Transcontinental Gas v. State Oil Bd., 474 U.S. 409 (1986)

Transcontinental Gas Pipe Line Corp. v.

State Oil and Gas Board of Mississippi
No. 84-1076

Argued October 8, 1985
Decided January 22, 1986
474 U.S. 409

APPEAL FROM THE SUPREME COURT OF MISSISSIPPI

Syllabus

In 1978, during a period of natural gas shortage, appellant interstate pipeline entered into long-term contracts with appellee Getty Oil Co. and others to purchase natural gas from a common gas pool in Mississippi. The contract with Getty obligated appellant to buy only Getty’s shares of the gas produced by the wells Getty operated. Demand was sufficiently high that appellant also purchased, on a noncontract basis, the production shares of smaller owners, such as appellee Coastal Exploration, Inc., in the Getty wells. But in 1982, consumer demand dropped significantly, and appellant began to have difficulty in selling its gas. It therefore announced that it would no longer purchase gas from owners with whom it had not contracted. Getty cut back production so that its wells produced only that amount of gas equal to its ownership interest in the maximum flow. This deprived Coastal of revenue, because none of its share of the common pool gas was being produced. Coastal then filed a petition with appellee Mississippi State Oil and Gas Board (Board), asking it to enforce statewide Rule 48 requiring gas purchasers to purchase gas without discrimination in favor of one producer against another in the same source of supply. The Board found appellant in violation of Rule 48 and ordered it to start taking gas "ratably" (i.e., in proportion to the various owners’ shares) from the gas pool, and to purchase the gas under nondiscriminatory price and take-or-pay conditions. On appeal, the Mississippi Circuit Court held that the Board’s authority was not preempted by the Natural Gas Act of 1938 (NGA) or the Natural Gas Policy Act of 1978 (NGPA), and that the NGPA effectively overruled Northern Natural Gas Co. v. State Corporation Comm’n of Kansas, 372 U.S. 84, which struck down, on preemption grounds, a state regulation virtually identical to the Board’s order. The Mississippi Supreme Court affirmed.

Held: The Board’s ratable-take order is preempted by the NGA and NGPA. Pp. 417-425.

(a) Congress, in enacting the NGPA, did not alter the characteristics of the comprehensive regulatory scheme that provided the basis in Northern Natural for the finding of preemption. The Board’s order directly undermines Congress’ determination in enacting the NGPA that the supply, demand, and price of high-cost gas be determined by market forces. To the extent that Congress in the NGPA denied the Federal Energy Regulatory Commission (FERC) the power to regulate directly the prices at which pipelines purchase high-cost gas, it did so because it wanted to leave determination of supply and first-sale price to the market. In light of Congress’ intent to move toward a less regulated national natural gas market, its decision to remove jurisdiction from FERC cannot be interpreted as an invitation to the States to impose additional regulations. Pp. 417-423.

(b) The Board’s order disturbs the uniformity of the federal scheme, since interstate pipelines will be forced to comply with varied state regulations of their purchasing practices. The order would also have the effect of increasing the ultimate price to consumers, thus frustrating the federal goal of ensuring low prices most effectively. Pp. 423-425.

457 So.2d 1298, reversed.

BLACKMUN, J., delivered the opinion of the Court, in which BURGER, C.J., and BRENNAN, WHITE, and MARSHALL, JJ., joined. REHNQUIST, J., filed a dissenting opinion, in which POWELL, STEVENS, and O’CONNOR, JJ., joined, post, p. 425.