Title: Kansas-Nebraska Natural Gas Co. v. STATE CORP. COMM.

State: kansas

Issuer: Kansas Supreme Court

Document:

169 Kan. 722 (1950)
222 P.2d 704
KANSAS-NEBRASKA NATURAL GAS COMPANY, INC., a Corporation, Appellant,
v.
STATE CORPORATION COMMISSION OF THE STATE OF KANSAS, JEFF A. ROBERTSON, Chairman and Commissioner, DeWITT M. STILES, Commissioner, and CHARLES M. WARREN, Commissioner, as members of the State Corporation Commission of the State of Kansas, and their respective successors in office, Appellees. NORTHERN NATURAL GAS COMPANY, a Corporation, Appellant,
v.
THE STATE CORPORATION COMMISSION OF THE STATE OF KANSAS and JEFF A. ROBERTSON, Chairman, DeWITT M. STILES, Member, CHARLES M. WARREN, Member of said Commission, and their successors in office, Appellees. PANHANDLE EASTERN PIPE LINE COMPANY, a Corporation, Appellant,
v.
THE STATE CORPORATION COMMISSION OF THE STATE OF KANSAS, JEFF A. ROBERTSON, Chairman and Commissioner, DeWITT M. STILES, Commissioner, and CHARLES M. WARREN, Commissioner, as members of the State Corporation Commission of the State of Kansas, and their respective successors in office, Appellees.
Nos. 37,921, 37,920, 37,924

Supreme Court of Kansas.
Opinion filed October 7, 1950.
M.F. Cosgrove, of Topeka, argued the cause, and James D. Conway, of Hastings, Neb., and D.B. Lang, of Scott City, were with him on the briefs for the appellant Kansas-Nebraska Natural Gas Company, Inc.
Mark H. Adams, of Wichita, argued the cause, and Lawrence I. Shaw, of Omaha, Neb., and A.M. Fleming, of Garden City, were with him on the briefs for the appellant Northern Natural Gas Company.
Louis R. Gates, of Kansas City, argued the cause, and Mark H. Adams, of Wichita, and Edw. H. Lange, of Kansas City, Mo., were with him on the briefs for the appellant Panhandle Eastern Pipe Line Company.
Jay Kyle, general counsel, State Corporation Commission, of Topeka; R.C. Woodward, special counsel, of El Dorado, and Howard T. Fleeson and Dale M. Stucky, both of Wichita, of counsel, argued the cause and were on the briefs for the appellees.
The opinion of the court was delivered by
HARVEY, C.J.:
These consolidated appeals are from judgments of the district court, which upon review of an interim order of the State Corporation Commission fixing a minimum price of eight cents per thousand feet at the wellhead for natural gas taken from *724 the Hugoton gas field, found the same lawful and reasonable and directed their enforcement.
What is commonly spoken of as the Hugoton gas field is approximately sixty miles long and forty miles wide, covering parts of several counties situated in the southwest corner of Kansas and extending south across Texas county, Oklahoma, and into one or more counties of northern Texas. We are concerned here with only that part of the Hugoton gas field which is in Kansas. It is said to be the largest known reservoir of natural gas and is found at a depth of from about 2,600 to 2,900 feet in a porous formation about fifty feet thick. It was discovered near Hugoton in 1922, but it was not until about 1929 that its possibilities for domestic and industrial purposes had been fully realized. At the time of the hearing before the commission about 1,000 wells had been drilled and pipe lines had been laid to convey the gas to many cities and communities in Kansas and also in Colorado, Nebraska and states north, as far as Minneapolis, and east to cities in Michigan and points between. Several million feet of natural gas per day were being taken from the wells. The supply was greatly in excess of the market demands. Many of the producers had not been able to market their gas through any of the pipe lines. Prices being paid to producers varied from four to eight cents per thousand cubic feet. There was really no open market for it  the producers had to accept what the pipe line companies would offer to pay.
