Court Opinion

ID: 9529399
Source: CourtListenerOpinion
Date Created: 2023-08-07 03:50:26.209834+00
Date Added: 2024-06-11T13:27:46.005572
License: Public Domain

BLACKBIRD, Justice
(dissenting).
I -cannot agree with the views expressed in the majority opinion.
. The price-fixing part of the Order involved herein is as follows:
“It Is Therefore Ordered by the Corporation Commission of the State of Oklahoma as follows:
“1. That no gas shall be produced from any well located in the Guymon-Hugoton Field of Oklahoma except at a price of not less than 9.8262^ per thousand, cubic feet if sold at the wellhead, or on the. lease ■ or drilling unit *433from which produced, or a price equivalent to not less than 9.8262‡ per thousand cubic feet at the wellhead if sold off the lease or drilling unit or otherwise utilized. If the gas is sold during or iip on conclusion of gathering without being processed for the extraction of liquid hydrocarbons, the price shall be not less than 9.8262‡ per thousand cubic foot plus the reasonable cost of gathering. If the gas is processed for extraction of liquid hydrocarbons and sold during or at the conclusion of gathering, the price for the residue gas shall be not less than 9.8262‡ per thousand cubic feet.” (Emphasis added.)
It will be seen from the above that the Order purports to fix the price of gas at three different stages, namely:
(1) Raw gas at the wellhead;
(2) Raw gas “sold off the lease or drilling unit or otherwise utilized” including that sold at the conclusion of gathering and before processing, and
(3) Residue gas (the residue of raw gas after it has been processed).
As to (1) above, there can be no question as to the validity and constitutionality of the Order in view of the decision of this Court in Cities Service Gas Co. v. Peerless Oil & Gas Co., 203 Okl. 35, 220 P.2d 279, and the decision of the United States Supreme Court on that case’s appeal. See Cities Service Gas Co. v. Peerless Oil & Gas Co., 340 U.S. 179, 71 S.Ct. 215, 95 L.Ed. 190. However, as to (2) and (3) I think the Order is invalid and unconstitutional.
Each of the respondent companies is a “Natural Gas Company” as that term is defined in the Natural Gas Act, 52 Statutes 821, 15 U.S.C.A. § 717 et seq. All are foreign corporations operating gas pipe line transportation systems traversing state lines and transporting residue gas derived by processing raw gas. Substantially all of this residue gas is transported through Respondents’ interstate pipe lines and sold as fuel in various northern states. Such gas transportation is performed under authority-of certificates of public convenience and necessity issued to said Respondents by the Federal Power Commission and the selling of that gas in those states is likewise under the exclusive jurisdiction of that body. When the raw gas arrives at Phillips’ two Texas plants for processing, it has already been commingled in Phillips’ Texas-Oklahoma pipe line system with other raw gas produced in Texas. Michigan-Wisconsin’s purchases from Phillips are made under a contract specifying a certain price therefor, entered into by and between said parties on December 11, 1945, with amendments later made.
The Panhandle Company’s pipe line system extends directly from producing areas in Oklahoma, Texas and Kansas to Missouri and other states north and east, where the gas it transports is sold at wholesale, both to utility companies for resale and to industries in those states for their own use.. Part of this gas is derived from Panhandle’s own wells in Oklahoma, and part is purchased from other producers.
All of the respondents maintain that Order No. 26096 is an unconstitutional assertion of power by the Corporation Commission in so far as it purports to fix the price of residue gas, and raw gas, after it has left the wellhead and lease or drilling unit where it is produced and enters an interstate pipe line system for resale in other state's. Only Natural argues that the Order as a whole, including the part applicable to wellhead gas, is invalid or not justified by the evidence. As I consider the Order separable as applied to the gas in its three classifications above named, and, as I note that under the stipulated facts, Natural is not a purchaser of wellhead or raw gas, if Order No. 26096 had been reversed only as it purports to apply to gas other than at the wellhead, Natural would: then have no rights impinged, as the price it is paying Panoma for residue gas under its present contract presumably would not be directly affected or disturbed. In that situation, the questions Natural raises as to the wellhead gas price fixing feature of the Order would become -merely abstract or hypothetical ones, and not-subject to review on specifications of error by this party not shqjvn to be then affected by it. See Patterson v. Stanolind Oil & Gas *434Co., 182 Okl. 155, 77 P.2d 83; Emrick v. State Highway Commission, 147 Okl. 252, 296 P. 412; Swan v. Home Savings & State Sank, 148 Okl. 42, 297 P. 250; In re Stewart Bros., 53 Okl. 153, 155 P. 1124; 2 Am.Jur., “Appeal and Error”, § 152. I will therefore reserve opinion on that part of Natural’s argument and consider now only its argument directed at' the “non-wellhead” portions of the Order, together with those of the other protestants, which on those phases are substantially the same.
