OCTOBER TERM, 1996
Syllabus
GENERAL MOTORS CORP.
v. TRACY, TAX COMMISSIONER OF
OHIO
CERTIORARI TO THE SUPREME COURT OF OHIO
No. 95-1232. Argued October 7, 1996-Decided February 18,
1997
Ohio imposes general sales and use taxes on natural gas
purchases from all sellers, whether in-state or out-of-state, that
do not meet its statutory definition of a "natural gas company."
Ohio's state-regulated natural gas utilities (generally termed
"local distribution companies" or LDC's) satisfy the statutory
definition, but the State Supreme Court has determined that
producers and independent marketers generally do not. LDC gas sales
thus enjoy a tax exemption inapplicable to gas sales by other
vendors. The very possibility of nonexempt gas sales reflects an
evolutionary change in the natural gas industry's structure.
Traditionally, nearly all sales of natural gas directly to
consumers were by LDC's, and were therefore exempt from Ohio's
sales and use taxes. As a result of congressional and regulatory
developments, however, a new market structure has evolved in which
consumers, including large industrial end users, may buy gas from
producers and independent marketers rather than from LDC's, and pay
pipelines separately for transportation. Indeed, during the tax
period in question, petitioner General Motors Corporation (GMC)
bought virtually all the gas for its plants from out-ofstate
independent marketers, rather than from LDC's. Respondent Tax
Commissioner applied the general use tax to GMC's purchases, and
the State Board of Tax Appeals sustained that action. GMC argued on
appeal,
inter alia, that denying a tax exemption to sales by
marketers but not LDC's violates the Commerce and Equal Protection
Clauses. The Supreme Court of Ohio initially concluded that the tax
regime does not violate the Commerce Clause because Ohio taxes
natural gas sales at the same rate for both in-state and
out-of-state companies that do not meet the statutory definition of
"natural gas company." The court then stepped back to hold,
however, that GMC lacked standing to bring a Commerce Clause
challenge, and dismissed the equal protection claim as submerged in
GMC's Commerce Clause argument.
Held:
1. GMC has standing to raise a Commerce Clause challenge.
Cognizable injury from unconstitutional discrimination against
interstate commerce does not stop at members of the class against
whom a State ultimately discriminates. Customers of that class may
also be injured, as in this case where the customer is liable to
pay the tax and as a result
279
presumably pays more for gas purchased from out-of-state
producers and marketers. See
Bacchus Imports, Ltd. v.
Dias, 468 U.
S. 263, 267. pp. 286-287.
2. Ohio's differential tax treatment of natural gas sales by
public utilities and independent marketers does not violate the
Commerce Clause. pp. 287-311.
(a) Congress and this Court have long recognized the value of
state-regulated monopoly arrangements for gas sales and
distribution directly to local consumers. See,
e. g., Panhandle
Eastern Pipe Line Co. v.
Michigan Pub. Servo Comm'n,
341 U. S. 329.
Even as congressional and regulatory developments resulted in
increasing opportunity for a consumer to choose between gas sold by
marketers and gas bundled with state-mandated rights and benefits
as sold by LDC's, two things remained the same: Congress did
nothing to limit the States' traditional autonomy to authorize and
regulate local gas franchises, and those franchises continued to
provide bundled gas to the vast majority of consumers who had
neither the capacity to buy on the interstate market nor the
resilience to forgo the reliability and protection that state
regulation provided. To this day, all 50 States recognize the need
to regulate utilities engaged in local gas distribution.
Pp.288-297.
(b) Any notion of discrimination under the Commerce Clause
assumes a comparison of substantially similar entities. When the
allegedly competing entities provide different products, there is a
threshold question whether the companies are indeed similarly
situated for constitutional purposes. If the difference in products
means that the entities serve different markets, and would continue
to do so even if the supposedly discriminatory burden were removed,
eliminating the burden would not serve the dormant Commerce
Clause's fundamental objective of preserving a national market for
competition undisturbed by preferential advantages conferred by a
State upon its residents or resident competitors. Here, the LDCs'
bundled product reflects the demand of a core market-typified by
residential customers to whom stability of rate and supply is
important-that is neither susceptible to competition by the
interstate sellers nor likely to be served except by the regulated
natural monopolies that have historically supplied its needs. So
far as this noncompetitive market is concerned, competition would
not be served by eliminating any tax differential as between
sellers, and the dormant Commerce Clause has no job to do. On the
other hand, eliminating the tax differential at issue might well
intensify competition between LDC's and marketers for the
noncaptive market of bulk buyers like GMC, which have no need for
bundled protection. Thus, the question here is whether the
existence of competition between marketers and LDC's in the
noncaptive market requires treating the entities as alike for
dor-
280
Syllabus
mant Commerce Clause purposes. A number of reasons support a
decision to give the greater weight to the distinctiveness of the
captive market and the LDCs' singular role in serving that market,
and hence to treat marketers and LDC's as dissimilar for Commerce
Clause purposes. Pp. 297-303.
(c) First and most important, this Court has an obligation to
proceed cautiously lest it imperil the LDCs' delivery of bundled
gas to the noncompetitive captive market. Congress and the Court
have recognized the importance of not jeopardizing service to this
market.
Panhandle Eastern Pipe Line Co. v.
Michigan Pub.
Servo Comm'n, supra. State regulation of gas sales to consumers
serves important health and safety interests in fairly obvious
ways, in that requirements of dependable supply and extended credit
assure that individual domestic buyers are not frozen out of their
houses in the cold months. The legitimate state pursuit of such
interests is compatible with the Commerce Clause,
Huron Portland
Cement CO. V.
Detroit, 362 U. S. 440, 443-444,
and such a justification may be weighed in the process of deciding
the threshold question addressed here. Second, the Court lacks the
expertness and the institutional resources necessary to predict the
economic effects of judicial intervention invalidating Ohio's tax
scheme on the LDCs' capacity to serve the captive market. See,
e. g., Fulton Corp. V.
Faulkner, 516 U. S. 325,341-342.
Thus, the most the Court can say is that modification of Ohio's tax
scheme could subject LDC's to economic pressure that in turn could
threaten the preservation of an adequate customer base to support
continued provision of bundled services to the captive market.
Finally, should intervention by the National Government be
necessary, Congress has both the power and the institutional
competence to decide upon and effectuate any desirable changes in
the scheme that has evolved. For a half century Congress has been
aware of this Court's conclusion in
Panhandle Eastern Pipe Line
CO. V.
Public Servo Comm'n of Ind., 332 U. S. 507, that the
Natural Gas Act of 1938 exempts state regulation of in-state retail
gas sales from the dormant Commerce Clause, and since that decision
has only reaffirmed the States' power in this regard. pp.
303-310.
(d) GMC's argument that Ohio's tax regime facially discriminates
because the sales and use tax exemption would not apply to sales by
out-of-state LDC's is rejected. Ohio courts might extend the
challenged exemption to out-of-state utilities if confronted with
the question, and this Court does not deem a hypothetical
possibility of favoritism to constitute discrimination
transgressing constitutional commands.
Associated Industries of
Mo. V.
Lohman, 511 U. S. 641, 654. pp.
310-311.
281
3. Ohio's tax regime does not violate the Equal Protection
Clause.
The differential tax treatment of LDC and independent marketer
sales does not facially discriminate against interstate commerce,
and there is unquestionably a rational basis for Ohio's distinction
between these two kinds of entities. Pp.311-312.
73 Ohio St. 3d 29, 652 N. E. 2d 188, affirmed.
SOUTER, J., delivered the opinion of the Court, in which
REHNQUIST, C. J., and O'CONNOR, SCALIA, KENNEDY, THOMAS, GINSBURG,
and BREYER, JJ., joined. SCALIA, J., filed a concurring opinion,
post, p. 312. STEVENS, J., filed a dissenting opinion,
post, p. 313.
Timothy B. Dyk argued the cause for petitioner. With him
on the briefs were
Gregory A. Castanias and
John C.
Duffy, Jr.
Jeffrey S.
Sutton, State Solicitor of Ohio, argued
the cause for respondent. With him on the brief were
Betty D.
Montgomery, Attorney General, and
Barton A. Hubbard,
Robert C.
Maier, Paul A. Colbert, and
Thomas
McNamee, Assistant Attorneys General. *
JUSTICE SOUTER delivered the opinion of the Court.
The State of Ohio imposes its general sales and use taxes on
natural gas purchases from all sellers, whether in-state or
*Briefs of
amici curiae urging reversal were filed for
the Chamber of Commerce of the United States et al. by
Walter
Hellerstein, Carter G.
Phillips, Rebecca H. Noecker, Karen
L. Pauley, Robin S.
Conrad, and
Jan S.
Amundson; and for the Process Gas Consumers Group et al. by
Jerome
Briefs of
amici curiae urging affirmance were filed for
the State of Kansas et al. by
Carla J.
Stovall,
Attorney General of Kansas, and
Stephen R. McAllister,
Special Assistant Attorney General, and by the Attorneys General
for their respective States as follows:
Daniel E. Lungren of
California,
Richard Blumenthal of Connecticut,
James E.
Ryan of Illinois,
Frankie Sue Del Papa of Nevada,
Heidi Heitkamp of North Dakota,
James S.
Gilmore
III of Virginia, and
Darrell V. McGraw, Jr., of West
Virginia; for the National Association of Regulatory Utility
Commissioners by
William Paul Rodgers, Jr.; and for Columbia
Gas of Ohio, Inc., by
Kenneth W Christman.
Paull Mines and
Richard D. Pomp filed a brief for
the Multistate Tax Commission as
amicus curiae.
