Northern Natural Gas Company v. State Corporation Commission of Kansas

PETITIONER:Northern Natural Gas Company
RESPONDENT:State Corporation Commission of Kansas
LOCATION:Beaumont Mills

DOCKET NO.: 62
DECIDED BY: Warren Court (1962-1965)
LOWER COURT:

CITATION: 372 US 84 (1963)
ARGUED: Dec 13, 1962
DECIDED: Feb 18, 1963

Facts of the case

Question

Audio Transcription for Oral Argument – December 13, 1962 in Northern Natural Gas Company v. State Corporation Commission of Kansas

Earl Warren:

— Northern Natural Gas Company, Appellant, versus State Corporation Commission of the State of Kansas.

Mr. Adams, you may proceed with your argument.

Mark H. Adams, Sr.:

Mr. Chief Justice, gentlemen of this Court.

This case comes to this Court from — on appeal from two judgments of the Supreme Court of the State of Kansas in which there were affirmed two orders of the State Corporation Commission of that state, one dated October 9th, 1959 and the other dated February 3rd, but effective February 8th, 1960.

The first order complained of was directed to Northern Natural Gas Company alone.

The second order was directed to all purchasers of gas.

Each order requested or required that the Pipeline Purchasing Company purchase gas ratably from all of the wells connected to its system in the first instance and the testimony in the case related solely to the, what is known as the Kansas Hugoton Gas Field, although of course there are other gas fields in Kansas.

The real issue in the case is whether the orders and rule here under appeal which on their face and in their intended operative effect regulates sales of gas in interstate commerce for resale are valid in view of the Natural Gas Act and the rules and the regulations of the Federal Power Commission promulgated pursuant thereto.

Northern Natural Gas Company is a corporation engaged in the business of purchasing and transporting natural gas in interstate commerce for resale, for ultimate public consumption, and is therefore a natural gas company as defined in the Natural Gas Act.

The Hugoton Gas Field is a rather large gas field.

Attached to the first memorandum that was filed in this matter in behalf of the Federal Power Commission, you will find a plat that relates to the portion of the Hugoton Field —

Earl Warren:

In what brief is that?

Mark H. Adams, Sr.:

In the first memorandum filed in behalf of the Federal Power Commission.

Earl Warren:

Oh yes.

Hugo L. Black:

April 24th?

Mark H. Adams, Sr.:

Yes, Your Honor.

This plat shows the general outline of the portion of the Hugoton Gas Field that is in Kansas.

Other portion of this gas field extends on through Oklahoma, principally Texas County, Oklahoma, and then another portion is located in the State of Texas.

Of course, each portion of this great gas field is supervised by — as to production by the State Regulatory Agency of the particular state in which that portion is located.

In 1930, Northern Natural Gas Company began to purchase gas in the Kansas Hugoton Gas Field.

One of its two principal purchase contracts in that field was made in 1930 by the predecessor companies of what is now Northern Natural Gas Company as purchaser and Republic Natural Gas Company as seller.

In this particular record, the supplementary or amended contract which was made in 1945 is made a part of the record.

For convenience sake, it is referred to as the Republic “A” contract because it was the initial contract made between Northern as purchaser and Republic “A” as seller.

Some eight years later, Northern began to make additional purchase contracts for gas from the Kansas Hugoton Field.

And among those contracts, there are — there is another republic contract so to differentiate between the contracts, we call the first one Republic “A” and the second one, the Republic “B” contracts.

In this first or the Republic “A” contract, there was an agreement for Northern to purchase or pay for, in other words, a take or pay for provision relating to a maximum as well as a minimum volume of gas during each contract year.

Each and all of the other gas purchase contracts which Northern has in the Kansas Hugoton Field required Northern to purchase gas from the connections thereunder ratably as between the wells and accepts from that provision and that requirement, the take or pay for obligations under the Republic “A” contract.

In 1952, this take or pay for provision in the Republic “A” contract was before the Kansas Supreme Court for interpretation with respect to Northern’s obligations in view of the basic proration order which was in effect in the Kansas Hugoton Field that’s an order addressed to producers, requiring ratable production as between all the wells in the field and in that proceeding, the Kansas Supreme Court interpreted that contract as to require Northern to purchase the legal allowables assigned to the Republic “A” wells, no more or no less.

Earl Warren:

I’d — I didn’t get that last, just that last statement in what the Commission did.

Mark H. Adams, Sr.:

Mr. Chief Justice, I think maybe if I amplified it a little bit, it’d be — the Kansas Corporation Commission in 1944 promulgated what they call the basic proration order for the Kansas Hugoton Field.

Mark H. Adams, Sr.:

Under the provisions of that order, there are market demand hearings, each six months, and a market demand determination made for the succeeding six months, October 1st and April 1st — I believe in March, I’ve forgotten, April 1st, I believe.

Then under that proration order, deliverability tests are taken of all the wells to determine in effect their comparable reserved position.

Then on that deliverability test, that market demand is spread over all the wells in the field.

Now this is a very large field so there is — there are provisions giving tolerance with respect to when you may run the allowable from a well.

The field is some 80 miles long and I forgot about 60 miles wide, something like that in Kansas alone.

So it’s quite a job to maintain ratable production as between the wells.

You also have the problem of summer valleys in-year demand than winter peaks in-year demand from a pipeline situation.

With the result that the basic proration order gives the producer a tolerance to produce sometime during the year up to six times the January allowable assigned to the well or it may go down to six times under, so you have that tolerance.

Now this matter went to the Kansas Supreme Court.

Republic contended, that’s a long way to get back to your question but I think with this explanation, it would be a little more understandable, Republic contended in that action that Northern was required to purchase under this contract not the allowable but the maximum six — at that time it’s three times, presently, it’s six times January.

They said, “You’ve got to produce the — purchase the maximum at all times instead of what we call the zero line, the allowable.”

And the Court said, “No, it’s what is the allowable”, in other words, legal allowable that is assigned to those wells.

Now there are about 143 wells under the Republic “A” contract.

Did the original proration order come up here?

Mark H. Adams, Sr.:

It’s in the —

On review?

Mark H. Adams, Sr.:

The original —

No, I mean the —

Mark H. Adams, Sr.:

The basic proration order?

The one that you just refer during your explanation with the Chief Justice when the Kansas Court required the — prorated these allowables, did that question come up here?

Mark H. Adams, Sr.:

No, Your Honor, not to this Court.

Not to this Court.

Mark H. Adams, Sr.:

Not to this Court.

The opinion I referred to is the Kansas Supreme Court.

I realize that.

That never was — the review was never sought up here.

Mark H. Adams, Sr.:

No, Your Honor.

No.

Mark H. Adams, Sr.:

There — there — Northern has about 125 now gas purchase contracts in the Kansas Hugoton Field in all connecting to Northern system about 1100 wells.

There are about 4000 wells in all in the Kansas Hugoton Field.

Mark H. Adams, Sr.:

Now in — from the time of the inception of production in the Kansas Hugoton Field, until 1944, I think production started perhaps in 1932 or thereabouts.

In 1944 and forward for the next eight years, the facts show that ratability as to production between the wells in the field was pretty well maintained bearing in mind that there were variations in it, but it was usually brought back in a reasonable time to what I referred to as the zero line.

In 1958, they have developed a material difference than the experience that — which had occurred before in this regard.

In the first place, the record shows that there were two reasons for this.

Beginning in 1956, the Kansas Commission departed from its previous practices in determining market demand and spreading allowables.

Now the validity of that practice, if the Court please, is not here in this case.

That question is before the Kansas Supreme Court in some other litigation, but as a result of that practice in 1958, the wells in the Kansas Hugoton Field carried on Commission’s schedules about 130 billion cubic feet of allowables in excess of the production from the field.

That meant, of course, that if Northern was going to comply with the Republic “A” contract, since we had no way to determine until the Court determined it, whether these excessive, as we say allowables, were the legal allowables.

We were compelled to purchase the legal allowable or the allowables fixed, carried on the Commission schedule from the Republic “A” wells.

Now that meant of course that our market requirements from the field were not sufficient for us to take the legal allowables or to — from all of the other wells because more of it was soaked up and went to the Republic “A” wells then was available for the other wells.

So that beginning in 1958, there was a departure from that zero line as between the purchasers by Northern from the Republic “A” wells and its purchasers from the other wells to which it was connected in the Kansas Hugoton Field.

There was another reason that the record shows for this disparity and takes or purchasers was that Northern had purchased additional gas supply in some other areas believing that it was necessary to support some applications for additional markets and the proceedings in those respects before the Federal Power Commission got bogged down and there was this unexpected substantial delay.

So Northern was contractually bound to make more purchases of gas from other fields temporarily than it had expected to be obligated for.

Arthur J. Goldberg:

Mr. Adams.

Mark H. Adams, Sr.:

Yes, Your Honor.

