pacific Northwest selling any natural gas in the State of California, not at any time.

Justice Hugo L. Black: But it was all designed (Inaudible) by the Pacific Gas and Electric adjustment that does supply gas to Southern California Edison.

Mr. Arthur H. Dean: No sir, let me -- let me clear -- let me clear that.

Justice Hugo L. Black: Yeah, I didn't quite understand.

Mr. Arthur H. Dean: The El Paso Natural Gas Company through the intrastate company supplies natural gas to Southern California Edison Company.

In order to get non-interruptible gas, the Southern California Edison Company has now entered into a contract with Transwestern Company, a new company that's been organized since this case started by large oil companies to bring gas in the Southern California Edison, from the San Juan Basin.

The Pacific Gas and Electric Company, starting in '55, purchased vast reservoirs of natural gas in Canada, and the Pacific Gas and Electric Company has built its own line to supply itself exclusively, a line that comes down from Canada to Oregon, State of Washington to San Francisco.

The friendly El Paso was faced with this problem of only three-year reserves that the constant admonition from the Power Commission to get more of reserves and these were all marketed in California and it saw that when the Pacific -- '56 because it was -- had the boldness in the United Nation to throw this line across the Rocky Mountains.

But there were no cities there, no industries there, and it was also somewhat of a business recession, in that part of the country in '56.

So Pacific rendered a great difficulties in getting costumers onto its line.

And in the year '56, it lost several millions of dollars, and was not earning the dividends on its preferred stock.

It didn't looked, as though at that time -- as though Canada was going to allow some of the gas to come out of Canada, and the Commission itself had been turning down applications to bring gas out of Canada into the United States for fear that a foreign power even though friendly might possibly shut it off in time of war.

So Pacific was in difficulty.

El Paso believed that it should submit this matter to the Federal Power Commission.

It offered to buy the assets of Pacific but it wanted to submit the matter to the Federal Power Commission and that's what the condition of its offer.

It made that offer a half a dozen times.

Mr. Foshee, who was the president and the promoter of Pacific Northwest said one, “We're having trouble with our credits.

We're having trouble with our costumers.

We're having trouble getting employees.”

This application for the purchase of feasible facilities may take several years.

During that time, I don't know what's going to happen to Pacific.

I don't know whether we can lay on these costumers, or I don't what is going to happen.

And for the fist time, since the natural gas industries started, in the early 30's, the price of oil lay down on the west coast were somewhat cheaper on the basis of terms than with natural gas.

So Pacific Northwest was in real difficulties, sellable perhaps but in real difficulties.

So after many negotiations, El Paso made an exchange of stock.

The employees and some of the people connected with Pacific felt that it was advisable to keep it going as an independent corporation and that was the intent at the time that the exchange was made.

It became very clear, however, that because of the financial difficulties, the Pacific Northwest was in, it couldn't pay its preferred stock dividends, that had to sell some assets through El Paso in order to pay them.

It was running into difficulties laying on this contract.

It was running into operational difficulties because you have to decide each time whether it should El Paso who filed the certificate with the Power Commission or Pacific.

People wanted to transfer from Pacific through other companies because of the financial difficulties, and so it was decided that it was invested just to the communities and this was discussed with the governors and the utility commissions to merge.

Now, prior the time that we bought the stock, we laid the whole matter before the Attorney General, and we submitted a tremendous amount of information to him.

And the Attorney General at that time, without in any sense of committing himself, I wanted to be very clear on that, indicated that he felt that where were these matters were passed upon by the regulatory agencies that he probably thought that was the best way to handle it.

After discussing the whole matter, we therefore decided to file an application with the Federal Power Commission.

We didn't know until it takes about four months to file one of these applications with the Federal Power Commission that have some rules that you have to reference every application that you ever filed with them and it's practically fills a track to prepare one of these applications, and it takes really many months and weeks to get it drawn.

There isn't any question that the -- that the probable decision of the Attorney General to file a Section 7 suit, in the words of Mr. Kaiser the president stimulated the filing of the proceedings before the Federal Power Commission.

But I think that would have been inevitable because we were finding there was almost impossible to operate these two companies because of the financial difficulties in the operating property.

Now, it seems to me that the Congress and the legislative history of the Natural Gas Act is most clear on this subject when Chairman Lee of California held the hearings on the amendments to Section 7 and 42, and Senator Wheeler explained it in the Senate.

He said, “The problem is very clear as to whether we should trust the Federal Power Commission to say that there should be one company instead of two.

And if you passed this legislation, you are giving to the Federal Power Commission the power to decide that there should be a monopoly but a regulated monopoly.”