282
out-of-state, except regulated public utilities that meet Ohio's
statutory definition of a "natural gas company." The question here
is whether this difference in tax treatment between sales of gas by
domestic utilities subject to regulation and sales of gas by other
entities violates the Commerce Clause or Equal Protection Clause of
the Constitution. We hold that it does not.
I
During the tax period at issue,1 Ohio levied a 5% tax on the
in-state sales of goods, including natural gas, see Ohio Rev. Code
Ann. §§ 5739.02, 5739.025 (Supp. 1990), and it imposed a parallel
5% use tax on goods purchased out-of-state for use in Ohio. See §
5741.02 (1986). Local jurisdictions were authorized to levy certain
additional taxes that increased these sales and use tax rates to as
much as 7% in some municipalities. See § 5739.025 (Supp. 1990);
Reply Brief for Petitioner 13, n. 11.
Since 1935, when Ohio's first sales and use taxes were imposed,
the State has exempted natural gas sales by "natural gas
compan[ies]" from all state and local sales taxes. §
5739.02(B)(7).2 Under Ohio law, "[a]ny person ... [i]s a natural
gas company when engaged in the business of supplying natural gas
for lighting, power, or heating purposes to consumers within this
state." § 5727.01(D)(4) (1996); see also § 5727.01(E)( 4) (Supp.
1990); § 5727.01(E)(8) (1986). It is undisputed that natural gas
utilities (generally termed "local distribution companies" or
LDC's) located in Ohio satisfy this definition of "natural gas
company." The Supreme Court of Ohio has, however, interpreted the
statutory term to exclude non- LDC gas sellers, such as producers
and independent marketers, see
Chrysler Corp. v.
Tracy, 73 Ohio St.
1 The natural gas purchases that gave rise to petitioner's
challenge were made during the period from October 1, 1986, to June
30, 1990.
2 The exemption was originally codified at Ohio Gen. Code Ann. §
55462(6) (Baldwin 1952). As part of a general recodification in
1953, it was moved to Ohio Rev. Code Ann. § 5739.02(B)(7), where it
remains today.
283
3d 26, 652 N. E. 2d 185 (1995), and the State has accordingly
treated their sales as outside the exemption and so subject to the
tax.
The very question of such an exclusion, and consequent taxation
of gas sales or use, reflects a recent stage of evolution in the
structure of the natural gas industry. Traditionally, the industry
was divisible into three relatively distinct segments: producers,
interstate pipelines, and LDC's. This market structure was possible
largely because the Natural Gas Act of 1938 (NGA), 52 Stat. 821, 15
U. S. C. § 717
et seq., failed to require interstate
pipelines to offer transportation services to third parties wishing
to ship gas. As a result, "interstate pipelines [were able] to use
their monopoly power over gas transportation to create and maintain
monopsony power in the market for the purchase of gas at the
wellhead and monopoly power in the market for the sale of gas to
LDCs." Pierce, The Evolution of Natural Gas Regulatory Policy, 10
Nat. Resources & Env't 53, 53-54 (Summer 1995) (hereinafter
Pierce). For the most part, then, producers sold their gas to the
pipelines, which resold it to utilities, which in turn provided
local distribution to consumers. See,
e. g., Associated Gas
Distributors v.
FERC, 824 F.2d
981, 993 (CADC 1987), cert. denied, 485 U. S. 1006 (1988);
Mogel & Gregg, Appropriateness of Imposing Common Carrier
Status on Interstate Natural Gas Pipelines, 4 Energy L. J. 155, 157
(1983).
Congress took a first step toward increasing competition in the
natural gas market by enacting the Natural Gas Policy Act of 1978,
92 Stat. 3350, 15 U. S. C. § 3301
et seq., which was
designed to phase out regulation of wellhead prices charged by
producers of natural gas, and to "promote gas transportation by
interstate and intrastate pipelines" for third parties. 57 Fed.
Reg. 13271 (1992). Pipelines were reluctant to provide common
carriage, however, when doing so would displace their own sales,
see
Associated Gas Distributors v.
FERC, supra, at
993, and in 1985, the Federal
284
Energy Regulatory Commission (FERC) took the further step of
promulgating Order No. 436, which contained an "open access" rule
providing incentives for pipelines to offer gas transportation
services, see 50 Fed. Reg. 42408. In 1992, this evolution
culminated in FERC's Order No. 636, which required all interstate
pipelines to "unbundle" their transportation services from their
own natural gas sales and to provide common carriage services to
buyers from other sources that wished to ship gas. See 57 Fed. Reg.
13267.
Although FERC did not take the further step of requiring
intrastate pipelines to provide local transportation services to
ensure that gas sold by producers and independent marketers could
get all the way to the point of consumption,3 under the system of
open access to interstate pipelines that had emerged in the
mid-1980's "larger industrial end-users" began increasingly to
bypass utilities' local distribution networks by "construct[ing]
their own pipeline spurs to [interstate] pipeline[s] .... " Fagan,
From Regulation to Deregulation: The Diminishing Role of the Small
Consumer Within the Natural Gas Industry, 29 Tulsa L. J. 707, 723
(1994). Bypass posed a problem for LDC's, since the departure of
large end users from the system left the same fixed costs to be
spread over a smaller customer base. The State of Ohio consequently
took steps in 1986 to keep some income from large industrial
customers within the utility system by adopting regulations that
allowed industrial end users in Ohio to buy natural gas from
producers or independent marketers, pay interstate pipelines for
interstate transportation, and pay LDC's for local transportation.
See
In re Commis-
3 Section l(b) of the NGA, 52 Stat. 821, 15 U. S. C. § 717(b),
explicitly exempts "local distribution of natural gas" from federal
regulation. In addition, the Hinshaw Amendment to the NGA, 15 U. S.
C. §717(c), exempts from FERC regulation intrastate pipelines that
operate exclusively in one State and with rates and service
regulated by the State. See
ANR Pipeline Co. v.
FERC,
71 F.3d
897, 898, n. 2 (CADC 1995). See also
infra, at 293.
285
sion Ordered Investigation of the Availability of Gas
Transportation Service Provided by Ohio Gas Distribution Utilities
to End-Use Customers, No. 85-800-GA-COI (Ohio Pub. Util.
Comm'n, Apr. 15, 1986); see generally Natural Gas Marketing and
Transportation Committee, 1990 Annual Report, in Natural Resources
Energy and Environmental Law, 1990 Year in Review 57, 91-92, and n.
207 (1991).
This new market structure led to the question whether purchases
from non- LDC sellers of natural gas qualified for the state sales
tax exemption under Ohio Rev. Code Ann. § 5739.02(B)(7) (Supp.
1990). In
Chrysler Corp. v.
Tracy, the Ohio Supreme
Court held that they do not. The court reasoned that independent
marketers do not "suppl[y]" natural gas as required by §
5727.01(D)(4), because they do "not own or control any physical
assets to ... distribute natural gas." 73 Ohio St. 3d, at 28, 652
N. E. 2d, at 187. This determination of state law led in turn to
the case before us now.
During the tax period in question here, petitioner General
Motors Corporation (GMC) bought virtually all the natural gas for
its Ohio plants from out-of-state marketers, not LDC's.4 Respondent
Tax Commissioner of Ohio applied the State's general use tax to
GMC's purchases, and the State Board of Tax Appeals sustained that
action. GMC appealed to the Supreme Court of Ohio on two grounds.
GMC first contended that its purchases should be exempt from the
sales tax because independent marketers fell within the statutory
definition of "natural gas company." The State Supreme Court,
citing its decision the same day in
Chrysler, rejected this
argument. See
General Motors Corp. v.
Tracy, 73 Ohio
St. 3d 29, 30, 652 N. E. 2d 188, 189 (1995). GMC also argued that
denying the tax exemption to sales by marketers violated the
Commerce and Equal Protection Clauses. The Ohio court initially
concluded that the State's
4 App. 156. Pursuant to Ohio's regulations authorizing LDC's to
provide local transportation services, GMC took delivery of much of
this gas from local utilities.
Id., at 156-157.
286
regime did not violate the Commerce Clause because Ohio taxes
sales by "compan[ies] that d[o] not own any production,
transportation, or distribution equipment" at the same rate
regardless of "whether [the companies sell] natural gas instate or
out-of-state."
Id., at 31, 652 N. E. 2d, at 190. The court
then stepped back to rule, however, that GMC lacked standing to
bring its Commerce Clause challenge:
"On close inspection, GM actually argues that the commissioner's
application burdens out-of-state vendors of natural gas. However,
GM is not a member of that class and lacks standing to challenge
the constitutionality of this application on that basis; our
further comment on this question is inappropriate."
Ibid.
Finally, the court dismissed GMC's equal protection claim as
"submerged in its Commerce Clause argument."
Id., at 31-32,
652 N. E. 2d, at 190. We granted GMC's petition for certiorari to
address the question of standing as well as the Commerce and Equal
Protection Clause issues. 517 U. S. 1118 (1996).
II
The Supreme Court of Ohio held GMC to be without standing to
raise this Commerce Clause challenge because the company is not one
of the sellers said to suffer discrimination under the challenged
tax laws. But cognizable injury from unconstitutional
discrimination against interstate commerce does not stop at members
of the class against whom a State ultimately discriminates, and
customers of that class may also be injured, as in this case where
the customer is liable for payment of the tax and as a result
presumably pays more for the gas it gets from out-of-state
producers and marketers. Consumers who suffer this sort of injury
from regulation forbidden under the Commerce Clause satisfy the
standing requirements of Article III. See generally Lujan v.
Defenders of Wildlife, 504 U. S. 555, 560-561
(1992).
287
On similar facts, we held in
Bacchus Imports, Ltd. v.
Dias, 468 U.