On February 6, 1948, the Southwest Kansas Royalty Owners Association, a nonprofit corporation composed of about 1,200 members and eighteen individuals, each the owner of mineral interests in real property in the Hugoton gas field, filed a petition with the corporation commission which alleged that under the land owned by the petitioners and others is the natural gas reservoir and source of supply known as the Hugoton gas field, which constitutes a natural resource which should be conserved and the waste of which should be prohibited by the commission, and stated particulars not necessary to be noted here in view of an amended petition in which it was alleged that preventable waste existed. The petition was received and given docket No. 35,154-C (C-1868 Conservation Division). Each of the appellants here intervened and filed a written protest, and the Cities Service Gas Company filed a motion to dismiss. After due notice to all interested parties a pretrial hearing was had July 19 and 20, 1948, of oral and written arguments as to the legal questions involved, including jurisdiction of the commission, during which the *725 petitioners were given leave to file an amended petition, and a date was fixed for the hearing of evidence, the commission reserving its ruling upon the legal questions. The amended petition was filed August 4, 1948. Hearings were had from October 18 through the 22d and December 13 through the 15th, at which evidence was offered. On February 18, 1949, the commission filed its interim order, which sufficiently sets forth the questions presented by the amended petition and the ruling of the commission thereon, the pertinent portions of which are as follows:
The interim order recited the consideration of the evidence and the arguments and briefs of counsel, the filing of the petition and amended petition, and stated that the petitions, as amended, "requested that the commission:
Paragraph 2 recites the hearings and notices therefor, and
Paragraph 7 pertains to the keeping of books of gas taken from the field and provides:
It further provides that those taking the gas should be required to make actual payments of the differences to the persons entitled thereto, or deposit or impound the funds in their own treasury or give bond for such payment.
On the date the commission filed its interim order in docket No. 35,154-C (C-1868) it made an order in docket No. C-164 by which it determined, on the commission's own motion, that an investigation should be instituted to develop and explore all the facts and circumstances pertinent to a determination of the value of gas at the wellhead in the Kansas Hugoton gas field and as to what minimum wellhead price should be fixed for the sale of such gas, hearings pursuant to such investigation to be held upon proper notice at such times and places as the commission might order.
On February 23, 1949, the commission filed its memorandum opinion, setting out its reason for making the interim order. This included a history of the proceeding, of our legislative history relating to the production and conservation of natural gas, and the history of the development of the Hugoton gas field, and found authority for its interim order in our statute (G.S. 1947 Supp. 55-701 to 55-713). The commission on the same date issued an order in docket No. C-164 by which, on its own motion, it instituted an investigation, with hearings to be held thereon after due notice, for the purpose of determining whether existing orders, rules and regulations were sufficient in scope to require ratable taking from each and every well in the field, and whether, under existing orders, rules and regulations, it was necesary to make amendments, alterations and changes therein for the protection of correlative rights, conservation of natural gas, orderly development of the field, ratable taking, and for such other purposes as might be deemed necessary. On the same date the commission, on its own motion, made an *728 order in docket No. 34,780-C (C-1825) for further consideration of the unit of measurement known as "Gas Cubic Foot," defined in rule 82-2-201 of the general rules and regulations for the conservation of crude oil and natural gas.
Each of the appellants filed a motion for rehearing, which motions were considered by the commission and overruled. Whereupon the appellants filed their respective actions for judicial review of the interim order of the commission by the district court, as provided in G.S. 1947 Supp. 55-606, as authorized by 55-707. These actions were heard together by the district court on September 12 and 13, 1949, and taken under advisement by the court. On September 24, 1949, the district court made its findings and judgment in each of the actions as follows. The court found:
Each of the plaintiffs filed a motion for a new trial in the district court, which was considered by the court and overruled, and each of them timely appealed to this court, where the cases were consolidated for hearing.
