Kansas-Nebraska Natural Gas Co. v. State Corp. Commission

• Decision Date: 07 October 1950
• Docket Number: Nos. 37921,KANSAS-NEBRASKA,37920,37924,s. 37921
• Citation: 222 P.2d 704,169 Kan. 722
• Parties: NATURAL GAS CO., Inc., v. STATE CORPORATION COMMISSION et al. PANHANDLE EASTERN PIPE LINE CO. v. STATE CORPORATION COMMISSION et al. NORTHERN NATURAL GAS CO. v. STATE CORPORATION COMMISSION et al.
• Court: Kansas Supreme Court

Page 704

222 P.2d 704

169 Kan. 722

KANSAS-NEBRASKA NATURAL GAS CO., Inc., v. STATE CORPORATION COMMISSION et al.

PANHANDLE EASTERN PIPE LINE CO. v. STATE CORPORATION COMMISSION et al.

NORTHERN NATURAL GAS CO. v. STATE CORPORATION COMMISSION et al.

Nos. 37921, 37920, 37924.

Supreme Court of Kansas.

Oct. 7, 1950.

Syllabus by the Court

1. Under the Federal Natural Gas Act of June 21, 1938, ch. 556, 52 Stat. 821, 15 U.S.C.A. § 717 et seq., the jurisdiction of the Federal Power Commission does not extend to intrastate transportation or sale of natural gas, or to the local distribution of natural gas, or to the facilities used for such distribution, or to the production or gathering of natural gas.

2. In this state the production and distribution of natural gas for light, fuel and power is a business of a public nature, the control of which belongs to the state. Following La Harpe v. Elm Tp. Gas Co., 69 Kan. 97, 76 P. 448.

3. The dominant purpose of our statutes pertaining to the production and conservation of natural gas, G.S.1947 Supp. 55-701 to 55-713, is to prohibit waste of natural gas in Kansas, not only in the manner and under the conditions of its production, but for such purposes as would constitute waste.

4. The statute is also designed to protect the relative rights of the owners of real property from which natural gas is produced from a common source of supply.

5. The statutes place authority in the State Corporation Commission, on proper application made to it, to hear the evidence and to make appropriate orders to prevent waste of natural gas in its production, distribution or sale in this state, and to so regulate the taking of natural gas from a common source of supply as to prevent inequitable or unfair taking and to prevent unreasonable discrimination in favor of or against any producer of gas from such common source of supply.

6. Our statute gives the Corporation Commission authority to make an order fixing a minimum wellhead price for natural gas taken from a common source of supply if the evidence before the Commission justifies its conclusion that such an order is necessary in order to prevent waste and to secure the relative rights of owners of real property from which gas is produced from a common source of supply.

7. Such an order, if applied to the Hugoton gas field in Kansas, is not void as being in violation of section 17, Article 2, of our Constitution.

M. F. Cosgrove, of Topeka, argued the cause, and James D. Conway, of Hastings, Neb., and D. B. Lang, of Scott City, were with him on the briefs for appellant Kansas-Nebraska Natural Gas Co., Inc.

Mark H. Adams, of Wichita, argued the cause, and Lawrence I. Shaw, of Omaha, Neb., and A. M. Fleming, of Garden City, were with him on the briefs for appellant Northern Natural Gas Co.

Louis R. Gates, of Kansas City, argued the cause, and Mark H. Adams, of Wichita, and Edw. H. Lange, of Kansas City, Mo., were with him on the briefs for appellant Panhandle Eastern Pipe Line Co.

Jay Kyle, General Counsel, State Corporation Commission, of Topeka, R. C. Woodward, Special Counsel, of El Dorado, and Howard T. Fleeson and Dale M. Stucky, both of Wichita, of counsel, argued the cause and were on the briefs for appellees.

HARVEY, Chief Justice.

These consolidated appeals are from judgments of the district court, which upon review of an interim order of the State Corporation Commission fixing a minimum price of eight cents per thousand feet at the wellhead for natural gas taken from the Hugoton gas field, found the same lawful and reasonable and directed their enforcement.