Arthur J. Goldberg:

[Inaudible]

Mark H. Adams, Sr.:

Well, if Your Honor please, maybe I’ve misstated myself in some respect.

Our basic contention does not depend upon a — we don’t think it’s a contract question —

Arthur J. Goldberg:

[Inaudible] I understand that.

Mark H. Adams, Sr.:

Yes.

Arthur J. Goldberg:

[Inaudible] contract individuals?

Mark H. Adams, Sr.:

Oh, definitely it’s —

Arthur J. Goldberg:

[Inaudible]

Mark H. Adams, Sr.:

It’s one of the end results.

Yes, Your Honor, it is one of the end results.

Arthur J. Goldberg:

Well, I don’t want to [Inaudible]

Mark H. Adams, Sr.:

No, that’s alright.

I’m sorry.

Arthur J. Goldberg:

[Inaudible]

Mark H. Adams, Sr.:

Well, it’s our view that this order is invalid because of moving over into the state, attempting to move over into the jurisdiction of the Federal Power Commission with respect to the regulation of the sales.

Mark H. Adams, Sr.:

You see, all of these orders were made to the purchaser.

They weren’t made to the producer.

Now, if I got your question correctly, it is our view and it will be our contention that if this — if these complained of orders are valid that then they will have the necessary effect of modifying the take or pay for provision in the Republic “A” contract.

I’m not sure that I —

Arthur J. Goldberg:

[Inaudible] you will have no [Inaudible] under this provision in the contract?

Mark H. Adams, Sr.:

I think that’s —

Arthur J. Goldberg:

Do you have any —

Mark H. Adams, Sr.:

I think that’s correct.

In other words, how you are hurt, except for going through quite a period now of uncertainty and being sued for a lot of money and operating in a vacuum, but I — we feel this matter goes far deeper than any contracts or question and if the flood gates are going to be thrown open to states having some effect on sales of gas in interstate commerce that the whole thing can — even though they maybe mild, you might say in some instances, that it becomes a mountain after a while.

Arthur J. Goldberg:

[Inaudible] supposing that this is the right [Inaudible]?

Mark H. Adams, Sr.:

Well, Your Honor, we do not question whatever the right of the state to regulate sales if the object is to accomplish ratable production.

I believe as we review the facts in this case, it will be apparent that the object here was not a legal state object.

Arthur J. Goldberg:

How do you — how do you mean the state argument that it is necessary to prevent that the gas would be the diverted from one area to another [Inaudible] isn’t that what is the state is arguing?

Mark H. Adams, Sr.:

You mean from one state to another?

Arthur J. Goldberg:

No, on the wells.

Mark H. Adams, Sr.:

Your Honor, that’s not — that’s not the purpose of this order.

Arthur J. Goldberg:

Wouldn’t that be [Inaudible]?

Mark H. Adams, Sr.:

Well, I’m —

Arthur J. Goldberg:

I’m reading from [Inaudible] 244 of the record?

Mark H. Adams, Sr.:

I’m sorry to say but we — we couldn’t tell just what you could be sure was the interpretation in the order by our —

Arthur J. Goldberg:

Well, [Inaudible] —

Mark H. Adams, Sr.:

We’re — we’re very proud of our Court, don’t misunderstand me but —

Arthur J. Goldberg:

[Inaudible] that you assert that the wells perhaps in Northern and a part from Republic “A” using gas for the public and possibly to any other [Inaudible] as taking the gas from the greater rate from Northern, disallowing gas to be produced in these wells.

Mark H. Adams, Sr.:

That’s quite true.

Arthur J. Goldberg:

Do you quarrel with that statement of the —

Mark H. Adams, Sr.:

Well of course, Your Honor, a review of the record in this case will show that there’s one thin bit of evidence of one witness inferring that there might be some uncompensated drainage.

They use by way of illustration to prove it.

I believe it has four wells if I recall it correctly, two of which were in Texas County, Oklahoma and two of which were up in the West end of the field in Kansas.

When — if you read all of the testimony that’s in the record with respect to that, I think a fair conclusion is that there’s no showing of uncompensated drainage.

Now there’s no — there’s no argument or no question at all about that there is a lack of ratable production between the wells on Northern system during this period that’s here in controversy.

Mark H. Adams, Sr.:

There is nothing in the record about the wells on any other purchasing companies lined or as to the ratability of production of those wells.

This whole proceeding was slanted against Northern Natural Gas Company and the place where we come back to this contract question, it shows the very purpose behind these orders was to compel a purchaser which here happen to be Northern to purchase more gas from the Kansas Hugoton Field than it was previously purchasing.

All they ever set out to do here and they so stated on record, page 9 and I read it, Step Proposal Exhibit 1, this is the general counsel for the Kansas Commission, “It is not intended to balance the production of wells in the same common source of supply regardless of –”

Hugo L. Black:

What part of the page is that on?

Mark H. Adams, Sr.:

Record 9, Your Honor.

Hugo L. Black:

What part of the page?

What page?

Mark H. Adams, Sr.:

About the middle of the page.

Now, regardless of which pipeline they’re connected to, it merely proposes pipeline proration.

[Inaudible]

Mark H. Adams, Sr.:

Well, this Exhibit attached to — if you will notice, attached to the Federal Power Commission memorandum, the first that I’ve mentioned, shows in colors the location of the acreage that is attached to the lines of various purchasers and the legend down there shows the colors of the acreage that is connected to particular purchasing companies.

Now pipeline proration means ratability in purchases or production — pipeline proration ratability in purchasers from all of the wells that are connected, for instance, to Northern system.

That particular group of wells would participate equally in Northern’s market.

[Inaudible]

Mark H. Adams, Sr.:

Well, Your Honor —

[Inaudible]

Mark H. Adams, Sr.:

It makes — perhaps it makes some difference that I start to say it makes little difference.

If all of the wells connected to Northern system produced ratably and if Northern’s market demand from the field was not — I mean, if you do not spread over the whole field, all of the market demand of the various purchasers, that‘s the only way you get ratability in assignment of what wells may produce.

You can’t just take one purchaser’s market demand and assign that to its wells, because you don’t get — you don’t get ratable production in your field.

[Inaudible]

Mark H. Adams, Sr.:

It was not being applied at all until — the first order here was in October 9th, 1959, that was addressed to Northern alone.

The second order and they confess on the record that they were afraid their first order was invalid because it was addressed to Northern alone.

So they said whatever is good or bad enough for Northern, while we’ll apply to other purchasers so their second order superseded the first one and was made to apply to all purchasers.

Hugo L. Black:

Would you mind telling me in [Inaudible] — what actual effect it will have on you for this candid order to be upheld, actual effect?

Mark H. Adams, Sr.:

Well, Your Honor, the record doesn’t show here.

The unfortunate thing is you’d have to try these cases and guess what the order is going to be and then your record doesn’t show that because —

Hugo L. Black:

But you know why you object to them?

Mark H. Adams, Sr.:

Yes, I can tell you that.

The effect is that Northern purchases gas as all pipelines with substantial markets and you purchase gas in the great many fields in a great many states.

Hugo L. Black:

To do what?

Mark H. Adams, Sr.:

Pardon?

Hugo L. Black:

To do what with it?

Mark H. Adams, Sr.:

Oh, to transport in interstate commerce for your markets.

Hugo L. Black:

All of them?

Mark H. Adams, Sr.:

Yes.

Hugo L. Black:

Alright.

Mark H. Adams, Sr.:

Now, the steps are that not only Northern with respect to its facilities, but the producer when these gas purchase contracts are made, they come before the Federal Power Commission, both the Northern’s application for certification to build facilities, but also the producer comes in for his certificate to approve his sale and service of this gas.

Hugo L. Black:

In other words, FPC passes [Inaudible] —

Mark H. Adams, Sr.:

That’s right.

Hugo L. Black:

Your desire to purchase gas from certain people in Kansas.

Mark H. Adams, Sr.:

That’s right.

Hugo L. Black:

And they were present before the FPC, both the purchaser as well as distributor in interstate commerce and the seller who is in Kansas?

Mark H. Adams, Sr.:

That’s correct, gentlemen.

Hugo L. Black:

Then what happens?

Mark H. Adams, Sr.:

The Federal Power Commission, of course, does in those proceedings determine what is in the public interest.

And if there is something about this group of contracts, it can condition its certificate or it can turn them down.

Now that means then that here you’ve got commitments under contracts, maybe in this state, maybe in this state, you don’t have commitments, maybe as in Kansas, Northern only has this one take or pay for contract.

Hugo L. Black:

One what?

Mark H. Adams, Sr.:

take or pay for — the Republic “A” contract.

All of the rest of them do not have that provision there.

Now, then you have in Texas, we’ll say we have some take or pay for contracts there, maybe some in Oklahoma or maybe some in New Mexico.

Hugo L. Black:

All of which were approved by the FPC?

Mark H. Adams, Sr.:

That’s right.

