Court Opinion

ID: 9557695
Source: CourtListenerOpinion
Date Created: 2023-08-21 16:55:22.939953+00
Date Added: 2024-06-11T09:06:14.859394
License: Public Domain

Schroeder, J.
(dissenting): The Commission by its order directed to Northern assumes it has authority under G. S. 1949, 55-703, as amended, to control and regulate purchases of gas by Northern, engaged in the interstate transportation of gas. This, in my opinion, is beyond the authority of the statute.
What the Commission in the instant case (No. 42,128), and in the companion case (No. 42,127), purports to do is to set up one proration system, having application to purchasers, within a pro-ration system controlling production under the Basic Order for the Hugoton Gas Field adopted on the 21st day of March, 1944, which was designed and declared hy the Commission to “accomplish the purposes for which article 7, chapter 55, General Statutes of Kansas for 1935 was enacted.” (Basic Proration Order for the Hugoton Gas Field, paragraph m.) (Emphasis added.)
By the Commission’s order dated October 7, 1959, Northern was directed to take gas ratably from its connections in the Kansas Hugoton Gas Field (Case No. 42,128), and by the Commission’s order promulgating Rule 8-2-219 (Case No. 42-127), all companies purchasing gas from a common source of supply under proration by the Commission are required to take gas in proportion to the allowables from all the wells to which each is connected.
The Basic Proration Order for the Hugoton Gas Field, as *363amended, and in effect at times material, by a system of proration, controls the production of gas in the Hugoton Field. The end sought in fixing production quotas was to enable each developed lease to currently produce its daily allowable so that ultimately such developed lease would have an opportunity to produce approximately the amount of gas which underlies such lease. It recognized the available production of the wells in the Hugoton Field was far in excess of the market demand, and found:
“f. That since there exists disproportionate production from the wells and leases in said field which impairs the correlative rights of many of the owners of developed leases, it is necessary for the Commission to take jurisdiction and to prescribe regulations for the production of gas from said wells and others that may be hereafter completed in said field to the end that each person, firm, or corporation having the right to drill into and produce natural gas from said field may take therefrom only such proportion of the amount that may he produced therefrom without waste as will permit each well or developed lease to produce ultimately at least approximately the amount of gas underlying the land or lease on which such well is located and currently produce proportionately with the other wells in said fields . . .” (Emphasis added.)
The basic order adopted a formula which was said to have a reasonable relation to the prevention of waste, to the prevention of inequitable and unfair production of gas from the common source of supply, and to the prevention of unreasonable discrimination in favor of one producer in said field and against another producer therein (paragraph m). The order directed that there be held two market demand hearings for each year (paragraph n) to determine the market demand for natural gas from the Hugoton Field for the next succeeding proration periods, and directed the preparation and promulgation of a new schedule of production allowable for the wells in said field, based upon the determination made as a result of the market demand hearing (paragraph o).
The record presented discloses that pursuant to paragraph “n” of such basic proration order, two market demand hearings for each year were and are held by the Commission, and market demand orders were and are issued for six-month periods (October 1 to March 31 and April 1 to. September 30), in addition to which monthly proration or allowable orders were and are issued for each month spreading and allocating the market demand and fixing the monthly allowables assigned to each of the producing gas wells in said field.
The record discloses that for the entire period from April, 1944, through February, 1958, there were no important differences be*364tween the ratable purchases by Northern from Republic “A” wells and other wells to which it was connected. The difference in ratio was less tiran one times the January allowable for essentially the entire period.
However, in the spring of 1958, a wide difference in Northern’s purchases appears between the Republic “A” wells and the others.
The reason stated to the Commission and assigned by Northern for this difference is:
“. . . First, as the Commission is well aware, allowables granted by the Commission to the field have exceeded the total field production by approximately 1.30 billion cubic feet and the wells connected to Northern, other than the Republic ‘A’ wells, have become substantially underproduced. Second, is the fact that Northern has been seriously delayed in expanding its system into new markets for gas by reason of the failure of the Federal Power Commission to issue the necessary Certificates of Public Convenience and Necessity. . .” (Emphasis added.)
Testimony on behalf of Northern was that given sufficient time it would be able to conduct its operations in such a way that the taking from the wells to which it was connected would be ratable. This was based on the assumption that the Commissions future allowable assignments will be realistic, and on the further assumption that the necessary expansion certificates will be issued to Northern by the Federal Power Commission.
It must be recognized that Northern’s Republic “A” contract is subject to all valid legislation with respect to gas purchases in the Hugoton Field, either state or federal, and to all valid present and future orders, rules and regulations of duly constituted authorities having jurisdiction. (See, Northern Natural Gas Co. v. Republic Natural Gas Co., 172 Kan. 450, 478, 241 P. 2d 708.)
The testimony on behalf of Northern was that as far as facilities were concerned, it was not physically impossible for Northern to take gas ratably from the Republic “A” wells and all other wells connected to its system. The evidence further disclosed that if the markets were sufficient so that Northern could take the current allowables from the Republic “A” wells and also take the current allowables from all other wells connected to it, then Northern’s take would be ratable as between all wells connected to its system. In other words, when the market conditions are at the same level as the allowables then the same return of take would exist between the Republic “A” wells and all other wells to which Northern was connected.
