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Court Adds Limitation on States’ Power to Regulate Natural Gas Prices

January 22, 1986

WASHINGTON (AP) _ The Supreme Court, by a 5-4 vote, today added a new limitation on states’ power to regulate natural gas prices.

The court said Mississippi may not require an interstate pipeline to buy gas from all owners of a common gas pool when the pipeline had pre-existing contracts with only some of the owners.

Such state regulation is pre-empted by federal regulation of the natural gas industry, Justice Harry A. Blackmun wrote for the court.

The court had struck down an almost-identical state regulation in 1963, but the Mississippi Supreme Court ruled that the subsequently enacted Natural Gas Policy Act of 1978 had given states regulatory authority over the wellhead sales of gas.

Reversing the state court ruling, today’s decision said Congress’ intent to remove some authority from federal regulators under the 1978 law ″cannot be interpreted as an invitation to the states to impose additional regulations.″

Blackmun said the Mississippi regulations also unduly interfere with ″the uniformity of the federal scheme″ because interstate pipelines would be forced to bend their gas-purchasing practices to meet varied state regulations.

He said the Mississippi regulations also ″would have the effect of increasing the ultimate price to consumers.″

The Mississippi regulations were challenged by Transcontinental Gas Pipe Line Co., a subsidiary of Transco Energy Co.

Transco for years has purchased natural gas from wells in Marion County, Miss. In 1982, the corporation announced it would no longer take or purchase gas from the owners and producers with whom it did not have gas-buying contracts unless they accepted prices generally lower than those Transco was paying the contract owners.

Prior to that date, Transco had purchased gas at a uniform rate regardless of whether it had a contract with an owner.

The Mississippi Oil and Gas Board ordered Transco to ″ratably take and purchase gas without discrimination in favor of one owner, operator or producer against another in the common source or pool.″

That means if gas were being bought from a certain well, and the well was drawing gas from a pool owned by more than one owner, the same price or rate must be paid each owner.

That ″ratable-take″ requirement was upheld by the state Supreme Court but overturned today.

Joining Blackmun were Chief Justice Warren E. Burger and Justices William J. Brennan, Thurgood Marshall and Byron R. White.

Justices William H. Rehnquist, Lewis F. Powell, John Paul Stevens and Sandra Day O’Connor dissented.

In an opinion for the four dissenters, Rehnquist said the court’s decision ″misues the pre-emption doctrine to extricate Transco from a bed it made for itself.″

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