Questions were asked, on the floor of the House and the Senate as to whether this meant that the Federal Power Commission would have the right to authorize the mergers so that in fact there would only one company, and the answer to those questions was clear, yes.

That is the result of this bill so that the Federal Power Commission it seems to me was entrusted by the Congress with a very clear authority and indeed a mandate to certificate lines only of the public interest, for the public convenience and necessity as what is in the best interest of the consumer, and also not to certificate lines unless there was apparent justification for their ability to be solved.

So when the Congress said in the Clayton Act that nothing in this Act shall apply to anything that's consummated, to show it -- that pertaining to the Natural Gas Act, it seems to me that they meant precisely that.

Now --

Justice Hugo L. Black: You did follow up on that, didn't you?

You disagree with the Attorney General as to finality of the --

Mr. Arthur H. Dean: I disagree with him as to his finality, although I think the Court can either do one of two things.

I think the Court can either rule, Your Honor that Congress did intend as I believe they did that the Federal Power Commission in the public interest, had the full power to decide that there should be one instead of two.

And that if they decided that, I believe that is controlling upon the courts.

I think the Congress did not think that the District Court in an ordinary antitrust case Section 7, which could only take into consideration evidence as to whether there's a lessening of competition or tendency to monopoly could not take in this whole question of a wasting natural asset or the benefit communities or what was the best in the interest of the various states, which the Federal Power Commission put.

I therefore think that -- that if this matter were handed back to the District Court today, I don't see how, since nobody can operate a natural gas company without a certificate of convenience and necessity from the Federal Power Commission.

I don't see how a District Court can order to the Federal Power Commission to grant a certificate of convenience and necessity.

It seems to me that this is binding upon the Court -- upon the District Court.

However, I believe that this Court has two choices.

You can disagree with me on that.

I think you can say that you affirm the order of the Circuit Court of Appeals as written by Judge Prettyman, and thereby the order of the power of the Commission permitting the merger and you can say however, if you so wish, that you can allow the Department of Justice to continue the suit in the District Court as to there was a violation of Section 7 at the time of the purchase for the stock.

Justice Hugo L. Black: (Inaudible) to my mind as Solicitor Attorney suggested, if it would be true that the Attorney General, that the companies were to go before the Commission under the law which authorize them to do so, must be tried there practically for violating an antitrust law and then be tried at second time for violating an antitrust law seems to me that it creates a very peculiar situation.

And it also it seems to me if that is not the case and if the Solicitor General is right, it come very near being an abuse of discretion, while two cases are pending before two bodies, one which can render final judgment, one of which cannot, not the order that is sent to the one who can dispose of it.

Mr. Arthur H. Dean: Well, let me --

Justice Hugo L. Black: That's my trouble on his suggestion.

Mr. Arthur H. Dean: I share your trouble, Mr. Justice Black but let me point out to you that on the record, when we went before Chief Justice Ritter in March of '58, when we urged him to apply the document of primary jurisdiction.

Department of Justice told Justice Ritter that they could try that case within a week, that they were ready to -- ready to try it.

So took our witnesses out there, ready to try it and then the Department of Justice was not ready to try it.

We -- we tried it all during the spring of '58 to get this case brought on for trial.

Why?

Because we're public service company and we had to service and get contracts and gas.

We had to finance.

The Department of Justice wouldn't bring on the case for trial.

We went to commend this length, answer most extraordinary interrogatories that those end by May and asked the Department of Justice to bring on the case for trial and then a most curious thing happened.

I think it's one of the most curious things I've ever known.

But the Attorney General in charge in antitrust wrote secret letters, no copies to us, although the Attorney General had testified that even United States Government shouldn't ask an administrative agency to do something ex parte.

They wrote letters to the Federal Power Commission, secret letters, asking them not to set the case down for trial.

We don't know anything about these letters.

There's a provision in the Power Commission that correspondents in respect to a cases available to the parties.

We asked for these correspondents and the Department of Justice objected it.

Then --

Chief Justice Earl Warren: Would you mind saying that again?

I heard you saying undercover that they didn't want the case tried?

Mr. Arthur H. Dean: Yes sir.

They -- they wrote to the Federal Power Commission urging that the Federal Power Commission should not set down the case for trial under the Natural Gas Act urging --

Justice Hugo L. Black: That's -- that's a Commission's case.

Mr. Arthur H. Dean: What?

Justice Hugo L. Black: Before the Commission.

Mr. Arthur H. Dean: Before the Commission, yes sir.