Now, you say how is it going to affect Northern and of course, if it affects Northern, I think it affects its consumers.

If the effect of — if the intended effect of these complained of orders is accomplished, you have the take or pay for contract here.

These orders do not bring that down to these — to these other contracts.

These orders here in effect bring these contracts up.

In other words, they fix a floor.

We still have to take the allowables under the Republic “A” contract, by contract I mean.

Now they say if you’re going to take those allowables, you’ve got to take the allowables from all of your other wells.

Mark H. Adams, Sr.:

Now, that’s what we call —

Hugo L. Black:

You mean in (Voice Overlap) —

Mark H. Adams, Sr.:

— the Favored Nations Clause.

Hugo L. Black:

In Kansas or all over the country.

Mark H. Adams, Sr.:

Yes — no, in Kansas, in the same field.

Hugo L. Black:

In Kansas?

Mark H. Adams, Sr.:

Yes.

Hugo L. Black:

So that you have an order to have an agreement to sell between your company and local Kansas people whereby they shall put the case — supply you a certain amount of gas from certain areas?

Mark H. Adams, Sr.:

It’s an agreement to purchase, Your Honor.

Hugo L. Black:

You have to purchase from a certain way off?

Mark H. Adams, Sr.:

Yes sir.

Hugo L. Black:

And that’s approved by the FPC?

Mark H. Adams, Sr.:

Yes sir.

Hugo L. Black:

And you say that, the State of Kansas says that it can change that contract which has been approved by requiring you to buy where and how they change that contract, how do they change that contract?

Mark H. Adams, Sr.:

Well, there were two ways.

Hugo L. Black:

How do they change yours here?

Mark H. Adams, Sr.:

Okay, in effect — in effect, they read into all of the 124 contracts.

Hugo L. Black:

With different companies?

Mark H. Adams, Sr.:

With different producers.

Hugo L. Black:

In Kansas?

Mark H. Adams, Sr.:

In Kansas, in the Hugoton Field, they read into it by these orders a take or pay for provision that isn’t fair, that is similar to the take or pay for provision in the Republic “A” contracts.

Hugo L. Black:

In other words, you must pay what Kansas says you should take in order to produce a ratable distribution of oil from the different wells.

Mark H. Adams, Sr.:

Yes, I mean, its — gas, yes, that’s right.

Now, there’s two ways —

Hugo L. Black:

Can the FPC handle that?

Could they do that?

Mark H. Adams, Sr.:

Well, Your Honor, it is the FPC that determines what’s in the public interest and they assert —

Hugo L. Black:

Well, I’m asserting [Inaudible]

Mark H. Adams, Sr.:

And they certainly can modify contracts.

And they’re the only ones I think that can under the law.

Mark H. Adams, Sr.:

Well, Your Honor, I think that’s what the Kansas Court said, and I think — I don’t believe that it’s correct.

They’re concerned with price and service.

Hugo L. Black:

Company worthy of service?

Mark H. Adams, Sr.:

That’s right.

What’s in the public interest?

It’s the Federal Power Commission that determines what is in the public interest.

Getting back to Mr. Justice Black’s question, I’m not sure that I have gathered — fully explained it, if what the Kansas Commission wanted to do here was to accomplish ratable production in the Kansas Hugoton Field —

Hugo L. Black:

What do you mean by that?

Mark H. Adams, Sr.:

Between wells —

Hugo L. Black:

This well [Inaudible]

Mark H. Adams, Sr.:

It’s an unfair share.

Hugo L. Black:

Some other — demanded from [Inaudible]

Mark H. Adams, Sr.:

That’s right.

Now I’m talking about over the whole field, Your Honor and that’s the only way you’d have, ratable production is over the whole field.

If they want to accomplish that, the witness for City Service Petroleum Company which was sort of a complaining party in this proceeding, told the Kansas Commission, how you can do it.

“There are two ways”, he said.

He said you can restrict production from the Republic “A” wells to what — so that it becomes ratable with what you’re able to take from the rest of the wells connected to Northern’s lines.

Now, that sort of an order would have been made under the provisions of the basic proration order and would have been directed to producers.

This witness said, “If you want to do something else, you can require Northern to purchase from all of the other wells, the same volume of gas that — as determined under the basic order again, as it purchases from the Republic “A” wells, in other words, bring it up.

In the one instance, they would have had a valid order addressed to producers and the purpose would have been to accomplish ratable production in the field.

Rather, they took the choice of tampering with the sale of gas solely to cause Northern and any other producers or purchasers might be in the same situation to be compelled to buy more gas from the Kansas Hugoton Field than its market requirements.

Hugo L. Black:

More from that field —

Mark H. Adams, Sr.:

That’s right.

Hugo L. Black:

— includes — that field includes other states.

Mark H. Adams, Sr.:

Well — yes, but that’s true.

That’s true, so you get back to the old price cases.

Kansas says, “We want more gas sold in this field”.

Okay, the next day, you — if they’re permitted to do it, the next day Oklahoma will say, “Would you take more from our portion?”

Hugo L. Black:

Is there anyway you can comply with this order without buying your gas [Inaudible]?

Mark H. Adams, Sr.:

Well, you tell us what our obligations are under the Republic “A” contract and I could answer it very quickly.

Hugo L. Black:

Well, I’m talking about under the Kansas claim.

If it’s put into effect —

Mark H. Adams, Sr.:

Well —

Tom C. Clark:

— it would require you to buy more gas than you wanted to buy or you can buy —

Mark H. Adams, Sr.:

Your Honor —

Tom C. Clark:

— [Inaudible] purchases among the different wells [Inaudible] — which would bring about what they call [Inaudible]?

Mark H. Adams, Sr.:

Well, we think that certain of the intended effect was to compel us to buy more gas than our market from the Kansas Hugoton Field.

Now you say will it positively require that until we get some of these legal questions answered about our liability under the Republic “A” contract, if we do not take or purchase the allowables assigned to Republic “A” wells, I’m not sure that I can answer you, Your Honor.

Hugo L. Black:

You think it was right?

Mark H. Adams, Sr.:

Well, it’s certainly — it certainly affects your gas cost if we have to pay for gas not taken.

Suppose we’re obliged to pay some millions of dollars for failure to purchase the legal allowables under Republic “A” contract because we’ve got to assign more of our market to the other wells.

Now that increased Northern’s gas cost.

There’s something said in the state’s brief about — well, that can come out in Northern stockholders because it might be determined to be an improvident contract.

Well, this is one of the initial contracts that was made in 1930 for a major supply of gas for Northern system and it just couldn’t be determined to be an improvident contract.

So it means that under those circumstances, our consumers, which are pretty numerous, its Northern’s big system, our consumer’s gas cost would substantially increase.

Hugo L. Black:

Now, you’ve stated in your argument, one of the basic arguments are not — I’m not —

Mark H. Adams, Sr.:

Yes sir.

Hugo L. Black:

One of your basic arguments leads one [Inaudible] why you say this could not be done [Inaudible] between you and your company which have been approved by the FPC and it’s the consequences [Inaudible] will increase the cost of that gas above that which has been approved by the FPC?

Mark H. Adams, Sr.:

Honestly, I think the answer to that is yes, Your Honor.

I must repeat —

William O. Douglas:

Well that — is that (Voice Overlap) —

Mark H. Adams, Sr.:

— that some of these questions —

William O. Douglas:

Does that turn on the construction of the Republic “A” contract?

Mark H. Adams, Sr.:

Yes, Your Honor.

William O. Douglas:

You don’t think that the Kansas Court gave an answer to that?

Mark H. Adams, Sr.:

I certainly do not.

William O. Douglas:

Do you agree with the amicus brief of the Government that that should be remanded to the Court —

Mark H. Adams, Sr.:

Well —

William O. Douglas:

— for resolution of the state law question?

Mark H. Adams, Sr.:

Your Honor, I — if this Court determines that it is necessary to have a determination of the Kansas Court on that — its construction of the orders —

William O. Douglas:

I thought that was your position that is necessary to have a determination of that question.

Mark H. Adams, Sr.:

No.

We — it’s our position, Your Honor, that this — these orders are invalid whatever maybe determined with respect to the contract question.

If —

Tom C. Clark:

I suppose the — your Republic “A” contract did not have your minimum requirements; just assume that, would you be heard under this order?

Mark H. Adams, Sr.:

No.

I don’t believe so Your Honor.

So —

Tom C. Clark:

Will you — you’ll be attacking it?

Mark H. Adams, Sr.:

No, I don’t believe we would Your Honor.

[Inaudible]

Mark H. Adams, Sr.:

That’s right.

It’s kind of going around.

We feel it’s invalid.

Now the next question is —

William O. Douglas:

Well that’s moot —

Mark H. Adams, Sr.:

Yes.

Now the next question is how you’re hurt — we’re not hurt if — if the effect of these orders is to strike down the take or pay for provision in the Republic “A” contract.

