Northwest Natural Gas Co. v. Frank

• Decision Date: 27 July 1982
• Citation: 293 Or. 374,648 P.2d 1284
• Parties: NORTHWEST NATURAL GAS COMPANY, an Oregon corporation; and Cascade Natural Gas Corporation, a Washington corporation, Petitioners, v. Lynn D. FRANK, Director of the Oregon Department of Energy, Respondent. SC 28346. . *
• Court: Oregon Supreme Court

Page 1284

648 P.2d 1284

293 Or. 374

NORTHWEST NATURAL GAS COMPANY, an Oregon corporation; and Cascade Natural Gas Corporation, a Washington corporation, Petitioners, v. Lynn D. FRANK, Director of the Oregon Department of Energy Respondent.

SC 28346.

Supreme Court of Oregon, In Banc. ^*

Argued and Submitted March 3, 1982.

Decided July 27, 1982.

Bruce R. DeBolt, Northwest Natural Gas Co., Salem, argued the cause for petitioners. With him on the briefs were Harold W. Pierce, Portland, Northwest Natural Gas Co., and Gene C. Rose, Ontario, and W. Brian Matsuyama, Cascade Natural Gas Co., Seattle, Wash.

William F. Gary, Sol. Gen., argued the cause for respondent. With him on the brief were Dave Frohnmayer, Atty. Gen., Stanton F. Long, Deputy Atty. Gen., and Christine L. Dickey, Asst. Atty. Gen., Salem.

Steven F. McCarrel, Portland Gen. Elec. Co., Portland, argued the cause and filed the brief for respondent-intervenor.

LENT, Chief Justice.

We exercise original jurisdiction granted by Oregon Laws 1981, Chapter 792, section 7(3), to review an order of the respondent director of the Oregon Department of Energy issued pursuant to ORS 469.420 as amended by Chapter 792. Petitioners are energy resource suppliers. Respondent's order assesses a tax against petitioners based upon their prorated share of the total number of British thermal units (BTUs) of energy sold by energy resource suppliers in Oregon. Petitioners seek to have this order declared invalid as a violation of Article VIII, section 2(1)(g) and/or Article IX, section 3b of the Constitution of Oregon. Respondent defends the order as not being in conflict with these constitutional provisions.

The sole question for our consideration is whether assessments imposed under ORS 469.420(4) are "a tax * * * measured by the * * * sale * * * of oil or natural gas * * * that is subject to the provisions of section 2, Article VIII or section 3(b), Article IX of the Oregon Constitution * * *." (Ch. 792, § 4). We hold that assessments computed on the energy-resources-sold basis under ORS 469.420(4) are a tax measured by the sale of natural gas and oil. We hold further that this tax is subject to Article VIII, section 2(1)(g) and/or Article IX, section 3b of the Constitution and, therefore, is dedicated to the Common School Fund and is not available to the Department of Energy.

LEGISLATIVE BACKGROUND

Resolution of this dispute requires that we set forth at some length the various constitutional and statutory materials that bear on the case.

Enacted in 1971, ORS 469.420 provides that the director of the Department of Energy shall fund department activities by assessing fees against electric utilities, natural gas utilities, and petroleum suppliers, collectively energy resource suppliers. These fees are based on the ratio that the energy resources (measured in BTUs) sold by each supplier bear to the total energy resources sold by all energy resource suppliers. ORS 469.420(4).

In 1979, the Oregon legislature adopted House Joint Resolution 6 which, as Ballot Measure 3, proposed a constitutional amendment. The amendment added paragraph (g) to Article VIII, section 2(1) and added section 3b to Article IX of the Oregon Constitution. ¹ Paragraph (g) provides:

"(1) The sources of the Common School Fund are:

" * * *

"(g) After providing for the cost of administration and any refunds or credits authorized by law, the proceeds from any tax or excise levied on, with respect to or measured by the extraction, production, storage, use, sale, distribution or receipt of oil or natural gas and the proceeds from any tax or excise levied on the ownership of oil or natural gas. However, the rate of such taxes shall not be greater than six percent of the market value of all oil and natural gas produced or salvaged from the earth or waters of this state as and when owned or produced. This paragraph does not include proceeds from any tax or excise as described in section 3, Article IX of this Constitution."

Section 3b provides:

"Any tax or excise levied on, with respect to or measured by the extraction Our examination of the legislative background of House Joint Resolution 6 shows nothing to indicate that the legislature recognized any conflict between the proposed amendment and ORS 469.420, or considered the possibility of such a conflict.

production, storage, use, sale, distribution or receipt of oil or natural gas, or the ownership thereof, shall not be levied at a rate that is greater than six percent of the market value of all oil and natural gas produced or salvaged from the earth or waters of this state as and when owned or produced. This section does not apply to any tax or excise the proceeds of which are dedicated as described in sections 3 and 3a of this Article."

