Railroad Commission v. Humble Oil & Refining Co., 8502.

• Decision Date: 23 December 1936
• Docket Number: No. 8502.,8502.
• Citation: 101 S.W.2d 614
• Parties: RAILROAD COMMISSION OF TEXAS et al. v. HUMBLE OIL & REFINING CO. et al.
• Court: Texas Court of Appeals

101 S.W.2d 614

RAILROAD COMMISSION OF TEXAS et al. v. HUMBLE OIL & REFINING CO. et al.

No. 8502.

Court of Civil Appeals of Texas. Austin.

December 23, 1936.

Rehearing Granted in Part February 17, 1937.

Appeal from District Court, Travis County; J. D. Moore, Judge.

Action by the Humble Oil & Refining Company against the Railroad Commission of Texas and its members, in the nature of an appeal from that portion of the commission's order fixing the price of natural gas and seeking ancillary injunctive relief, wherein certain royalty owners intervened as parties plaintiff. From a judgment rendered in favor of the plaintiff and the interveners, the defendants appeal.

Reversed, injunction dissolved, and judgment rendered for defendant.

Wm. McCraw, Atty. Gen., Alfred M. Scott, Asst. Atty. Gen., and F. L. Kuykendall, Former Chief Examiner, Gas Utilities Division, Railroad Commission of Texas, of Austin, for appellants.

J. E. Edmundson, J. Lee Dittert, and C. D. Duncan, all of Bellville, Powell, Wirtz, Rauhut & Gideon, and T. H. McGregor, all of Austin, and R. E. Seagler, Lee M. Sharrar, and Robt. F. Higgins, all of Houston, for appellee.

McCLENDON, Chief Justice.

This is a public utility natural gas rate case, brought by Humble (appellee Humble Oil & Refining Company) against the Commission (appellant Railroad Commission of Texas) and its members, in the nature of an appeal from that portion of a Commission order which fixed at 5 cents per thousand cubic feet (MCF) the maximum well-head price of gas in the Raccoon Bend field (Austin county) sold under contract by Humble to M & M (M & M Pipe Line Company, a public utility); and for ancillary injunctive relief. Certain royalty owners under mineral leases from which the involved gas was supplied to M & M were permitted to intervene as parties plaintiff.

Interveners contend that the order is void because they were not notified of or made parties to the Commission hearing. Otherwise the case presents two phases, involving, respectively, the issues: (1) Whether Humble in its relation to M & M is a public utility and its contracts and rates subject therefore to the Commission's regulatory jurisdiction; and (2) whether the well-head rate fixed by the Commission is unjust, unreasonable, or confiscatory.

The trial was to the court without a jury, and at the conclusion of the evidence judgment was rendered in favor of Humble and interveners, setting aside the Commission order and perpetually enjoining its enforcement. The court, upon seasonable request, filed findings of fact and law, predicating its judgment upon the holding that the Humble was not a public utility and not subject to the Commission's jurisdiction. The court declined to make findings upon the issue whether the order was unjust, etc.

Upon the above first phase and issue thereunder, appellees' contentions may be thus substantially stated: It was not the intention of the Public Utility Act (R.C.S. arts. 6050-6066, as amended [Vernon's Ann.Civ.St. arts. 6050-6066]) to classify as a public utility, and subject to the prescribed regulation, "a producer of gas who neither transports such gas over and across the highways of the State, nor exercises the right of eminent domain, nor sells such gas nor offers it for sale to the public generally, but who merely sells under private contract to one concern." If, however, such be the proper construction of the act, it is to that extent void, because "the Legislature cannot by legislative fiat change a private business into a public business when it is not such in fact."

The following decisions are cited in support of this contention: Pub. Utilities Comm. v. Natatorium Co., 36 Idaho, 287, 211 P. 533; Humbird L. Co. v. Pub. U. Comm. 39 Idaho, 505, 228 P. 271; Highland D. F. Co. v. Helvetia M. C. Co., 308 Ill. 294, 139 N.E. 418; Ohio Mining Co. v. Pub. U. Comm., 106 Ohio St. 138, 140 N.E. 143; Consumer's L. & P. Co. v. Phipps, 120 Okl. 223, 251 P. 63; Philadelphia City Passenger Ry. Co. v. Pub. Ser. Comm., 271 Pa. 39, 114 A. 642; Clark v. Olson, 177 Wash. 237, 31 P.(2d) 534, 93 A.L.R. 240; State v. Spokane, etc., Ry. Co., 89 Wash. 599, 154 P. 1110, L. R.A.1918C, 675; Chippewa P. Co. v. R. R. Comm., 188 Wis. 246, 205 N.W. 900; Avery v. Vermont E. Co., 75 Vt. 235, 54 A. 179, 59 L.R.A. 817, 98 Am.St.Rep. 818; Nowata County Gas Co. v. Henry Oil Co. (C.C.A.) 269 F. 742; Texoma N. Gas Co. v. R. R. Comm. (D.C. 3-judge court) 59 F.(2d) 750.