As the order purports to fix the price of raw gas at the conclusion of its gathering beyond Oklahoma’s territorial limits, or after it has gotten into an interstate pipe line, and purports to fix the price of residue gas, respondents say:
(1). The findings and Order of the Commission are not supported by substantial, competent evidence;
(2). The Order is beyond the constitutional and statutory power of the Commission and, as applied to protestants, violates,
(a) Sections 7, 15, 23, and 24 of Article II of the Oklahoma Constitution, and Section 10, Article I, and the Fourteenth Amendment of the U. S. Constitution, by taking their property and valuable property rights without due process of law, without just compensation, and without a justifying public purpose or reciprocity of advantage, and denies them equal protection of the law,
(b) and violates Section 8, Article I of the U. S. Constitution by placing an unlawful embargo on interstate commerce.
In so far as Order No. 26096 purports to apply to the gas after it is received into interstate pipe lines and is sold for immediate transportation and resale in other states, I think its invalidity is settled by State of Wisconsin v. Federal Power Commission, 92 U.S.App.D.C. 284, 205 F.2d 706. The opinion promulgated therein demonstrates, with the ample support of the previous U. S. Supreme Court decisions cited therein, that gas sales, in no respect (affecting their interstate character) different from those in the present case, are interstate commerce, and# cannot be regulated by any state; and that the exemption of “production or gathering of gas” contained in the Natural Gas Act, supra, does not extend to sales made after production and gathering have been completed. There is no direct conflict between this decision and previous decisions of our own Court. There is little, if any, disagreement among the litigants herein as to the principles of constitutional law that apply. The only conflict or joinder of issues in their argument seems to center around their divergent interpretations of Order No. 26096. Thus they agree that under the weight of authority, including Cities Service Oil & Gas Co. v. Peerless Oil & Gas Co., supra, extension of the state’s police power to price-fixing can be constitutionally justified only on the basis of a public purpose or protection of the public interest, such as gas conservation. But proponents of the Order seek to interpret and justify it as a conservation measure. Therefore, let us analyze the present order as tested by the principles laid down by our Court in the Cities Service Gas Co. case. [203 Okl. 35, 220 P.2d 280] The material ones, as expressed in the syllabus of our opinion, are as follows:
“1. The grant of power to the Corporation Commission under 52 O.S. 1941, § 239 to regulate the taking of natural gas from a common source of supply ‘so as to prevent waste, protect the interest of the public, and of all those having a right to produce therefrom,’ by necessary implication includes the power to employ such means as may be reasonably necessary to the accomplishment of the declared purposes and includes the power to fix a price consideration in the taking of gas when found necessary to the attainment of such ends.
“2. The provisions of 52 O.S. 1941, § 233, give the Corporation Commission authority to fix the price at which natural gas may be produced and taken from the field, under the circumstances and in the manner therein stated.
“3. Price control, like any other form of regulation, is unconstitutional only if arbitrary, discriminatory, or *435demonstrably irrelevant to the policy which the Legislature is free to adopt, and hence an unnecessary and unwarranted interference with individual liberty. A price fixing order of the Corporation Commission made pursuant to statute is to be tested by the same standards.
* * 41 * * *
“5. The Commerce clause of the Federal Constitution does not preclude the state in the protection of local interests from fixing a uniform minimum price consideration as a condition of the taking of natural gas from a common reservoir because a producer therefrom will in the normal course of business sell and deliver gas in interstate commerce. The regulation is imposed before the operation of interstate commerce occurs.” (Emphasis added.)
