Van Domelen, J.
Great Lakes Transmission Company, hereinafter Great Lakes, is a Delaware corporation not authorized to do business in Michigan. It has completed construction of a 36-inch gas pipeline from Emerson, Manitoba to St. Clair, Michigan, a distance of 989 miles, plus a 44-mile, 10-inch, pipeline to Sault Ste. Marie, Ontario. Great Lakes is owned by Trans-Canada Pipe Lines Limited and by American Natural Gas Company. The main function of Great Lakes is to transport natural gas from Manitoba to Ontario; no direct sales to consumers are contemplated, although gas will be wholesaled to Michigan Consolidated Gas Company.
Great Lakes is a natural gas company subject to regulation by the Federal Power Commission by
virtue of the natural gas act, 52 Stat 821 (1938)
et seq.,
15 USC § 717 et seq. The FPC by order authorized Great Lakes to construct the above pipeline. One of the conditions of that order was that Great Lakes submit a financing plan satisfactory to it.
By virtue of the Public Utility Holding Company Act, 49 Stat 838 (1935)
et seq.,
15 USC § 79 et seq., Great Lakes is also subject to regulation by the Securities and Exchange Commission. Pursuant to orders issued by the SEC, Great Lakes issued 200,-000 shares of its common stock to American Natural and to a wholly-owned subsidiary of Trans-Canada.
The SEC also authorized Great Lakes to borrow up to $30,000,000 upon its promissory notes. The purpose of the issuance of the stock and the notes was to obtain financing for the project and to provide working capital. Subsequently, Great Lakes filed an application with the SEC seeking authority to issue additional shares and promissory notes.
Prior to a decision by the SEC, the Michigan Public Service Commission notified Great Lakes that it appeared to have jurisdiction over the issuance of the common stock. Great Lakes then filed its application requesting a disclaimer of jurisdiction, or in the alternative, authority to issue and sell 140,000 shares of common stock. The application was later amended to include a similar request for authority to issue $30,000,000 in promissory notes.
Following a hearing on the petition, the commission asserted that it did have jurisdiction pursuant to MCLA § 460.301
et seq.
(Stat Ann § 22.101
et seq.).
The commission, pursuant to MCLA § 460.61 (Stat Ann § 22.11) assessed Great Lakes a fee of $44,000, representing 1/10 of 1% of the face value of the securities authorized to be issued. Great Lakes paid the fee, but filed an application for rehearing.
Its application was denied and Great Lakes seeks review of that determination.
The Michigan Public Service Commission relies for its authority on MCLA § 460.301 (Stat Ann § 22.101) which provides in part as follows:
“Sec. 1. Any corporation or association except municipal corporations, _ * * * or any person or persons owning, conducting, managing, operating or controlling any plant or equipment within this state used wholly or in part in the business of * * * producing or furnishing heat, artificial gas,
* * *
water or mechanical power to the public, directly or indirectly, and * * * any corporation, association, or individual exercising or claiming the right to carry or transport natural gas for public use, directly or indirectly, * * * or engaged in the business of piping or transporting natural gas for public use, directly or indirectly, or engaged in the business of purchasing natural gas for distribution may issue stocks, bonds, notes or other evidences of indebtedness payable at periods of more than 12 months after the date thereof, when necessary for the acquisition of property, the construction, completion, extension or improvement of facilities * * * Provided, and not otherwise, That there shall have been secured from the Michigan railroad commission an order authorizing such issue and the amount thereof, and stating that in the opinion of the commission the use of the capital or property to be acquired to be secured by the issue of such stock, bonds, notes or other evidences of indebtedness, is reasonably required for the purposes of such person, corporation or association, or that the issue of such stock fairly represents accumulated and undistributed earnings invested in capital assets and not previously capitalized. Any such person, corporation or association desiring authority to issue stocks, bonds, notes or other evidences of indebtedness shall make written application therefor
to the said commission in such form as the commission may require * * * Provided, That any such person, corporation or association may issue notes for lawful purposes, payable at periods of not more than 24 months, without authority from said commission; but no such notes shall in whole or in part, directly or indirectly, be refunded by any issue of stock or bonds or by any evidence of indebtedness running for more than 12 months without the consent of said commission.”
The language of this statute clearly sets forth the intent of the legislature to regulate through the Michigan Public Service Commission the issuance of securities by gas transmission companies which, directly or indirectly, sell gas to the public.
