Lone Star Gas Co. v. Railroad Com'n of Texas

• Decision Date: 14 November 1990
• Docket Number: No. 3-88-012-CV,3-88-012-CV
• Citation: 798 S.W.2d 888
• Parties: LONE STAR GAS COMPANY, et al., Appellants, v. The RAILROAD COMMISSION OF TEXAS, et al., Appellees.
• Court: Texas Court of Appeals

Page 888

798 S.W.2d 888

LONE STAR GAS COMPANY, et al., Appellants, v.The RAILROAD COMMISSION OF TEXAS, et al., Appellees.

No. 3-88-012-CV.

Court of Appeals of Texas Austin.

Nov. 14, 1990.

Tex.App.-Austin 1990.

David C. Duggins, Clark, Thomas, Winters & Newton, Austin, for appellants.

Jim Mattox, Atty. Gen., John A. Crane, Sarah F. Miller, Asst. Attys.Gen., Austin, for appellees.

Before SHANNON, C.J., and GAMMAGE and ABOUSSIE, JJ.

ABOUSSIE, Justice.

The opinion handed down by this Court on December 13, 1989, is withdrawn, and the following is substituted therefor.

Appellants filed suit in the district court of Travis County pursuant to the Declaratory Judgments Act, Tex.Civ.Prac. & Rem.Code Ann. §§ 37.001-37.011(1986& Supp.1990) and the Administrative Procedure and Texas Register Act, Tex.Rev.Civ.Stat.Ann. art. 6252-13a, § 12 (Supp.1990)(APTRA), seeking a declaration as to the validity and applicability of certain rules promulgated by the Texas Railroad Commission.After a trial on the merits, the district court rendered judgment that the Commission did not exceed its authority by enacting the rules, but dismissed the cause for lack of ripeness.

The trial court was called upon to declare (1) whether the rules in question were valid and (2) their applicability to certain described fact situations.By its judgment, the trial court purported to find that the rules were valid, but then proceeded to order a dismissal as to the entire cause on the basis that the request for declaratory relief applying the rules was premature.The two issues, although they might have been, were not severed; instead, the matter was before us for review on a judgment of dismissal.As our Supreme Court has noted many times, "[i]t is elementary that a dismissal is in no way an adjudication of the rights of parties; it merely places the parties in the position that they were in before the court's jurisdiction was invoked just as if suit had never been brought."Crofts v. Eighth Court of Civil Appeals, 362 S.W.2d 101, 104(Tex.1962).

In an unpublished opinion, we held that the court erred in dismissing the instant cause, because the matter was ripe and the trial court was duty-bound to decide all the issues properly before it.SeeBellegie v. Texas Bd. of Nurse Examiners, 685 S.W.2d 431, 434(Tex.App.1985, writ ref'd n.r.e.).We reversed the judgment of dismissal and remanded the matter to the trial court for further proceedings and rendition of a final declaration of all matters in issue.Because a dismissal does not operate as an adjudication, we held that the attempt to decide one issue was of no legal effect in light of dismissal of the entire cause, and we thus declined to render what we believed to be an advisory opinion on a matter not properly before this Court.

The Supreme Court, however, reversed our decision and remanded the cause to this Court.Lone Star Gas Co. v. R.R. Comm'n of Texas, 767 S.W.2d 709(Tex.1989).Although the Supreme Court recognized that the trial court had dismissed the case below, we were directed to ignore what it termed an "inconsistency" and were instructed that we were obliged to render an opinion on whether the rules were valid despite the posture of the case.We question whether doing so complies with Tex.R.App.P.Ann. 81(c) and 90(a)(Supp.1990).Nevertheless, in reviewing the matter, we will sustain appellants' challenge to the rules and reverse the judgment of the trial court.

Appellants requested a ruling as to the validity of certain of the Commission's "ratable take" and "proration" rules governing the natural gas industry.SeeTex.R.R. Comm'n Rules, 12 Tex.Reg. 536(1988)(to be codified at 16 Tex.Admin.Code §§ 3.30(a)(1), (5)and3.34(h)(2-4)(since amended)).These rules were promulgated in response to the creation of special marketing programs (SMPs).SMPs are affiliates of larger companies that are able to buy gas in circumvention of established contracts and Commission policies applicable to the larger companies.

Section 30(a)(1) of the Commission rules defines a "first purchaser" as "the first purchaser of natural gas produced from a well," but adds "[a] first purchaser and any affiliate of the purchaser that transports any natural gas it purchases from a well by use of the same pipeline system used by the first purchaser of which it is an affiliate shall be treated as a single first purchaser for purposes of ratability requirements," unless the affiliate is a special marketing program under section 34(h).

