Opposition Brief — Transcontinental Pipe Line Corp. v. State Oil & Gas Bd.

Office - Supreme Court, -

v FILED

NO. 84-1076

MAR 1 1906

ALEXANDER L STEWAGS

IN THE | CLERK is

SUPREME COURT OF THE UNITED S Ss

OCTOBER TERM, 1984

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

Appellant,

vs.

THE STATE OIL AND GAS BOARD OF MISSISSIPPI

AND COASTAL EXPLORATION, INC., ET AL.

Appellees

ON APPEAL FROM THE SUPREME COURT

OF MISSISSIPPI

APPELLEES' MOTION TO DISMISS, OR

IN THE ALTERNATIVE, TO AFFIRM THE DECISION

OF THE SUPREME COURT OF MISSISSIPPI

Edwin Lloyd Pittman, Attorney General

State of Mississippi

Ed Davis Noble, Jr.

Assistant Attorney General

(Counsel of Record)

R. Lloyd Arnold

Special Assistant Attorney General

Post Office Box 220

Jackson, Mississippi 39205

(601) 359-3680

” BEST AVAILABLE COPY

Ate

QUESTIONS PRESENTED

l. Appellee, The State Oil and Gas Board

of Mississippi, seeks dismissal of the appeal

of Transcontinental Gas Pipe Line Corporation

on the grounds as alleged for the appeal are

not substantial and do not require the con-

sideration of this Court.

2. In the alternative, Appellee, The

State Oil and Gas Board, seeks the affirmance

of the decision of the Supreme Court of Missis-

Sippi.

TABLE OF CONTENTS

PAGE

QUESTIONS PRESENTED<--<-------------- i

TABLE OF CONTENTS------------------- ii

TABLE OF AUTHORITIES---------------- iii-iv

STATEMENT OF THE FACTS<-------------- l

STATEMENT OF THE CASE-------------- 2-4

ARGUMENT ---------------------------- 4-16

I. There Are No Substantial

Federal Questions--------- 4-11

IZ. Statewide Rule 48 Does

Not Constitute An Im-

permissible Burden On

Interstate Commerce------- 11-16

CONC LUS ION -------------------------- 16-17

CERTIFICATE OF SERVICE-------------- 18-19

TABLE OF AUTHORITIES

\

CASES PAGE

Arkansas Electric Cooperative Corp.

v. Arkansas Public Service

Commission, Uebe P

103 S.Ct. 1905, 1912, 76

L.Ed.2d le 10, (1983) a 10

Bandini Petroleum Co. v. Superior

Court, 284 U.S. 8, 76 L.Ed.

136, $2 8-Ct. 103eee"""""""---"-- 13

Federal Power Commission v. Transco,

365 U.S. l, 5 LeEd.2d 377, 81

S.Ct. 435 (1961 )--------------- 8

Northern Natural Gas Co. v. State

Commission of the State of

Kansas, 372 U.S. 84, 9 L.Ed.2d

601, 83 S.Ct. 646 (1963 )------- 4, 5,

Patterson v. Standolina Oil and Gas

Co., 305 U.S. 376, 83 L.Ed.

231, 59 s.Ct. 259 eee ea 13

Transcontinental Gas Pipe Line v.

State Oil & Gas Board of

Mississippi, et al., 457 So.2d

1298 (Miss. 1984 )-------------- 1

Valley Forge Christian College v.

Americans United for Separation

of Church & State, 422 U.S.

490, 70 L.Ed.2d 700, 102 S.Ct.

752 (1982 )--------------------- 14, 15

-iii-

8,

TABLE OF AUTHORITIES - Continued

CASES: PAGE:

Walls v. Midland Carbon Co., 254

U.S. 300, 65 L.Ed. 276, 41

S.Ct. 1]18----9 oer rrr rrr 13

STATUTES AND CONSTETUTIONAL:

Article III, U.S. Constitution------ 14

18 B.8.C. $8 3301 et 86G@.e°*°°°r"""™™ 10

OTHER:

Section 60l(c), Natural Gas Policy

AC (222 een nnann 14

Statewide Rule 48 of the State Oil &

Gas Board@-<9-°%eee<<e%""%""""""°"°"" 2, 8, 9,

10, 12,

13, 14,

15

olga

NO. 84-1076

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1984

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

Appellant,

VERSUS

THE STATE OIL AND GAS BOARD OF MISSISSIPPI

AND COASTAL EXPLORATION, INC., et al.

