Cities Service Gas Co. v. State Corp. Commission
| Decision Date | 11 July 1977 |
| Docket Number | No. 48397,48397 |
| Citation | 567 P.2d 1343,222 Kan. 598 |
| Parties | CITIES SERVICE GAS COMPANY, a corporation, Appellant, v. The STATE CORPORATION COMMISSION of the State of Kansas, G. T. Van Bebber, as Chairman, R. C. Loux and William C. Gray, as Members of Said Commission, and their Respective Successors in Office, Appellees. |
| Court | Kansas Supreme Court |
Syllabus by the Court
1. The Natural Gas Act of 1938 (15 U.S.C.A. § 717, et seq.) exempts from regulation by the Federal Power Commission the rates to be charged on direct sales of natural gas by an interstate pipeline company to its customers and reserves to the states the regulation of direct sales.
2. The Kansas state corporation commission may constitutionally regulate the rates to be charged on direct sales by an interstate natural gas pipeline company to its customers in the state.
3. The production, transportation, distribution, and sale of natural gas for light, fuel, and power is a business of a public nature and is subject to the regulation and control of the state in the absence of federal preemption.
4. The Cities Service Gas Company is a "public utility" as defined by K.S.A.1974 Supp. 66-104.
5. K.S.A. 66-101, et seq. authorize the Kansas state corporation commission to regulate the rates charged on direct sales of natural gas by the Cities Service Gas Company to its customers in this state.
Daniel R. Hopkins, Oklahoma City, Okl. and Mark H. Adams, of Adams, Jones, Robinson & Malone, Chartered, Wichita, argued the cause, and were on the brief for appellant.
R. Edward Brausa, Special Counsel, of Glaves, Weil & Evans, Wichita and Charles H. Apt, II, City Atty., Iola, argued the cause, and W. Robert Alderson, Gen. Counsel of State Corporation Commission, Topeka, was with them on the brief for appellees.
The issue to be determined in this case is whether the direct sale of natural gas to five Kansas municipalities by the Cities Service Gas Company, an interstate pipeline company, is within the jurisdiction of the Kansas State Corporation Commission.
Cities Service is an interstate natural gas company as defined by and subject to the provisions of the Natural Gas Act, 15 U.S.C.A. § 717 et seq. It purchases gas from producers and other interstate natural gas pipeline companies in the states of Texas, Oklahoma, Kansas, and Missouri, and transports such gas through an integrated interstate network of pipelines to and through all of such states and to the state of Nebraska, where such gas is sold to distributors for distribution and public consumption. These sales are commonly called "sales for resale" and are made by Cities Service under Federal Power Commission tariffs to each of the municipalities, which It is undisputed that the direst sales made by Cities Service in the state of Kansas are of substantial volume. None of these direct sales are at the present time regulated as to the rates charged by either the Federal Power Commission or the Kansas corporation commission. The record discloses that in 1972 Cities Service had total system sales of $167,106,420 of which sales in Kansas amounted to $95,008,922. Approximately fifty-six (56) percent of Cities Service's total business is conducted within the state of Kansas and slightly less than one-half of the total business in Kansas was derived from the unregulated direct sales. Cities Service has 5,329 miles of pipeline of which approximately 3,000 miles exist in the state of Kansas. In 1972 of its total customers in Kansas there were 1,068 direct sales customers as compared with 471 sales for resale customers. Over sixty-two (62) percent of the total value of Cities Service's property, plant, and facilities is located in the state of Kansas. It is obvious from these statistics that we are dealing with hundreds of sales representing millions of dollars of unregulated direct sales in Kansas. The five municipalities involved in this case purchase gas by direct sales to serve about 26,000 of their citizens.
in turn distribute and sell such gas to the residents of such municipalities. These sales for resale are not the subject of these proceedings. In addition to sales for resale, Cities Service sells natural gas for direct consumption to selected customers located on or near its pipelines in all of these states. Among its direct sales customers in Kansas are the cities of Iola, Chanute, Garnett, Neodesha, and Osage City. Such direct sale gas is used by the municipalities for the generation of electricity in the electric power plants owned and operated by the municipalities. It is these sales over which the commission seeks to assert jurisdiction.