*365Theoretically, when these facts are considered in the light of the- Basic Proration Order for the Hugoton Field and the statute pursuant to which it was promulgated, if the Commission is not derelict in its duty to correlate allowable production with the market demand, all wells of necessity would be produced ratably without supplementation by any order or rule to control the purchasers of gas in the Hugoton Field. Taking into consideration the entire history of Northern’s purchases of gas in the Hugoton Field starting from April, 1944, the above theory seems to have practical application.
It is readily apparent that any effort to control the purchase of gas, which of necessity on the facts before the court in the instant case is limited to those wells connected to Northern’s gathering system and pipe line, cannot protect the correlative rights of all producers from the common source of supply in accordance with the mandate of the statute. It fails to take into consideration those wells, potentially capable of production, which have no market for their gas, and the differential in markets among the various purchasers of gas from the common source of supply. Therefore, if the Commission fails to exercise its power to correlate production with demand, it cannot accomplish the mandate of the statute, and resort to a method which requires the purchasers of gas in the Hugo-ton Field to take ratably from the wells to which each is connected is little more than a futile gesture.
It must be assumed the legislature was aware of the situation regarding the production and development of gas in this state when 55-703, supra, was first enacted in 1935, and when subsequent amendments were made thereto, but it did not expressly authorize the Commission to require purchasers of gas in the common source of supply to take ratably from all wells to which their pipe line was connected. It undoubtedly felt the control of production was sufficient to accomplish the purposes for which the statute was enacted.
An analysis of G. S. 1949, 55-703, as amended, (now G. S. 1959 Supp., 55-703) will disclose the Commission has no jurisdiction over purchases of gas by an interstate pipe line company. Our gas conservation law is Chapter 55, Article 7, and is entitled “PRODUCTION AND CONSERVATION OF NATURAL GAS.” The applicable section of this statute is 55-703, supra. In pertinent part it reads:
*366“[1] Whenever the available production of natural gas from any common source of supply is in excess of the market demands for such gas from such common source of supply, or whenever the market demands for natural.gas from any common source of supply can be fulfilled only by the production of natural gas therefrom under conditions constituting waste as herein defined, or whenever the commission finds and determines that the orderly development of, and production of natural gas from, any common source of supply requires the exercise of its jurisdiction, then any person, firm or corporation having the right to produce natural gas therefrom, may produce only such portion of all the natural gas that may be currently produced without waste and to satisfy the market demands, as will permit each developed lease to ultimately produce approximately the amount of gas underlying such developed lease and currently produce proportionately with other developed leases in said common source of supply without uncompensated cognizable drainage between separately-owned, developed leases or parts thereof. [2] The commission shall so regulate the taking of natural gas from any and all such common sources of supply within this state as to prevent the inequitable or unfair taking from such common source of supply by any person, firm or corporation and to prevent unreasonable discrimination in favor of any one common source of supply as against another and in favor of or against any producer in any such common source of supply . . (Emphasis and numbers added.)
In both cases the Commission relies upon the above quoted portion of the statute marked [2], categorically stating this is the source of its jurisdiction.
An examination of this portion of the statute, and those portions thereof which have been italicized, makes it clear that the taking referred to, over which the Commission is to have regulatory jurisdiction under certain circumstances, is from, the common source of supply. As applied to the Kansas Hugoton Gas Field the common source of supply would be the so-called “Hugoton Pay Zone,” or the producing horizon described as gas encountered at an average depth of from 2700 to 2800 feet below the surface within the Kansas Hugoton Gas Field. Therefore, the taking referred to is not a taking from the wellhead, or from a producer, or from the end of a gathering system owned by the producer some miles from the wellhead, but the taking referred to is from the common source of supply.
It must be noted the phrase “person, firm or corporation” used in both the first and second portions of the quoted statute, is defined in the first portion as one “having the right to produce natural gas.” (Emphasis added.) It is difficult to believe the legislature intended that on the one hand s.uch expression referred to a producer, and on the other hand to a purchaser.
*367The court in White Eagle Oil Co. v. State Corporation Comm., 168 Kan. 548, 214 P. 2d 337, quotes a portion of the first sentence of the section of the statute in question which it construes as being the statutory mandate or declaration of public policy with regard to production.
While the Commission’s general rules and regulations, in Rule 92-2-101, under the definition of “taker” refers the reader to the definition of “purchaser,” the rules do not give the Commission jurisdiction to regulate purchases, unless such authority is found in the statute. In other words, if the statute does not confer power upon the Commission to regulate the purchases of gas, it cannot confer such power upon itself by the adoption of a rule.