Appellees.

ON APPEAL FROM THE SUPREME COURT OF

MISSISSIPPI

MOTION TO DISMISS, OR IN THE ALTERNATIVE TO

AFFIRM THE DECISION OF THE SUPREME COURT OF

MISSISSIPPI

EDWIN LLOYD PITTMAN, ATTORNEY GENERAL

STATE OF MISSISSIPPI

ED DAVIS NOBLE, JR.

ASSISTANT ATTORNEY GENERAL

(Counsel of Record)

R. LLOYD ARNOLD

SPECIAL ASSISTANT ATTORNEY GENERAL

Post Office Box 220

Jackson, Mississippi 39205

Telephone: (601) 359-3680

\

APPELLEES’ BRIEF IN SUPPORT OF

MOTION TO DISMISS, OR IN THE ALTERNATIVE TO

AFFIRM THE DECISION OF THE SUPREME COURT OF

MISS TSSIPPI

STATEMENT OF THE FACTS

The State Oil and Gas Board of Missis-

sippi, one of the Appellees herein, files this

its Motion to Dismiss, or in the Alternative to

Affirm the Decision of the Supreme Court of

Mississippi, in Transcontinental Gas Pipe Line

vy. State Oil and Gas Board of Mississippi, et

al., 457 So.2d 1298 (Miss. 1984) and in support

thereof submits to this Honorable Court that

the issues sought to be raised by the Appellant

do not. raise substantial federal questions

which merit consideration by the Court based on

the facts as presented to the Supreme Court of

Mississippi.

STATEMENT OF THE CASE

This appeal is an attack on the Supreme

Court of Mississippi's affirmance of Statewide

Rule 48 of the State Oil and Gas Board of Mis-

sissippi. 1 Although the Statement of the The

Case as presented by Appellants is substantial-

ly accurate in all respects, certain salient

facts should be emphasized. The two fields in

question; Greens Creek Field and East Morgan-

town Field, are two separately defined natural

gas fields in Marion County, Mississippi. Each

1 Rule 48 reads as follows:

"Each person now hereafter en-

gaged in the business of pur-

chasing oil or gas from owners,

grerators or producers” shall

purchase without discrimination

in favor of one owner, grerator

or producer against another in

the same common source of sup-

ply."

field produces from the Harper Sand Gas pool

and they are contiguous. One well, theoretic-

ally, could drain the entire pool. This would

be true whatever allowable production was per-

mitted; the only factor would be the length of

time it would take to drain the pool. The

State Oil and Gas Board of Mississippi has

sought to prevent by Statewide Rule 48 and its

order in the instant matter the inequitable

drainage of the field and to protect the co-

equal and correlative equal rights of the

owners of the natural gas. The Board's order

does not establish what part of the allowable

Transco must take, but if Transco takes, it

must take ratably among the owners; that is if

Transco takes seventy percent (70%) of the

allowable, that seventy percent (70%) must be

divided among all owners in the well on a pro-

portionate basis. In addition, the record is

clear that Transco was free to re-negotiate the

contracts and had re-negotiated some of its

contracts, with the owners and/or grerators.

The final result is that by its action

Transco was taking gas in non-uniform, dispro-

portionate and unratable rates from the common

pool causing undue drainage and thereby permit-

ting one or more owners in the pool to produce

more than their just and equitable share of the

production from the pool.

ARGUMENT

I.

THERE ARE NO SUBSTANTIAL

FEDERAL QUESTIONS

l. The Appellants place undue reliance

on Northern Natural Gas Co. v. State Corpora-

tion Commission of the State of Kansas, 372

U.S. 84, 9 L.Ed.2d 601, 83 S.Ct. 646 (1963).