As shown in the above quotation, our upholding of the gas price-fixing Order involved in that case, was based, at least in part, upon the following consideration:
(1) That the Order was a reasonably necessary means to the accomplishment of the declared purpose of the Corporation Commission’s statutory grant of power to prevent waste and protect correlative rights in a common source of gas supply;
(2) That price control is unconstitutional only when it is an unnecessary and unwarranted interference with individual liberty;
(3) That such an order does not violate the Commerce Clause of the Federal Constitution when it fixes a uniform minimum price as a condition of taking the gas from a common reservoir and takes effect before the gas gets into interstate commerce.
When weighed in the light of the above tests, I think the order in question must be found wanting. After examining the provisions of the Order purporting to fix the price of residue and raw gas away from the well or field or at the conclusion of its gathering, and weighing their effect and operation, as applied to the situation here and the rights of all concerned, I do not see how they can be justified as a conservation measure. In the 14th paragraph of its findings, the Commission found:
“That a minimum price order cannot be made fully effective and discrimination prevented without a means provided for determining the manner in which the amount realized for gas by producers operating gathering and processing plants.”
This is obviously an incomplete sentence and finding, but if it was intended to say by it that fixing a price for residue gas and raw gas away from the well or field is reasonably necessary to the effective and indiscriminate operation of the order, I do not agree. It was not shown that any of the wells in the Guymon-Hugoton Field are without gauges at their wellheads or that it is necessary to fix the price at any other point in order to accomplish the only legally justifiable purposes of such an order. There is no substantial evidence in this case to detract from the conclusion that the purposes of conservation are served when the taking from the gas sand is regulated at the wellhead by fixing the price right there — and before it gets into interstate pipe lines and is commingled with gas from other states, as was shown to occur before some of it arrives at Phillips’ plants in Texas. Of course, Phillips’ evidence was calculated to show that it and other gatherers and processors similarly situated had a problem of determining whether or not they were receiving for. residue gas the equivalent of the Com- ■ mission-fixed price for raw gas at the wellhead. This same problem is said to •have been presented to the United States Supreme Court in Phillips Petroleum Co. v. Oklahoma, 340 U.S. 190, 71 S.Ct. 221, 222, 95 L.Ed. 204, as evidenced by the following excerpt from that Court’s opinion:
“Phillips also relies heavily on the contention that the orders are unreasonably vague. In substance, this argument is nothing more than that the determination by an integrated company of proceeds realized from gas at the wellhead involves complicated prob*436lems .in cost accounting. These problems are common to a host of valid regulations. There is nothing' to indicate that Phillips will be penalized for reasonable and good faith efforts to solve them.”
In both of the above cases and the Cities Service Gas Co. case, supra, it was demonstrated that an order.fixing a wellhead price applies to all and discriminates against none. While this may not be the only, way to prevent waste and preserve correlative rights by price-fixing, it appears to be the best plan that has come before this court. Contrary to the impression the majority opinion seems to leave, the Phillips’ case, supra, furnishes it no support. While it is true that the Court therein recognized that the Commission must be able to fix the price for. all producers or there is no point in trying to fix the price for any, it rejected Phillips’ claim that a wellhead price could not be uniformly and indiscriminately enforced. And it must be borne in mind that the Orders there involved attempted no more than to fix the price of raw gas at the wellhead, as distinguished from a -residue or by-product processed in mother state and there sold in interstate commerce. It was spe.cifically stated in that opinion: “Appellant does not argue that the orders violate the Commerce Clause, art. 1, § 8, cl. 3.”