We turn now to the consideration of the legal questions presented. Appellants contend that since they are engaged in the business of transporting natural gas in interstate commerce they are governed wholly by the Federal Natural Gas Act of June 21, 1938 (Ch. 556, 52 Stat. 821, 15 U.S.C.A., § 717). This is "AN ACT To regulate the transportation and sale of natural gas in interstate commerce, and for other purposes." It first declares the "necessity for regulation of natural-gas companies," contains a declaration of policy, and specifies the application of its provisions with exemptions thereto. The pertinent portions read:
The question appears to have been settled in Federal Power Com'n v. Panhandle Eastern Pipe Line Co., 172 F.2d 57. There Panhandle (the appellant here in No. 37,924) in September, 1948, organized the Hugoton Producing Company, transferred to it gas leases on 97,000 acres of land in the Hugoton gas field in Kansas reserving the option to purchase gas produced therefrom after a date named, paid Hugoton $675,000 in cash and took back from it all of its outstanding capital stock, which it undertook to distribute in dividends to its stockholders. The Federal Power Commission sued to enjoin the transfer because its approval of the transaction had not been obtained. From an adverse decision in the district court it appealed. The United States Circuit Court of Appeals, third circuit, affirmed, and in the opinion (by Goodrich) used the following language:
On certiorari this was affirmed in Federal Power Com'n v. Panhandle Co., 337 U.S. 498, 69 S. Ct. 1251, 93 L. Ed. 1499 where it was held:
In the opinion (pp. 509-513) it was said:
These decisions have not been set aside or modified. From them and from the statute itself it is clear that the Federal Natural Gas Act has no application to intrastate transportation or sale of natural gas, or to its local distribution, or to its production, or gathering. Certainly it was not designed to limit or destroy the authority of states in which natural gas is found to conserve natural gas and to prevent waste in its production, gathering, distribution or sale. Congress made it clear such a result would not follow, and in doing so took cognizance of the specific Kansas statute here involved and of statutes of other states designed to conserve natural gas and to prevent waste in its production, gathering, distribution or sale.
Appellants contend the legislature has not given the commission authority to fix a wellhead price for natural gas. We wish to make it clear that appellants do not contend the state has no authority to fix such a price when it deems such action necessary to conserve natural gas, by a direct act of the legislature, or by an act specifically authorizing the commission to do so. Indeed, we interpret their position as conceding the state has such authority. Hence, there is no purpose or necessity in discussing such authority here. We do no more than refer to the fact that as early as 1904, in La Harpe v. Gas Co., 69 Kan. 97, 76 Pac. 448, it was held:
*731 That doctrine has inhered in our subsequent statutes and decisions.
Our first statute dealing specifically with "the production and conservation of natural gas" was enacted in 1935 (Ch. 213, Laws 1935) and was embodied in our General Statutes of 1935 as sections 55-701 to 55-711. The statute was rewritten in 1945 (Ch. 233, Laws 1945) and now appears in G.S. 1947 Supp. as sections 55-701 to 55-713. The pertinent portions of the statute may be quoted or summarized as follows:
Other provisions of the statute pertain to procedure and other details which are not in question.
The dominant purpose of this statute is to prohibit waste of natural gas in Kansas, not only in the manner and under the conditions of its production, but for such purposes as would constitute waste. In order that the term "waste" should not be narrowly construed the statute makes it clear that it is to include economic, underground and surface waste, and the term "economic waste" is defined. These provisions were for the purpose, if necessary, of expanding the meaning of the term "waste" and not for the purpose of limiting such meaning. The statute also deals with the rights of owners of property under which there is a common source of supply of natural gas. We think the statute is broad enough to authorize the commission to make any rule or order to prohibit waste of natural gas, upon proper application made to it, if the evidence discloses waste in the manner or conditions or purpose of its production. It is true the statute did not specifically authorize the commission to fix a wellhead minimum price to be paid for gas produced. It did not forbid the commission to do so if and when the evidence disclosed the fixing of such price would tend to prevent waste and the inequitable and unfair taking of gas from a common source of supply. Hence, the legal question presented by appellants, that the statute did not authorize the commission to make the interim order complained of, is not well taken.