Now that’s —

William J. Brennan, Jr.:

[Inaudible]

Mark H. Adams, Sr.:

Well, Your Honor, we’ve remained confused about just exactly what the — we tried —

William J. Brennan, Jr.:

[Inaudible]

Mark H. Adams, Sr.:

Pardon?

William J. Brennan, Jr.:

[Inaudible]

Mark H. Adams, Sr.:

In the Republic suit?

William J. Brennan, Jr.:

[Inaudible]

Mark H. Adams, Sr.:

Yes, that’s right.

Tom C. Clark:

And it’s your defense that the order —

Mark H. Adams, Sr.:

We say if it’s valid that the — we say we’re contesting the validity of it and —

Tom C. Clark:

But he would do it just to [Inaudible] —

Mark H. Adams, Sr.:

And if it — pardon?

Tom C. Clark:

They’re pro rata part, you wouldn’t take the minimum.

Mark H. Adams, Sr.:

Well, we take pro rata sure —

Tom C. Clark:

As the order requires?

Mark H. Adams, Sr.:

Yes.

That’s right.

We’re —

Tom C. Clark:

And you claim that the order authorized that and therefore the contract, if that is the order [Inaudible]

Mark H. Adams, Sr.:

That’s correct.

Tom C. Clark:

You get a federal [Inaudible]

Mark H. Adams, Sr.:

Well, I — we’ve had this litigation, we removed it twice.

It’s filed in the state court, we removed it twice.

We thought it’s a federal question.

Hugo L. Black:

You’re claiming about the standard with the provision is invalid because you have a contract that’s been approved by the Federal Government under federal law.

Mark H. Adams, Sr.:

That’s right.

Hugo L. Black:

With which [Inaudible] —

Mark H. Adams, Sr.:

That’s correct.

Hugo L. Black:

[Inaudible]

Mark H. Adams, Sr.:

That’s correct and we removed it when the cases were initially filed and the matter was briefed to our federal court in Wichita and maybe we didn’t do a very good job, I don’t know but the —

Hugo L. Black:

[Inaudible]

Mark H. Adams, Sr.:

— the court remanded it.

Hugo L. Black:

Is there a dispute between you and the other side in reference to [Inaudible] will be indicated that that provision is valid?

Mark H. Adams, Sr.:

Well, I think what — excuse me, I don’t know just what their position is as — excuse me.

As I mentioned a moment ago, they say suppose it does cost you some money to take it out of the Northern stockholders.

Hugo L. Black:

Well, that of course raises your question that all the stockholders like in all of those corporations would be entirely be liable —

Mark H. Adams, Sr.:

That’s right.

Hugo L. Black:

Validity of the contract was approved by the Government.

Mark H. Adams, Sr.:

That’s right.

Hugo L. Black:

[Inaudible] that might be —

Mark H. Adams, Sr.:

I don’t believe that —

Hugo L. Black:

— covered by the law either one of them [Inaudible] but as you raise it, it seems more to be a — be more like a federal question.

Mark H. Adams, Sr.:

Well I wish Your Honor — that’s been on our brief when we had it removed.

I think it’s a federal question Your Honor.

I always thought so.

We regard very highly our federal judiciary in our state but they disagreed with us by it.

Hugo L. Black:

Well, I said that because I — from your premise, I don’t know that premise.

Mark H. Adams, Sr.:

Yes.

Hugo L. Black:

And your premise you would say —

Mark H. Adams, Sr.:

[Inaudible] as a contract was.

Hugo L. Black:

This is a contract which is protected because the federal law protects it and of course, if the federal law protects it, it’s the supreme law of the land and the State of Kansas contract law on your premise.

Mark H. Adams, Sr.:

That’s right.

Hugo L. Black:

I assume did not change because the — the validity of that contract as stated by federal law.

Mark H. Adams, Sr.:

That’s the way we feel about it Your Honor.

Arthur J. Goldberg:

[Inaudible]

Mark H. Adams, Sr.:

Over the whole field.

Arthur J. Goldberg:

[Inaudible]

Mark H. Adams, Sr.:

Not as —

Arthur J. Goldberg:

[Inaudible]

Mark H. Adams, Sr.:

That’s correct Your Honor, not as long as it is for a legitimate state purpose which means the protection of correlative rights as between all of the producers in the field.

That’s a restriction.

Now what — what we’ve got here is attempting to force us to purchase more gas rather than to restrict the production — conservation means restriction.

It doesn’t mean that you got to purchase more.

Arthur J. Goldberg:

[Inaudible]

Mark H. Adams, Sr.:

That’s correct, Your Honor, but if — I’m talking about what was the intention of the Kansas Commission.

I don’t know what the Kansas Court has determined in this respect.

If the Kansas Commission had meant to accomplish just what Your Honor said, they would have restricted the Republic “A” production rather than try to bring this production up to the Republic “A” wells.

Incidentally, this very thing happened a few years ago on the Republic “A” system.

Then at that time, the Kansas Court approved a Kansas Commission order shutting in a number of the Republic “A” wells, so as to, in other words, restricting their production, shut them in so as to accomplish ratable production in the Kansas Hugoton Field.

Now, that’s the way you get through proration.

You don’t get it in this fashion trying to force a purchaser to purchase more gas than its market demand or take or pay for them, I mean you pay for it if you don’t run it.

Mark H. Adams, Sr.:

Now, I think you got to look at the regulatory atmosphere that’s behind all of this and when you do that, this unravels pretty fast.

This is brought forth pretty forcefully in the memorandums that have been filed here in behalf of the Federal Power Commission.

I think they did a little better job on this than we did.

They show Commissioner Brady’s statement as to what the Kansas Commission was really starting up and trying to do, trying to compel purchasers to take more gas from the Kansas Hugoton Field than they had offered markets therefore.

That’s followed then by the public statements of Commissioner Byrd who is now Chairman of the Kansas Commission showing that he is committed to the same policy.

Then you follow that with the two courses that were available here to them as plainly shown from the evidence if they wanted to restrict the production and accomplish ratable production that was available to them.

If they wanted to go another route and try to compel more gas to be purchased from the field, that likewise was available to them.

If the Court please, I’d like to reserve the remainder to whatever I’ve got to [Inaudible]

Earl Warren:

You may Mr. Adams.

Mark H. Adams, Sr.:

Thank you.

Earl Warren:

Mr. McCarter.

Charles C. McCarter:

If it please the Court, the appellants ask the state ratable state orders on the grounds they are void under the Supremacy Clause.

In this regard, it seems to me they raise two questions; one, does the Natural Gas Act deprive the state, State of Kansas of the authority to require ratable taking simply because it is asserted that the Natural Gas Act preempts the field of the regulation over interstate sale.

Now this is a question totally unrelated to the contract.

The FPC does not think that this question is to be answered permanently, nor does the appellee, though appellant has obviously stressed that particular aspect of this case.

The second question is that, are the Kansas ratable take orders though of the type otherwise valid?

In other words, assuming and affirming again to the first question, void because of the special contractual provision in Northern’s contract.

Now, appellee says that both of these questions should be answered in the negative.

It is useful before disposing of these two contentions to review just briefly the orders that the state entered.

These orders are reproduced in our brief and — on pages 1 and 2.

Now on page 1, the first order in its pertinent part is set up.

All it does as can be seen from bottom of the page is order Northern National Gas Company both to pay for gas ratably from all wells which it is connected in Kansas.

Now this is a specific order addressed to Northern.

It pertains only to Hugoton Field.

The second order set out in more detail on page 2 is a broader order.

It applies to all purchasers of gas in Kansas.

It applies to all common sources of supply, all gas fields in Kansas most of which do not cross state lines and are located solely within the state.

And this order simply says, “All purchasers take gas ratably.”

It described that ratable production in terms of keeping your over and under production within a reasonable balance.

Now it is clear from meeting these orders that the orders don’t mention price.

Charles C. McCarter:

They do not set price as was attempted in the city service fees which [Inaudible] have found.

They do not tell the purchaser how much gas he is to pay.

They don’t tell him to take any gas if he doesn’t want to take it.

All it says is if you want to take gas, do so fairly, do so ratably, so that the producers within the State of Kansas, so the landowners within the State of Kansas are protected.

Hugo L. Black:

May I ask you this question?

Charles C. McCarter:

Yes sir.

Hugo L. Black:

Suppose they had a contract outstanding to buy from 10 people, had a fixed price in companies [Inaudible] and this order required them to go out and make new contracts which [Inaudible] more people whatever price they could get.

Was that — is that what they would do — required to do?

Charles C. McCarter:

No sir, no sir.

If I understand your question correctly, our order does not require Northern or any purchaser to go out and get more gas in any shape or form.

Our order says, “If you were to take gas from the wells you now have or for any — from anymore that you may want to connect to just be sure that whatever you take is ratable.”

It’s ratable in proportion to the ability of the well to produce.

It doesn’t tell him to go get more gas at any point.