Although initially the facts. in that case seem

identical to the facts in the case sub judice,

there are easily distinguishable differences.

In Northern, the gas pipe line company was con-

nected to 1100 natural gas wells in one field.

Here, Transco is connected to all six (6) wells

in two (2) fields draining a common pool.

There were 125 contracts in Northern and six

(6) here. In Northern the contracts were filed

with the Federal Power Commission. Here they

are not filed with any federal regulatory agen-

Cy. Under the oldest contract, Northern was

obligated to purchase gas up to the maximum

production allowable from the operators wells

connected to the pipe line. Here the contracts

have been re-negotiated and there was no such

requirement. Northern's other contracts with

other producers provided that Northern's pur-

chase commitment with them was subject to the

agreement with Republic. (Northern only had to

purchase from these producers only so much of

-5-

its requirements as were not satisfied by the

quantities which it was required to take from

the Republic wells.)

Northern, until 1958, purchased from the

producers other than Republic, on a roughly

ratable basis that is in like proportion to the

legally fixed allowables for each of the 1100

wells in the field. After 1958, Northern's re-

quirements became substantially less than that

of the total allowables for all of the wells in

the field. - [It appears that Northern had a

contract for each well in the field to take

100% of the allowable.] Footnote 4 at p. 405.

The decrease in the purchase was because:

l. The rate of increase in the al-

lowables from the wells from which

Northern was taking exceeded the in-

crease in their requirements from the

field.

2. Northern's expected expansion of

its system had been delayed by the

failure to secure the requisite Cer-

tificate of Convenience and Necessity

from the FPC,

-6-

|

Thus, the balance of the total requirements af-

ter the contractual required purchases from Re-

public of the maximum allowables for Republics

wells resulted in the purchase from the other

producers substantially below the allowables

for their wells.

The Kansas Commission's order provided

that Northern was to take gas from Republic

wells in no higher proportion to the allowables

than from the wells of the other producers.

The Comission entered an order directing

Northern to purchase gas ratably from all 1100

wells in the field. That is one hundred per-

cent (100%) the allowabies. This presented

Northern with the problem of complying with its

contractual obligations with Republic and also

increasing its takes from the other producers’

wells - thus taking more gas from Kansas than

it could currently use. Here there is no order

to tzke 100% of the allowables.

+

f

a

The case was decided on the bases of the

construction of the Natural Gas Act and not

constitutional questions. Footnote 10, at p.

607. Of particular import is the fact that

Northern addresses the primary purpose of the

National Gas Act; that is to protect consumers

against exploitation at the hands of the natur-

al gas companies. Federal Power Commission v.

Transco, 365 U.S. 1, 5 LeEG.2d 377, 81 S.Ct.

435 (1961). Therefore, the reasoning and hold-

ing in Northern is not controlling in the in-

stant matter since Statewide Rule 48 has no di-

rect or indirect interference with prices of

natural gas wholesale in Interstate Commerce

and is therefore no threat to a comprehensive

scheme of Federal regulation. Further, Transco

is not required to take all or any portion of

the allowables for any well. However, if they

do take, they must take ratably.

What has happened is that Transco has not

been astute enough in its contractual obliga-

tions and now wants out of them under the guise

of an attack on Statewide Rule 48. Of course

as market demand increases Transco will in all

likelihood be back asking to take all of the

gas that can be produced from the fields in

question and voluntarily ratably take the pro-

duction.

Consumer gas prices have continued to in-

crease despite an over supply of gas on the

market and because of the "take or pay provi-

sions" 2 the companies put into their con-

tracts and are expected to continue to rise

through 1985. Jurisdictional Statement at p.

17. Certainly, this is not because of ratable

2 Under the “take or pay provi-

sions", of course, Transco makes

its payment, it is entitled to

the gas at a later time for no

additional payments.

7

‘

take rules and orders such as the one under at-

tack here; but because of "regulatory schemes

designed to increase gas prices" and poor an-

ticipation in the negotiations of contracts.