S. 263 (1984), that in-state liquor wholesalers had standing to
raise a Commerce Clause challenge to a Hawaii tax regime exempting
certain alcohols produced in-state from liquor taxes. Although the
wholesalers were not among the class of out-of-state liquor
producers allegedly burdened by Hawaii's law, we reasoned that the
wholesalers suffered economic injury both because they were
directly liable for the tax and because the tax raised the price of
their imported goods relative to the exempted in-state beverages.
Id., at 267; see also
Fulton Corp. v.
Faulkner, 516
U. S. 325 (1996) (in-state stockholder challenged tax regime
imposing higher taxes on stock from issuers with out-of-state
operations than on stock from purely in-state issuers);
West
Lynn Creamery, Inc. v.
Healy, 512 U. S. 186 (1994)
(in-state milk dealers challenged tax and subsidy scheme
discriminating against out-of-state milk producers).
Bacchus
applies with equal force here, and GMC "plainly ha[s] standing to
challenge the tax in this Court,"
Bacchus Imports v.
Dias, supra, at 267. We therefore turn to the merits.
III A
The negative or dormant implication of the Commerce Clause
prohibits state taxation, see,
e. g., Quill Corp. v.
North Dakota, 504 U. S. 298, 312-313
(1992), or regulation, see,
e. g., Brown-Forman Distillers
Corp. v.
New York State Liquor Authority, 476 U. S. 573, 578-579
(1986), that discriminates against or unduly burdens interstate
commerce and thereby "imped[es] free private trade in the national
marketplace,"
Reeves, Inc. v.
Stake, 447 U. S. 429, 437
(1980). GMC claims that Ohio's differential tax treatment of
natural gas sales by marketers and regulated local utilities
constitutes "facial" or "patent" discrimination in violation of the
Commerce Clause, and it argues that differences in the nature of
the businesses of LDC's and interstate marketers
288
cannot justify Ohio's differential treatment of these in-state
and out-of-state entities. Although the claim is not that the Ohio
tax scheme distinguishes in express terms between instate and
out-of-state entities, GMC argues that by granting the tax
exemption solely to LDC's, which are in fact all located in Ohio,
the State has "favor[ed] some in-state commerce while disfavoring
all out-of-state commerce," Brief for Petitioner 16. That is,
because the favored entities are all located within the State, "the
tax exemption did not need to be drafted explicitly along state
lines in order to demonstrate its discriminatory design,"
Amerada Hess Corp. v.
Director, Div. of Taxation, N.
J.
Dept. of Treasury, 490 U. S. 66, 76 (1989).
Assessing these arguments requires an understanding of the
historical development of the contemporary retail market for
natural gas, to which we referred before and now turn in greater
detail.
B
Since before the Civil War, gas manufactured from coal and other
commodities had been used for lighting purposes, and of course it
was understood that natural gas could be used the same way. See
Dorner, Initial Phases of Regulation of the Gas Industry, in 1
Regulation of the Gas Industry §§ 2.03-2.06 (American Gas Assn.
1996) (hereinafter Dorner). By the early years of this century,
areas in "proximity to the gas field[s],"
West v.
Kansas
Natural Gas Co., 221 U. S. 229, 246
(1911), did use natural gas for fuel, but it was not until the
1920's that the development of high-tensile steel and electric
welding permitted construction of high-pressure pipelines to
transport natural gas from gas fields for distant consumption at
relatively low cost. Pierce 53. By that time, the States'
then-recent experiments with free market competition in the
manufactured gas and electricity industries had dramatically
underscored the need for comprehensive regulation of the local gas
market. Companies supplying manufactured gas proliferated in the
latter half of the 19th century
289
and, after initial efforts at regulation by statute at the state
level proved unwieldy, the States generally left any regulation of
the industry to local governments. See Dorner §§ 2.03, 2.04. Many
of those municipalities honored the tenets of laissez-faire to the
point of permitting multiple gas franchisees to serve a single area
and relying on competition to protect the public interest.
Ibid. The results were both predictable and disastrous,
including an initial period of "wasteful competition,"5 followed by
massive consolidation and the threat of monopolistic pricing.6 The
public suffered through essentially the same evolution in the
electric industry.7 Thus, by the time natural gas became a widely
mar-
5 During this period, "'[tJhe public grew weary of the
interminable rate wars which were invariably followed by a period
of recoupment during which the victorious would attempt to make the
price of the battle of the consumers by way of increased rates.
Investors suffered heavy losses through the manipulation of
fly-by-night paper concerns operating with 'nuisance' franchises
.... Everybody suffered the inconvenience of city streets being
constantly torn up and replaced by installation and relocation of
duplicate facilities. The situation in New York City alone, prior
to the major gas company consolidations, threatened municipal
chaos.''' Dorner § 2.03 (quoting Welch, The Odyssey of Gas-A Record
of Industrial Courage, 24 Pub. Utils. Fortnightly 500, 501-502
(1939)).
6 Reticence was not the order of the day. When, for example, the
last two surviving gas companies supplying the citizens of Brooklyn
announced their merger in October 1883, they also announced that
gas prices would immediately double. Dorner § 2.03.
7 The electric industry burgeoned following Thomas Edison's
patent on the first incandescent electric lamp in 1878. Dorner,
Beginnings of the Gas Industry, in 1 Regulation of the Gas Industry
§ 1.06 (American Gas Assn. 1996). Again, after an initial period of
unsuccessful regulation by state statute, States mostly left
regulation of the electric industry to municipal or local
government. Swartwout, Current Utility Regulatory Practice from a
Historical Perspective, 32 Nat. Res. J. 289, 298 (1992).
"[MJultiple franchises were handed out, and duplicative utility
systems came into being."
Id., at 299. The results were
"ruinous and short lived."
Ibid. For example, 45 mostly
overlapping franchises were granted for electric utility operation
in Chicago between 1882 and 1905. By 1905, however, a single
monopoly entity had emerged from the chaos, and customers ended up
paying monopoly prices.
Id., at 300.
290
ketable commodity, the States had learned from chastening
experience that public streets could not be continually torn up to
lay competitors' pipes, that investments in parallel delivery
systems for different fractions of a local market would limit the
value to consumers of any price competition, and that competition
would simply give over to monopoly in due course. It seemed
virtually an economic necessity for States to provide a single,
local franchise with a business opportunity free of competition
from any source, within or without the State, so long as the
creation of exclusive franchises under state law could be balanced
by regulation and the imposition of obligations to the consuming
public upon the franchised retailers.
Almost as soon as the States began regulating natural gas retail
monopolies, their power to do so was challenged by interstate
vendors as inconsistent with the dormant Commerce Clause. While
recognizing the interstate character of commerce in natural gas,
the Court nonetheless affirmed the States' power to regulate, as a
matter of local concern, all direct sales of gas to consumers
within their borders, absent congressional prohibition of such
state regulation. See,
e. g.,
Pennsylvania Gas Co. v.
Public Servo Comm'n of N.
Y., 252 U. S. 23, 28-31
(1920);
Public Util. Comm'n of Kan. v.
Landon,
249 U. S. 236,
245-246 (1919). At the same time, the Court concluded that the
dormant Commerce Clause prevents the States from regulating
interstate transportation or sales for resale of natural gas. See,
e. g., Missouri ex rel. Barrett v.
Kansas Natural Gas
Co., 265 U. S.
298, 307-310
(1924); Pennsylvania v.
West
Virginia, 262 U.
S. 553, 596600, reaffirmed on rehearing,
263 U. S. 350 (1923). See
generally
Illinois Natural Gas Co. v.
Central Ill. Public
Service Co.,
314
U. S. 498, 504-505 (1942) (summarizing prior cases
distinguishing between permissible and impermissible state
regulation of commerce in natural gas). Thus, the Court never
questioned the power of the States to regulate retail
291
sales of gas within their respective jurisdictions. Dorner §
2.06.8
When federal regulation of the natural gas industry finally
began in 1938, Congress, too, clearly recognized the value of such
state-regulated monopoly arrangements for the sale and distribution
of natural gas directly to local consumers. Thus, § l(b) of the
NGA, 15 U. s. C. § 717(b), explicitly exempted "local distribution
of natural gas" from federal regulation, even as the NGA authorized
the Federal Power
8 In
Arkansas Elec. Cooperative Corp. v.
Arkansas Pub.
Servo Comm'n, 461
U. S. 375 (1983), we rejected the bright-line distinction
between wholesale and retail sales drawn by these older cases and
concluded that state regulation of wholesale sales of electricity
transmitted in interstate commerce is not precluded by the Commerce
Clause. Reasoning that utilities should not be insulated from our
contemporary dormant Commerce Clause jurisprudence by formalistic
judge-made rules, id., at 391, we looked instead to "'the nature of
the state regulation involved, the objective of the state, and the
effect of the regulation upon the national interest in the
commerce,'"
id., at 390 (quoting
Illinois Natural Gas
CO. V.
Central Ill. Public Service Co., 314 U. S. 498, 505
(1942)), to determine whether States have a sufficient interest in
regulating wholesale rates within their borders, and had no problem
concluding that States do indeed have such an interest, with the
result that state regulation of wholesale rates is not precluded by
the Commerce Clause (in the absence of pre-emptive congressional
action),
id., at 394-395. While the holding of
Arkansas
Electric thereby expanded both the permissible scope of state
utility regulation and judicial recognition of the important state
interests in such regulation, the reasoning of the case equally
implies that state regulation of retail sales is not, as a
constitutional matter, immune from our ordinary Commerce Clause
jurisprudence, and to the extent that our earlier cases may have
implied such immunity they are no longer good law. Nothing in
Arkansas Electric undermines the earlier cases' recognition
of the powerful state interest in regulating sales to domestic
consumers buying at retail, however, which we reaffirm here. In
addition,
Arkansas Electric does not disturb the relevance
of the wholesale/retail distinction for construing the
jurisdictional provisions of statutes such as the NGA, which we
discuss immediately below. See
id., at 380, and n. 3; see
also
Schneidewind V.
