Calvert v. Panhandle Eastern Pipe Line Co.

• Decision Date: 04 February 1953
• Docket Number: MICHIGAN-WISCONSIN,Nos. 10116-10118,s. 10116-10118
• Citation: 255 S.W.2d 535
• Parties: CALVERT, Comptroller, et al. v. PANHANDLE EASTERN PIPE LINE CO. CALVERT, Comptroller, et al. v.PIPE LINE CO. CALVERT, Comptroller, et al. v. AMARILLO OIL CO.
• Court: Texas Court of Appeals

Page 535

255 S.W.2d 535

CALVERT, Comptroller, et al. v. PANHANDLE EASTERN PIPE LINE CO.

CALVERT, Comptroller, et al. v. MICHIGAN-WISCONSIN PIPE LINE CO.

CALVERT, Comptroller, et al. v. AMARILLO OIL CO.

Nos. 10116-10118.

Court of Civil Appeals of Texas, Austin.

Feb. 4, 1953.

Rehearing Denied Feb. 25, 1953.

Price Daniel, Atty. Gen. of Texas, Charles D. Mathews, First Asst. Atty. Gen., W. V. Geppert, C. K. Richards and E. Wayne Thode, Asst. Attys. Gen., for appellants.

Edward H. Lange, Kansas City, Mo., Vinson, Elkins & Weems, Gene M. Woodfin, all of Houston, Chas. I. Francis, Houston, Looney, Clark & Moorhead, by R. Dean Moorhead and Everett L. Looney, all of Austin, Culton, Morgan, Britain & White, by D. H. Culton, all of Amarillo, S. A. L. Morgan, Houston, Sidley, Austin, Burgess & Smith, all of Chicago, Ill., Wm. Lee Darrah, Amarillo, Adkins, Folley, Adkins, McConnell & Hankins by A. J. Folley, all of Amarillo, for appellees.

HUGHES, Justice.

These three causes in all of which Texas officials Robert S. Calvert, Comptroller of Public Accounts, Price Daniel, Attorney General and Jesse James, State Treasurer, are appellants and the Panhandle Eastern Pipe Line Company is appellee in Cause No. 10,116, the Michigan-Wisconsin Pipe Line Company is appellee in Cause No. 10,117 and the Amarillo Oil Company is appellee in Cause No. 10,118, ¹ were consolidated for trial below, were consolidated in this Court for hearing and argument and will all be disposed of by this opinion.

These suits were all brought under and in compliance with Art. 7057b, Vernon's Annotated Civil Statutes of Texas, authorizing and regulating institution of suits for the recovery of license and privilege taxes paid under protest.

Each appellee sought recovery of taxes paid under protest, such payments having been made in obedience to the provisions of Art. 7057f, Vernon's Annotated Civil Statutes of Texas. ²

Trial below was nonjury and resulted in judgments for appellees for recovery of the sums for which they sued.

Findings of fact and conclusions of law were not requested of nor filed by the trial judge.

The single question presented for our decision is whether Article 7057f, a revenue statute, the pertinent portions of which are set out below, ³ as applied to the business activities of appellees, violates the commerce clause of the Constitution of the United States. ⁴ It so it is void, if not it is valid.

Each appellee is engaged in the business of transporting natural gas by pipe line. There is no dispute as to the manner in which their business activities were conducted. These matters were stipulated. Since Michigan-Wisconsin presents the strongest factual position favorable to appellees we will fully describe it and its activities first.

Michigan-Wisconsin is a natural gas company as defined in the Federal Natural Gas Act, 15 U.S.C.A. § 717 et seq., and holds certificates of convenience and necessity issued by the Federal Power Commission. Such certificates authorize it to engage in interstate transportation and sale of natural gas. It has constructed a pipe line which originates at a point in Hansford County, Texas, and which terminates at various points in the States of Michigan and Wisconsin. At these points, and at other points in the States of Missouri and Iowa, it sells natural gas to distribution companies which serve markets in those areas. It sells no gas in Texas.

Michigan-Wisconsin produces no gas in Texas or elsewhere. Rather, it supplies its markets by purchasing gas from Phillips Petroleum Company. Through a network of pipe lines, Phillips brings natural gas from the wells from which it is produced to its Sherman gasoline plant located in Hansford County, Texas. At this plant, certain liquefiable hydrocarbons are removed from the gas, and, at the outlet side of the plant, Phillips sells the gas to Michigan-Wisconsin.

Under contracts between Phillips and Michigan-Wisconsin, Phillips obligates itself to deliver to Michigan-Wisconsin all of the requirements for the latter's pipe line, up to a maximum of 343 million cubic feet daily. To secure performance of this agreement, Phillips has dedicated all of the gas underlying certain lands described in the contracts, and, with minor exception, has agreed that it will sell no gas from such lands to anyone except Michigan-Wisconsin.

