Cities Service Gas Co. v. State Corp. Commission

• Citation: 184 Kan. 540,337 P.2d 640
• Decision Date: 11 April 1959
• Docket Number: No. 41284,41284
• Parties: CITIES SERVICE GAS COMPANY, a Corporation, Appellee, v. STATE CORPORATION COMMISSION of Kansas, Marion Beatty, Chairman, Richard C. Byrd and Harry G. Wiles, as Members of Said Commission, and Their Respective Successors in Office, Appellants.
• Court: United States State Supreme Court of Kansas

Page 640

337 P.2d 640

184 Kan. 540

CITIES SERVICE GAS COMPANY, a Corporation, Appellee, v. STATE CORPORATION COMMISSION of Kansas, Marion Beatty Chairman, Richard C. Byrd and Harry G. Wiles, as Members of Said Commission, and Their Respective Successors in Office, Appellants.

No. 41284.

Supreme Court of Kansas.

April 11, 1959.

Rehearing Denied May 20, 1959.

Syllabus by the Court

In an appeal from the order of the district court construing the mandate of the Supreme Court of the United States, which mandate reversed the decision heretofore entered by this court in this case, it is now held that the reversal of said decision must be understood to hold that the order of the State Corporation Commission dated January 1, 1954, and fixing a minimum price for natural gas at the wellhead invaded the jurisdiction of the Federal Power Commission and was not within the jurisdiction of the State Corporation Commission to enter even though the Federal Power Commission had not exercised jurisdiction in the matter.

Clyde E. Milligan, General Counsel, State Corporation Commission, Topeka, and Wayne Coulson, Special Counsel, Wichita, argued the cause, and Dale M. Stucky, Special Counsel, Wichita, was with them on the briefs for appellants.

Mark H. Adams, Wichita, and Joe Rolston, Oklahoma City, Okl., argued the cause, and M. F. Cosgrove and Clayton E. Kline, Topeka, and Conrad C. Mount, O. R. Stites, and Charles V. Wheeler, Oklahoma City, Okl., were with them on the brief for appellee.

John Anderson, Jr., Atty. Gen., as amicus curiae, with whom the Attorneys General of the states of Arkansas, Colorado, New Mexico, North Dakota, Oklahoma, Wyoming, Utah, and Texas joined in the brief.

JACKSON, Justice.

In this appeal, appellants seek to have the court examine the mandate of the Supreme Court of the United States which reversed the decision of this court when the instant case was before the court in 1956 as found in Cities Service Gas Co. v. State Corporation Commission, 180 Kan. 454, 304 P.2d 528. Since the detailed facts of this case were completely set forth in our former opinion, we shall not burden the record by detailing them here.

In our former decision the court held valid the order of the State Corporation Commission fixing a minimum price of 11 centa per thousand cubic feet, 14.65# p. s. i. a., at the wellhead for all persons, firms or corporations taking natural gas or causing gas to be taken from the Hugoton gas field in Kansas on or after January 1, 1954. As noted above, this decision was reversed by the Supreme Court of the United States in a per curiam opinion found in Cities Service Gas Co. v. State Corporation Commission of Kansas, 355 U.S. 391, 78 S.Ct. 381, 2 L.Ed.2d 355, rehearing denied 355 U.S. 967, 78 S.Ct. 531, 2 L.Ed.2d 542, upon the basis that the regulation of the price of natural gas at the wellhead was within the exclusive jurisdiction of the Federal Power Commission.

The appellants here have urged the court that the Federal Power Commission did not take jurisdiction over the pricing of natural gas at the wellhead until June 7, 1954; that the production of gas at the well is not a matter of interstate commerce although it must be conceded that a price for such gas will be reflected in the prices charged for gas in interstate commerce and therefore the price at the wellhead must be conceded to affect interstate commerce as that term is used in constitutional law. The corporation commission points out that at the time its order went into force on January 1, 1954, the Federal Power Commission had not exercised any authority over the price of natural gas at the wellhead in the Hugoton field, and that therefore, since the natural gas was not yet in interstate commerce, the state had power to regulate the price until the Federal Power Commission occupied the field citing Missouri Pacific R. Co. v. Larabee Flour Mills Company, 211 U.S. 612, 29 S.Ct. 214, 53 L.Ed. 352, and other cases.