However, the authority granted in said statute is limited by the action of the federal government in this field.
Section 7(c) of the natural gas act requires appellant to obtain a certificate of public convenience and necessity from the Federal Power Commission. Section 7(e) of said act gives the Federal Power Commission the authority to attach to such certificate reasonable terms and conditions.
The Public Utility Holding Company Act,
supra,
applies to any gas utility “company” which owns or operates facilities used for the distribution at retail [of] natural or manufactured gas. This act declares,
inter alia,
that the national interest requires that
investors
and consumers be protected against the adverse effects caused when “such securities are issued by a subsidiary public utility company under circumstances which subject such company to the burden of supporting an overcapitalized structure and tend to prevent voluntary rate reductions”.
There is no dispute that Great Lakes is subject to the jurisdiction of the SEC. The commission merely asserts that it also has jurisdiction. This contention of the commission is valid insofar as it applies to gas companies engaged in the intrastate business of retail sales but is not valid as applied to interstate transportation of gas for resale.
The intent of congress to regulate interstate transportation of gas for resale and to leave to the states the regulation of intrastate gas sale is derived from section C of said act and from SEC regulation § 250.2 which provides:
“(1) such holding company, and every subsidiary company thereof which is a public-utility company from which such holding company derives, directly or indirectly, any material part of
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Van Domelen, J.
Great Lakes Transmission Company, hereinafter Great Lakes, is a Delaware corporation not authorized to do business in Michigan. It has completed construction of a 36-inch gas pipeline from Emerson, Manitoba to St. Clair, Michigan, a distance of 989 miles, plus a 44-mile, 10-inch, pipeline to Sault Ste. Marie, Ontario. Great Lakes is owned by Trans-Canada Pipe Lines Limited and by American Natural Gas Company. The main function of Great Lakes is to transport natural gas from Manitoba to Ontario; no direct sales to consumers are contemplated, although gas will be wholesaled to Michigan Consolidated Gas Company.
Great Lakes is a natural gas company subject to regulation by the Federal Power Commission by
virtue of the natural gas act, 52 Stat 821 (1938)
et seq.,
15 USC § 717 et seq. The FPC by order authorized Great Lakes to construct the above pipeline. One of the conditions of that order was that Great Lakes submit a financing plan satisfactory to it.
By virtue of the Public Utility Holding Company Act, 49 Stat 838 (1935)
et seq.,
15 USC § 79 et seq., Great Lakes is also subject to regulation by the Securities and Exchange Commission. Pursuant to orders issued by the SEC, Great Lakes issued 200,-000 shares of its common stock to American Natural and to a wholly-owned subsidiary of Trans-Canada.
The SEC also authorized Great Lakes to borrow up to $30,000,000 upon its promissory notes. The purpose of the issuance of the stock and the notes was to obtain financing for the project and to provide working capital. Subsequently, Great Lakes filed an application with the SEC seeking authority to issue additional shares and promissory notes.
Prior to a decision by the SEC, the Michigan Public Service Commission notified Great Lakes that it appeared to have jurisdiction over the issuance of the common stock. Great Lakes then filed its application requesting a disclaimer of jurisdiction, or in the alternative, authority to issue and sell 140,000 shares of common stock. The application was later amended to include a similar request for authority to issue $30,000,000 in promissory notes.
Following a hearing on the petition, the commission asserted that it did have jurisdiction pursuant to MCLA § 460.301
et seq.
(Stat Ann § 22.101
et seq.).
The commission, pursuant to MCLA § 460.61 (Stat Ann § 22.11) assessed Great Lakes a fee of $44,000, representing 1/10 of 1% of the face value of the securities authorized to be issued. Great Lakes paid the fee, but filed an application for rehearing.
Its application was denied and Great Lakes seeks review of that determination.