ANR Pipeline Co., 485 U. S. 293, 300-301
(1988) ("The NGA confers upon FERC exclusive jurisdiction over the
transportation and sale of natural gas in interstate commerce for
resale").
292
Commission (FPC) to begin regulating interstate pipelines.
Congress's purpose in enacting the NGA was to fill the regulatory
void created by the Court's earlier decisions prohibiting States
from regulating interstate transportation and sales for resale of
natural gas, while at the same time leaving undisturbed the
recognized power of the States to regulate all in-state gas sales
directly to consumers.
Panhandle Eastern Pipe Line Co. v.
Public Servo Comm'n of Ind., 332 U. S. 507, 516-522 (1947).
Thus, the NGA "was drawn with meticulous regard for the continued
exercise of state power, not to handicap or dilute it in any way,"
id., at 517-518; "the scheme was one of cooperative action between
federal and state agencies" to "protect consumers against
exploitation at the hands of natural gas companies," id., at 520
(internal quotation marks omitted); and "Congress' action ... was
an unequivocal recognition of the vital interests of the states and
their people, consumers and industry alike, in the regulation of
rates and service,"
id., at 521; see also
Panhandle
Eastern Pipe Line Co. v.
Michigan Pub. Servo Comm'n, 341
U. S. 329, 334 (1951) ("Direct sales [of natural gas] for
consumptive use were designedly left to state regulation" by the
NGA). Indeed, the Court has construed § l(b) of the NGA as
altogether exempting state regulation of in-state retail sales of
natural gas from attack under the dormant Commerce Clause:
"The declaration [in the NGA], though not identical in terms
with the one made by the McCarran Act, 59 Stat. 33, 15 U. S. C. §
1011, concerning continued state regulation of the insurance
business, is in effect equally clear, in view of the [NGA's]
historical setting, legislative history and objects, to show
intention for the states to continue with regulation where Congress
has not expressly taken over. Cf. Prudential Ins. Co. v.
Benjamin, 328 U. S. 408 [(1946) (upholding discriminatory
state taxation of out-of-state insurance companies as
authorized
293
by the McCarran Act)]." Panhandle-Indiana, supra, at
521.
And Congress once again acknowledged the important role of the
States in regulating intrastate transportation and distribution of
natural gas in 1953 when, in the wake of a decision of this Court
permitting the FPC to regulate intrastate gas transportation by
LDC's, see
FPC v.
East Ohio Gas Co., 338 U. S. 464 (1950),
Congress amended the NGA to "leav[e] jurisdiction" over "companies
engaged in the distribution" of natural gas "exclusively in the
States, as always has been intended." S. Rep. No. 817, 83d Cong.,
1st Sess., 1-2 (1953); see 15 U. S. C. § 717(c).
For 40 years, the complementary federal regulation of the
interstate market and congressionally approved state regulation of
the intrastate gas trade thus endured unchanged in any way relevant
to this case. The resulting market structure virtually precluded
competition between LDC's and other potential suppliers of natural
gas for direct sales to consumers, including large industrial
consumers. The simplicity of this dual system of federal and state
regulation began to erode in 1978, however, when Congress first
encouraged interstate pipelines to provide transportation services
to end users wishing to ship gas,9 and thereby moved toward
providing a real choice to those consumers who were able to buy gas
on the open market and were willing to take it free of
state-created obligations to the buyer. The upshot of congressional
and regulatory developments over the next 15 years was increasing
opportunity for a consumer in that class to choose between gas sold
by marketers and gas bundled with rights and benefits mandated by
state regulators as sold by LDC's. But amidst such changes, two
things remained the same throughout the period involved in this
case. Con-
9 For a more complete description of these changes in federal
regulatory policy, and the relevant modifications of Ohio
regulation of local utilities that they prompted, see supra, at
283-285.
294
gress did nothing to limit the States' traditional autonomy to
authorize and regulate local gas franchises, and the local
franchised utilities (though no longer guaranteed monopolies as to
all natural gas demand) continued to provide bundled gas to the
vast majority of consumers who had neither the capacity to buy on
the interstate market nor the resilience to forgo the reliability
and protection that state regulation provided.
To this day, all 50 States recognize the need to regulate
utilities engaged in local distribution of natural gas.10
10 Alabama: Ala. Code §37-4-1(7)(b) (Supp. 1996); see generally
§§371-80 through 37-1-105 (1992 and Supp. 1996); Alaska: Alaska
Stat. Ann. §§42.05.141, 42.05.291, 42.05.990(4)(D) (1989 and Supp.
1995); see generally §§ 42.05.010-42.05.995; Arizona: Ariz. Rev.
Stat. Ann. §§ 40-201.4, 40-203 (1996); see generally §§ 40-201
through 40-495; Arkansas: Ark. Code Ann. §§23-1-101(4)(A)(i),
23-4-101 (1987 and Supp. 1995); see generally §§231-101 through
23-4-637; California: Cal. Pub. Util. Code Ann. §§216, 701 (West
1975 and Supp. 1996); see generally §§ 201 through 882 (West 1975
and Supp. 1996), §§ 1001 through 1906 (West 1994 and Supp. 1996);
Colorado: Colo. Rev. Stat. §§40-1-103(1)(a), 40-3-101 (1993); see
generally §§40-1-101 through 40-8.5-107 (1993 and Supp. 1996);
Connecticut: Conn. Gen. Stat. Ann. §§ 16-1(a)(4), (9), 16-6b (West
1988 and Supp. 1996); see generally §§ 16-1 through 16-5Of;
Delaware: Del. Code Ann., Tit. 26, § 102(2) (Supp. 1996); see
generally Tit. 26, §§ 101 through 511 (1989 and Supp. 1996);
District of Columbia: D. C. Code Ann. §§ 43-203, 43-212 (1990); see
generally §§43-101 through 43-1107 (1990 and Supp. 1996); Florida:
Fla. Stat. Ann. §§ 366.02(1), 366.03 (West Supp. 1997); see
generally §§ 366.01 through 366.14 (West 1968 and Supp. 1997);
Georgia: Ga. Code Ann. § 46-2-20(a) (1992); see generally §§
46-2-20 through 46-2-94 (1992 and Supp. 1996); Hawaii: Haw. Rev.
Stat. Ann. §§269-1, 269-6, 269-16 (Michie 1992 and Supp. 1996); see
generally §§269-1 through 269-32; Idaho: Idaho Code §§ 61-129,
61-501, 61-502 (1994); see generally §§ 61-101 through 61-714;
Illinois: Ill. Compo Stat., ch. 220, §§ 5/3-105, 5/ 4-101, 5/9-101
(1994); see generally ch. 220, §§ 5/1-101 through 5/10-204;
Indiana: Ind. Code §§8-1-2-1, 8-1-2-4, 8-1-2-87 (West Supp. 1996);
see generally §§8-1-2-1 through 8-1-2-127; Iowa: Iowa Code Ann.
§476.1 (West Supp. 1996); see generally §§476.1 through 476.66
(West 1991 and Supp. 1996); Kansas: Kan. Stat. Ann. §§66-104,
66-1,200 through 66-1,208 (1985 and Supp. 1995); Kentucky: Ky. Rev.
Stat. Ann. § 278.010(3)(c) (Baldwin 1992); see generally §§ 278.010
through 278.450; Louisiana: La. Rev.
295
Ohio's treatment of its gas utilities has been a typical blend
of limitation and affirmative obligation. Its natural gas
utilities, during the period in question, bore with a variety
of
Stat. Ann. §33:4161 (West 1988); see generally §§33:4161 through
33:4174, 33:4301 through 33:4308, 33:4491 through 33:4496 (West
1988 and Supp. 1996); Maine: Me. Rev. Stat. Ann., Tit. 35-A, §§
102, 103, 301 (1988 and Supp. 1996-1997); see generally Tit. 35-A,
§§ 101-1210; Maryland: Md. Ann. Code, Art. 78, §§ 1,2(0) (1991);
see generally Art. 78, §§ 1 through 2, 23 through 27A, 51 through
54K, 68 through 88 (1991 and Supp. 1994); Massachusetts: Mass. Gen.
Laws §§ 164:1, 164:93, 164:94 (1994); see generally ch. 164, §§ 1
through 128; Michigan: Mich. Compo Laws Ann. §§ 460.6460.6b (West
1991 and Supp. 1996-1997); see generally §§460.1 through 460.8;
Minnesota: Minn. Stat. Ann. §§216B.02(4), 216B.03 (West 1992); see
generally §§ 216B.01 through 216B.67 (1994 and Supp. 1995);
Mississippi:
Miss. Code Ann. §§ 77-3-3(d)(ii), 77-3-5 (1991 and Supp. 1996);
see generally §§ 77-3-1 through 77-3-307; Missouri: Mo. Rev. Stat.
§§ 386.020, 393.130 (1994); see generally §§386.010 through
386.710, 393.010 through 393.770; Montana: Mont. Code Ann. §§
69-3-101, 69-3-102, 69-3-201 (1995); see generally §§ 69-3-101
through 69-3-713; Nebraska: Neb. Rev. Stat. § 14-2119 (Supp. 1996);
see generally §§ 19-4601 through 19-4623 (1991 and Supp. 1996);
Nevada: Nev. Rev. Stat. Ann. § 704.020(2)(a) (1995); see generally
§§704.001 through 704.320, 704.755; New Hampshire: N. H. Rev. Stat.