The trouble with this contention is that our former decision was made in 1956 long after the decision of the case of Phillips Petroleum Co. v. State of Wisconsin, 347 U.S. 672, 74 S.Ct. 794, 98 L.Ed. 1035. In that case, the Supreme Court of the United States held that sales of natural gas owned by an independent producer at the mouth of an interstate pipeline were subject to regulation by the Federal Power Commission under the natural gas act of 1938. This case was decided on June 7, 1954, and it was after this decision that the Federal Power Commission began to assert authority to regulate the price of natural gas in Hugoton field. This court was not unmindful of that decision nor of the dissent of Mr. Justice Douglas therein in which he said:

'There are practical considerations which buttress that position and lead me to conclude that we should not reverse the Commission in the present case. If Phillips' sales can be regulated, then the Commission can set a rate base for Phillips. A rate base for Phillips must of necessity include all of Phillips' producing and gathering properties; and supervision over its operating expenses necessarily includes supervision over its producing and gathering expenses. We held in Colorado Interstate Gas Co. v. Federal Power Commission, 324 U.S. 581, 65 S.Ct. 829, 89 L.Ed. 1206, that the Commission's control extended that far in the case of an interstate pipeline company which owned producing and gathering properties. And so it had to be, if regulation of the pipelines that owned their own gas supplies was to be effective. But an understanding of what regulation entails should lead to a different result in this case. The fastening of rate regulation on this independent producer brings 'the production or gathering of natural gas' under effective federal control, in spite of the fact that Congress has made that phase of the natural gas business exempt from regulation. The effect is certain to be profound. The price at which the independent producer can sell his gas determines the price he is able or willing to pay for it (if he buys from other wells). The sales price determines his profits. And his profits and the profits of all the other gatherers, whose gas moves into the interstate pipelines, have profound effects on the rate of production, the methods of production, the old wells that are continued in production, the new ones explored, etc. Regulating the price at which the independent producer can sell his gas regulates his business in the most vital way any business can be regulated. That regulation largely nullifies the exemption granted by Congress.' 347 U.S. at pages 689-690, 74 S.Ct. at page 803.

It might be said further that this court was not unmindful of the decision in Natural Gas Pipeline Co. v. Panoma Corp., 349 U.S. 44, 75 S.Ct. 576, 99 L.Ed. 866 where the Supreme Court of the United States held that:

'A State may not fix a minimum price to be paid for natural gas, after its production and gathering has ended, by a company which transports the gas for resale in interstate commerce; because such sale and transportation are subject to regulation by the Federal Power Commission exclusively.' (Italics supplied.)

In fact, this court also was cognizant of the warning of the United States Supreme Court in the case of Cities Service Gas Co. v. Peerless Oil & Gas Co., 340 U.S. 179, 71 S.Ct. 215, 95 L.Ed. 190, in which after holding a similar order of the state of Oklahoma valid in relation to due process as to a minimum price for natural gas at the wellhead, the court observed:

'Appellant does not contend that the orders conflict with the federal authority asserted by the Natural Gas Act, 52 Stat. 821, (1938), 15 U.S.C. §§ 717 et seq. (1948), 15 U.S.C. § 717 et seq. The Federal Power Commission has not participated in these proceedings. Whether the Gas Act authorizes the Power Commission to set field prices on sales by independent producers, or leaves that function to the states, is not before this Court.' 340 U.S. at page 188, 71 S.Ct. at page 221.

Despite all of these warnings and questions, this court in its former decision in this case felt that in view of the provisions of the natural gas act, the state still had a right to use the fixing of a minimum price at the willhead as a means of conservation in the production of natural gas. The important question and the decision thereof by this court in its former opinion reads as follows:

'It suffices to say, that after a careful analysis thereof, we have no difficulty in construing its terms to mean that no person, firm or corporation--first of all the producer--can lift or take gas in its natural state from the depths of the Hugoton Field to a point further than the wellhead without, as a condition precedent to its withdrawal from the common source of supply, first attributing thereto a minimum price of not less than eleven cents per M. c. f. (14.65 No. p. s. i. a.). So construed, recognizing as we must that under our own decisions, Kansas-Nebraska Natural Gas Co. v. State Corporation Commission, supra [169 Kan. 722, 222 P.2d 704]; La Harpe v. [Elm Tp.] Gas [etc.] Co., supra [69 Kan. 97, 76 P. 448] as well as those of the highest court of the land, see, e. g., Thompson v. Consolidated Gas Utilities Corp., 300 U.S. 55, 57 S.Ct. 364, 81 L.Ed. 510; Interstate Natural Gas Co. v. Federal Power Comm., 331 U.S. 682, 67 S.Ct. 1482, 91 L.Ed. 1742; Cities Service Gas Co. v. Peerless Oil & Gas Co., 340 U.S. 179, 71 S.Ct. 215, 95 L.Ed. 190; Phillips Petroleum Co. v. State of Oklahoma, 340 U.S. 190, 71 S.Ct. 221, 95 L.Ed. 204 the Commission has power to regulate the physical production and gathering of natural gas in the interest of conservation, including the protection of correlative rights and the prevention of waste, the involved order falls squarely within the hereinafter emphasized excluding provisions of the Natural Gas Act, 15 U.S.C.A. § 717[b] which reads:

"The provisions of this chapter shall apply to the...