The Michigan Public Service Commission relies for its authority on MCLA § 460.301 (Stat Ann § 22.101) which provides in part as follows:
“Sec. 1. Any corporation or association except municipal corporations, _ * * * or any person or persons owning, conducting, managing, operating or controlling any plant or equipment within this state used wholly or in part in the business of * * * producing or furnishing heat, artificial gas,
* * *
water or mechanical power to the public, directly or indirectly, and * * * any corporation, association, or individual exercising or claiming the right to carry or transport natural gas for public use, directly or indirectly, * * * or engaged in the business of piping or transporting natural gas for public use, directly or indirectly, or engaged in the business of purchasing natural gas for distribution may issue stocks, bonds, notes or other evidences of indebtedness payable at periods of more than 12 months after the date thereof, when necessary for the acquisition of property, the construction, completion, extension or improvement of facilities * * * Provided, and not otherwise, That there shall have been secured from the Michigan railroad commission an order authorizing such issue and the amount thereof, and stating that in the opinion of the commission the use of the capital or property to be acquired to be secured by the issue of such stock, bonds, notes or other evidences of indebtedness, is reasonably required for the purposes of such person, corporation or association, or that the issue of such stock fairly represents accumulated and undistributed earnings invested in capital assets and not previously capitalized. Any such person, corporation or association desiring authority to issue stocks, bonds, notes or other evidences of indebtedness shall make written application therefor
to the said commission in such form as the commission may require * * * Provided, That any such person, corporation or association may issue notes for lawful purposes, payable at periods of not more than 24 months, without authority from said commission; but no such notes shall in whole or in part, directly or indirectly, be refunded by any issue of stock or bonds or by any evidence of indebtedness running for more than 12 months without the consent of said commission.”
The language of this statute clearly sets forth the intent of the legislature to regulate through the Michigan Public Service Commission the issuance of securities by gas transmission companies which, directly or indirectly, sell gas to the public.
However, the authority granted in said statute is limited by the action of the federal government in this field.
Section 7(c) of the natural gas act requires appellant to obtain a certificate of public convenience and necessity from the Federal Power Commission. Section 7(e) of said act gives the Federal Power Commission the authority to attach to such certificate reasonable terms and conditions.
The Public Utility Holding Company Act,
supra,
applies to any gas utility “company” which owns or operates facilities used for the distribution at retail [of] natural or manufactured gas. This act declares,
inter alia,
that the national interest requires that
investors
and consumers be protected against the adverse effects caused when “such securities are issued by a subsidiary public utility company under circumstances which subject such company to the burden of supporting an overcapitalized structure and tend to prevent voluntary rate reductions”.
There is no dispute that Great Lakes is subject to the jurisdiction of the SEC. The commission merely asserts that it also has jurisdiction. This contention of the commission is valid insofar as it applies to gas companies engaged in the intrastate business of retail sales but is not valid as applied to interstate transportation of gas for resale.
The intent of congress to regulate interstate transportation of gas for resale and to leave to the states the regulation of intrastate gas sale is derived from section C of said act and from SEC regulation § 250.2 which provides:
“(1) such holding company, and every subsidiary company thereof which is a public-utility company from which such holding company derives, directly or indirectly, any material part of
its income are predominantly intrastate in character and carry on their business substantially in a single state in which such holding company and every such subsidiary company thereof are organised;
or
“(2) such holding company is predominantly a public utility company whose operations as such do not extend beyond the state in which it is organized and states contiguous thereto.” (Emphasis ours.)
Subsection (6) of § 6 of the act provides:
“The commission * * * shall exempt from the provisions of subsection (a) the issue or sale of any security by any subsidiary company of a registered holding company, if the issue and sale of such security are solely for the purpose of financing the business of such subsidiary company and have been expressly authorized by the state commission
of the state in which such subsidiary company is organised and doing
business(Emphasis ours.)
These exemption provisions of said act have been considered by the courts and the SEC. All the deci
sions exempt from operation of said act those holding companies engaged in intrastate business.
In the Matter of Pacific Gas and Electric Company
(1941), 10 SEC 39. Accord:
In the Matter of Central California Utilities Corporation
(1937), 2 SEC 1;
In the Matter of the Connecticut Power Company
(1936), 1 SEC 266;
In the Matter of Northeastern Utility Associates and South Shore Utilities Associates
(1936), 1 SEC 522;
In the Matter of Commonwealth Edison Co.
(1948), 28 SEC 172.
It is to be noted that to qualify for the exemption in said act two requirements must be met. The corporate business must be intrastate and there must be incorporation in the state.
In the Matter of Louisville Gas and Electric Company
(1941), 10 SEC 378. Great Lakes, a Delaware corporation with a wholly interstate business, does not qualify for exemption under either requirement.
The case law, both Federal and state, supports this interpretation.
In
Natural Gas Pipeline Company of America
v.