2. A review of the Natural Gas Policy

Act 3 and the Acts of the Federal Energy Regu-

latory Commission since the passage thereof to-

gether with Statewide Rule 48 reveals no con-

flict. The State Oil and Gas Board is not at-

tempting to regulate what Congress said should

be unregulated; the price paid for the first

sale of such gas. Arkansas Electric Coopera-

tive Corp. v. Arkansas Public Service Commis-

sion, U.S. , 103 S.Ct. 1905, 1912,

76L.Ed.2d 1, 10. The decision of the Supreme

3 15 U.S.C. §§ 3301 et seq.

=-10—<

Court of Mississippi is clear in that regard.

Jurisdictional Statement, pp. 482-552.

II.

STATEWIDE RULE 48 DOES NOT CONSTITUTE

AN IMPERMISSIBLE BURDEN ON

INTERSTATE COMMERCE

There is no state statute or regulation

adopted by any State of the Union that does not

in some way effect interstate commerce. The

question then arises as to whether the state

statute or regulations effect is so de minimus

as to purpose a constitutionally impermissible

burden thereon. The general rule is:

". . « where the statute regu-

lates even-handedly to effectuate a

legitimate local public interest, and

its effects on interstate commerce

are only incidental, it will be up-

held unless the burden imposed on

such commerce is clearly excessive in

@lle

relation to the putative local bene-

fits. Huron Cement Co. v. Detro, 362

U.S. 440, 443, 4 L.~Ed.2d 852, 856, 80

S.Ct. 813. If a legitimate local

purpose is found, then the question

becomes one of degree. And the ex-

tent of the burden that will be tole-

rated will of course depend on the

nature of the local interest in-

volved, and on whether it could be

promoted as well with lesser impact

on interstate commerce.

Pike v. Bruce Church, Inc., 397 U.S.

137, 142, 25 L.~Ed.2d 174, 178-179, 90

S.Ct. 844, 847.

There is no undue burden on interstate

commerce as a result of Statewide Rule 48. The

fact that the ultimate consumer of the gas may

be paying more is not the result of this rule

but because ". . . a regulatory scheme designed

to increase gas prices." Jurisdictional State-

ment, p. 16.

The local interest herein involved is that

of protecting the rights of the mineral

owners. After all, if the State does not pro-

tect the rights of the mineral owners’ who

will? The Federal Energy Regulatory Commission

; -12-

|

has not adopted, nor to these Appellees know-

ledge, proposed the adoption, of any rules

which would protect these interests and assure

equity and fairness between the various inter-

ests of minerals being depleted from a common

source or pool, which Rule 48 is designed to

protect. There is no room for doubt that

states possess the power to allocate and con-

serve scare natural resources beneath their

lands. Northern, supra; Patterson v. Stando-

lina Oil and Gas Co., 305 U.S. 376, 83 L.Ed.2d

231, 59 S.Ct. 259; Bandini Petroleum Co. v._

Superior Court, 284 U.S. 8, 76 L.Ed. 136, 52

S.Ct. 103; Walls v. Midland Carbon Co., 254

U.S. 300, 65 L.Ed. 276, 41 S.Ct. 118. This is

true whomever the owner may be or wherever he

may reside and it is applied "even-handedly”.

Transco's argument in regard to Commerce Clause

implications simply do not meet the test as set

-l13-

:

:

:

out in Pike, supra. The Appellants have no

standing to maintain this action.

Section 60l(c) of the Natural Gas Policy

Act permits Transco to pass through any costs,

(which Appellees denies there will be any in-

crease because of the application of Rule 48)

with certain restrictions. Appellees submit

that a serious question is presented as to

whether Transco has any standing to raise a

Commerce Clause violation in connection with

Rule 48.

Article III of the Constitution confines

federal courts to adjudicating "cases" and

"controversies" and requires the litigant to

have standing to allege a personal injury fair-

ly traceable to the defendants allegedly unlaw-

ful conduct which will likely be redressed by

the relief requested. Valley Forge Christian

olga

College v. Americans United for Separation of |

Church and State, 422 U.S. 490, 70 L.Ed.2d 700,

102 S.Ct. 752 (1982).

Here if the costs increase because of Rule

48, which these Appellees do not admit, then

Transco can pass the cost through to the con-

sumer. Therefore, what distinct and palpable

injury has the Appellant suffered that is not

abstract, conjectural or hypothetical? Valley

Forge, supra. The answer is none. Transcc

freely and voluntarily entered into the con-

tracts with the idea of making money, and while

that has not proven to be true according to

Transco, Rule 48 is certainly not the reason.

