Federal Pr. Com'n v. Corporation Com'n of State of Okla.

• Decision Date: 26 June 1973
• Docket Number: No. Civ. 72-832.,Civ. 72-832.
• Citation: Federal Pr. Com'n v. Corporation Com'n of State of Okla., 362 F. Supp. 522 (W.D. Okla. 1973)
• Parties: FEDERAL POWER COMMISSION, an independent regulatory agency of the United States, Plaintiff, v. The CORPORATION COMMISSION OF the STATE OF OKLAHOMA et al., Defendants. Colorado Interstate Gas Company, et al., Intervening Plaintiffs; The GHK Company, a general partnership et al., Intervening Defendants.
• Court: U.S. District Court — Western District of Oklahoma

362 F. Supp. 522

FEDERAL POWER COMMISSION, an independent regulatory agency of the United States, Plaintiff, v.The CORPORATION COMMISSION OF the STATE OF OKLAHOMA et al., DefendantsColorado Interstate Gas Company, et al., Intervening PlaintiffsThe GHK Company, a general partnership et al., Intervening Defendants.

No. Civ. 72-832.

United States District Court, W. D. Oklahoma.

June 26, 1973.

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COPYRIGHT MATERIAL OMITTED

William R. Burkett, U. S. Atty., W. D. Okl.; Leo E. Forquer and John H. Burnes, Federal Power Commission, Washington, D. C., George W. McHenry, Jr., Acting Solicitor, Federal Power Comm, for plaintiff.

Elmer J. Jackson, Hastings, Neb., Lee B. Thompson, Oklahoma City, Okl., Peter Kauffman, Chicago, Ill., John D. Townsend, Houston, Tex., Edwyn R. Sherwood, Colorado Springs, Colo., Joseph M. Wells and Paul E. Goldstein, Chicago, Ill., Hal D. Leaming, Oklahoma City, Okl., Raymond N. Shibley, Washington, D. C., Barth P. Walker, Oklahoma City, Okl., for intervening plaintiffs.

Harvey H. Cody, Jr., Conservation Atty., Oklahoma Corp. Commn, Oklahoma City, Okl., for defendants.

Eugene O. Kuntz, Richard W. Fowler, Judson S. Woodruff, John M. Mee and Stanley L. Cunningham, Oklahoma City, Okl., for intervening defendants.

MEMORANDUM OPINION

HILL, Circuit Judge, DAUGHERTY, Chief Judge, and EUBANKS, District Judge.

EUBANKS, District Judge.

In this proceeding the Federal Power Commission and Intervening Plaintiffs seek to enjoin the enforcement of OrderNo. 93,381andOrderNo. 93,382 of the Defendant Oklahoma Corporation Commission, entered on October 5, 1972, effective October 1, 1972, but stayed by said Defendant until July 1, 1973.

The Findings in OrderNo. 93,381 recite that "present Oklahoma gas reserves total approximately 17 trillion cubic feet"; that the current annual production approximates ten percent of those reserves; that the rate of production of gas is increasing while additions to reserves are diminishing; that "the wellhead price for approximately 98 percent of all Oklahoma gas varies from .03 cents per MCF to .32 cents per MCF"; and that the "wellhead price does not respond readily to market supply and demand factors due to a combination of long term gas contracts and Federal price regulations."The Order further recites that "the Federal Power Commission has refused to recognize that a field price may be too low;"(italics ours) that low wellhead prices "cause gas wells to be shut down before all reasonable gas has been produced, a clear example of physical waste" which is certain to increase as operating costs continue to rise where wellhead prices remain constant under long term purchase contracts; that "an unreasonably low sale price for gas encourages, and perhaps requires, the lease operator to produce gas at progressively higher rates increased volume to offset rising operating costs, thus risking damage injury to a rate sensitive reservoir, and consequent waste of recoverable reserves"; that "wells are being plugged and abandoned in Oklahoma while they are still capable of producing substantial remaining volumes of gas, rendering those reserves unrecoverable"; that the Corporation Commission has authority to promulgate and enforce rules and orders for the prevention of waste; and that "the shutting in of gas wells to prevent waste does not conflict with the exclusive authority of the Federal Power Commission under the Natural Gas Act."The Commission found and the Order recites "that the production of natural gas which hereafter is to be sold at a price so low as to cause waste is contrary to law and should be prohibited" and that "a wasteful price is any price below .20 cents per MCF for gas being produced and sold" on October 1, 1972.

On the basis of the foregoing "Findings", Order 93,381, provided, among other things, that:

The production within the State of Oklahoma of natural gas from any gas well or casinghead gas from any oil well, which thereafter is to be sold at a price so low as to cause physical waste is prohibited.

Until such time as the Commission shall determine otherwise with respect to a particular well or wells, after notice and hearing, a price of below .20 per MCF shall be deemed wasteful.