Section 30(a)(5) defines an affiliate as a "person or entity that owns, is owned by, or is under common ownership with another person or entity to the extent of 50% or more or that otherwise controls or is controlled by another person or entity," adding "affiliates of a common entity are also affiliates of each other," and listing certain exceptions.

Section 34(h) sets out the scheme for qualifying an affiliate as a separate first purchaser by designating the affiliate as an SMP.The section requires:

(2) Each and every special marketing program offer to purchase gas must be made without discrimination within a field and without unjust or unreasonable discrimination between fields to all operators for all wells on the pipeline system of the affiliated first purchaser from which that affiliated first purchaser has been purchasing and accepting delivery of gas as a first purchaser.The offer must also be made for all first, second and third priority category gas on the affiliated first purchaser's pipeline system which it has been purchasing and accepting for delivery under an obligation to purchase and accept delivery from the tailgate of a plant processing gas to extract liquids, or from a gathering system that purchases from wells and is required by contract or by its physical connections to sell its gas entirely to the affiliated first purchaser, whether or not those purchases were made as a first purchaser.

(3) It is unreasonably discriminatory, and therefore prohibited, for the offer to purchase gas in the special marketing program, or for any release of gas for sale in the special marketing program to require release of any claims under any existing contract other than a release of the gas for sale in the special marketing program or a requirement of a volume-for-volume basis for gas taken in the special marketing program to be credited against any existing contract, if the credit provision is limited to the period of actual participation in the special marketing program.Nothing in this paragraph shall prohibit an operator of any well from offering terms inconsistent with these provisions.The making of an offer which is not accepted shall not affect rights under existing contracts.

(4) If the well producing priority category 1, 2 or 3 gas is shut in or curtailed, and waste is found by the Commission to exist, neither a special marketing program purchaser nor its affiliated first purchaser may purchase lower priority category gas until all the priority category 1, 2 and 3 gas is taken and resulting waste is prevented.The Commission shall expedite determination of waste, and may enter an emergency, temporary or interim order upon affidavit proof that waste is occurring.¹

The trial court judgment states that "the Commission did not exceed its lawful authority in enacting, adopting, and implementing the rules under attack herein."

Appellants complain that the district court erred in declaring the challenged rules valid because: (1) the rules are beyond the Commission's statutory authority; (2) the rules are inconsistent with the statutes; (3)the statutes provide no guidelines or standards governing the Commission's jurisdiction in this subject matter, resulting in an unconstitutional delegation of legislative power; (4) the rules are contrary to the public policy of Texas and the United States and are preempted by federal statute; and (5) the rules deprive appellant of state and federal constitutional rights to due process and equal protection of the laws.We will dispose of the state law grounds before reaching appellants' federal constitutional claims.SeeHagans v. Lavine, 415 U.S. 528, 547, 94 S.Ct. 1372, 1384, 39 L.Ed.2d 577(1974);Southern Nat'l Bk. of Houston v. City of Austin, 582 S.W.2d 229, 235(Tex.Civ.App.1979, writ ref'd n.r.e.).

Appellant Lone Star is both an intrastate and an interstate pipeline company.It seeks a declaration as to the applicability of the rules to its intrastate pipeline system.AppellantEnserch Gas Company(Enserch) is a gas marketing company that utilizes the Lone Star pipeline system to make deliveries to its customers.Both are wholly-owned by Enserch Corporation.Enserch Gas purchases gas from the spot market, i.e., gas that is not dedicated to long-term gas contracts and is available for immediate sale.The spot market price of gas is much lower than the long-term contract price.Enserch often purchases gas from operators who have long-term contracts with Lone Star.Just as often, however, it purchases from operators with whom Lone Star has had no relationship.Lone Star has conditioned the release of gas contractually dedicated to it for sale to Enserch, upon an agreement from the operator that gas sold to Enserch would be credited to Lone Star's take obligation.Enserch will then purchase the released gas.Lone Star and Enserch both sell gas to local gas utilities.

First, appellants complain that the challenged rules are beyond the Commission's statutory authority.The Commission has been granted broad discretion in administering the laws regarding natural gas regulation.Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424(1943).We are obligated to hold that the rules are valid if constitutional, within the power granted to the Commission, and promulgated pursuant to the proper procedure.Helle v. Hightower, 735 S.W.2d 650, 654(Tex.App.1987, writ denied).We presume the rules are valid,...