Hugo L. Black:

In other — it — suppose that it have noticed some of these of contracts have changed in a matter of price from time to time so they had 10 contracts, five of them at one price and five of them is 100% above that.

What would happen to them if he complied with the order for buying [Inaudible] on those return?

Charles C. McCarter:

Well, he would, under that circumstance would be taking gas ratably from all 10 of the wells.

His price for a part of the gas would be higher for the five wells where you described the higher price, not by virtue of our order of course but by virtue of the contract.

Hugo L. Black:

Well it would — it would follow because of your order, you’d have to do it.

Charles C. McCarter:

Only if he entered into such a contract, yes.

Hugo L. Black:

Yes, but if he didn’t do it, he wouldn’t get all of his gas.

Charles C. McCarter:

You mean sufficient gas to meet his markets?

Hugo L. Black:

Creating gas to meet his contract [Inaudible]

Charles C. McCarter:

Yes.

That’s correct.

Hugo L. Black:

So that the effect of it under both circumstances would be requiring him to pay a substantial amount more despite he had agreed upon that is fixed — approved by the FPC.

Charles C. McCarter:

Oh, no.

No.

Hugo L. Black:

Why wouldn’t it?

Charles C. McCarter:

Well whatever —

Hugo L. Black:

Five — he has to — he has to increase his purchase from five and those five will pay requirements, say a 100% more than — what if he bought from the others so that if the price goes up accordingly —

Charles C. McCarter:

Yes, but that — that contract — that increased price contract you speak of, the 100% contract, must also be filed by the FPC and approved.

And if it isn’t —

Hugo L. Black:

[Inaudible]

Charles C. McCarter:

— within the price wouldn’t be higher.

Hugo L. Black:

But what good would it do if the state could change it by an order.

Charles C. McCarter:

Oh, the state cannot change the price in any way —

Hugo L. Black:

Well, it couldn’t change it by saying we are doing this for change and make you pay more.

Charles C. McCarter:

Right.

Hugo L. Black:

But if it’s going to accomplish the same thing by leaving those words out and requiring them to bring about a distribution in that purchase which would increase the price for a 100% that would certainly nullify the price fixed by the FPC, would it not?

Charles C. McCarter:

Yes sir, because whatever that price is to be by the contract must be approved by the FPC.

Hugo L. Black:

That’s right.

If it’s to be approved again and then suppose the state issued another order requiring something of that kind, it had to be approved again but you do not — that does not give finality.

I’m not saying that invalidates the law.

Charles C. McCarter:

I understand.

Hugo L. Black:

I’m just only getting to the effects of it.

Charles C. McCarter:

Absolutely.

Hugo L. Black:

That would not give finality to the original order with fixing — approving the price at which they have bought the gas, because of the fact that prior to this order, [Inaudible] among those who have small price and those who have a much larger price, his rate might be increased a 100%, wouldn’t it?

Charles C. McCarter:

I don’t — I don’t think so but now —

Hugo L. Black:

Well, how can you avoid it under those circumstances?

William O. Douglas:

Your argument — I gather from your brief is that this Kansas order modified pro tanto, the obligation to take under the Republic contract.

Charles C. McCarter:

We stated that as a position.

William O. Douglas:

If that is so, I suppose that is the answer to Justice Black.

Charles C. McCarter:

That would certainly answer his contention.

Hugo L. Black:

That would answer it to the extent that it could answer it, it modified contract by requiring him to pay more than the FPC had approved the price they must purchase the gas.

The question still remains as to whether Kansas could do this, wouldn’t it?

Charles C. McCarter:

It seems to me I maybe missing the position that the Honorable Justice is taking, but it seems to me that each of these contracts you speak of must be approved by the FPC.

Our order requiring ratable taking is an order which of course protects the producer and the landowner.

The consuming public is protected by the Federal Power Commission’s decision whether or not that price is proper.

Now, he’s speaking about that the FPC approves a given price and then the contracts come back down to the Kansas level and the Kansas Court — of the Kansas Commission —

William J. Brennan, Jr.:

[Inaudible] taking anything at 20 cents.

William J. Brennan, Jr.:

Under your order, you have 10 contracts [Inaudible] you’d have to get 10,000 cubic feet I gather from each well.

Each would mean you have 5 and 10 cents, and 50,000 and 20 cents, is that the way you — the order have worked if you had that kind of [Inaudible]?

Charles C. McCarter:

Yes, I think it would.

William J. Brennan, Jr.:

And your position is even though that means he has to pay more money in total for a $100,000 and if he could get it all at the 10 cent rate.

Charles C. McCarter:

That’s right.

William J. Brennan, Jr.:

But nevertheless both the 10 and 20 cents rates which are approved by the FPC and the only effect of your order is that he’s got to take it and that you constitutionally may insist that he takes it on a ratable basis.

Charles C. McCarter:

Absolutely Your Honor.

William J. Brennan, Jr.:

Is that it?

Charles C. McCarter:

That is it.

Thank you very much.

[Inaudible] the consequence from that hypothesis is the result not of anything that you people did.

Charles C. McCarter:

That is correct.

But as the result of the private contract arrangements which the FPC has agreed or not to approve or disapprove?

Charles C. McCarter:

Absolutely and if their contention is correct, why even a proration order, an allowable order, could be set aside on their same theory.

For instance, let’s suppose that they entered a contract take a million feet of gas and they say in this contract — now, if the state issues a proration order which prohibits us from taking the full million cubic feet of gas, nevertheless, we’ll pay you for that million cubic feet of gas.

They then would turnaround during the time and challenge our order and say, “Look, this order is void because you’re making us pay more for our gas”.

The point I’m making is the contract that did it.

William O. Douglas:

On the question of – [Inaudible] still outstanding and I would take it this — that that could be — require the petitioner here to take more gas than [Inaudible]

William J. Brennan, Jr.:

[Inaudible] make a minimum at the 20-cent rate of 100,000 feet.

Then is it — he’s required to take more gas under your order [Inaudible], if the contract [Inaudible]?

Charles C. McCarter:

Right.

I think that’s correct.

I have no desire to indicate that —

William O. Douglas:

That’s why you urge that this — Kansas Court modify pro tanto the obligations under the Republic contracts.

Charles C. McCarter:

That’s why I urge two things: (1) that the Kansas Court may well have so acted; and (2) that whatever effect this is going to have on the price is under the control of the Federal Power Commission.

William O. Douglas:

Well, if there’s any doubt about that that should be remanded with the state court, shouldn’t it?

Charles C. McCarter:

No.

I don’t think so for this reason.

I think that the Federal Power Commission has complete control over this situation that any effect which is going to occur is completely under the control.

Let me for instance, direct your attention.

Hugo L. Black:

If any — in fact, I would suppose they substitute in effect a low price at which he’d originally bought it.

It wouldn’t have that power, wouldn’t it?

Charles C. McCarter:

Well, now under Sections 4 —

Hugo L. Black:

But do you say the stockholder could afford to lose it?

Charles C. McCarter:

That’s right.

Now let’s go through what the FPC can do.

The FPC has various powers.

One of which would be under the Sierra case to decide that this contract was an improvident contract and that it need not be passed on the effect of it, need not be passed on to the consumer.

In other words, these take or pay companies, these rates that they have to file, need not be passed on to the consumer because they voluntarily agreed to this provision.

The FPC has to decide if that provision is in the public interest.

Now it could well decide that it is in a public interest to have such a provision for this reason that it is important for producers and landowners to be enticed to enter into contracts, to sell gas into interstate commerce.

This gas is needed by interstate consumers and therefore it’s important to have such a provision and that the FPC says, “Alright, this is in the public interest and under those circumstances clearly the consumer should pay for the increase.”

Arthur J. Goldberg:

Is there —

Charles C. McCarter:

Yes sir.

Arthur J. Goldberg:

[Inaudible]

Charles C. McCarter:

That is correct.

Arthur J. Goldberg:

[Inaudible]

Charles C. McCarter:

That is correct.

Arthur J. Goldberg:

[Inaudible]

Charles C. McCarter:

This is one solution for this Court.

They can remand — yes, they’ve seen your question is and — should the Court remand this back to Kansas Supreme Court, the Kansas Supreme Court decision as to whether or not, the take or pay provisions are affected in such a way so as to make Northern pay more than they would otherwise pass.

All three of the parties before the Court states that if the Court wants to dispose of this case in that way, they could do so.

But I do not claim that that would be a proper disposition of this type because I believe that the price aspects of this case are totally within the jurisdiction of the FPC, and this matter can be completely protected by the FPC, and that we don’t need to invalidate what are now valid state orders which do serve a valid public service.

Hugo L. Black:

But you do have to invalidate what are now had been valid contracts as to price, do you not, under the illustration I gave you and do you not accomplish by that precisely the same thing in Kansas, trying to accomplish, fixing the price for its sale instead of letting the FPC fix the rate?

