Northwest Cent. Pipeline Corp. v. State Corp. Com'n

• Decision Date: 10 May 1985
• Docket Number: No. 56917,56917
• Citation: 699 P.2d 1002,237 Kan. 248
• Parties: NORTHWEST CENTRAL PIPELINE CORPORATION; KN Energy, Inc.; Amoco Production Company; and Colorado Interstate Gas Company, Appellants, v. The STATE CORPORATION COMMISSION of the State of Kansas, Michael Lennen, Chairman, Richard D. (Pete) Loux, Commissioner, Phillip R. Dick, Commissioner, and their respective successors in office, Appellees.
• Court: Kansas Supreme Court

Page 1002

699 P.2d 1002

237 Kan. 248

NORTHWEST CENTRAL PIPELINE CORPORATION; KN Energy, Inc. Amoco Production Company; and Colorado Interstate Gas Company, Appellants, v. The STATE CORPORATION COMMISSION of the State of Kansas Michael Lennen, Chairman, Richard D. (Pete) Loux Commissioner, Phillip R. Dick, Commissioner, and their respective successors in office, Appellees.

No. 56917.

Supreme Court of Kansas.

May 10, 1985.

Syllabus by the Court

1. K.S.A. 66-118d limits judicial review of an order of the Kansas Corporation Commission (KCC) to determine whether the order is lawful or reasonable. A court has no power to set aside such an order unless it finds that the KCC acted unlawfully or unreasonably. An order is lawful if it is within the statutory authority of the commission and if the prescribed statutory and procedural rules are followed in making the order. An order is generally considered reasonable if it is based on substantial competent evidence. The legislature has vested the commission with wide discretion, and its findings have a presumption of validity on review. Discretionary authority has been delegated to the commission, not to the courts; the power of review does not give the courts authority to substitute their judgment for that of the commission. The commission is aided by a staff of assistants with experience as statisticians, accountants and engineers, while courts have no comparable facilities for making the necessary determinations.

2. The KCC is vested with the responsibility to prevent waste and to protect correlative rights of producers and landowners when production is from a common source of supply.

3. The KCC's authority is limited to that conferred by statute.

4. An order of the KCC will be set aside as arbitrary, capricious and unreasonable if it is not based upon substantial competent evidence.

5. Where a regulatory body has authority to change positions on an issue if the new position is supported by substantial competent evidence, parties may not reasonably rely on any prior order of the body to such an extent to invoke the doctrine of equitable estoppel.

6. It is within the discretionary authority of the commission to accept or reject any expert testimony presented. The facts to be considered and the weight to be accorded them are matters left to KCC discretion.

7. Selling gas is not a function of the KCC, nor is the providing of incentives for additional production, but when additional production is needed to protect correlative rights and to prevent waste, the commission has authority to create such incentives.

8. Federal regulation does not apply to production or gathering of natural gas. Thus, State control over allowables, which pertain to production, does not improperly infringe on federal regulation of natural gas in interstate commerce.

9. Appeals under K.S.A. 55-606 go directly to the state Supreme Court, despite the provisions of K.S.A.1984 Supp. 60-2101.

10. The right to an appeal is neither vested nor a constitutional right, but is strictly statutory in nature.

Mark H. Adams, II of Adams, Jones, Robinson & Malone, Wichita, argued the cause, and Teresa J. James, of the same firm, and Bill Sears and John H. Cary, Tulsa, Okl., were with him on the briefs for appellant Northwest Cent. Pipeline Corp.

Ralph R. Brock of Morris, Laing, Evans, Brock & Kennedy, Chartered, Wichita, argued the cause, and Robert W. Coykendall, of the same firm, was with him on brief for appellants Cabot Petroleum Corp., Northern Pump Co., Graham-Michaelis Corp., and Kansas Petroleum, Inc.

Timothy E. McKee of Martin, Pringle, Oliver, Triplett & Wallace, Wichita, argued the cause, and William M. Lange and Kim R. Cocklin, Colorado Springs, Colo., and Robert A. Miller, Jr., Lakewood, Colo., were with him on the brief for appellants Colorado Interstate Gas Co. and KN Energy, Inc.

Glenn D. Young, Jr. of Gott, Young & Bogle, P.A., Wichita, argued the cause, and Victor S. Nelson, of the same firm, was with him on brief for appellant Amoco Production Co.

Charles H. Apt III of Glaves, Weil, Evans & Hoke, Wichita, argued the cause, and Jack Glaves, of the same firm, and William Robertson, Kansas City, Mo., were with him on brief for appellee Panhandle Eastern Pipe Line Co.

