California v. Lo-Vaca Gathering Co.
Headline: Federal control upheld over Texas gas sales despite 'restricted use' contracts, blocking pipelines and suppliers from avoiding federal regulation when a substantial part will be resold across state lines.
Holding: The Court upheld the Federal Power Commission’s view that when a substantial portion of gas will be resold across state lines, federal regulation applies to the entire sale despite 'restricted use' contract clauses.
- Blocks pipelines from escaping federal regulation via 'restricted use' contracts.
- Keeps the Federal Power Commission able to regulate gas sold that will cross state lines.
- Affects producers, pipelines, and state regulators on interstate gas sales and pricing.
Summary
Background
El Paso Natural Gas Company is an interstate pipeline that buys gas in Texas from Lo-Vaca Gathering Co. and Houston Pipe Line Co. The sellers and El Paso used contracts saying certain volumes would be used only as fuel and not be resold, with separate metering to enforce that claim. In fact the gas is commingled in the pipeline and at least some of it will be resold out of Texas. The Federal Power Commission said those sales were subject to federal regulation as sales "for resale." A court of appeals disagreed and the case went to the Supreme Court.
Reasoning
The Court asked whether parties can avoid federal regulation by labeling sales "not for resale" when the gas will cross state lines and be resold. Relying on earlier decisions about how energy flows through pipelines, the Court held that a substantial likelihood of interstate resale brings the whole transaction under federal authority. Allowing contracts to reclassify gas would create gaps in the federal regulatory scheme and let pipelines favor certain customers or exempt suppliers from federal oversight. The Court therefore upheld the Commission's determination.
Real world impact
The ruling prevents pipelines and sellers from using contract labels alone to escape federal regulation when gas moves in interstate commerce and will be resold. That affects producers, pipeline operations, and state regulators by preserving federal oversight over such sales and constraining contractual workarounds.
Dissents or concurrances
Justice Harlan dissented, arguing the Court should have asked the Commission to issue rules first and that administrative rule-making might produce workable allocation methods instead of the Court choosing a broad standard now.
Opinions in this case:
Ask about this case
Ask questions about the entire case, including all opinions (majority, concurrences, dissents).
What was the Court's main decision and reasoning?
How did the dissenting opinions differ from the majority?
What are the practical implications of this ruling?