Charles C. McCarter:

I certainly don’t think so.

It seems to me the FPC has complete control over that matter and that whatever we said —

Hugo L. Black:

But they have — could they have complete control?

You have a right to say you got to buy [Inaudible] from these people over here and you can’t get from them at the same time.

Therefore, you do a way with their contract, their valid contract which was valid.

And I had an idea that one purpose of the Act was to give some kind of stability in the prices so that the companies couldn’t change them or the state couldn’t change them at will when they’ve agreed to make a contract price.

Charles C. McCarter:

Of course the FPC has set an area contact — contract price of 11 cents for the whole State of Kansas and whatever they might enter to — into in terms of the contract price will probably be struck down if it’s an excess of 11 cents.

[Inaudible]

Charles C. McCarter:

I believe it’s 16, I was looking to them for an answer on that.

I think it’s 16.

Of course, the area price is 11 cents for old gas and I think its 16 and a half for the new gas.

Tom C. Clark:

Suppose under your theory why — I suppose the impact of this order was [Inaudible] financial side is it destroy the [Inaudible] then that production which has been dedicated to interstate commerce and under the control of the Federal Power Commission would be lost.

And one of the purposes of the Act is the [Inaudible], what is your answer to that?

Charles C. McCarter:

I think the answer to maybe that question and in a sense all of the questions that have been posed to me is that it’s our position that state orders supersede private contracts and that it’s not the other way around.

The essence of the questions that have been posed to me suggests that by private contract, they can avoid our state orders.

Of course, in Hudson versus —

Tom C. Clark:

You’re not sure whether your court will hold that or not, are you?

They haven’t held that.

Charles C. McCarter:

Yes, I am sure that they will hold that state order supersedes contracts.

Tom C. Clark:

They haven’t held that yet, have they?

Charles C. McCarter:

They haven’t held that in this case.

They haven’t said that Northern doesn’t have to pay for the gas.

Tom C. Clark:

And Republic is selling to these people.

Charles C. McCarter:

In another case, that is correct for $26 million, I believe.

And the record on that case, of course, can come to this Court very likely will for determination of that question in that case.

Tom C. Clark:

Are you going to deal with that point they raise about the amount?

Charles C. McCarter:

Yes.

I certainly will.

If I might —

William J. Brennan, Jr.:

Before you get to that, just let me be sure I get it?

If the Republic “A” contract [Inaudible] —

Charles C. McCarter:

Thank you.

William J. Brennan, Jr.:

— obligated them to pay the $100,000, all they need [Inaudible].

Now, would they not have to pay [Inaudible] because having 10 to make it, five of them at 10 cents, five of them at 20 cents [Inaudible] of the Republic and the contract’s obligation to take the [Inaudible], they’d have to take a $100,000 at 20 cents, then they’d have to go and take another $100,000 at 10 cents, could they not, so that it would be 20,000 for each kind of well, wouldn’t that be in effect of your order?

Charles C. McCarter:

I don’t think that’s the effect of our order but I think that would happen.

I think and I worded that carefully, I think it would happen because of their contract.

Potter Stewart:

Well, I think — yes, that’s what I’m – but the result would be, they’d have to go into the market to pick up another 100,000 from these other five wells, isn’t that right, in order that there’d be a ratable taking from each of the 10 wells to which they have [Inaudible]

Charles C. McCarter:

Yes.

Now.

Hugo L. Black:

In Kansas.

Charles C. McCarter:

That’s correct.

Hugo L. Black:

They couldn’t go anywhere else could they, applying your law.

Charles C. McCarter:

Oh no, I think they could go elsewhere.

I think they could go elsewhere.

Hugo L. Black:

Then the ratable take, it wouldn’t be ratable.

Charles C. McCarter:

Well, they could lower their takes in Kansas down to the ratable amounts if they want to take it elsewhere.

Hugo L. Black:

And that is a —

Charles C. McCarter:

Do you see what I mean?

Hugo L. Black:

— breach of contract.

William J. Brennan, Jr.:

They have to take 100,000 to — that’s the assumption of the Republic “A” contract, perhaps if they couldn’t have but that’s the — in fact their obligation.

I don’t see how they can go elsewhere.

Charles C. McCarter:

Right.

Under that assumption —

William J. Brennan, Jr.:

That they’d have to take it (Voice Overlap) —

Charles C. McCarter:

Under that assumption, I would agree with you.

Yes, under that assumption.

Tom C. Clark:

Before it gets back to your proposition to whether or not the order, as a matter of fact the contract should obtain [Inaudible] that minimum requirement.

Charles C. McCarter:

In view of appellant’s contentions that the — I’ll just put it this way.

As I — as I understand appellant’s contentions, what they are asserting is that the FPC has jurisdiction over interstate sales, and that therefore there’s conflict and that therefore, our order is void under the Supremacy Clause.

They in essence assert this, that under Sections 4 and 5 of the Act, the Commission has jurisdiction over rates.

And under Section 7, the Commission has jurisdiction over certificates and that because of this jurisdiction, they therefore have jurisdiction over every aspect of interstate sale and any state order which touches on interstate sale is void.

Now to me, this is a non sectarian.

It just doesn’t follow that because the FPC has jurisdiction over certain limited aspects, and therefore has jurisdiction over every aspect of interstate sale and this Court has so held in the FPC versus Transcontinental, 365 U.S. 1.

This Court pointed this out very clearly.

It said, “Congress, in enacting the Natural Gas Act, did not give the Commission comprehensive powers over every incident of gas production, transportation and sale.

Rather, Congress was meticulous only to invest the Commission with authority over certain aspects of this field, leaving the residue for state regulation”.

Charles C. McCarter:

Now the question is, what is that residue left to state regulation?

Now it’s well settled that when Congress enacted the Natural Gas Act in 1938, the states had the constitutional power to issue ratable take orders.

This Court has many times held and it is also held that it was not the intent of the Natural Gas Act to deprive the states of the power they constitutionally have.

To paraphrase the Phillips decision, what this Court held was that the Natural Gas Act was intended to fill the gas by providing for federal regulation of those aspects which the states could not regulate.

In other words, the controlling principle is whatever the states could constitutionally regulate prior to the passage of the Natural Gas Act.

They can continue to regulate after the passage of the Natural Gas Act.

Hugo L. Black:

When was the Act passed?

Charles C. McCarter:

In 1938.

Hugo L. Black:

You have a rate of — ratability —

Charles C. McCarter:

Oh, pardon me.

My answer was in regard to the Natural Gas Act.

Our ratable take order was issued in the October 1959, that’s the first order.

Hugo L. Black:

When was the contract made?

Charles C. McCarter:

Contract?

First, it was made in 1930 and was — the amended version of it was made in 1944.

It is the amended version which is in the record and before this Court.

Hugo L. Black:

Your court recognizes that there’s a difference between the powers of the state to pass laws regulating the same — the whole contracts were made and would that the same kind of law after the contract was made to invalidate the contract.

Charles C. McCarter:

And that is why I mentioned the contract involved here was in 1944.

Now, no one asserts that our order was not issued for a legitimate purpose, namely, to prevent drainage and to protect correlative rights, the record is quite clear on this —

I can’t see your [Inaudible]

Charles C. McCarter:

I think he also said that any state who issues that order to protect correlative rights has the authority to do so.

I think his contention is that this order didn’t do that.

Now I might be mistaken as to his position, but I believe that’s correct.

As this Court knows, the movement of gas with the common reservoir is from a high pressure area to a low pressure area and what happened in this case was that Northern was taking a great amount of gas from Republic and causing drainage of gas from all its other connections.

Now these facts were expressed in terms of percentages in the record, percentages of over production and under production.

Northern was taking from Republic 4.29% overproduced.

Whereas, it was taking from its other connections 522.09% underproduced.

So there was a tremendous difference in the takes which was resulting in drainage as one particular witness testified and he concluded, and I quote, “Currently the correlative rights are being damaged in a great amount.”

Honorable, Mr. Justice Goldberg referred to Kansas Supreme Court conclusion to the same effect that drainage was in fact occurred, and that it needed to be stopped.

There’s no question about this.

Charles C. McCarter:

Counsel here has even admitted it but in the record he says there is no question since January or maybe March, 1958, there has not been a ratable taking on the connections of Northern wells as reflected in the Exhibit 7.

Now it was to bring about this ratable taking and I’d like to urge that this is an important public interest.

I recognize the consumer has important —

Hugo L. Black:

[Inaudible] suppose your statute have said, [Inaudible] in view of the importance that you’re saying on ratability —

Charles C. McCarter:

Yes sir.

Hugo L. Black:

— hereby declare that all contracts made before that which did not — were not based on ratability, they will be null and void, there’s no effect without regard to the damages that maybe done through these people who have contracts, would that be invalid?

Charles C. McCarter:

I’m not so sure about what it might not.

Hugo L. Black:

It might not or would?