Justice Hugo L. Black: You say that it is secret, what do you mean by that?

Mr. Arthur H. Dean: No notice to us.

They were writing these letters to the Federal Power Commission.

Justice Hugo L. Black: Then say it's consolidated -- we're not marked confidential, anything like that?

Mr. Arthur H. Dean: When we asked for -- when we asked the Federal Power Commission for commission to examine the correspondents, the Department of Justice objected in letting us see these letters.

Justice Felix Frankfurter: Let's see if I understand Mr. Dean, It seems so strange although -- do I understand you to say that the Attorney General or some appropriate official of the Department of Justice wrote to the Federal Power Commission to proceed precisely in a way in which they have proceeded (Inaudible) for the federal court.

Mr. Arthur H. Dean: No -- no he asked -- he asked the Federal Power Commission, please not the set down our application under Section 7 of the Natural Gas Act to acquire the physical facilities” in order that they might go forward with the case --

Justice Felix Frankfurter: In the court.

Mr. Arthur H. Dean: -- in court.

Justice William J. Brennan: And yet you say at the same time, they were not moving the case at all.

Mr. Arthur H. Dean: They were not moving the case and they refused to cooperate with us or with Judge Ritter in bringing the case on for trial.

So where -- here, we were a public service company trying to operate under a certificate of convenience and necessity faced with the refusal of the Department of Justice to bring the case on for trial and with secret letters from the Department of Justice asking the Power Commission not to set the thing down for a hearing.

Justice Hugo L. Black: How long did the case stand before these secret letters were written?

Mr. Arthur H. Dean: It was filed in July '57.

We had the first hearing before him in March '58 then we had further hearings before him in May '58 then when they wrote these letters and the Department of Justice in September of '58 filed an application in Judge Ritter's Court seeking to enjoin us from participating, either counsel or officers of El Paso from participating of representing, appearing physically before the Federal Power Commission.

We then went before Judge Ritter's and I asked that the Department produce these secret letters in which we had learned and asked for continuance of this case.

The Department asks that we'll be joined.

I'm going forward to this hearing then they withdrew that letter.

That when we argued before Judge Ritter, the Department still was not ready to try the case and so at that time, Judge Ritter entered his order which is still in effect continuing the Section 7 case under the Clayton Act before him until such time as there was a final disposition of this case before the Federal Power Commission.

Justice Hugo L. Black: Did I -- did I misapprehend or mishear what the Solicitor General said that the Government urged before Judge Ritter that he go ahead with proceedings there?

Mr. Arthur H. Dean: They urged that he go ahead with the trail of the case but they weren't ready to try it.

I think that Mr. Bennett is mistaken when he says he was precluded from cross examination.

He never -- he never made an offer to introduce any evidence.

He produced no witnesses and there isn't shred of evidence in the record.

He never made a motion before the trial examinery -- examiner saying, “I would to ask this question.”

There was no denial of it.

He went on and he asked all about competition.

He went on for -- for another 20 minutes asking questions.

There was no ruling by the trial examiner, denying any question that Mr. Bennett asked.

There is no question that he asked to (Inaudible).

There's no ruling on the matter at all.

He says that the Power Commission took judicial notice of these other two applications but it was he, Mr. Bennett who asked questions about this pipeline of Pacific Gas and Electric Company and this pipeline of the Transwestern Company.

Other counsel asked to questions about still a third line.

There's known colloquially as the “hot tamales” line.

That's the line that would take gas out of the State of Texas, build your pipeline in Mexico because of very low labor cost and bring it back into the State of California.

So that there are two new pipelines operating into the State of California while this case is pending with an application for a third.

All of this was going into on examination of witnesses before the examiner.

There were 23 days of trial.

There were six months of briefing.

It seemed to me that the trial examiner's opinion is a model of -- of judicial reasoning.

He went into this whole question of competition.

He examines all of the facts with respect to the public interest.

And I submit that -- that his opinion was properly passed upon by the Federal Power Commission.

That was argued at great length before the Power Commission.

And I submit that their decision under Section 7 is correct and that the order of the Circuit Court of Appeals and that the order of Federal Power Commission should be affirmed.

If I may say one minute, there is no support whatever in the record with respect to any off the record statements or appeals to members of the Federal Power Commission.

The record is clear that members of the Federal Power Commission completely denied those and anyone from El Paso spoke to him about this case.

In Mr. Bennett's brief page 20, his brief, he makes a statement without any record of support that I saw members of the Federal Power Commission.

That is not true.

I never saw any member of the Federal Power Commission and there is no support whatsoever for that statement in the record.