The State Corporation Commission of Kansas has a limited jurisdiction. It possesses no powers not given it by statute. (Bennett v. Corporation Commission, 157 Kan. 589, 596, 142 P. 2d 810; Manhattan Co. v. Commissioner, 297 U. S. 129, 80 L. Ed. 528, 56 S. Ct. 397; 24 Am. Jur., Gas and Oil, § 144, p. 628; and see, Texas & Pacific Ry. Co. v. U. S., 289 U. S. 627, 77 L. Ed. 1410, 53 S. Ct. 768.)
On those several occasions over the life of the statute when this court has been called upon to construe 55-703, supra, and its companion sections, it has consistently construed such act as a statute giving authority to regulate production, and not purchases. (Northern Natural Gas Co. v. Republic Natural Gas Co., supra; and Republic Natural Gas Co. v. State Corporation Commission, 173 Kan. 172, 244 P. 2d 1196.)
In Republic Natural Gas Co. v. State Corporation Commission, supra, the court in substance said that the continuing duty on the part of the Commission was to cause the production of gas from any well to be ratable, in accordance with the provisions of the statute and the basic order; and that no operator or producer had any vested right to produce from any well more gas in any month than was assigned it as its allowable, the entire matter of producing gas from a well being subject to the provisions of the basic order and the statute. In other words, under 55-703, supra, to “take” gas means to “produce” gas. The essence of the gas conservation statute is that it operates on the operator or producer of the well.
In construing our oil conservation statute, which is very similar to our gas conservation statute, this court in State, ex rel., v. Sinclair Pipe Line Co., 180 Kan. 425, 304 P. 2d 930, stated:
“The statutes with reference to waste are G. S. 1949, 55-601 to 55-608, inclusive. The production of crude oil in such a manner as to constitute waste *368is prohibited by G. S. 1949, 55-601, and made a crime by G. S. 1949, 55-607. The statute refers only to production. Sinclair, as we have demonstrated, is engaged strictly in interstate transportation of crude oil. The Oklahoma statute on waste is almost identical to ours. In speaking of that statute, the supreme court of the United States held in Champlin Rfg. Co. v. Corporation Commission, 286 U. S. 210, 76 L. ed. 1062, 52 S. Ct. 559:
“ ‘It is clear that the regulations prescribed and authorized by the Act and the proration established by the commission apply only to production and not to sales or transportation of crude oil or its products.’” (pp. 437, 438.) (Emphasis added.)
It is significant to note that the oil statute, G. S. 1949, 55-603, states in part: ■ . . any person having the right to drill into and produce oil therefrom may take therefrom . . .” (Emphasis added.) (See, Two Cases on Conservation, Vol. 6, J. B. K. p. 149, by H. H. Lesar.)
It is apparent that heretofore the Commission itself has always construed the statute in question as one authorizing the regulation of production, and not purchases. In paragraph “f” of the Basic Proration Order for the Hugoton Gas Field the Commission found “The present and past production from the wells in said field is and has been inequitable and unfair.” (Emphasis added.) At another place in paragraph “f” the Commission found “it is necessary for the Commission to take jurisdiction and to prescribe regulations for the production of gas.” (Emphasis added.)
In Cities Service Gas Co. v. Peerless Oil & Gas Co., 203 Okla. 35, 220 P. 2d 279, the Oklahoma Supreme Court directed Cities Service, a purchaser of gas to take gas ratably from other wells in a given field. From this decision the Commission argues that ratable take statutes do in fact apply to purchasers as well as producers.
It must be noted in the state of Oklahoma the legislature has enacted a common purchasers’ statute, requiring that purchasers of gas shall purchase and transport natural gas from each person or producer ratably, in proportion to the average production, and prohibits such common purchasers from discriminating in price or amount for like grades of natural gas or facilities as between producers or persons. (52 Okl. St. Ann., § 23.) Also, the legislature of Oklahoma in its conservation of oil and gas statute Nas defined the term “taker” to include a purchaser of natural gas as follows:
“(i) The term ‘Taker’ shall include any person, who, acting alone, or jointly with any person or persons, is directly or indirectly purchasing or transporting by any means whatsoever or otherwise removing oil or gas from any common source of supply in this State. Laws 1947, p. 326, § 1.” (52 Okl. St. Ann., § 86.1.)
*369It is clear the Kansas Corporation Commission cannot look to the statutes of other states, or to the judicial construction of such statutes, for power to control purchasers of gas in Kansas under the provisions of G. S. 1949, 55-703, as amended.
Both the statute and the Basic Proration Order for the Hugoton Gas Field purport to give the Commission jurisdiction over the regulation of production only. In other words, the “taking” which must be ratable under the statute and the basic order is the production of gas from the common source of supply, not the purchasing of gas. By a mandatory direction from the legislature the Commission has jurisdiction over production, so that such production will neither be inequitable nor unfair. The “Order” (Case No. 42,128) and the “Rule” promulgated by the Commission (Case No. 42,127) here under review which is directed to purchasers, rather than operators or producers, and seeking to regulate the purchase of gas, or the manner of making such purchases after production has ceased, rather than to regulate the production itself, are in my opinion invalid because they go beyond the jurisdiction conferred upon the Commission by the statute.