The price fixed in the objectionable portions of the order here presented would not operate indiscriminately. True, the order might readily solve Phillips’ accounting problems. -If completely effective, it might even furnish Phillips legal justification and exoneration for not living up to its contracts for the sale of residue gas made in prior years' and specifying prices> which now may.seem unfavorable to it¡ yet it would discriminate. against those who do not' have the pipe line and processing facilities Phillips possesses. Granted that residue gas, or raw gas with gasoline and hydrocarbons removed, is more valuable for fuel purposes and to fuel consumers and distributors than the gas as it comes from the well in its natural state and that such gas should command a better price from such purchasers (being processed and ready for their use) these, facts are immaterial, or at. least of minor or secondary importance, to the primary question: Is it necessary for the Commission to guarantee to a processor its cost o.f gathering, or in the instance of residue gas, that cost, plus the cost of processing, in order to accomplish conservation of the State’s natural gas resources? If so, this was not established by the evidence despite the statement to the contrary contained in the majority opinion. No attempt was made to show that gas from the Guymon-Hugoton Field would not have a market or that economic or physical waste of such resource would result if gatherers of gas in the field were not thus guaranteed their cost of gathering over and above the wellhead price. In this connection, I challenge any and all to show me proof in the present record that Phillips is actually losing money on its operations, or (as said in the majority opinion) “that if Phillips does not obtain” the price fixed by the order in question “for residue gas but is forced to sell it at the price called for by its contracts with Panhandle and Michigan-Wisconsin such a loss would re-suit that Phillips would be forced to close down its producing, gathering, and processing .operations ;***”. As hereinbefore noted, Phillips attempted to show by its iri-terdepartmental system of cost accounting, and the Commission found, that the “value” of the liquid hydrocarbons extracted from the raw gas does not exceed the cost of processing and gathering it, “including a reasonable allowance for depreciation and return on investment * * But I say that even if, on the basis of applicable law arid substantial evidence, such a guaranteed profit to such processors might conceivably bé justified as a conservation measure, it is discriminatory, and the discrimination is in favor of those situated as is Phillips. ■ By guaranteeing such companies the same minimum price for residue gas as raw or wellhead gas, the order gives them either: one highly marketable product (residue gas) free of cost for gathering and processing (if such cost is charged to its processing or refining department),, or more marketable products free of such costs, such as gasoline, carbon black and other hydrocarbons (if the gathering and processing is charged *437against the residue gas as a part of the cost ' of marketing it). Other purchasers buying gas at the wellhead'would not have the advantage of this “two-way guarantee,” but after purchasing the gas there, are “on their ■own” as regards paying their costs of gathering and marketing it. Another and sec-end discrimination which, .is more patént on •the face of the Order is that it purports to ■ require the producer or lessee who sells gas .after it is “gathered”, but before it is processed, . to obtain for it, in addition to the ■wellhead (and residue price) of 9,8262 cents per thousand, an extra added premium ■ which the Order calls: “the reasonable cost •of gathering.” Aside from the controversies such an order will engender over the •question of when or at what point gas can he said to be “gathered” within the meaning ■of that term as used in the order, this provision discriminates in favor of those owners of mineral rights who derive their producing royalty income from lessees or producers who sell gas at the conclusion of gathering, and against those who derive their income ‘from producers in the ■other two catagories, that is, (1) Those who sell nothing but raw gas at the wellhead, and (2) Those who make no sale of gas until after it is processed and becomes residue gas. The majority opinion reflects •that there is some wastage and shrinkage between the wellhead and the gauges at the processing plants. How will the royalty •owners under leases owned by Phillips get •paid for as many cubic feet of gas as the royalty owner under leases producing gas •that is sold at the wellhead? Will these royalty owners get paid on the basis of the "number, of cubic feet of raw gas that pass through the gauges at the wellhead, or will they be paid on the basis of the number of feet of residue gas that pass through’ the gauges at the processing plant ? To me, the above considerations not only demonstrate that the order in question is discriminatory in more than one respect; but also, that by it, the Commission is ahout to launch an unlawful and dangerous invasion of the field of private enterprise, or “individual liberty”, as expressed in the Cities Service Gas Go. case, supra, without the justification of necessity for conservation purposes. If this Body’s, fixing of the price of residue gas can be justified on the-.grounds of conservation, as different a product and as far removed as it is from the natural gas that is .the resource to be conserved, then I see no reason why that Body cannot also fix the price of gasoline, carbon black, and other products or commodities refined and/or manufactured from natural gas.
The record reveals that before the last , of the protracted series of hearings in this case the Commission, through its Chairman and its attorney, expressed grave doubt, or at least serious misgivings, as to whether a price-fixing order for anything but raw gas at the wellhead could be legally or constitutionally justified as a conservation measure. This makes it doubly surprising 'and somewhat imponderable to find that after delaying its decision several days after the last hearing, the Commission,' on the basis of the weak and biased.evidence presented by no other company than Phillips, signed substantially the same kind and form of order that Phillips’ attorneys had previously drawn and exhibited to the Commission earlier'in the hearings.
On the basis of the foregoing views, it is my conclusion that Order No. 26096 is valid in so far as it sets a price 'for natural .gas at the. wellhead, but is inválid in its other price-fixing’ aspects. Accordingly, I think the Order should have been affirmed in part and reversed in part. To that extent, and for the foregoing reasons, I dissent to the opinion of the majority.