Transco never questioned the ratable take re-

quirement before market conditions changed anc

in fact took ratably. Now, since market condi-

tions changed they do not wish to take ratably

but wish to attack Rule 48 in order to fight

=| =

ee ee ee

off competition. This is certainly not a Com-

merce Clause claim to be adjudicated by the

Court.

CONCLUSION

When the non-issues are put aside and the

true facts are examined, the end result is that

Transco failed to anticipate the change in the

market for natural gas and actions of competi-

tors and now seeks this Court to note probable

jurisdiction with unsubstantial federal ques-

tions, and a commerce clause claim couched in

language that requests relief in terms that

normally confer jurisdiction, in order that it

may be relieved of the necessity of complying

with unfavorable contract terms and thereby

drain and waste the resources of some of the

owners of the common pool in a non-uniform,

disproportionate, unequitable and _ unratable

-16-

manner. The Court should .not note probable

jurisdiction and Transco's appeal should be

dismissed or in the alternative the decision of

the Mississippi Supreme Court should be affirm-

ed.

Respectfully submitted,

EDWIN LLOYD PITTMAN, ATTORNEY GENERAL

STATE OF MISSISSIPPI

R. LLOYD ARNOLD

SPECIAL ASSISTANT ATTORNEY GENERAL

ED DAVIS NOBLE, JR.

ASSISTANT ATTORNEY GENERAL

COUNSEL OF RECORD

BY:

ED DAVIS NOBLE, J

ce |

Office of the Attorney General

Post Office Box 220

Jackson, Mississippi 39205

Telephone: (601) 359-3680

olFe

CERTIFICATE OF SERVICE

I, Ed Davis Noble, Jr., an Assistant At-

torney General for the State of Mississippi, do

hereby certify that I have this day caused to

be mailed, via United States Postal Service,

first-class postage prepaid, three (3) true and

correct copies of the foregoing Brief in Sup-

port of Motion to Dismiss, or in the Alterna-

tive to Affirm the Decision of the Supreme

Court of Mississippi to the following:

John Marshall Grower, Esquire

BRUNINI, GRANTHAN, GROWER & HEWES

Attorneys at Law

Post Office Drawer 119

Jackson, Mississippi 39205

R. V. Loftin, Jr., Esquire

Attorney at Law

Post Office Box 1396

Houston, Texas 77251

Frederick Moring, Esquire

CROWELL & MORING

Attorneys at Law

1100 Connecticut Avenue, N.W.

Washington, D. C. 20036

Honorable Rex E. Lee

Solicitor General

Department of Justice

Washington, D. C. 20530

-18-

Glenn Gate, Taylor, Esquire

HEIDELBERG, WOODLIFF & FRANKS

Attorneys at Law

Suite 1030 Capitol Towers

Jackson, Mississippi 39201

Walker L. Watters, Esquire

GERALD, BRAND, WATTERS, COX &

HEMLEBEN

Attorneys at Law

400 Lamar Life Building

Jackson, Mississippi 39201

John Land McDavid, Esquire

MCDAVID, EDMONSON & NOBLIN

Attorneys at Law

8th Floor, City Center North

210 S. Lamar Street

Jackson, Mississippi 39201

William L. Waller, Esquire

WALLER & WALLER

Attorneys at Law

475 East Capitol Street

Jackson, Mississippi 39201

Vernon L. Terrell, Jr., Esquire

PLAUCHE', HARTLEY, LaPEYRE & OTTINGER

Attorneys at Law

Suite 3618 One Shell Square

New Orleans, Louisiana 70139

This, the ihe day of February, 1985.

ED DAVIS NOBLE, _

—_———$ >