Jeff Kennedy, Asst. Gen. Counsel, Topeka, argued the cause, and Brian J. Moline, Gen. Counsel, Topeka, was with him on brief for appellee Kansas Corp. Com'n.

Richard C. Byrd of Anderson, Byrd & Richeson, Ottawa, argued the cause, and Steven C. James, Amarillo, Tex., was with him on the brief for intervenor-appellee Mesa Petroleum Co.

HERD, Justice:

This is an appeal from an order affirming a Kansas Corporation Commission (KCC) order amending paragraph (p) of the basic proration order for the Kansas Hugoton Gas Field.

Cabot Petroleum Corporation, Northern Pump Company, Graham-Michaelis Corporation, and Kansas Petroleum Inc., are independent producers of natural gas from the Kansas Hugoton Field and operate a total of 189 wells connected to various pipeline systems in the field. Colorado Interstate Gas Company and KN Energy, Inc. (KN) are interstate pipeline companies engaged in the transportation and sale for resale of natural gas in interstate commerce. KN is also engaged in the production of natural gas from the Hugoton Field and operates numerous wells which produce gas from that field. Northwest Central Pipeline Corporation (successor to Cities Service) is a pipeline company also operating in the Hugoton Field. Amoco Production Company is also a lessee-producer of natural gas in the Hugoton Field. Each of these companies appeared before the KCC to contest the amendment to the basic order, and are appellants here. Panhandle Eastern Pipe Line Co. is an interstate pipeline which purchases gas from Hugoton wells. Panhandle participated in the hearings before the KCC and supported the KCC's position. Panhandle intervened in the appeal before the district court. Mesa Petroleum Company is a producer in the Hugoton Field. Mesa was a party to the proceedings before the KCC and supports the amended order.

The Kansas Hugoton Field is approximately one hundred sixty miles long and forty to seventy-two miles wide. It covers all or major portions of nine Kansas counties and minor portions of two additional counties. The over 4,000 gas wells in the field are connected to pipeline systems of seven major producers and several smaller purchasers.

The basic proration order for the Hugoton Field was adopted on March 21, 1944. The purpose of the order is to prorate the demand for gas, as determined twice a year by the commission, among all the wells in the Hugoton Field. The proration is made by assigning an allowable to each well. From its inception the basic proration order has assigned the allowables on the basis of the relative abilities of the wells to produce gas pursuant to a deliverability formula. The formula balances various factors in an effort to regulate production so that the amount produced over time from any well is equal to the amount of gas originally in the developed lease.

Some adjustments in allowables resulting from the deliverability formula are caused by pressure differentials in the various gas wells. Gas flows from high pressure areas to low pressure areas. A well's pressure falls when it is produced. When a well is underproduced in relation to its allowable, and relative to the other wells which are producing their allowables, its pressure becomes higher. If this condition is permitted to continue over a period of time, drainage occurs from the underproduced well with the higher pressure to the low pressure area of the overproduced wells. As pressure is a major component in determining adjusted deliverability, the pressure differences result in a higher adjusted deliverability for the underproduced wells with a resulting increase in the current allowable. When the larger allowable and underage is produced, the well's pressure drops below the other wells and compensating drainage occurs. After the pressure drop the adjusted deliverability for the well is decreased with a resulting decrease in its allowable. This is the technique utilized in the attempt to keep the wells in balance in the long pull.

Divergent rates of "takes," as a result of varying market conditions experienced by the purchasers in the field, cause unplanned pressure differences among the producing wells. Every purchaser, because of varying market demands, has gone through cyclical periods of overproduction followed by periods of underproduction causing underages. The different purchasers are not in the same phase of the cycle at the same time. As a result, drainage among the developed leases is constantly taking place. Prior commission practice developed a system designed to ensure that counter or compensating drainage would occur.

The history of the field shows the turnaround in the marketing conditions of the various purchasers from periods of low demand to periods of high demand often takes many years. For example, Amoco's wells, 97% of which are connected to Northwest Central Pipeline, were underproduced in the late 1960's and early 1970's and suffered great volumes of cancelled underage. From May, 1972, through 1981, 66,707,113 million cubic feet (MCF) of cancelled underage were reinstated, of which 60,650,544 MCF were produced. Now, however, due to high allowables assigned by the commission and soft market demand, these wells have suffered approximately 73.7 billion cubic feet (BCF) of cancelled underage and the volumes of cancellation are increasing monthly. Cabot, whose wells are also connected to Northwest Central, experienced this same cycle. Cabot suffered essentially no cancelled underage prior to 1967, but during the next six-years had 1,390,905 MCF cancelled, followed by a six-year period in which 1,158,808 MCF were reinstated, of which approximately 87% was produced. During the last three-and-a-half...