Thank you.

Chief Justice Earl Warren: Mr. Bennett.

Rebuttal of William M. Bennett

Mr. William M. Bennett: Members of the Court, I trust I have approximately 15 minutes remaining and I would ask the indulgences of the Court for a bit more time after in the event.

Chief Justice Earl Warren: That's alright.

That's alright.

Mr. William M. Bennett: Very well, Your Honors.

Chief Justice Earl Warren: Your time is consented.

Mr. William M. Bennett: Here's what I would like to state then.

I want to talk about the record in this case, the record in this case.

Now, reference was made to the fact that the governors before this project, it's not in the record in this case but I'll concede that the governors were talked to.

I think El Paso sent somebody around talk to all the western governors and they even came to us.

So there's question about that.

The pipeline corporation here told them about this project, no question.

The ex parte secret letters of the Attorney General, it was mentioned here.

I assume then that applicants join with me in condemning that practice and I think that that if it's improper should be a basis for setting this back for reexamination on this ex parte reference to which I referred.

There was no cross-examination permitted, maybe the examiner when I attempt to do acquire about economic impact said specifically, “Gentlemen, I am going to turn this into a Section 4 case unless directed to do so by the Commission.”

And that was his ruling.

And I accept it

Justice Potter Stewart: Why was that improper?

This wasn't under Section 4.

This wasn't the Section 4 case, wasn't it?

Mr. William M. Bennett: That is quite correct but you see there's a great myth Your Honor in proceedings involving this Commission that consumer advocates are always trying to protect themselves by making rate cases out of Section 7 cases.

That seem trike and I hope now discarded argument was discarded in the Atlantic case in which Justice Clark wrote the opinion.

And it's interesting to note that in that case, they said, “We can't go into the cross -- or the price condition because it would have to be a rate condition.”

But this Court in that case which was a Section 7 case said because of the in terminal delay, because of the lack to refund provisions, you must impose a price condition.”

Now, that's all we said here in effect.

Not a price condition but because you were dealing with the acquisition of a corporation which was losing money, we thought we were entitled to know what it was going to cost.

And the answer to the question, it cannot be done lies in the fact that the Commission's decision talked of lower rates.

Now, how could they possibly do that without turning this into a rate case and yet somehow they did it?

And we were merely asking for the opportunity to do the same thing, to show that there might be the slight possibility that there might be future in higher rates.

That's all we were asking.

And were improper to reject it furthermore even if the evidence came in as they said and if did not, the examiner said and I quote it what he said to the Court, “All evidence relating to future rates is irrelevant.”

Now, it's a great deal that had been here about the position of the Government in this matter that we don't have to read Section 7.

I thought that was one of the issues before the Court.Solicitor General in the court below despite what has been said here today was squarely and firmly in support of California.

I have the complaint here filed by Herbert Brownell, the then Attorney General and he was quite serious when he filed this in Utah and the Antitrust Division joint to California in the court below.

And I have no power of compulsion over them.

They did it voluntarily because they believe their cause was right and they felt they had an obligation to protect the consumers the west so as far as the monopoly laws are concerned.

And what is being lost sight of here?

What is being lost sight of here is the fact that while this House quarrel goes on, nobody, if there is a violation of the monopoly laws is taking care of the public.

Nobody is taking care of the public.

And that's highly important.

That's the whole purpose of the Act.

That's the whole purpose of the antitrust laws and that's the soul function of Government.

Now, let me point out that so far as the antitrust powers of the Commission our concerned, they simply don't exist.

I assumed I think too much when I -- when I thought that Court had accepted that point.

But they only exist pursuant to an independent grant of statutory authority as this Court said in the Maryland Melt case quite specifically and quite clearly and that -- that case applies the this case.

There is nothing, nothing in the Natural Gas Act which gives to the Federal Power Commission the authority to decide antitrust questions.

Now, the examiner committed an error of law when he said it was the Amendment of 1950 to Section 7 of the Clayton Act which made its prohibitions in applicable to transactions approved by the Federal Power Commission.

That is incorrect.

That is not the law.

He is saying that he said in his opinion, duly consummated means we give them a certificate, therefore it's duly consummated.

But it must be duly consummated pursuant to another statue such as the Interstate Commerce Commission has in Section 5, 11 and such as this Commission does not have.

Now what was said about the Pacific Northwestern its difficulties is almost ludicrous.

What business, what pipeline corporation ever in the first moth of operation began operating in the black?

This company was never permitted to operate as an independent company.

It was compelled to sell gas to the laws.