Ann. §§362:2, 374:1, 374:2 (1995); see generally §§378:1 through
378:42; New Jersey: N. J. Stat. Ann. § 48:2-13 (West Supp. 1996);
see generally §§48:2-13 through 48:2-91, 48:9-5 through 48:9-32
(West 1969 and Supp. 1996-1997); New Mexico: N. M. Stat. Ann. §§
62-3-3,62-6-4,62-8-1 (1993 and Supp. 1996); see generally §§ 62-1-1
through 62-13-14; New York: N. Y. Pub. Servo Law § 65 (McKinney
1989); see generally §§ 30 through 52, 64 through 77 (McKinney 1989
and Supp. 1996); North Carolina: N. C. Gen. Stat. §§ 62-3(23),
62-30 (1989 and Supp. 1996); see generally §§62-1 through 62-171;
North Dakota: N. D. Cent. Code §§49-02-01, 49-02-02, 49-04-02 (1978
and Supp. 1995); see generally §§ 49-02-01 through 49-07-06; Ohio:
Ohio Rev. Code Ann. §§ 4905.03(A)(6), 4905.04, 4905.22 (1991); see
generally §§4901.01-4909.99 (Baldwin 1991 and Supp. 1995);
Oklahoma: Okla. Stat., Tit. 17, §§ 15,152,160.1 (West 1986 and
Supp. 1997); Oregon: Ore. Rev. Stat. §§ 757.005,757.020,756.040
(1991); see generally §§ 756.010 through 757.991; Pennsylvania: Pa.
Stat. Ann., Tit. 66, §§ 102,501, 1301 (Purdon 1979 and Supp.
1996-1997); see generally Tit. 66, §§ 101 through 2107; Rhode
Island: R. I. Gen. Laws §§39-1-2(7), 39-1-3(a) (Supp. 1996); see
generally §§ 39-1-1 through 39-2-19 (1990 and Supp. 1996); South
Carolina: S. C. Code Ann. §§ 58-5-10(3), 58-5-210 (1976 and
296
requirements: they had to submit annual forecasts of future
supply and demand for gas, Ohio Rev. Code Ann. §4905.14 (Supp.
1990), comply with a range of accounting, reporting, and disclosure
rules, §§4905.14, 4905.15 (1977 and Supp. 1990), and get permission
from the state Public Utilities Commission to issue securities and
even to enter certain contracts, §§ 4905.40, 4905.41, 4905.48. The
"just and reasonable" rates to which they were restricted, see §§
4905.22, 4905.32, 4909.15, 4909.17, included a single average cost
of gas, see Ohio Admin. Code 4901:1-14, Ohio Monthly Record (Nov.
1991), together with a limited return on investmentY
Supp. 1995); see generally §§ 58-5-10 through 58-5-1070; South
Dakota:
S. D. Codified Laws §§49-34A-1, 49-34A-4, 49-34A-6 (1993 and
Supp. 1996); see generally §§49-34A-1 through 49-34A-78; Tennessee:
Tenn. Code Ann. §§ 65-4-101, 65-5-201 (Supp. 1996); see generally
§§ 65-4-101 through 65-5-205 (1993 and Supp. 1996); Texas: Tex.
Rev. Civ. Stat. Ann., Art. 6050, § 1(a)(4), Art. 6053 (Vernon Supp.
1996-1997); see generally Arts. 6050 through 6066g (Vernon 1962 and
Supp. 1996-1997); Utah: Utah Code Ann. §§ 54-2-1(8),54-3-1,54-4-1
(1994 and Supp. 1996); see generally §§ 54-2-1 through 54-4-30;
Vermont: Vt. Stat. Ann., Tit. 30, § 215 (1986); Virginia: Va. Code
Ann. §§ 56-232, 56-234 (1995); see generally §§ 56-232 through
56-260.1 (1995 and Supp. 1996); Washington: Wash. Rev. Code §§
80.04.010, 80.28.020 (West 1991 and Supp. 1996-1997); see generally
§§ 80.04.010 through 80.04.520, 80.28.010 through 80.28.260; West
Virginia: W. Va. Code §24-2-1 (1992); see generally §§24-1-1
through 24-5-1 (1992 and Supp. 1996); Wisconsin: Wis. Stat. Ann. §§
196.01(5), 196.02, 196.03 (West 1992 and Supp. 1996-1997); see
generally §§ 196.01 through 196.98; Wyoming: Wyo. Stat.
§§37-1-101(a)(vi)(D), 37-2-112 (1996); see generally §§37-1-101
through 37-6-107.
11 Ohio's Amended Substitute House Bill 476, signed into law in
1996, requires the state Public Utilities Commission to exempt
certain sales of natural gas and/or related services by an LDC from
this rate regulation if the commission finds that the LDC is
subject to effective competition with respect to such service and
that the customers for such service have reasonably available
alternatives, Ohio Rev. Code Ann. § 4929.04, as amended by H. R.
476, § 1, effective Sept. 17, 1996. Although this law had not been
enacted at the time of the purchases involved in this case,
petitioner contended at oral argument that during the tax period in
question here, Ohio permitted some natural gas sales by public
utilities at unregulated, negotiated rates, and that those sales
were not subject to
297
The LDC's could not exact "a greater or lesser compensation for
any services rendered ... than [exacted] ... from any other
[customer] for doing a like and contemporaneous service under
substantially the same circumstances and conditions." Ohio Rev.
Code Ann. § 4905.33 (Supp. 1990).
The State also required LDC's to serve all members of the
public, without discrimination, throughout their fields of
operations. See,
e. g., Industrial Gas Co. v.
Public
Utilities Comm'n of Ohio, 135 Ohio St. 408, 21 N. E. 2d 166
(1939). They could not "pick out good portions of a particular
territory, serve only select customers under private contract, and
refuse service ... to ... other users," id., at 413, 21 N. E. 2d,
at 168, or terminate service except for reasons defined by statute
and by following statutory procedures, Ohio Rev. Code Ann. §§
4933.12, 4933.121 (Supp. 1990). When serving "human needs"
consumers including "residential [and] other customers ... where
the element of human welfare [was] the predominant factor,"
In
re Commission Ordered Investigation of the Availability of Gas
Transportation Service Provided by Ohio Gas Distribution Utilities
to End-Use Customers, No. 85-800-GA-COI (Ohio Pub. Util.
Comm'n, Aug. 1, 1989), Ohio LDC's were required to provide a firm
backup supply of gas, see
ibid., and administer specific
protective schemes, as by helping to assure a degree of continued
service to low-income customers despite unpaid bills. See,
e. g., Ohio Admin. Code 4901:1-18 (Ohio Monthly Record Nov.
1991).
IV
The fact that the local utilities continue to provide a product
consisting of gas bundled with the services and protections
summarized above, a product thus different from the marketer's
unbundled gas, raises a hurdle for GMC's claim
sales tax. The record provides no support for this contention,
and the constitutionality of Ohio exempting from state sales tax
utility sales that are not price regulated is therefore not before
the Court in this case.
298
that Ohio's differential tax treatment of natural gas utilities
and independent marketers violates our "'virtually
per se
rule of invalidity,'"
Associated Industries of Mo. v.
Lohman, 511 U.
S. 641, 647 (1994) (quoting
Philadelphia v.
New
Jersey, 437 U. S.
617, 624 (1978)), prohibiting facial discrimination against
interstate commerce.
A
Conceptually, of course, any notion of discrimination12 assumes
a comparison of substantially similar entities. AI-
12 Although GMC raises only a "facial discrimination" challenge
to Ohio's tax scheme, our cases have indicated that even
nondiscriminatory state legislation may be invalid under the
dormant Commerce Clause, when, in the words of the so-called
Pike undue burden test, "the burden imposed on [interstate]
commerce is clearly excessive in relation to the putative local
benefits,"
Pike v.
Bruce Church, Inc., 397 U. S. 137, 142
(1970). There is, however, no clear line between these two strands
of analysis,
Brown-Forman Distillers Corp. v.
New York
State Liquor Authority, 476 U. S. 573, 579 (1986), and several
cases that have purported to apply the undue burden test (including
Pike itself) arguably turned in whole or in part on the
discriminatory character of the challenged state regulations, see,
e. g., Pike, supra, at 145 (declaring packing order
"virtually
per se illegal" because it required business
operation to be performed in-state);
Kassel v.
Consolidated Freightways Corp. of Del., 450 U. S. 662, 677 (1981)
(plurality opinion of Powell, J.) (noting that in adopting
invalidated trucklength regulation the State "seems to have hoped
to limit the use of its highways by deflecting some through
traffic"); id., at 679-687 (Brennan, J., concurring in judgment)
(emphasizing that truck-length regulation should be invalidated
solely in view of its protectionist purpose); see generally Regan,
The Supreme Court and State Protectionism: Making Sense of the
Dormant Commerce Clause, 84 Mich. L. Rev. 1091 (1986). Nonetheless,
a small number of our cases have invalidated state laws under the
dormant Commerce Clause that appear to have been genuinely
nondiscriminatory, in the sense that they did not impose disparate
treatment on similarly situated in-state and out-of-state
interests, where such laws undermined a compelling need for
national uniformity in regulation. See
Bibb v.
Navajo
Freight Lines, Inc., 359 U. S. 520 (1959)
(conflict in state laws governing truck mud flaps);
Southern
Pacific Co. v.
Arizona ex rel. Sullivan, 325 U. S. 761 (1945)
(train lengths); see also
CTS Corp. v.
Dynamics Corp. of
America, 481 U. S.