We shall not attempt a detailed recital of the evidence upon which the commission apparently relied in fixing a minimum wellhead price of eight cents per thousand cubic feet of gas to be taken from the Hugoton field. The testimony is lengthy and explained or illustrated by numerous maps, charts and tables of figures. The witnesses who testified upon the subject were well educated along those lines and had years of experience in the production and marketing of gas and economics as applied thereto, and were outstanding writers upon that subject. Their qualifications were not questioned, neither *733 was there any contention that any of them in any way was biased or prejudiced. They gave it as their judgment that one of the best ways to conserve gas and prevent waste in the Hugoton gas field is to fix a minimum wellhead price for gas. The lowest figure stated by any of them was eight cents per thousand cubic feet. Others put the minimum figure higher. This evidence was not contradicted by the appellants. They appear to have presented their defense before the commission and the trial court, and their appeal here is upon legal questions and not upon questions of fact. We think the commission was justified in finding upon the evidence before it that to prevent waste of gas in the Hugoton field a minimum wellhead price of eight cents per thousand cubic feet was justified, and that the trial court correctly found the order of the commission in this respect to be reasonable. We take note of the fact that the commission did not regard this as a final order. The order was made upon the evidence then before the commission, which on its own motion transferred the matter to docket No. C-164 for further study.
Appellants contend the order of the commission constitutes a special law, being limited solely to the Kansas Hugoton gas field, and therefore violates section 17, article 2, of our constitution, which reads:
This provision of our constitution was intended to apply to laws enacted by the state legislature. Appellants contend it has been held to apply to any law purporting to be made by public authority and cite some authorities from other jurisdictions tending to support that view. No case in Kansas is cited as supporting that view under our constitution. But we need not decide that question here. The court takes judicial notice of the fact that the Hugoton gas field in Kansas differs in many respects from any other gas field in the state. We think the order is not void because it applies only to the Hugoton gas field.
Appellants contend the order contravenes the interstate compact to conserve oil and gas (G.S. 1935, 55-803 to 55-808 incl.) as extended. The point is not well taken. The declared purpose of the compact, as stated in Article II thereof, is "to conserve oil and gas by the prevention of physical waste thereof from any *734 cause." And in Article III, after listing six particulars in which the states joining in the compact agreed to enact laws or to continue them in force for the prevention of waste, contains this language: "The enumeration of the foregoing subjects shall not limit the scope of the authority of any state." We see nothing in the compact that would prevent our state from enacting the statutes under which the commission operated.
Appellants contend the interim order complained of violates their existing contracts for the purchase of gas. The point is not well taken. Appellants obtain the gas which they pass through their pipe lines in one of two ways  by purchase or by production. The standard form gas purchase contract used by the appellants in the Hugoton gas field contains this clause:
By this the parties anticipated modification of the contract by a duly constituted authority having jurisdiction. Under our previous holdings herein the corporation commission is such a body. The appellants get some of the gas from wells under ordinary gas leases with the owners of real property. These leases do not attempt to fix any price for the lessor's royalty. The pertinent provision in the lease reads:
The result is the appellants have no prior contracts which will be violated by the order complained of here.
Other points argued by the appellants have been considered and found to be without substantial merit.
The judgment of the trial court is affirmed.
PRICE, J., (dissenting):
I am unable to agree to the result reached in the opinion written for the court and will state my views very briefly.
In doing so I do not propose to debate the merits of the question whether the commission should or should not have power to fix the price of natural gas at the wellhead in the Hugoton or any other gas field. As I see it the question is  does it possess such power under the statute? The commission has only such powers as have been conferred upon it by the legislature. Nowhere in *735 the provisions of G.S. 1947 Supp. 55-701, 702, 703 and 704 do I find any such authority granted. In fact, at the 1947 session of the legislature H.B. 129 specifically empowered the commission "... to fix a minimum price at which gas may be purchased at the wellhead...." It is true that this bill, which passed both houses of the legislature, was vetoed by the governor and therefore did not become a part of our law  but, in my opinion, it was definitely a legislative recognition of the fact that no such power previously existed. In the absence of such statutory authority I am unwilling to say that an administrative agency, board or commission possesses the power to do what was done here and for that reason I think the order of the commission was unlawful and should be set aside.
WEDELL, J., concurring in J. Price's dissent.