Transcontinental Gas Pipe Line Corp. v. State Oil & Gas Board
Headline: Mississippi rule forcing pipelines to buy proportional shares of high-cost gas is struck down as federal law preempts state ordering, limiting states’ power and protecting interstate pipeline contracts and market pricing.
Holding: The Court held that Mississippi’s ratable-take order forcing an interstate pipeline to buy proportional shares of high-cost gas from all owners is preempted by federal law (the NGA and NGPA) and reversed the state court.
- Allows pipelines to honor long-term contracts without state-ordered purchases from all owners.
- Limits state power to force proportional purchases from gas-pool owners.
- Preserves federal market decontrol for high-cost gas pricing.
Summary
Background
A pipeline company (Transco) had long-term contracts to buy gas from operators of a deep Harper Sand gas pool, while many smaller owners (including Coastal) relied on spot sales. When market demand fell, Transco stopped buying spot shares from noncontract owners. The Mississippi Oil and Gas Board enforced its long-standing "ratable-take" rule, ordering Transco to purchase gas proportionally from all owners in the common pool to prevent "drainage," and state courts upheld that order.
Reasoning
The Supreme Court examined whether the federal natural gas laws bar Mississippi’s order. The majority said Congress, in shaping the Natural Gas Act and the Natural Gas Policy Act (NGPA), left market pricing and first sales of certain high-cost gas to national market forces, so a state rule that forces pipelines to change purchasing patterns stands as an obstacle to those federal aims. The Court concluded that the ratable-take order would disrupt uniform federal regulation, could raise downstream costs, and therefore is preempted by federal law; it reversed the Mississippi Supreme Court.
Real world impact
The decision lets interstate pipelines rely more on federal law and their contracts when buying high-cost gas and limits state power to force proportional purchases from common-pool owners. It preserves the NGPA’s move toward market pricing for high-cost gas, while leaving room for federal review of pipeline pricing practices (for example, by the Federal Energy Regulatory Commission).
Dissents or concurrances
Justice Rehnquist (joined by three colleagues) dissented, arguing the NGPA removed wellhead sales of high-cost gas from federal coverage and that Mississippi’s rule promotes conservation and fair dealing without frustrating federal policy.
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