69, 88 (1987) ("This Court's recent
299
though this central assumption has more often than not itself
remained dormant in this Court's opinions on state discrimination
subject to review under the dormant Commerce Clause, when the
allegedly competing entities provide different products, as here,
there is a threshold question whether the companies are indeed
similarly situated for constitutional purposes. This is so for the
simple reason that the difference in products may mean that the
different entities serve different markets, and would continue to
do so even if the supposedly discriminatory burden were removed. If
in fact that should be the case, eliminating the tax or other
regulatory differential would not serve the dormant Commerce
Clause's fundamental objective of preserving a national market for
competition undisturbed by preferential advantages conferred by a
State upon its residents or resident competitors. In Justice
Jackson's now-famous words:
"Our system, fostered by the Commerce Clause, is that every
farmer and every craftsman shall be encouraged to produce by the
certainty that he will have free access to every market in the
Nation, that no home embargoes will withhold his exports, and no
foreign state will by customs duties or regulations exclude them.
Likewise, every consumer may look to the free competition from
every producing area in the Nation to protect
Commerce Clause cases also have invalidated statutes that may
adversely affect interstate commerce by subjecting activities to
inconsistent regulations"); L. Brilmayer, Conflict of Laws §3.2.3,
pp. 144-148 (2d ed. 1995) (discussing Court's review of conflicting
state laws under the dormant Commerce Clause). In the realm of
taxation, the requirement of apportionment plays a similar role by
assuring that interstate activities are not unjustly burdened by
multistate taxation. See generally
Oklahoma Tax Comm'n v.
Jefferson Lines, Inc., 514 U. S. 175, 184-185
(1995) (discussing "internal" and "external" consistency tests for
apportionment of state taxes). Of course, the fact that Ohio
exempts local utilities from its sales and use taxes could not
support any claim of undue burden in this nondiscriminatory sense,
since the exemption itself does not give rise to conflicting
regulation of any transaction or result in malapportionment of any
tax.
300
him from exploitation by any. Such was the vision of the
Founders; such has been the doctrine of this Court which has given
it reality." H. P. Hood & Sons, Inc. v. Du
Mond, 336 U. S.
525, 539 (1949).
See also,
e. g., Wyoming v.
Oklahoma, 502 U. S. 437, 469 (1992)
(SCALIA, J., dissenting) ("Our negative Commerce Clause
jurisprudence grew out of the notion that the Constitution
implicitly established a national free market ... ");
Reeves,
Inc. v.
Stake, 447 U. S., at 437 (The dormant Commerce
Clause prevents "state taxes and regulatory measures impeding free
private trade in the national marketplace");
Hunt v.
Washington State Apple Advertising Comm'n, 432 U. S. 333,
350 (1977) (referring to "the Commerce Clause's overriding
requirement of a national 'common market' "). Thus, in the absence
of actual or prospective competition between the supposedly favored
and disfavored entities in a single market there can be no local
preference, whether by express discrimination against interstate
commerce or undue burden upon it, to which the dormant Commerce
Clause may apply. The dormant Commerce Clause protects markets and
participants in markets, not taxpayers as such.
Our cases have, however, rarely discussed the comparability of
taxed or regulated entities as operators in arguably distinct
markets; the closest approach to the facts here occurred in
Alaska v.
Arctic Maid, 366 U. S. 199 (1961). In
Arctic Maid, a 4% tax on the value of salmon taken from
territorial waters by so-called freezer ships and frozen for
transport and later canning outside the State was challenged as
discriminatory in the face of a 1% tax on the value of fish taken
from territorial waters and frozen by on-shore cold storage
facilities for later sale on the domestic fresh-frozen fish market.
The State prevailed on the Court's holding that the claimants and
cold storage facilities served separate markets, did not compete
with one another, and thus could not properly be compared for
Commerce Clause purposes. The proper comparison, the Court held,
was between the freezer
301
ships and domestic salmon canners, who shipped interstate into
the same markets served by the freezer ships. Since the canners
were taxed even more heavily than the freezer ships, there was no
unfavorable burden upon the latter.
Id., at 204. Although
the Court's opinion did not discuss the possibility that
competition in the domestic fresh-frozen market might have occurred
in the absence of the tax disparity between the two types of salmon
freezers, the freezer ships had made no attempt to compete in that
market and neither claimed nor demonstrated an interest in entering
it. See Brief for Respondents in
Alaska v.
Arctic
Maid, O. T. 1960, No. 106, pp. 27-33.
Arctic Maid provides a partial analogy to this case.
Here, natural gas marketers did not serve the Ohio LDCs' core
market of small, captive users, typified by residential consumers
who want and need the bundled product. See,
e. g., Darr, A
State Regulatory Strategy for the Transitional Phase of Gas
Regulation, 12 Yale J. Reg. 69, 99 (1995) ("[T]he large core
residential customer base is bound to the LDC in what currently
appears to be a natural-monopoly relationship"); App. 199 (a
marketer from which GMC purchased gas does not hold itself out to
the general public as a gas supplier, but rather selectively
contacts industrial end users that it has identified as potentially
profitable customers). While this captive market is not
geographically distinguished from the area served by the
independent marketers, it is defined economically as comprising
consumers who are captive to the need for bundled benefits. These
are buyers who live on sufficiently tight budgets to make the
stability of rate important, and who cannot readily bear the risk
of losing a fuel supply in harsh natural or economic weather. See,
e. g.,
Consolidated Edison Co. of N.
Y. v.
FERC, 676 F. 2d 763, 766, n. 5 (CADC 1982) ("[R]esidential
users [of natural gas cannot] switch temporarily to other fuels and
so they must endure cold homes" if their gas supply is
interrupted); Samuels, Reliability of Natural Gas Service for
Cap-
302
tive End-Users Under the Federal Energy Regulatory Commission's
Order No. 636, 62 Geo. Wash. L. Rev. 718, 749 (1994) ("Gas service
disruptions lasting just a few days can cause severe health risks
to captive end-users"). They are also buyers without the high
volume requirements needed to make investment in the transaction
costs of individual purchases on the open market economically
feasible. Pierce, Intrastate Natural Gas Regulation: An Alternative
Perspective, 9 Yale J. Reg. 407, 409-410 (1992) ("Purchasing gas
service [from marketers] requires considerable time and expertise.
Its benefits are likely to exceed its costs only for consumers who
purchase very large quantities of gas"). The demands of this market
historically arose free of any influence of differential taxation
(since there was none during the pre-1978 period when only LDC's
generally served end users), and because the market's economic
characteristics appear to be independent of any effect attributable
to the State's sales taxation as imposed today, there is good
reason to assume that any pricing changes that could result from
eliminating the sales tax differential challenged here would be
inadequate to create competition between LDC's and marketers for
the business of the utilities' core home market.
On the other hand, one circumstance of this case is unlike what
Arctic Maid assumed, for there is a possibility of
competition between LDC's and marketers for the noncaptive market.
Although the record before this Court reveals virtually nothing
about the details of that competitive market, in the period under
examination it presumably included bulk buyers like GMC, which have
no need for bundled protection, see,
e. g., State Issue:
Atlanta Gas Light Takes Step to Abandon Gas Sales by Unbundling
Services for Non-Core Customers, Foster Natural Gas Report, June
20, 1996, p. 22 (indicating that prior to "unbundling" marketers
accounted for 80% of sales to large commercial and industrial users
in Georgia), and consumers of middling volumes of natural gas who
found
303
some value in Ohio's state-imposed protections but not enough to
offset lower price at some point, see,
e. g., Pierobon,
Small Customers: The Yellow Brick Road to Deregulation?, 134 Pub.
Utils. Fortnightly, No.6, pp. 14, 15 (1996) (marketers' efforts in
California are increasingly directed to attracting consumers in the
"small commercial sector," including "schools, hospitals, hotels,
restaurants, laundromats, and master-metered apartments," which
currently purchase bundled gas from utilities); Salpukas, New
Choices for Natural Gas: Retailers Find Users Puzzled as Industry
Deregulates, N. Y. Times, Oct. 23, 1996, pp. D1, D4 (indicating
that some natural gas marketers in New York City are attempting to
lure "mom-and-pop businesses like restaurants and dry-cleaners"
away from LDC's, with mixed success). Eliminating the sales tax
differential at issue here might well intensify competition between
LDC's and marketers for customers in this noncaptive market.
B
In sum, the LDCs' bundled product reflects the demand of a
market neither susceptible to competition by the interstate sellers
nor likely to be served except by the regulated natural monopolies
that have historically supplied its needs. So far as this market is
concerned, competition would not be served by eliminating any tax
differential as between sellers, and the dormant Commerce Clause
has no job to do. There is, however, a further market where the
respective sellers of the bundled and unbundled products apparently
do compete and may compete further. Thus, the question raised by
this case is whether the opportunities for competition between
marketers and LDC's in the noncaptive market requires treating
marketers and utilities as alike for dormant Commerce Clause
purposes. Should we accord controlling significance to the
noncaptive market in which they compete, or to the noncompetitive,
captive market in which the local utili-
304
ties alone operate? Although there is no
a priori answer,
a number of reasons support a decision to give the greater weight
to the captive market and the local utilities' singular role in
serving it, and hence to treat marketers and LDC's as dissimilar
for present purposes. First and most important, we must recognize
an obligation to proceed cautiously lest we imperil the delivery by
regulated LDC's of bundled gas to the noncompetitive captive
market. Second, as a Court we lack the expertness and the
institutional resources necessary to predict the effects of
judicial intervention invalidating Ohio's tax scheme on the
utilities' capacity to serve this captive market. Finally, should
intervention by the National Government be necessary, Congress has
both the resources and the power to strike the balance between the
needs of the competitive and captive markets.