Charles C. McCarter:

That it would — that — I’m not so sure of what — such an order wouldn’t be valid.

In other words, I think it would be valid.

Hugo L. Black:

You think it’d be valid.

Charles C. McCarter:

Yes sir.

Hugo L. Black:

Compare the obligations to the contrary —

Charles C. McCarter:

No sir.

Hugo L. Black:

— a valid one they’ve just made.

Charles C. McCarter:

No sir, not to impair the obligation of contracts.

Hugo L. Black:

Well, that’s — I was assuming that it did —

Charles C. McCarter:

I see.

Hugo L. Black:

It held that all the con — it said that the legislature declared that all contracts made previous of this time, which were not based on ratability of production, are void and of no effect.

Charles C. McCarter:

Well, the reason I answered your question the way I did, you must remember that at least in this situation, the contract specifically provides that it is subject to the valid provisions of state and federal regulation and so I say that it does not impair the contract for that reason.

Hugo L. Black:

I presume in view of the long history of the provision of this country, not to impair the obligation of the previous contracts —

Charles C. McCarter:

Sir —

Hugo L. Black:

— so important this tradition that’s it put in the Constitution, but you wouldn’t say that the Court would likely read the statute that way unless it said it, would you?

Charles C. McCarter:

What I’m saying sir is that by virtue of the terms of the contract, there would be no impairment even though we issued this order, because they contracted to allow the state to impair it.

Hugo L. Black:

Did they —

Charles C. McCarter:

Let’s put it that way.

Hugo L. Black:

Well, they did?

Charles C. McCarter:

Yes sir.

Hugo L. Black:

That’s what I’d like to see in the contract.

Is that in the contract?

Charles C. McCarter:

Yes sir.

I think —

Hugo L. Black:

Did they contract it to allow the state to impair these people — so that they’d have to pay more from — they agreed to pay a businessman [Inaudible] sometime of little chairs about making agreements like that.

Charles C. McCarter:

Well sir, I direct your attention to one — page 164 of the record.

Now, what I am referring to is a portion of the decision of the Kansas Supreme Court who in turn is quoting from the contract, right in the middle of the page, Section 2, Commission jurisdiction.

This contract is subject to all valid legislation with respect to the subject matter hereof, either state or federal, and to all valid, present and future orders, rules and regulations of duly constituted authority having jurisdiction.

Hugo L. Black:

That says valid orders and you writ — you then run head long again up into provision as to whether an order would be valid if it impaired the obligation of a contract which was valid when it was made.

It says future order.

Charles C. McCarter:

Yes, sir, it does say future orders.

Hugo L. Black:

It says future valid orders, doesn’t it?

Charles C. McCarter:

That is the proper interpretation of —

Hugo L. Black:

That it — would it be valid if it impaired the obligation of a contract?

Charles C. McCarter:

I don’t think it impairs the obligation.

Hugo L. Black:

Well, would it [Inaudible]

Charles C. McCarter:

Pardon me.

Hugo L. Black:

If it impaired the obligation of existence, —

Charles C. McCarter:

Well —

Hugo L. Black:

— would it be valid?

Charles C. McCarter:

If that is correct, well then, no.

I’ll agree with you on that.

My only argument with you sir, is that it didn’t in fact impair by virtue of its own terms.

They agreed to allow it.

Now, I was mentioning the importance to the public of these orders.

To strike down these orders, to declare them invalid will be to deprive the state of a means to protect the landowners and producers against loss of gas measured in millions of dollars, and this is — there’s a little lot of gas than you can see.

The end result, it seems to me is that these orders must be held — be upheld to the public interest and that this Court has long held that the states have the power, they had it as part and parcel of the Natural Gas Act and by virtue of the intent of Congress and the decisions of these courts, they have the power now to issue ratable take orders.

As a matter of fact, the City Service case recognizing it — decided after 1938, but referred back.

The case was decided prior to 1938 specifically upheld a ratable take order of the State of Oklahoma.

Is the contract — it was before the Federal Power Commission contained in Section 2?

Charles C. McCarter:

Yes, sir, the same contract.

Now, they put some weight on the wording of our order and they say, since it leads on purchasers instead of on producers that are orders valid for interference with interstate side.

Charles C. McCarter:

I’d like to call the Court’s attention to a provision in the contract which provides that Northern “shall have the right to regulate the rate of flow of gas from each well and where the purchaser, Northern, by contract, has the right to regulate the rate of flow of gas.”

Now, if our order have said, “Northern, since you have the right to regulate the rate of flow of gas from each well, you be sure and regulate such flow so as to produce ratably.”

Now, I don’t believe they contend at time an order was void and yet that is exactly the effect of our order.

It would be impossible for us to issue an order reading on production which would accomplish the same ratable taking results that this order did.

Two reasons: (1) the contract says the purchaser has the right to regulate the flow; second, the extent of our order is to at least provide ratable production as to all the wells connected to one purchaser.

Their suggestion would do no more than provide ratable production as to one producer.

That’s a much more limited sense of ratable production.

Now we recognize that our order isn’t perfect.

Now, we don’t provide ratable reductions completely, but we are certainly making every effort to do that and our order certainly provides a protection to public interest much greater than they are suggesting.

This is recognized by our then Chairman Wiles on page 35 of the record, I don’t think I need to read at this time, but I do call the Court’s attention to that.

And the point I am making is that our order in effect is an order requiring the ratable production of gas and because it is, it is a matter relating to production and is therefore a matter exempt from the FPC under Section 1 (b) of the Act.

Now, there’s another very important reason why this Court should not strike down the state orders and that is because it would create the regulatory gap which this Court has said should not be created in the regulation of natural gas industry.

It is perfectly clear, I don’t believe anyone will contend that the FPC does not have jurisdiction to provide for ratable production of gas.

As a matter of fact, the FPC has said they don’t.

Hugo L. Black:

It does have power however, does it not, to validate contracts made on the basis, recognition of the laws of the state as it existed at the time with reference to ratability.

Charles C. McCarter:

Now, well I’m glad that came up with this.

I’d like to point out that these contracts are simply filed with the FPC.

They are not necessarily approved in every aspect by the FPC, by the FPC’s own rules.

FPC merely says that if they are offered for filing and accepted for filing, this doesn’t mean that the FPC necessarily agrees with all the provisions in the contract or that it approves all the provisions.

At a later time, this is one example, at a later time, you can decide the price stated in the contract is not reasonable and of sense.

I think that’s very important because the mere filing of this contract doesn’t imply FPC approval of the rate.

Hugo L. Black:

How long have these ones [Inaudible]

Charles C. McCarter:

You mean if it was unreasonable?

Hugo L. Black:

How long did the FPC leave this one in the past?

Charles C. McCarter:

Well, theoretically, they couldn’t be in effect as long as they want, it’s the —

Hugo L. Black:

How long did they?

Charles C. McCarter:

Oh, it’s still in effect.

Hugo L. Black:

And decided when?

Charles C. McCarter:

1944.

Hugo L. Black:

That time [Inaudible]

Charles C. McCarter:

Oh, I’m not suggesting —

Hugo L. Black:

Well, suppose —

Charles C. McCarter:

— the price is unreasonable.

Hugo L. Black:

— if you give that contract, you could get to that difference (Voice Overlap) —

Charles C. McCarter:

I’m not suggesting the price is unreasonable.

I’m only suggesting whether they have power to do or not.

As I’ve stated, the Commission itself said that they did not have power to regulate ratable production.

The Lone Star Gas Company just decided on October 1952.

The FPC said this and I think it’s important in a matter relating to petitioner’s desire to intervene.

They said the matters upon which petitioner desires to be heard in this proceeding relates to the ratable production of natural gas.

The correlative rights of producers and proration of production among producers producing natural gas from common reservoirs.

Now, we are of the opinion, says the FPC, that these are matters which lie within the sphere of state control and cannot constitute a basis for intervention and proceeding before this Commission.

Now the point I’m simply making is that if the FPC doesn’t have that jurisdiction and these orders are struck down so if the state doesn’t have jurisdiction over the ratable production of gas, then no regulatory agency will have that power.

And this Court has said, and Congress has indicated its intention to the contrary, and this Court says in Panhandle versus Michigan Public Service Commission, “In the absence of federal regulation, state regulation is required in the public interest.”

Hugo L. Black:

[Inaudible]

Charles C. McCarter:

Aim them to the producers — for the reason they would not provide as adequate ratable taking as this order does, and for the reason that —

Tom C. Clark:

You could say that they could not produce over a certain [Inaudible] in this field because one well can produce (Inaudible) a thousand cubic feet.

Charles C. McCarter:

Yes.

You could issue a proration order which would lower the amount of gas that could be taken from given wells but now the reason we didn’t do that is this that could be just fine for Northern.

It helped them a great deal and if our Commission’s purpose was to serve Northern alone, I’m sure we might have done that, but we have the obligation to determine what’s in the public interest for all pipelines in our community and there are several other pipelines who have a great need for a greater amount of gas, the [Inaudible] Pipeline Company.