In July 1972, the five municipalities filed a complaint with the Kansas corporation commission requesting the commission to accept jurisdiction over direct sales of gas made by Cities Service to the municipalities. After denial of Cities Service's motion to dismiss, an evidentiary hearing was held before the commission. On June 18, 1974, the commission determined that the direct sale of such gas to the municipalities constituted a public utility function as defined by K.S.A. 66-104 and ordered Cities Service to apply to the commission for a certificate of public convenience and necessity for such sales and to file with the commission for approval its tariff for such sales or the contracts under which such sales were made. Cities Service filed its application for rehearing. In response thereto the commission adhered to its original rulings but modified certain of its findings of fact and conclusions of law. As modified on rehearing the pertinent findings and conclusions were as follows:
FINDINGS OF FACT
The commission finds:
1. That the matter has come before the state corporation commission of the state of Kansas pursuant to a complaint filed by the cities of Iola, Chanute, Garnett, Neodesha, and Osage City, Kansas, against Cities Service Gas Company (Cities Service) alleging, among other things, that the commission should regulate the rates at which Cities Service sells gas on a direct sales basis to the complainants.
5. That complainants in this matter are five Kansas communities having an aggregate population of 26,000 or more; that all of said complainants purchase natural gas from Cities Service, the respondent herein, via direct sales.
6. That complainants are buying natural gas from Cities Service on a "take-it-or-leave-it" basis; that complainants are buying the gas as Cities Service dictates; that Cities Service makes, amends, and cancels contracts as they desire with complainants having no say as to terms or price.
7. That Cities Service is the only supplier of natural gas in the area; that although there is a distributor certificated in the area (Gas Service Company), such distributor cannot get gas to service complainants 8. That gas wholesaled by Cities Service to Gas Service Company is being sold by Gas Service Company to customers similar to complainants for like uses at prices less than what complainants are being required by Cities Service to pay via direct sales.
that the distributor certificated in the area is supplied gas by Cities Service.
9. That complainant's average price per Mcf is higher than the average for all direct sales; that Cities Service's own evidence reflects this has been true for the last ten years.
10. That the possibility of complainants using other fuels is nil, so there are no effective competitive forces in the market place that would tend to help ameliorate the cost of gas sold via direct sales.
11. That complainants have no recourse against Cities Service through the Federal Power Commission should they wish to challenge prices above the minimum price approved by Federal Power Commission of the contracts involved; that the evidence shows that no governmental body, federal or state, is currently regulating the rates at which Cities Service makes direct sales of natural gas in Kansas other than minimum prices set by the Federal Power Commission.
12. That there were no indicated instances where the Federal Power Commission has intervened to review the contracts at which Cities Service sold natural gas via direct sales or involved itself with the rates on direct sales.
13. That Cities Service is a corporation that owns, controls, operates, and manages equipment, plant, and generating machinery for the conveyance of gas through pipelines existing in Kansas for the purpose of conveying gas in and through parts of Kansas; that Cities Service does operate pipelines (approximately 3,008 miles) in the state of Kansas for the general commercial supply of gas for heat and energy; that Cities Service property, plant, and facilities include numerous gas storage fields, compressor stations, gathering and transmission lines, and supplies of gas in Kansas.
14. That Cities Service obtains greater than one half of its total revenues from business transacted in Kansas; that approximately one half of the Kansas revenues are attributable to direct sales of natural gas; that the rates on all direct sales in Kansas, industrial, residential and commercial, are unregulated except for the approval of the minimum price by the Federal Power Commission; that these direct sales by Cities Service encompass a great variety of Kansas citizens, businesses, and organizations including but not limited to churches, schools, residences, farms, and military installations.
15. That Cities Service has exercised its rights of eminent domain to build pipelines in Kansas for the general commercial supply of gas to be sold as energy for heat and other purposes in Kansas and elsewhere; that such right is granted to Cities Service pursuant to K.S.A. 17-618 which stems from Cities Service being an interstate pipeline facility for the purposes of serving the public generally in Kansas and elsewhere. That Cities Service delivers more than 540 million Mcf of gas per year, more than half of which is sold in Kansas."
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