1
Where a choice is possible, as it is here, the importance of
traditional regulated service to the captive market makes a
powerful case against any judicial treatment that might jeopardize
LDCs' continuing capacity to serve the captive market. Largely as a
response to the monopolistic shakeout that brought an end to the
era of unbridled competition among gas utilities, regulation of
natural gas for the principal benefit of householders and other
consumers of relatively small quantities is the rule in every State
in the Union. Congress has also long recognized the desirability of
these state regulatory regimes.
Supra, at 291-293. Indeed,
half a century ago we concluded that the NGA altogether exempts
state regulation of retail sales of natural gas (including in-state
sales to large industrial customers) from the strictures of the
dormant Commerce Clause, see
Panhandle Eastern Pipe Line Co.
v.
Public Servo Comm'n of Ind., 332 U. S. 507 (1947), and to
this day, notwithstanding the national regulatory revolution,
Congress has done nothing to limit its unbroken recognition of the
state regulatory authority that
305
has created and preserved the local monopolies.13 The clear
implication is that Congress finds the benefits of the bundled
product for captive local buyers well within the realm of what the
States may reasonably promote and preserve.
This Court has also recognized the importance of avoiding any
jeopardy to service of the state-regulated captive market, and in
circumstances remarkably similar to those of the present case. In
Panhandle Eastern Pipe Line Co. v.
Michigan Pub. Servo
Comm'n, 341 U. S.
329 (1951), Ford Motor Company had entered a contract with an
interstate pipeline for supply of gas at Ford's plant in Dearborn,
Michigan, thus bypassing the local distribution company. The
Michigan Public Service Commission ordered the pipeline to cease
and desist from making direct sales of natural gas to the State's
industrial customers without a certificate of public convenience
and necessity, and the pipeline brought a Commerce Clause challenge
to the commission's action. The Court observed that
"[a]ppellant asserts a right to compete for the cream of the
volume business without regard to the local public convenience or
necessity. Were appellant successful in this venture, it would no
doubt be reflected adversely in [the LDC's] over-all costs of
service and its rates to customers whose only source of supply is
[the LDC]. This clearly presents a situation of ... vital interest
to the State of Michigan." Id., at 334.
In view of the economic threat that competition for large
industrial consumers posed to gas service to small captive
13 In the present case, the parties have not briefed the
question whether the present amended version of the NGA and related
federal legislation continues the express Commerce Clause exemption
for state regulation and taxation of retail natural gas sales
recognized in
Panhandle-Indiana, and we do not decide this
issue. We note, however, that the language of § l(b) of the NGA,
which the
Panhandle-Indiana Court construed as creating the
exemption, itself remains unchanged. (Compare 52 Stat. 821 with 15
U. S. C. § 717(b) (1994).)
306
users, the Court again reaffirmed its longstanding doctrine
upholding the States' power to regulate all direct in-state sales
to consumers, even if such regulation resulted in an outright
prohibition of competition for even the largest end users.
Id., at 336-337; see also
Panhandle-Indiana, supra
(upholding state regulation of direct sales to large industrial
users as not pre-empted by the NGA or precluded by the dormant
Commerce Clause).14
The continuing importance of the States' interest in protecting
the captive market from the effects of competition for the largest
consumers is underscored by the common sense of our traditional
recognition of the need to accommodate state health and safety
regulation in applying dormant Commerce Clause principles. State
regulation of natural gas sales to consumers serves important
interests in health and safety in fairly obvious ways, in that
requirements of dependable supply and extended credit assure that
individual buyers of gas for domestic purposes are not frozen out
of their houses in the cold months. We have consistently recognized
the legitimate state pursuit of such interests as compatible with
the Commerce Clause, which was "'never intended to cut the States
off from legislating on all subjects relating to the health, life,
and safety of their citizens, though the legislation might
indirectly affect the commerce of the country.'"
Huron Portland
Cement Co. v.
Detroit, 362 U. S.
14 Under today's altered market structure, see
supra, at
283-285, several Courts of Appeals have held that the NGA confers
jurisdiction on FERC, rather than the States, to regulate such
bypass arrangements for supplying gas to large industrial consumers
when the sale of gas itself occurs outside the State and an
interstate pipeline merely transports the gas to the industrial
consumer for delivery in-state. See
Cascade Natural Gas
Corp. v.
FERC, 955 F.2d
1412, 1414-1422 (CAlO 1992);
Michigan Consolidated Gas
Co. v.
Panhandle Eastern Pipe Line Co., 887 F.2d
1295, 1299
1301 (CA6 1989), cert. denied, 494 U. S. 1079
(1990);
Michigan Consolidated Gas Co. v.
FERC,
883 F.2d
117,121-122 (CADC 1989), cert. denied, 494 U. S. 1079 (1990).
We express no view on the correctness of these decisions.
307
440, 443-444 (1960) (quoting
Sherlock v.
Alling,
93 U. S. 99, 103
(1876)). Just so may health and safety considerations be weighed in
the process of deciding the threshold question whether the
conditions entailing application of the dormant Commerce Clause are
present.15
2
The size of the captive market, its noncompetitive character,
the values served by its traditional regulation: all counsel
caution before making a choice that could strain the capacity of
the States to continue to demand the regulatory benefits that have
served the home market of low-volume users since natural gas became
readily available. Here we have to assume that any decision to
treat the LDC's as similar to the interstate marketers would change
the LDCs' position in the noncaptive market in which (we are
assuming) they compete, at least at the margins, by affecting the
overall size of the LDCs' customer base. As we recognized in
Panhandle, a change in the customer base could affect the
LDCs' ability to continue to serve the captive market where there
is no such competition.
To be sure, what in fact would happen as a result of treating
the marketers and LDC's alike we do not know. We might assume that
eliminating the tax on marketers' sales would leave those sellers
stronger competitors in the noncaptive market, especially at the
market's boundaries, and that any resulting contraction of the
LDCs' total customer base would increase the unit cost of the
bundled product. We might also suppose that the State would not
respond to our decision by subjecting the LDC's and marketers both
to the
15 Of course, if a State discriminates against out-of-state
interests by drawing geographical distinctions between entities
that are otherwise similarly situated, such facial discrimination
will be subject to a high level of judicial scrutiny even if it is
directed toward a legitimate health and safety goal. See,
e. g.,
Philadelphia v.
New Jersey, 437 U. S. 617, 626-628
(1978); Dean Milk Co. v.
Madison, 340 U. S. 349, 353-354
(1951).
308
same sales tax now imposed on marketers alone, since the
utilities are already subject to a complicated scheme of property
taxation quite different from the tax treatment of the marketers.16
It seems, in fact, far more likely that eliminating the tax
challenged here would portend, among other things, some reduction
of the total taxes levied against LDC's, in order to strengthen
their position in trying to compete with marketers in the
noncaptive market.
The degree to which these very general suggestions might prove
right or wrong, however, is not really significant; the point is
simply that all of them are nothing more than suggestions,
pointedly couched in terms of assumption or supposition. This is
necessarily so, simply because the Court is institutionally
unsuited to gather the facts upon which economic predictions can be
made, and professionally untrained to make them. See,
e. g.,
Fulton Corp. v.
Faulkner, 516 U. S., at 341-342, and
authorities cited therein; Hunter, Federalism and State Taxation of
Multistate Enterprises, 32 Emory L. J. 89, 108 (1983) ("It is
virtually impossible for a court, with its limited resources, to
determine with any degree of accuracy the costs to a town, county,
or state of a particular industry"); see also Smith, State
Discriminations Against Interstate Commerce, 74 Calif. L. Rev.
1203, 1211 (1986) (noting that "[e]ven expert economists" may have
difficulty determining "whether the overall economic benefits
16 For example, public utilities pay personal property tax on
88% of true value, Ohio Rev. Code Ann. § 5727.111 (1996), while
marketers pay personal property tax on 25% of their true value, §
5711.22(D). Public utilities also pay a special tax assessment for
the expenses of the Public Utility Commission, § 4905.10 (1991),
and for the expenses of the Ohio Consumer Counsel, §4911.18.
Moreover, natural gas utilities must pay a gross receipts tax of
4.75% on gas sales, § 5727.38 (1996), while marketers pay none.
Independent marketers, for their part, are subject to a franchise
tax, § 5733.01, that does not apply to utilities, § 5733.09(a).
Thus, this sales and use tax challenge would not be the last
available to marketers and their customers; the franchise tax,
which also does not apply to utilities, is presumably next in
line.
309
and burdens of a regulation favor local inhabitants against
outsiders"). We are consequently ill qualified to develop Commerce
Clause doctrine dependent on any such predictive judgments, and it
behooves us to be as reticent about projecting the effect of
applying the Commerce Clause here, as we customarily are in
declining to engage in elaborate analysis of real-world economic
effects,
Fulton Corp., supra, at 341-342, or to consider
subtle compensatory tax defenses,
Oregon Waste Systems, Inc.
v.
Department of Environmental Quality of Ore., 511 U. S. 93, 105 (1994).
The most we can say is that modification of Ohio's tax scheme could
subject LDC's to economic pressure that in turn could threaten the
preservation of an adequate customer base to support continued
provision of bundled services to the captive market. The conclusion
counsels against taking the step of treating the bundled gas seller
like any other, with the consequent necessity of uniform taxation
of all gas sales.
3
Prudence thus counsels against running the risk of weakening or
destroying a regulatory scheme of public service and protection
recognized by Congress despite its noncompetitive, monopolistic
character. Still less is that risk justifiable in light of
Congress's own power and institutional competence to decide upon
and effectuate any desirable changes in the scheme that has
evolved. Congress has the capacity to investigate and analyze facts
beyond anything the Judiciary could match, joined with the
authority of the commerce power to run economic risks that the
Judiciary should confront only when the constitutional or statutory
mandate for judicial choice is clear. See,
e. g., Bush v.
