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CALIFORNIA ET AL. v. LO-VACA GATHERING CO. ET AL.

decided*fn*: January 18, 1965.

CALIFORNIA ET AL
v.
LO-VACA GATHERING CO. ET AL.



CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT.

Warren, Black, Douglas, Clark, Harlan, Brennan, Stewart, Goldberg; White took no part in the consideration or decision of these cases.

Author: Douglas

[ 379 U.S. Page 367]

 MR. JUSTICE DOUGLAS delivered the opinion of the Court.

El Paso Natural Gas Co. is an interstate natural gas pipeline company that delivers gas at the Arizona-California border to three California distribution companies. The present controversy concerns gas to be purchased by it in Texas from Lo-Vaca Gathering Co. and Houston Pipe Line Co. Under Lo-Vaca's contract gas produced in Texas is to be delivered to a subsidiary of El Paso's at a Texas point for delivery into its pipeline. The contract contains the following two clauses:

"All of the gas to be purchased by El Paso from Gatherer [Lo-Vaca] under this agreement shall be used by El Paso solely as fuel in El Paso's compressors, treating plants, boilers, camps and other facilities located outside of the State of Texas. It is understood, however, that said gas will be commingled with other gas being transported in El Paso's pipe line system."

"It is the intent and understanding of the parties hereto that the sale of natural gas hereof is not subject to the jurisdiction of the Federal Power Commission because this sale is not for resale."

This "restricted use" agreement provides for a separate metering of the contract volumes prior to their delivery into El Paso's system. El Paso will meter the gas used

[ 379 U.S. Page 368]

     for fuel purposes in its New Mexico and Arizona facilities to make certain this amount invariably exceeds the volumes of gas taken from Lo-Vaca under this agreement.

El Paso and Houston made a similar contract containing a similar "restricted use" provision by which El Paso covenants that this Houston gas will be consumed by El Paso solely as fuel in its Texas operations or in another Texas plant. This contract, like the other one, also provides for metering the volume of gas delivered in Texas; and it includes a covenant by El Paso that the Texas uses will at all times exceed the amounts supplied by Houston.

In spite of these "restricted use" covenants it is conceded that the gas sold by Lo-Vaca and Houston to El Paso will flow in a commingled stream with gas from other sources and that at least a portion of the gas will in fact be resold out of Texas.

The Federal Power Commission asserted jurisdiction over these sales as sales in interstate commerce "for resale," as that term is used in § 1 (b) of the Natural Gas Act, 52 Stat. 821, 15 U. S. C. § 717 (1958 ed.).*fn1 26 ...


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