Illinois Commerce Commission
(1965), 33 Ill 2d 214 (210 NE2d 490), the Court decided that the Federal Power Commission has authority to regulate the issuance of securities. Said Court further concluded that it was “apparent” that regulation of such securities by a state commission would create the “prospect of interference with the federal regulatory power” over plans for financing the construction or extension of facilities subject to the jurisdiction of the Federal Power Commission. That Court held the Illinois Commerce Commission without jurisdiction.
Panhandle Eastern Pipe Line Co.
v.
Public Service Commission of Indiana
(1947), 332 US 507 (68 S Ct 190, 92 L Ed 128) and
Panhandle Eastern Pipe Line Company
v.
Michigan Public Service Commis
sion
(1950), 328 Mich 650, stand for the well-settled proposition that regulation of natural gas companies engaged solely in interstate commerce and- sale for resale to the public has been preempted by the Federal government by virtue of the Natural Gas Act,
supra.
The Michigan Supreme Court at 328 Mich 659, quoting from the opinion of the United States Supreme Court, said:
“Three things and three only Congress drew within its own regulatory power, delegated by the act to its agent, the Federal power commission. These were: (1) The transportation of natural gas in interstate commerce; (2) its sale in interstate commerce for resale; and (3) natural gas companies engaged in such transportation or sale.
“The omission of any reference to other sales, that is, to direct sales for consumptive use in the affirmative declaration of coverage was not inadvertent. It was deliberate. For congress made sure its intent could not be mistaken by adding the explicit prohibition that the act ‘shall not apply
to any other
* * *
sale.’
(Emphasis added.) Those words plainly mean that the act shall not apply to any sales other than sales ‘for resale for ultimate public consumption for domestic, commercial, industrial, or any other use.’ Direct sales for consumptive use of whatever sort were excluded.
“The line of the statute was thus clear and complete. It cut sharply and cleanly between sales for resale and direct sales for consumptive uses. No exceptions were made in either category for particular uses, quantities or otherwise. And the line drawn was that one at which the decisions had arrived in distributing regulatory power before the act was passed.
“Moreover, this unusual legislative precision was not employed with any view to relieving or exempt
ing any segment of the industry from regulation. The act, though extending Federal regulation, had no purpose or effect to cut down State power. On the contrary, perhaps its primary purpose was to aid in making State regulation effective, by adding the weight of Federal regulation to supplement and reinforce it in the gap created by the prior decisions.
# # #
“Congress, it is true, occupied a field. But it was meticulous to take in only territory which this court has held the states could not reach. That area did not include direct consumer sales, whether for industrial or other uses.”
(Emphasis ours.)
The clear intent of congress as expressed through its enactments* the Federal case law and the state case law stand for the proposition that the regulation of natural gas companies engaged solely in interstate commerce and sale for resale has been preempted by the Federal government pursuant to the natural gas act. Such preemption prohibits regulation by the Michigan Public Service Commission.
The primary function of the Michigan Public Service Commission as set forth in MCLA § 450.54 (Stat Ann § 22.4) is “the control and regulation, including the fixing of rates and charges, of all public utilities within this State, producing, transmitting, delivering or furnishing steam for heating, or power, or gas for heating or lighting purposes for the public use.”
The interest of the commission in the issuance of securities by a public utility is to prevent over-capitalization.
Hillsdale Light and Fuel
v.
Michigan Public Utilities Commission
(1922), 220 Mich 101. The issuance of securities has an important bearing on the financial structure of a public utility and that in turn has a direct bearing on the rates set for such companies. The regulation of the rates charged
by Great Lakes is not within the jurisdiction of the Michigan Public Service Commission. So, to allow Michigan Public Service Commission to regulate issuance of securities, would be to allow it to affect rates indirectly, which it is forbidden to do directly. The regulation of securities issued by Great Lakes in the form of the assessment of a fee thereon is outside the jurisdiction of the Michigan Public Service Commission.
In summary, the Michigan Public Service Commission has no jurisdiction to regulate the issuance of securities by a corporation such as Great Lakes, engaged in the transmission of natural gas in interstate commerce where no sales thereof are made directly to consumers. While this result could be compelled by the natural gas act or the commerce clause itself, we limit our holding to the facts of this case as the field of securities regulation has been preempted by virtue of the Public Utility Holding Company Act.
Its order is reversed, and the commission is directed to refund to Great Lakes the $44,000 paid by Great Lakes pursuant to MCLA § 460.61 (Stat Ann § 22.11).
No costs are allowed, a public question being involved.
All concurred.