Lucas, 462 U.
S. 367, 389 (1983) (Congress "may inform itself through
factfinding procedures such as hearings that are not available to
the courts"). One need not adopt Justice Black's extreme reticence
in Commerce Clause jurisprudence to recognize in this instance the
soundness of his statement that a challenge
310
like the one before us "call[s] for Congressional investigation,
consideration, and action. The Constitution gives that branch of
government the power to regulate commerce among the states, and
until it acts I think we should enter the field with extreme
caution."
Northwest Airlines, Inc. v.
Minnesota,
322 U. S. 292,
302 (1944) (concurring opinion). This conclusion applies
a
fortiori here, because for a half century Congress has been
aware of our conclusion in
Panhandle Eastern Pipe Line Co.
v.
Public Servo Comm'n of Ind., 332 U. S. 507 (1947),
that the NGA exempts state regulation of in-state retail natural
gas sales from the dormant Commerce Clause and in the years
following that decision has only reaffirmed the power of the States
in this regard.
***
Accordingly, we conclude that Ohio's regulatory response to the
needs of the local natural gas market has resulted in a
noncompetitive bundled gas product that distinguishes its regulated
sellers from independent marketers to the point that the
enterprises should not be considered "similarly situated" for
purposes of a claim of facial discrimination under the Commerce
Clause. GMC's argument that the State discriminates between
regulated local gas utilities and unregulated marketers must
therefore fail.
C
GMC also suggests that Ohio's tax regime "facially
discriminates" because the State's sales and use tax exemption
would not apply to sales by out-of-state LDC's. See,
e. g.,
Reply Brief for Petitioner 2, n. 1. As respondent points out,
however, the Ohio courts might well extend the challenged exemption
to out-of-state utilities if confronted with the question. Indeed,
in
Carnegie Natural Gas Co. v.
Tracy, No. 94-K-526
(Ohio Bd. Tax App., Nov. 17, 1995), reported in CCH Ohio Tax Rep. ,
402-254, the Ohio Board of Tax Appeals accepted the argument of a
Pennsylvania public util-
311
ity that insofar as the out-of-state utility sold natural gas to
Ohio consumers it qualified as a utility under Ohio Rev. Code Ann.
§ 5727.01 and was therefore exempt from the State's corporate
franchise tax. Out-of-state public utilities may therefore also
qualify for Ohio's sales and use tax exemption. Because "we have
never deemed a hypothetical possibility of favoritism to constitute
discrimination that transgresses constitutional commands,"
Associated Industries of Mo. v.
Lohman, 511 U. S., at
654, this argument, too, must be rejected.
v
Finally, GMC claims that Ohio's tax regime violates the Equal
Protection Clause by treating LDCs' natural gas sales differently
from those of producers and marketers. Once again, the hurdle
facing GMC is a high one, since state tax classifications require
only a rational basis to satisfy the Equal Protection Clause. See,
e. g., Amerada Hess Corp. v.
Director, Div. of
Taxation, N. J.
Dept. of Treasury, 490 U. S., at 80.
Indeed, "in taxation, even more than in other fields, legislatures
possess the greatest freedom in classification."
Madden v.
Kentucky, 309
U. S. 83, 88 (1940).
It is true, of course, that in some peculiar circumstances state
tax classifications facially discriminating against interstate
commerce may violate the Equal Protection Clause even when they
pass muster under the Commerce Clause. See
Metropolitan Life
Ins. Co. v.
Ward, 470 U. S. 869, 874
883
(1985).17 But as we explain in Part IV,
supra,
Ohio's
17
Ward involved an Alabama statute that facially
discriminated against interstate commerce by imposing a lower gross
premiums tax on in-state than out-of-state insurance companies. The
case did not present a Commerce Clause violation only because
Congress, in enacting the McCarranFerguson Act, 15 U. S. C. §§
1011-1015, intended to authorize States to impose taxes that burden
interstate commerce in the insurance field.
Ward, 470 U. S.,
at 880. We nonetheless invalidated Alabama's classification because
"neither of the two purposes furthered by the [statute] ... is
legitimate under the Equal Protection Clause .... "
Id., at
883.
312
differential tax treatment of LDC and independent marketer sales
does not facially discriminate against interstate commerce. And in
any event, there is unquestionably a rational basis for Ohio's
distinction between these two kinds of entities.
***
We conclude that Ohio's differential tax treatment of public
utilities and independent marketers violates neither the Commerce
Clause nor the Equal Protection Clause and that petitioner's claims
are without merit otherwise. The judgment of the Supreme Court of
Ohio is affirmed.
It is so ordered.
JUSTICE SCALIA, concurring.
I join the Court's opinion, which thoroughly explains why the
Ohio tax scheme at issue in this case does not facially
discriminate against interstate commerce. I write separately to
note my continuing adherence to the view that the so-called
"negative" Commerce Clause is an unjustified judicial invention,
not to be expanded beyond its existing domain. "The historical
record provides no grounds for reading the Commerce Clause to be
other than what it says-an authorization for Congress to regulate
Commerce."
Tyler Pipe Industries, Inc. v.
Washington
State Dept. of Revenue, 483 U. S. 232, 263 (1987)
(SCALIA, J., concurring in part and dissenting in part).
I have previously stated that I will enforce on
stare
decisis grounds a "negative" self-executing Commerce Clause in
two situations: (1) against a state law that facially discriminates
against interstate commerce, and (2) against a state law that is
indistinguishable from a type of law previously held
unconstitutional by this Court.
West Lynn Creamery, Inc. v.
Healy, 512 U.
S. 186, 210 (1994) (opinion concurring in judgment);
Itel
Containers Int'l Corp. v.
Huddleston, 507 U. S. 60, 78 (1993)
(opinion concurring in part and concurring in
313
judgment) (collecting cases). Although petitioner contends that
Ohio facially discriminates against interstate commerce with
respect to natural gas sales, its argument is based on a novel
premise: that private marketers engaged in the sale of natural gas
are similarly situated to public utility companies. Nothing in this
Court's negative Commerce Clause jurisprudence compels that
conclusion. To hold that States must tax gas sales by these two
types of entities equally would broaden the negative Commerce
Clause beyond its existing scope, and intrude on a regulatory
sphere traditionally occupied by Congress and the States.
JUSTICE STEVENS, dissenting.
In Ohio, as in other States, regulated utilities selling natural
gas-referred to by the Court as "LDC's"-operate in two markets, one
that is monopolistic and one that is competitive.
In the first, they sell a "noncompetitive bundled gas product,"
ante, at 310, to small consumers who have no practical
alternative source of supply. The LDCs' dominant position in that
market justifies detailed regulation of their activities in order
to protect consumers from the risk of exploitation by a seller with
monopoly power. See
ante, at 294-297. The basic purpose of
that regulation is to protect consumers, not to subsidize the
LDC's.
The second market in which LDC's sell natural gas is a
competitive market in which large customers like the General Motors
Corporation (GMC) have alternative sources of supply. Although Ohio
possesses undoubted power to regulate the activities of all sellers
in that market,
Panhandle Eastern Pipe Line Co. v.
Michigan Pub. Servo Comm'n, 341 U. S. 329 (1951), it has not
done so in any manner relevant here. The purchasers in this
competitive market do not need the protections afforded by the
state regulation of the monopolistic market, see
ante, at
302-303, and the benefits provided by these regulations will thus
not affect a competi-
314
tive consumer's choice of seller. Customers like GMC are not
"captive to the need for bundled benefits,"
ante, at 30l.
Nor do the burdens imposed by the regulations have a significant
impact on LDCs' activities within this market. Thus, while the gas
sold by LDC's on the competitive market may be subject to the same
regulations as the gas sold in the noncompetitive market, the
different impact of the regulations on the economic decisions of
both consumers and sellers makes it appropriate to characterize all
gas sold in that market as "unbundled gas," see
ante, at
297. Although the physical composition of the gas sold in the two
markets is identical, I agree with what I understand the Court to
be assuming, namely, that as a matter of economics "bundled gas"
and "unbundled gas" should be viewed as different products. See
ante, at 299, 301-303.
It is not uncommon for a firm with a monopolistic position in
one market also to sell a second product in a competitive market.
See,
e. g., International Business Machines Corp. v.
United States, 298 U. S. 131 (1936).
Even regulated monopolies such as electric utilities may distribute
goods, such as light bulbs, in a competitive market. See,
e. g.,
Cantor v.
Detroit Edison Co., 428 U. S. 579 (1976).
There is no reason why an LDC might not develop a product line,
such as thermostats or gas furnaces, to sell in the competitive
market for such products. I do not believe that the fact that the
LDC is heavily regulated in the "bundled gas" market would justify
granting it a special preference in the market for thermostats or
gas furnaces. Nor do I discern a significant relevant difference
between competition in "unbundled gas" and competition in
thermostats or gas furnaces.
It may well be true that without a discriminatory tax advantage
in the competitive market, the LDC's would lose business to
interstate competitors and therefore be forced to increase the
rates charged to small local consumers. This circumstance may
require the States to find new, and nondiscriminatory, methods for
accommodating the needs of small
315
consumers for regular and reasonably priced natural gas service.
As the Court recognizes, speculation about the "real-world economic
effects" of a decision like this one is beyond our institutional
competence. See
ante, at 309. Such speculation is not,
therefore, a sufficient justification for a tax exemption that
discriminates against interstate commerce.
Bacchus Imports,
Ltd. v.
Dias, 468 U. S. 263 (1984).
Accordingly, while I agree with Parts II and IV of the Court's
opinion, I respectfully dissent from the judgment.
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