In view of our holding to the effect that the Humble brought itself within the letter and spirit of the Public Utility Act under the specific terms of its contract with M & M, it is not necessary to review or discuss these decisions, or to express an opinion upon the general propositions embodied in the above contention. Their correctness may be conceded, arguendo, for the purposes of this appeal.

In the following statement we have copied, almost verbatim, excerpts from appellants' brief, omitting, however, the use of quotation marks:

Humble is chartered as a private oil corporation; its principal business consists in the production, transportation, refining, and sale of crude oil and its products. Less than 1 per cent. of its total volume of business consists of the sale of natural gas.

The Raccoon Bend field in Austin county is primarily an oil field. Humble there took oil and gas leases (semi-wildcat territory) and started development of the field primarily as an oil field during 1927; developed it as such throughout 1928 and 1929, producing from an oil sand at a depth of 3,000 feet. Later it developed a dry gas sand at a depth of 1,000 feet which to a large extent overlies the 3,000-foot oil stratum. In December, 1934, a new oil-bearing stratum, known as the "Conroe sand," was encountered at a depth of 3,400 feet underlying the 3,000-foot oil sand; and development thereof begun by the Humble. The Humble has a total of about 125 producing oil wells in the field, of which 43 are in the Conroe sand and of which about 50 are flowing wells and the remainder on pumps. About 10 or 12 of the flowing wells are in the 3,000-foot sand, and the 43 wells in the 3,400-foot Conroe sand are flowing. The company developed the 1,000-foot dry gas in an effort to produce oil; but having failed, used it for the production and storage of dry gas.

On June 7, 1928, the Humble made a contract with the M & M (at that time a copartnership), the pertinent terms of which we quote:

"Whereas First Party (Humble) is the owner of oil and gas leases covering lands in what is known as the Raccoon Bend Oil Field in Austin County, Texas, productive of natural gas and may acquire other properties in said field during the life of this agreement productive of natural gas and Second Party (M & M) plans the construction of a pipe line distributing system for the delivery of natural gas to the neighboring towns and cities and desires to purchase gas from First Party for use in supplying its market through such system: —

"Now, therefore, in consideration of the mutual covenants and obligations herein undertaken and imposed, it is hereby agreed between the parties hereto as follows:

"1. Upon and subject to the other provisions hereof, First Party hereby sells and agrees to deliver to Second Party and Second Party hereby purchases and agrees to receive and pay First Party for a quantity of natural gas produced from the properties of First Party above described equal to the full requirements of the distributing system to be built by Second Party as herein contemplated between a minimum of one hundred eighty million (180,000,000) cubic feet per year over the period of the contract (to be delivered in approximately equal quantities of five hundred thousand cubic feet per day) and a maximum of two million (2,000,000) cubic feet per day if and while this quantity is currently available for delivery from said leases and properties after supplying the fuel needs of First Party in its business of producing, transporting and refining oil and gas; provided, however, that Second Party shall not be required to receive gas before the expiration of ninety (90) days from date hereof and shall not be required to receive gas in excess of a minimum of two hundred fifty thousand (250,000) cubic feet per day at any time prior to the expiration of six (6) months from date hereof. It is understood that the right of Second Party to require current delivery from day to day of the quantities of gas sold to it hereunder shall be prior and superior to the rights of other purchasers to require current deliveries to them from day to day of gas from said properties under contracts that may be made between such purchasers and First Party. So long as and while First Party has the minimum daily quantities herein agreed to be sold and purchased available for delivery from said properties, Second Party agrees to pay First Party for such quantities as hereinafter provided whether such quantities are taken and received by Second Party or not.

"2. First Party specifically reserves the right to manufacture gasoline from the gas produced from said properties and to deliver to Second Party residue gas from its gasoline plant in lieu of natural gas from the wells, and in such event the gasoline plant shall be the point of delivery and measurements shall be made at such point in the manner hereinafter provided for deliveries from the wells or central delivery points.

"3. Second Party agrees to proceed with due diligence in an effort to secure franchises for the sale of gas in the towns and cities in the territory near said Raccoon Bend field and to construct such pipe lines as may be necessary to serve the cities and towns in which franchises are obtained and customers that may be secured by diligent effort, and in any event to construct a minimum of forty (40) miles of main line pipe lines to such neighboring cities within twelve (12) months from date hereof. It agrees further to use its best efforts to...