Shortly before the 1980 general election, the Governor asked the Attorney General's opinion on several questions concerning the proposed amendment. One question was:

"Would Measure 3 require that the energy assessment imposed on oil and natural gas companies under ORS 469.420(4) be dedicated exclusively to the Common School Fund?"

The Attorney General responded "Yes." 41 Op.Atty.Gen. 205 (1980). The Attorney General found that fees imposed under ORS 469.420(4) were an assessment "measured by" the BTUs of energy sold by energy resource suppliers, and concluded that the amendment would dedicate these revenues to the Common School Fund. 41 Op.Atty.Gen. at 210. This was apparently the first time that state officials realized that the amendment might conflict with ORS 469.420.

The voters approved Ballot Measure 3 in the 1980 general election, making paragraph (g) and section 3b part of the Oregon Constitution.

Following the adoption of the amendment, a new question was posed to the Attorney General:

"Does subparagraph (g) of sec 2(1) of Art VIII of the Oregon Constitution apply to oil or natural gas produced outside of Oregon?"

The Attorney General responded:

"No, although this conclusion is not free from substantial doubt."

41 Op.Atty.Gen. 552 (1981). In this second opinion, the Attorney General reconsidered portions of his earlier opinion. He recognized the problem that brings this case before us: if all receipts from assessments based on oil and natural gas sales were constitutionally dedicated to the Common School Fund, the Department of Energy could not fund itself through ORS 469.420. Though admitting that the amendment was ambiguous, the Attorney General reversed portions of his 1980 opinion and, on the basis of legislative history, concluded that the amendment did not apply to assessments on oil and natural gas captured outside of Oregon.

Because of the ambiguous language in the amendment, ² the Attorney General cautioned against relying on his opinion and recommended that litigation be brought to resolve the question, warning that doubt would remain until this court ruled on the question. Id at 557.

Aware of the conflict between ORS 469.420(4) and the amendment, the 1981 legislature enacted Oregon Laws 1981, Chapter 792. Section 3 of this chapter reenacted ORS 469.420(4)(c) unchanged: the Department of Energy was to continue to compute assessments on an energy-resources-sold basis.

Section 5 is an alternative version of ORS 469.420, largely identical with the present version, but changing the basis on which assessments are to be computed. The section 5 version of ORS 469.420(4)(c) provides:

"(c) The amount assessed to an energy resource supplier shall be based on the ratio which that supplier's annual gross operating revenue derived within this state in the preceding calendar year bears to the total gross operating revenue derived within this state during that year by all energy resource suppliers. The assessment against an energy resource supplier shall not exceed five-tenths of one percent of the supplier's gross operating revenue derived within this state in the preceding calendar year. The director shall exempt from payment of an assessment any individual energy resource supplier whose calculated share of the annual assessment is less than $250."

This assessment, under section 5, based on gross revenues was not subject to the constitutional amendment.

Section 7 of Chapter 792 provided that, in his order for the biennium beginning July 1, 1981, the director should determine the amounts which would be assessed under ORS 469.420(4)(b) and (c), computed on an energy-resources-sold basis, and also under the section 5 versions of (4)(b) and (c), computed on a gross-revenues basis. The director was initially to assess energy resource suppliers only the lesser of the two amounts. The balance was to be imposed by a later assessment after the court decided whether the Department of Energy could continue to use the energy-resources-sold basis. Subsection 7(3) provided for direct judicial review to resolve the legality of using the energy-resources-sold basis.

Section 4 of Chapter 792 provided:

"If ORS 469.420 or any part thereof or section 7 of this Act is judicially declared to impose a tax or excise levied on, with respect to or measured by the extraction, production, storage, use, sale, distribution or receipt of oil or natural gas or levied on the ownership of oil or natural gas, that is subject to the provisions of section 2, Article VIII or section 3a, Article IX of the Oregon Constitution, ORS 469.420 is repealed and section 5 of this Act is enacted in lieu thereof."

This section thus prescribes our action should we find a conflict between the amendment and ORS 469.420.

Acting pursuant to Chapter 792, section 7, the director promulgated his biennial order on November 2, 1981. On December 31, 1981, petitioners filed their petition for review, bringing the matter before this court.

ANALYSIS

This is a case of constitutional and statutory interpretation. The parties to the case have provided us with extensive materials from the relevant legislative histories. It is apparent that...