What is commonly spoken of as the Hugoton gas field is approximately 60 miles long and 40 miles wide, covering parts of several counties situated in the southwest corner of Kansas and extending south across Texas County, Oklahoma, and into one or more counties of northern Texas. We are concerned here with only that part of the Hugoton gas field which is in Kansas. It is said to be the largest known reservoir of natural gas and is found at a depth of from about 2600 to 2900 feet in a porous formation about 50 feet thick. It was discovered near Hugoton in 1922, but it was not until about 1929 that its possibilities for domestic and industrial purposes had been fully realized. At the time of the hearing before the Commission about 1000 wells had been drilled and pipe lines had been laid to convey the gas to many cities and communities in Kansas and also in Colorado, Nebraska and states north, as far as Minneapolis, and east to cities in Michigan and points between. Several million feet of natural gas per day were being taken from the wells. The supply was greatly in excess of the market demands. Many of the producers had not been able to market their gas through any of the pipe lines. Prices being paid to producers varied from four to eight cents per thousand cubic feet. There was really no open market for it--the producers had to accept what the pipe line companies would offer to pay.

On February 6, 1948, the Southwest Kansas Royalty Owners Association, a nonprofit corporation composed of about 1200 members and eighteen individuals, each the owner of mineral interests in real property in the Hugoton gas field, filed a petition with the Corporation Commission which alleged that under the land owned by the petitioners and others is the natural gas reservoir and source of supply known as the Hugoton gas field, which constitutes a natural resource which should be conserved and the waste of which should be prohibited by the Commission, and stated particulars not necessary to be noted here in view of an amended petition in which it was alleged that preventable waste existed. The petition was received and given docket No. 35,154-C (C-1868 Conservation Division). Each of the appellants here intervened and filed a written protest, and the Cities Service Gas Company filed a motion to dismiss. After due notice to all interested parties a pre-trial hearing was had July 19 and 20, 1948, of oral and written arguments as to the legal questions involved, including jurisdiction of the Commission, during which the petitioners were given leave to file an amended petition, and a date was fixed for the hearing of evidence, the Commission reserving its ruling upon the legal questions. The amended petition was filed August 4, 1948. Hearings were had from October 18th through the 22nd and December 13th through the 15th, at which evidence was offered. On February 18, 1949, the commission filed its interim order, which sufficiently sets forth the questions presented by the amended petition and the ruling of the Commission thereon, the pertinent portions of which are as follows:

The interim order recited the consideration of the evidence and the arguments and briefs of counsel, the filing of the petition and amended petition, and stated that the petitions, as amended, 'requested that the Commission:

'(a) Institute an investigation into the issues raised by the Amended Petition,

'(b) Establish a uniform minimum price a which gas may be taken out of the producing structures in the Hugoton Field in Kansas of not less than 10cents per M. C. F.,

'(c) Require all purchasers and takers of gas in and from the Hugoton Field to take ratably from each completed well in the field,

'(d) Establish atmospheric pressure as the base for measurement of the natural gas taken from the Hugoton Field.'

Paragraph 2 recites the hearings and notices therefor, and

'At the conclusion of these proceedings, all of the questions of fact and of law were taken under advisement by the Commission.

'3. Gas Conservation Rule 82-2-201 of this Commission is state-wide in its application. Among other terms, it defines 'Gas, Cubic Foot' as the volume of gas required to fill one cubic foot of space at a temperature of 60 degrees Fahrenheit and under an absolute pressure of 16.4 pounds. To provide for a different pressure base in the Hugoton Basic Order would require amendment of this state-wide rule. These proceedings, notices as applicable only to the Kansas Hugoton Field, are not competent to affect an amendment to a state-wide rule or regulation. The Commission, having so limited this inquiry, is without jurisdiction here to establish a pressure base differing from the base set forth in the above noted Gas Conservation Rule. However, issues fairly raised in this proceeding make it appear to the Commission that an investigation on a state-wide basis should be initiated to determine whether Rule 82-2-201 should be amended and the Commission is this day entering its order in Docket No. 34780-C (C-1825) instituting such an investigation.

'4. The Commission has jurisdiction and authority to determine the value of gas at the wellhead in the Kansas Hugoton Field and to require that no gas may be taken out of the producing structures unless the takers of such gas attribute such value to the gas for purposes of payment to the producer, landowner, lease-holder, or royalty owner, and to fix a minimum wellhead price at which natural gas may be taken from the Kansas Hugoton Field, when such determination and requirement or fixing of price is a necessary or appropriate means of giving effect to the intent and purpose of the statutes relating to the production and conservation of natural gas (G.S.1947 Supp. 55-701 to 55-713, incl.). * * *

'5. The record in this proceeding does not explore fully all the factors which the Commission deems it necessary to consider in arriving at a final determination as to the value of gas at the well-head in the Kansas Hugoton Field or as to what minimum wellhead price should be fixed for the sale of natural gas. To secure the further information it requires, the Commission is this date, on its own motion, entering its order instituting an investigation in Docket No. C-164. However, undisputed evidence now before the Commission in this record establishes that in order to give effect to all the...