ANR Pipeline Co. v. CORPORATION COM'N OF OKLAHOMA

• Decision Date: 04 September 1986
• Docket Number: No. CIV-85-1929-A,CIV-85-1980-A.,CIV-85-1929-A
• Citation: 643 F. Supp. 419
• Parties: ANR PIPELINE COMPANY, et al., Plaintiffs, v. The CORPORATION COMMISSION OF OKLAHOMA, et al., Defendants. NORTHWEST CENTRAL PIPELINE CORPORATION, Plaintiff, v. The CORPORATION COMMISSION OF OKLAHOMA, et al., Defendants.
• Court: U.S. District Court — Western District of Oklahoma

643 F. Supp. 419

ANR PIPELINE COMPANY, et al., Plaintiffs, v. The CORPORATION COMMISSION OF OKLAHOMA, et al., Defendants.

NORTHWEST CENTRAL PIPELINE CORPORATION, Plaintiff, v. The CORPORATION COMMISSION OF OKLAHOMA, et al., Defendants.

Nos. CIV-85-1929-A, CIV-85-1980-A.

United States District Court, W.D. Oklahoma.

September 4, 1986.

William J. Legg, Andrews Davis Legg Bixler Milsten & Murrah, Oklahoma City, Okl., for ANR Pipeline Co., Colorado Interstate Gas Co., Columbia Gas Transmission Corp., KN Energy, Inc., Mississippi River Transmission Corp., Natural Gas Pipeline Co. of America, Tennessee Gas Pipeline Co., Western Gas Interstate Co.

James M. Gaitis, Oklahoma City, Okl., for El Paso Natural Gas Co.

Lindil C. Fowler, Jr., G. Gail Stricklin, Asst. Gen. Counsel, Oklahoma Corp. Com'n, Oklahoma City, Okl., for Corporation Com'n of the State of Okl., James B. Townsend, Norma Eagleton and Hamp Baker, Commissioners of the Corp. Com'n of the State of Okl.

R. Wilson Montoy, II, Brunini, Gratham, Grover & Hewes, Jackson, Miss., John L. Arlington, Jr. and Curtis M. Long, Huffman, Arlington, Kihle, Gaberino & Dunn, Tulsa, Okl., for Southern Natural Gas Co.

Donald L. Kahl, Kent L. Jones, Hall, Estill, Hardwick, Gable, Collingsworth & Nelson, Inc., Tulsa, Okl., for Northwest Cent. Pipeline Corp.

MEMORANDUM OPINION

ALLEY, District Judge.

This case is before the Court for consideration of plaintiffs' Motions for Summary Judgment. These actions seek a declaration that OKLA. STAT. ANN. Tit. 52, § 240 (1981) ("Section 240"), and the orders, rules and regulations promulgated thereunder by the Corporation Commission of the State of Oklahoma ("Commission"), are unconstitutional as applied to interstate pipeline purchasers. Plaintiffs allege that these rules and regulations contravene Article VI, Clause 2 of the Constitution of the United States, because they interfere with the regulatory scheme established under the Natural Gas Act, 15 U.S.C. § 717 et seq., and the Natural Gas Policy Act of 1978, 15 U.S.C. § 3301 et seq. Additionally, the plaintiffs seek to enjoin the Commission and the individual Commissioners from enforcing its Section 240 rules against the interstate pipeline companies.

Plaintiffs specifically attack Commission Rule 1-305 on grounds that the subject matter, as applied to them, is exclusively in the federal province. Rule 1-305 provides:

"RULE 1-305. PRIORITY SCHEDULE FOR SUPPLY AND DEMAND IMBALANCE.

(a) Any common purchaser as defined in 52 O.S. 1981, Section 240, shall purchase all the gas which may be offered for sale, and which may reasonably be reached by its trunk lines or gathering lines, without discrimination in favor of one producer as against another or in favor of any one source of supply as against another, except as authorized by the Commission under (b) below.

(b) In the interest of the prevention of waste and protection of correlative rights, the following priority schedule shall be implemented by any first purchaser of gas whenever the permitted production from all wells in any common source of supply in its system in this state, including gas which is processed, is in excess of that purchaser's reasonable market demand; provided, however, if the first purchaser does not contractually control wellhead production, then the first taker of gas shall be responsible for implementation of the following priority schedule.

(i) Priority One—Hardship and distress wells.

(ii) Priority Two—Enhanced recovery wells.

(iii) Priority Three — Wells producing casinghead gas and associated gas.