OrderNo. 93,382 was issued pursuant to the request of Intervenor Glover, Heffner, Kennedy Oil Company which asked the Commission in fashioning its Order to include a factor for the depth of the well.The Commission found that the range of wellhead gas prices stifles the search for new gas reserves, especially in the deep and up to now relatively unexplored areas and that gas which is never found and produced because of the cost and the risk being too great is totally wasted.

The Commission found, in Order 93,382, that a depth price factor in fixing prices is essential to prevent the waste caused by non-exploration and non-development, and "that a wasteful price is any price below that stated in the following scale," based on depth at which the gas is produced:

Below 15,000 feet and above 20,000 feet  .25 per MCF
                Below 20,000 feet and above 25,000 feet  .35 per MCF
                Below 25,000 feet                        .50 per MCF
                

The OrderNo. 93,382 delineated a "Depth Factor" and fixed prices in accordance with the Findings.

The statutes of Oklahoma, pursuant to which the Defendant entered the Orders in question, expressly provide in pertinent part:

The term "waste", as applied to gas, in addition to its ordinary meaning, shall include . . . the inefficient or wasteful utilization of gas from gas wells drilled to and producing from a common source of supply; the production of gas in such quantities or in such manner as unreasonably to reduce reservoir pressure or unreasonably to diminish the quantity of oil or gas that might be recovered from a common source of supply; . . . waste incident to the production of natural-gas in excess of transportation and marketing facilities or reasonable market demand; . . . and the unnecessary depletion or inefficient utilization of gas energy contained in a common source of supply.In order to prevent the waste or to reduce the dissipation of gas energy contained in a common source of supply, in addition to its other powers in respect thereof, the Commission shall have the authority to limit the production of gas from wells producing gas only to a percentage of the capacity of such wells to produce.The production of gas in the State of Oklahoma in such manner and under such conditions as to constitute waste as in this Act defined is hereby prohibited, and the Commission shall have authority and is charged with the duty to make rules, regulations, and orders for the prevention of such waste".

The Federal Power Commission brought this action on December 1, 1972, alleging that the Orders of the Oklahoma Corporation Commission conflict with the jurisdiction of the Federal Power Commission under the Natural Gas Act, 15 U.S.C. §§ 717-717w, and that the said Orders also constitute an invalid burden on interstate commerce in violation of the commerce clause of the federal Constitution.The Complaint prayed for the convening of a three-judge court and said court was constituted on December 12, 1972.

Shortly thereafter and on December 26, 1972, Colorado Interstate Gas Company, a division of Colorado Interstate Corporation, a corporation, Kansas-Nebraska Natural Gas Company, Inc., a corporation, Natural Gas Pipeline Company of America, a corporation, Northern Natural Gas Company, a corporation, and Panhandle Eastern Pipe Line Company, a corporation, were allowed to enter the case as Intervening Plaintiffs.On February 6, 1973, THE GHK COMPANY, a general partnership, of which the partners are Robert A. Heffner III, David O'D.Kennedy and GHK CORPORATION, GASANADARKO, LTD., a limited partnership, of which the general partners are Robert A. Heffner III and David O'D.Kennedy, INEXCO OIL COMPANY, a corporation, and AMAREX, INC., a corporation, were permitted to come into the cause as Intervening Defendants.

A final pre-trial conference was held on May 14, 1973, at which all of the parties agreed that no additional evidence would be offered other than that submitted by stipulation.At this conference it was also stipulated by counsel and ordered by the judge to whom the case was originally assigned that the issues now before the Court for resolution are as follows:

1.Whether the orders of the Oklahoma Corporation Commission constitute an undue burden on interstate commerce within the purview of the commerce clause of the Federal Constitution?

2.Do the Orders of the Oklahoma Corporation Commission conflict with the jurisdiction of the Federal Power Commission under the Natural Gas Act?

3.Does the Complaint present a justiciable controversy or cause of action?

4.Does the Federal Power Commission have standing to initiate or pursue this action against the Defendants?

5.Should this Court abstain pending a determination by the Oklahoma Supreme Court of the appeals now pending therein under consolidated cases Nos. 46114, et al.?

We consider those issues in the order listed.

The Oklahoma Corporation Commission argues that the Orders complained of do not constitute an undue burden on interstate commerce; that the expressed intention of the Orders is to prevent the waste of natural gas by insuring that the maximum reasonable volume of gas will be produced from each well and reservoir; and that, if the Orders accomplish their intended purpose, more gas will be available for consumption to all consumers, including interstate consumers.The argument is that the Orders in question burden interstate commerce no more than other orders of Defendant, to-wit: "A well may be shut in to prevent pollution; it may be shut in because it is in an over-produced status; it may be shut in because the operator has not complied with the statute(52 O.S.1971 § 318.1) or rule (O.C.C.-O.G.R. 3-201) requiring proof of financial...