Ten directors of El Paso became ten directors of Pacific.

And that 80% of common of Pacific went to El Paso, 99% by May of 1950.

This was not an independent corporation and there was the great incentive here on the part of the Pacific shareholders to take this offer as I indeed have would because of the handsome reward that would come about because of it.

But the purpose for which it was organized, the purpose for which the Commission gave out a certificate was never permitted to come true because it was never permitted to operate in the myth.

The myth that could not have survived simply isn't so.

Now, the other fiction that nobody could have come to California defies geography.

All that's required to build a pipeline to California reserves, they have them, a contract, they could've gotten it from Edison but for the interference, and we don't really know that because we're not getting a trial in Utah.

The market is in California, the pipeline is available, the steel company still manufactures it.

It was as simple as that in the same way Transwestern came to California.

You must not have the notion here that the Congress intended any kind of a monopoly situation with reference to pipelines.

It did not.

Section 7 (g) of the Natural Gas Act be speaks that fact.

The Panhandle case and the briefs points out that there's nothing in the Act which shows that Congress intended the monopoly to exist here.

It simply did not.

Now, let me say another thing.

This is not a public utility.

It's a public service corporation, quite different.

If I'm operating a pipeline serving three people over there, I can serve those people, my market is protected, I'm meeting their needs.

Now, if three new people come along, the question then is, “Who serves the three new people?

The same pipeline getting more and more area and more and more people, or a new pipeline?”

If the new pipeline comes in, the old is protected, it has its market, it has its 20-year contract as El Paso has with -- with my gas distributing utilities.

The new pipeline furnishes no harmful competition.

There can be no duplication or waste of facilities.

Why?

Because the second pipeline has to be authorized on a showing that the public now needs it despite what was granted years before.

Now let me say in conclusion, I think I have five minutes, my thoughts as to what must be done in this case.

It is unrealistic, unrealistic to expect any degree of enthusiasm or vigor in a prosecution by the Government in Salt Lake City when the Solicitor General is enthusiastic in defense of this decision, and the average judge for some legal reasons and for practical human reasons with which I can sympathize would dismiss this case.

I don think there's any question about it, and we can't play this case both ways.

The public is entitled to protection and we have to know here and now from this Court and not form the Solicitor General what's going to happen in the future and this should be declared for what it is.

This was an attempt to evade the antitrust laws, deliberately as the record shows.

It should be characterized as such.

The Federal Power Commission was not intended to be used as a harbor and a refuge for people who were declared to be violating the Clayton Act.

And if this Court does not reach that conclusion, that will be exactly the result and they will have gotten by with it.

It should be set aside because of the Clayton Act and it should be set aside in my judgment regardless of the Clayton Act whether we're in the case or not and I'm speaking as a regulatory lawyer because there is no public convenience and necessity in this case.

The staff of the Federal Power Commission opposed it for reasons of its own and the reasons came from the expertise of that staff, the expertise of that staff where the expertise resides.

You'll find in these cases coming before you gentlemen that the opposition in these cases which you reverse is usually from the staff and when you reverse.

Justice Felix Frankfurter: Well that's where the expertise lies largely.

Mr. William M. Bennett: It lies largely there and there's no expertise by the way in this Commission on antitrust phase (Voice Overlap).

Justice John M. Harlan: (Voice Overlap) going very far here.

Mr. William M. Bennett: I think so far an antitrust law is concerned.

Mr. William M. Bennett: The Commission was as competent to decide it as I with all my limitation was to present it.

Justice Felix Frankfurter: I thought that's what a Court is for?

Mr. William M. Bennett: Well, that's what I understand Your Honors and yet they do.

Justice Felix Frankfurter: Not this Court.

De novo ab initio, you're asking us to pass on the Clayton Act and means our District Court, aren't you?

Mr. William M. Bennett: I'm not asking you to pass on the Clayton Act, I'm asking you --

Justice Felix Frankfurter: That's just what you did two minute -- a minute ago?

Mr. William M. Bennett: Well I -- I misspoke, what I meant to say was I want this Court to tell the Power Commission that in deciding this antitrust question and they did that.

When you read the opinion, you'll see they decided it, that it acted in excessive authority.

And if you're worried about the scrambling of assets, let me state this, How did it come to pass?

There were 14 warnings in this record to the management of a company, don't do this thing for our sakes and for your own sakes.

Because any mistakes a public service corporation makes are usually paid for in the long run by the people whom they serve and so that should be no consideration to a clear, precise judgment from this Court as to how wrong this case is.

Thank you Your Honors.