(iv) Priority Four—If after the first purchaser or first taker has taken the gas from Priorities One through Three above and still has further market demand in its system for gas, said purchaser or taker shall take ratably from all allocated, special allocated and unallocated common sources of supply which may be offered for sale, and which may reasonably be reached by its trunk lines or gathering lines, without discrimination in favor of one producer as against another or in favor of any one source of supply as against another.

(c) When permitted production of gas from all wells from which a purchaser or taker is requried to take exceeds the market demand of said purchaser or taker, all reductions in gas purchases or takes from wells in each Priority shall be ratable. All production from the lower priority wells shall be shut-in before production from any well in the next higher priority is curtailed.

(d) Any well which meets the definition of more than one priority shall be assigned the higher priority.

(e) When there is more than one purchaser or taker involved in the taking of gas from a well into any purchaser's system, all purchasers and takers within that system shall be responsible for compliance with this Rule.

(f) Upon a verified application of the Director of the Oil and Gas Conservation Division, or any other person, the Commission, after notice and hearing, may determine if gas has been ratably purchased or taken from a common source of supply on a systemwide basis in accordance with this rule without avoidable waste and with equitable participation in productions and markets by all operators and other interested parties.

(g) In any month wherein a purchaser or taker has a market demand/supply imbalance and must curtail purchases or takes in compliance with this Rule, Form 1004 B shall be filed by said purchaser or taker with the Oil and Gas Conservation Division.

(h) Any interested party may file an application requesting that the Commission, for good cause shown, authorize limited deviation from the general priority schedule provided under (b) above. The Commission on its own motion may initiate a review of the continued need for such a limited deviation. After notice and hearing, the Commission may authorize limited deviation upon finding that the same is necessary in order to prevent waste, protect correlative rights, or is otherwise required by the public interest or authorized by law."

When Rule 1-305 was promulgated, the Commission referred to Section 240 as its legal basis. Section 240 is a straightforward ratable take provision, which provides:

"`Common purchaser'—Discrimination in purchases prohibited—Regulation of purchases

Every person, firm or corporation, now or hereafter engaged in the business of purchasing and selling natural gas in this state, shall be a common purchaser thereof, and shall purchase all of the natural gas which may be offered for sale, and which may reasonably be reached by its trunk lines, or gathering lines without discrimination in favor of one producer as against another, or in favor of any one source of supply as against another save as authorized by the Corporation Commission after due notice and hearing; but if any such person, firm or corporation, shall be unable to purchase all the gas so offered, then it shall purchase natural gas from each producer ratably. It shall be unlawful for any such common purchaser to discriminate between like grades and pressures of natural gas, or in favor of its own production, or of production in which it may be directly or indirectly interested, either in whole or in part, but for the purpose of prorating the natural gas to be marketed, such production shall be treated in like manner as that of any other producer or person, and shall be taken only in the ratable proportion that such production bears to the total production available for marketing. The Corporation Commission shall have authority to make regulations for the delivery, metering and equitable purchasing and taking of all such gas and shall have authority to relieve any such common purchaser, after due notice and hearing, from the duty of purchasing gas of an inferior quality or grade."

Essentially the same controversy now before this Court has recently been examined twice by the United States Supreme Court. In Northern Natural Gas Company v. State Corporation Commission, 372 U.S. 84, 83 S.Ct. 646, 9 L.Ed.2d 601 (1963), the Court held unconstitutional on federal supremacy grounds the Kansas attempt to regulate the purchase of Kansas natural gas by interstate pipelines. As in Northern Natural, the defendants here assert that the state's police power interest in conservation of resources and consequent regulation of production obviate the kind of federal interest that would underlie a federal occupation of the field. At issue in Northern Natural were two orders of the Kansas State Corporation Commission, avowedly adopted as conservation measures. The Commission order of October 7, 1959 was superseded by Order number 82-2-219, which provides:

"RATABLE PRODUCTION OF GAS FROM COMMON SOURCE OF SUPPLY

In each common source of supply under proration by this Commission, each purchaser shall take gas in proportion to the allowables from all the wells to which it is connected and shall maintain all such wells in substantially the same proportionate status as to overproduction or underproduction; provided, however, this rule shall not apply when a difference in proportionate status results from the inability of a well to produce proportionately with other wells connected to the purchaser (Authorized by G.S. 1959, Supp. 55-703; Effective February 8, 1960)."

Kansas statute Section 55-703 is:

"55-703. Production regulations; rules and formulas. 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

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