In these contracts, Phillips reserved the right to extract certain liquefiable hydrocarbons from the raw gas. This extraction is performed by Phillips with absorbers at its gasoline plant. When the gas leaves the absorbers it flows through pipes owned by Phillips for a distance of 300 yards to the outlet of the gasoline plant. When the gas emerges from the outlet, it flows directly into the pipe line of Michigan-Wisconsin, and it continues flowing through the Michigan-Wisconsin pipe line system until it reaches markets in other states. ⁵ This pipe line is in the State of Texas for only 1.74 miles, the remainder being in other states.

The movement of such gas from the producing wells to points of delivery to Michigan-Wisconsin at the outlet of the Phillips gasoline plant and thence through pipe lines to consumers in Michigan and Wisconsin is a steady and continuous flow. The taking of such gas at the outlet of the gasoline plant is accomplished through failities owned by Michigan-Wisconsin and used exclusively by it in the taking and transportation of such gas.

All of the gas is purchased by Michigan-Wisconsin for transportation to points outside Texas, and all of such gas is in fact so transported.

It was further stipulated by the parties:

'Natural gas in going through a gasoline plant or other process to separate oil, gasoline or other liquid hydrocarbons or to extract hydrogen sulphide or carbon dioxide or any other element undergoes certain changes, both in quality and quantity. Among the changes are these: The residue gas leaving the extraction or separating device is usually at a lower pressure, the temperature is sometimes higher, and the specific gravity of the gas is less than that of the natural gas which enters such plant. There are differences between the proportion of the methane content, the ethane content and the content of other hydrocarbons. Likewise, when the hydrogen sulphide or carbon dioxide are extracted, there is a percentage variance in the constituents remaining in the gas. In addition to these changes in constituents, the volume of the residue gas is less than the volume of the natural gas which enters the extraction plant due to the removal of some of the constituents of the natural gas.'

Except for minor variations Panhandle conducts its activities in the same manner as Michigan-Wisconsin. Panhandle loads its interstate pipe line with gas from the outlets of three gasoline plants, rather than with gas from only one plant; it produces a portion of the gas which it takes at the outlet of one of such plants; and it makes sales in Texas to three small customers, rather than sending all of its gas outside the State. ⁶

Amarillo produces no gas. It purchases gas produced in Texas and transports it by pipe lines in intrastate commerce only. ⁷

Regarding the natural gas business in Texas it was stipulated that:

'But for the Texas oil and gas conservation statutes, and the enforcement by the Railroad Commission of Texas, producers in the field could drill as many wells as they desired and could open their wells at the rate of 100% open flow and could burn both the sweet and sour gas for the production of carbon black, or they could extract the gasoline and other liquid hydrocarbons in a gasoline plant and flare the residue gas. If this happened, the gas in the reservoir would become depleted in the course of a few years. If only a portion of the producers in the field drilled additional wells and operated such wells at 100% open flow, such producers would in the course of a few years drain the gas from under the acreage of the producers who were not also producing at 100% open flow from a proportionate number of wells. After such field should be depleted, neither Michigan-Wisconsin nor any other purchaser of gas could supply its market demand with gas from such fields and the same would be true with respect to any other field in the state which might be subjected to the same rapid depletion in the absence of the Texas oil and gas conservation statutes and the enforcement thereof.'

Stipulated too was that the State of Texas exercises control and jurisdiction over the drilling, completing, and production of oil and gas wells, and over the plants that extract gasoline or other liquid hydrocarbons from gas, and that neither the Congress of the United States, the Federal Power Commission, nor any other Federal Agency has by any law, rule or regulation exercised any control or jurisdiction over such activities.

William James Murray, Jr., a petroleum engineer by profession and a member of the Railroad Commission of Texas, the state agency which enforces oil and gas conservation statutes, testified, without contradiction, at length regarding the special benefits conferred upon the gas industry by such statutes and their enforcement.

After recounting the successful efforts of the Railroad Commission in curtailing the flaring and wasting of gas ⁸ Mr. Murray was interrogated as follows:

'I would like for you to explain if it is a fact how the State of Texas, by virtue of the oil and gas conservation statutes and their enforcement by the Railroad Commission, has given any opportunities, if it has, and afforded any protection or conferred any benefits upon those who take or retain gasoline-gas at the outlet of a gasoline processing plant for transmission through pipelines? Has the State of Texas conferred any benefits or privileges to those people by virtue of its conservation laws? A. Yes, I think very material benefits.

'Q. Will you explain in detail what those benefits are? A. Well, partially my explanation would...