Cities Service Gas Co. v. United Producing Co., Civ. A. No. 4554.

• Decision Date: 29 February 1960
• Docket Number: Civ. A. No. 4554.
• Citation: Cities Service Gas Co. v. United Producing Co., 212 F.Supp. 116 (N.D. Okla. 1960)
• Parties: CITIES SERVICE GAS COMPANY, a corporation, Plaintiff, v. UNITED PRODUCING COMPANY, Inc., a corporation, Defendant.
• Court: U.S. District Court — Northern District of Oklahoma

212 F. Supp. 116

CITIES SERVICE GAS COMPANY, a corporation, Plaintiff, v. UNITED PRODUCING COMPANY, Inc., a corporation, Defendant.

Civ. A. No. 4554.

United States District Court N. D. Oklahoma.

February 29, 1960.

COPYRIGHT MATERIAL OMITTED

C. H. Mullendore, Jr., Charles V. Wheeler, Conrad C. Mount, O. R. Stites, Joe Rolston, Jr., R. R. McCracken, Gordon J. Quilter, Oklahoma City, Okl., for plaintiff.

Embry, Crowe, Tolbert, Boxley & Johnson and William J. Holloway, Jr., Oklahoma City, Okl., for defendant.

ROGER H. SAVAGE, District Judge.

This cause came on regularly for trial before the Court, without jury, on October 28, 1959; the parties appeared by their respective attorneys of record; and the Court, having heard the evidence and argument of counsel, and having considered the briefs filed on behalf of the parties, finds as follows:

1.

Plaintiff, Cities Service Gas Company, at all times pertinent hereto, was a citizen and resident of the State of Delaware; defendant, United Producing Company, Inc., was, at all times pertinent hereto, a citizen and resident of the State of Maryland; the amount in controversy, exclusive of interest and costs, exceeds the sum of $10,000.

2.

At all times pertinent hereto, plaintiff was engaged in its business as an interstate pipeline company, purchasing, transporting and wholesaling natural gas, including the natural gas purchased from defendant involved here, to its customers located in Oklahoma, Kansas, Missouri and Nebraska.

3.

Defendant owns wells located in the Kansas Hugoton Field which produce natural gas and sells plaintiff gas produced therefrom pursuant to a contract which is plaintiff's Exhibit 2.^* Such contract provided that plaintiff would pay on the 25th day of each month for the gas delivered during the past month at a price of 7¢ per Mcf, measured at a pressure of 16.4# psia.

4.

During each year involved herein plaintiff purchased not less than 34.76% of the natural gas which it required for its business as an interstate natural gas pipeline company, from production in the Kansas Hugoton Field. Plaintiff had no gas production of its own in the Kansas Hugoton Field.

5.

The purchase and receipt by plaintiff of natural gas produced in the Kansas Hugoton Field was essential to plaintiff's business, as aforesaid, and was necessary for plaintiff to be able to meet the requirements of plaintiff's business and its contractual commitments and the obligations imposed upon it by the terms of the Natural Gas Act.

6.

Under date of February 18, 1949, to be effective March 1, 1949, the State Corporation Commission of Kansas entered an Order providing, inter alia, that all persons who take gas from the Kansas Hugoton Field shall, as a condition precedent for withdrawal of such gas, pay or attribute a minimum price of not less than 8¢ per Mcf, 16.4# psia. Defendant's Exhibit D.^*

7.

On February 21, 1951, the State Corporation Commission of Kansas entered an order in the form of defendant's Exhibit E^* providing, among other things, that payments should be made on or before April 1, 1951 to producers, land owners, lease owners, and royalty owners in accordance with the order of the Commission of February 18, 1949, and which were impounded or paid under bond thereafter as provided therein.

8.

Under date of May 20, 1953, to be effective July 1, 1953, the State Corporation Commission of Kansas entered its Order promulgating a standard gas measurement pressure of 14.65# psia for all gas produced throughout the State of Kansas. Defendant's Exhibit C.^*

9.

Under date of December 2, 1953, to be effective January 1, 1954, the State Corporation Commission of Kansas entered its Order providing, inter alia, that all persons who take gas from the Kansas Hugoton Field shall, as a condition precedent for withdrawal of such gas, pay or attribute a minimum price of not less than 11¢ per Mcf, 14.65# psia. Plaintiff's Exhibit 3.^*

10.

Under date of January 21, 1954, plaintiff wrote to defendant, and in due course defendant received the letter identified in the record as plaintiff's Exhibit 4.^*

11.

On the 25th day of February, 1954, plaintiff paid defendant for gas delivered to it during the month of January, 1954, by check, plaintiff's Exhibit 5.^* To such check there was attached a voucher which bore the following legend:

"In full settlement of gas purchased for the period ending 1-22-54, subject to provisions of letters dated 8-25-53, and 1-21-54 with reference to gas purchased in Kansas."

On or about the 25th day of each month following, to and including the 25th day of December, 1957 (for gas delivered for the month October 22, 1957 to November 22, 1957), plaintiff paid defendant for the volumes of gas delivered during the previous month by a voucher check identical in form to plaintiff's Exhibit 5.^* Defendant endorsed and cashed each such monthly voucher check.

12.

During the period January 1, 1954 through November 22, 1957, defendant delivered to plaintiff the total quantity of 27,862,502 Mcf of natural gas measured on a pressure base of 16.4# psia at a temperature of 60° F. All of such gas was produced by defendant from the Kansas Hugoton Field. Computed at 7¢ per Mcf, 16.4# psia, the amount due for such gas was $1,950,375.14.

13.

During the period January 1, 1954 through November 22, 1957, plaintiff paid to defendant for the volumes of gas purchased during such period the total sum of $3,501,077.91, such payment being computed upon a price of 11¢ per Mcf, 14.65# psia. Such payment exceeded the amount due for the gas delivered by $1,550,702.77.

14.

During the period January 1, 1954 through June 6, 1954, plaintiff paid to defendant $224,819.74 in excess of the amount due at 7¢ per Mcf, 16.4# psia; during the period June 7, 1954 through November 22, 1957, plaintiff paid to defendant $1,325,883.03 in excess of the amount due at 7¢ per Mcf, 16.4# psia; during the period November 23, 1957 through September 30, 1958, plaintiff paid to defendant $400,524.99 less than would have been owed if computed at the rate of 11¢ per Mcf, 14.65# psia.

15.

Each payment for gas at the rate fixed by the minimum price Order, 11¢ per Mcf at 14.65# psia, was made under the compulsion of the Kansas Corporation Commission's minimum price Order; and under an apprehension on the part of plaintiff that violation of the Order would subject it to the penalties fixed by the Kansas Statutes for its violation; and, that violation of the Order would jeopardize its Gas Purchase Contracts in the Kansas Hugoton Field and that it would not be able to meet its obligations to supply gas.

16.

Under date of February 18, 1954, defendant wrote a letter to each of its royalty owners and joint working interest owners with respect to payments to be made by defendant for gas produced in the Kansas Hugoton Field, plaintiff's Exhibit 9.^* Defendant paid each of such royalty and joint working interest owners on the basis of 11¢ per Mcf, 14.65# psia, for their portion of the gas produced by defendant from the Kansas Hugoton Field and purchased from defendant by plaintiff under the Gas Purchase Contract between the parties, during the period for which plaintiff paid defendant at such rate.

17.

On or about March 22, 1954, plaintiff filed with the Federal Power Commission a proposed F.P.C. Gas Tariff for an increase in its rates, for its sales of natural gas subject to the jurisdiction of the Commission, of an annual amount of $12,589,072, including, among other things, consideration of increased price in the cost of gas in the Kansas Hugoton Field to 11¢ per Mcf at 14.65 pressure, and said increased rates became effective, under bond, on September 23, 1954. By Federal Power Commission Order, dated May 25, 1956, in Docket No. G-2410, that Commission granted plaintiff an increase in its rates for sales, all as is reflected in the Commission's Order, plaintiff's Exhibit 29.^* At hearings on said tariff plaintiff submitted evidence in the form of defendant's Exhibit 14.^* Referring to a rate of 11¢ paid to defendant, and its counsel in that case, Mr. Littman, stated therein that such payments were made pursuant to filed rate schedules of producers, including defendant, duly filed and accepted for filing by the Federal Power Commission; and such counsel objected to an exhibit offered by intervenor therein upon the grounds that such exhibit purported to show cost of gas to plaintiff below that which was actually paid to the producers and not in accordance with the effective filed rate of such producers for gas produced in the Kansas Hugoton Field and that such exhibit thus constituted a collateral attack on the effective rate schedules of such producers. In describing the theory upon which the witness prepared the exhibit, the attorney, Littman, said to the Commission:

"Mr. Van Scoyac's theory in making this adjustment is that these field prices should be reduced because they reflect prices payable under an order of the Kansas Corporation effective January 1, 1954, prescribing a minimum field price in the Kansas-Hugoton Field of 11 cents per Mcf; that he, and I use his phrase, understands that that order is being challenged in the Courts by Cities Service Gas Company and others, and that the Cities Service Gas Company is paying those minimum prices upon an understanding with the vendors that should the order be held invalid, it would receive a return of the amounts paid in excess of what was due under the then effective prices, and the minimum price order."

The Federal Power Commission was aware that plaintiff was paying its producers the Kansas-ordered 11¢ payments under an arrangement whereby such producers would reimburse plaintiff for overpayments in the event the Kansas 11¢ price Order was modified or set aside upon judicial review; and that plaintiff was challenging the validity of such minimum price Order then pending. The Order in such case, plaintiff's Exhibit 29^*, evidences that the Federal Power...