Now, by virtue of the way allowables are determined, it is necessary to set allowables at a sufficient rate to allow all pipelines to serve their market demand.

Now when this is divided up in terms of allowables, it might hurt one pipeline or another depending upon their market demand.

Tom C. Clark:

They can go out and buy form some other wells, couldn’t they?

They [Inaudible] — here, you make these people buy gas or pay and not take gas that they don’t need at all, beyond their market.

Charles C. McCarter:

I think the best answer to that is, sir, that it’s not our orders that forces that, it’s their contract.

Tom C. Clark:

Even said on the contract by examining the contract, it was modified, that’s going to increase the cost of this company’s gas, isn’t it, because they’ll have to go to the other company, they’ll take more from the company’s wells.

Charles C. McCarter:

Assuming that their contract is modified?

Tom C. Clark:

No.

Charles C. McCarter:

It might increase it partly and that brings me to a very important fact.

Tom C. Clark:

Then that would increase the cost to consumers.

Charles C. McCarter:

It might.

You noticed — you’re saying it in the affirmative and I’m saying it might and I think that’s a pretty important difference.

Tom C. Clark:

Well, isn’t that the basis of your whole claim?

Charles C. McCarter:

That’s the basis of their argument.

Tom C. Clark:

I mean the basis of the Commission, the Kansas Commission.

They wanted to — prorate it among the various producers to bring in more money to Kansas (Inaudible) — they had a higher price.

Charles C. McCarter:

I really don’t think that was intended by the Commission.

I think it possibly might be a result but —

Hugo L. Black:

You don’t think it’d be possible, this idea?

Charles C. McCarter:

No sir.

Tom C. Clark:

I’d like to know also why — why do they have allowables in excess of demand?

Charles C. McCarter:

Why does the — why does the state set allowables in excess of demand, I don’t think we do.

Tom C. Clark:

Well, that’s one of their contentions, was it not?

Charles C. McCarter:

Not in this case; it isn’t.

It is one of their contentions in the so-called market demand cases now before the Kansas Supreme Court.

Tom C. Clark:

I thought one of their contentions was if you set the allowables higher [Inaudible]

Charles C. McCarter:

That is their contention to market demand case.

It is not a contention — I’ll put it this way.

Tom C. Clark:

[Inaudible]

Charles C. McCarter:

It’s not a contention.

I think invalid to be made here because there’s no record on it.

But — I’ll answer you that way.

Tom C. Clark:

Well, have they consistently raised the allowables above demands?

Charles C. McCarter:

No, sir, in my opinion they have not.

The answer to your question to get — the crux of your question is, what is the demand?

The Commission takes the position of market demand cases and I’ll take it here, that the Commission has the power to review the facts pertaining to what the market is and decide what it is.

The companies take the position that they have the power to decide what it is.

And they say, “Well, look their market demand is a little lower than the Commission says it is”, and here lies our controversy as to whether or not the state has that power to determine what that market is.

It’s a question in the market demand case, not this one.

Tom C. Clark:

You filed [Inaudible] in Texas?

Charles C. McCarter:

They call them nominations in Kansas.

Tom C. Clark:

Nomination.

Charles C. McCarter:

It’s the same thing.

Tom C. Clark:

Thank you.

Charles C. McCarter:

Alright, now, let’s get to the contract question.

I hope I have disposed of the — what I call the non-contractual questions on the basic principle of what the states could do prior to 1938, they can continue to do after 1938 under the Natural Gas Act and that therefore, the Natural Gas Act does not conflict with the state order.

That’s my first point and I hope I’ve made that clear.

Now, the second point does consider these contractual questions which so many questions have been posed to me about and that question is, are the Kansas orders, draw the type otherwise valid or the type historically they could issue the point as to — is applied to appellant because of its special contractual arrangement.

Now of course the essence of this argument is, as many of you pointed out, that if the appellant complies with the state’s ratable take orders, it will and I’m going to underline, under its contracts, have to pay for gas it does not take.

Such payment they contend would be passed on to the consumer and that because there’s increase in price passed to the consumer, there is a conflict to the Natural Gas Act.

Now, what interests me about this argument as I touch on just briefly is that privately — the argument is that private contract can be used to avoid state order.

Now this of course just reverses the usual concept that Government regulation supersedes private contracts and the argument —

[Inaudible] state law has to be approved by your State Commission.

Charles C. McCarter:

No, sir, it has to be filed but not approved and if it’s an interstate contract, it doesn’t mean have to be filed.

Now the —

William J. Brennan, Jr.:

The Commission now makes the point I gather on the premise that this contract does not have [Inaudible].

I mean you’ve just started to say that private contractors should give way to state regulations.

I — is that your argument?

Charles C. McCarter:

That’s correct and I’m willing–

William J. Brennan, Jr.:

That I gather would be an argument made even if this contract did not have such [Inaudible]

Charles C. McCarter:

That is correct and this goes back to Your Honor Justice Black’s questions to me earlier.

In other words, I’m going to — I’m going to take on that aspect and assume that Section 2 is not [Inaudible].

The argument introduced by appellant in this regard that there’s going to be a payment passed on to the consumer and that their contracts supersede our orders, produces bizarre results.

Under the argument in that effect is that the Kansas orders would be valid as applied to all inner pipelines but they don’t contend our orders are not valid unless this take or pay provision is in the contract.

They take the take or pay provision out and our orders are perfectly valid.

The order presumably would also be valid if their contract was amended when their take or pay provision is taken out.

In short, the Kansas orders would be valid in importance with its contractual whims of appellant and I don’t think that’s the law.

If its — if it is the law, it’s a fine way for a pipeline company to avoid all kinds of state orders.

I’ve mentioned one before and let’s take another example.

Supposing a pipeline company agrees to pay 15 cents per Mcf for its gas and if it takes a million cubic feet a day, and then it says, but if the Kansas order requires us to take less, we’ll pay 20 cents per Mcf.

Charles C. McCarter:

Now, this is the contract.

We’re going to take 15 cents per Mcf, per a million cubic feet a day, but if the Kansas orders us to take a lesser amount of gas, we’ll pay you 20 cents per Mcf for the amount we can take at the end of this contract.

Then, having entered into the contract, they come to us and they say, “Look, your order is valid” — I mean void.

“Your order is void.”

It’s absolutely void.

It causes us to increase our price of gas.

Is this a valid way to avoid legitimate state orders to protect the public interest?

Let’s take a third example; Supposing that a pipeline company enters into an agreement with its producers and says, “Look, we’ll pay so much for gas on the basis that you as the producer, can drill on every 160 acres”, but if the Kansas Commission comes along and says, “Oh no, you have to drill on 640 acres nevertheless, we’ll pay you as if you drilled on a 160”.

In other words, if you buy — in other words, by contract, they agree that if they can’t comply with state orders, they’ll pay an increased amount of money.

Then they come along and they argue oh!

Look, these Kansas orders are all bad.

They call us to increase our price of gas.

Now, it just doesn’t seem to me that a company who is supposed to be regulated by a state agency, who’s supposed to be regulated by the FPC, can be allowed by its own contracts to determine whether an order is void or not void.

Now, nevertheless, the appellant asserts that these orders create conflict to Natural Gas Act.

I assert that is not true that whether there’s to be an increase is solely within the hands of the Federal Power Commission.

I have mentioned that any additional costs could be charge to the stockholder.

Hugo L. Black:

Why would it be solely in that hand if its contract which came at this time according to all of the case that has come before us through the intervening years, the prices have shut up with reason — with reasonable record if you can say the least.

How can the Federal Power Commission affect the consumers from not having to pay an extraordinarily high price for this gas under this new rate?

How can the FPC protect them?

Charles C. McCarter:

They can, under Section 4 and under Section 5, determine that the rates are unreasonable and to set new rates under those sections in the Act.

Hugo L. Black:

But you would agree, wouldn’t you that the present rates are a great deal higher than the rates at which they were bought to.

Charles C. McCarter:

Yes.

Hugo L. Black:

Rates [Inaudible] which has been approved by the FPC.

Charles C. McCarter:

Absolutely.

Hugo L. Black:

Well, how could it now hold the rate which it reasonably — recently approved as reasonable are no longer reasonable, simply because these people are going to buy it.

Charles C. McCarter:

Well, now that’s — what we’re here concerned with is whether or not the FPC could strike out a take or pay provision.

Hugo L. Black:

A what?

Charles C. McCarter:

A take or pay provision, a provision in the contract which says, you must pay for a gas that you don’t take.

Hugo L. Black:

Well, that wouldn’t happen would it, if you’ll order strictly to where — the only way they can get it is by paying a lot more and the only way they can take themselves – [Inaudible] the only way the consumers can be protected from that is for them not to have to pay more.

Charles C. McCarter:

I might say this in a partial answer to your question.

Charles C. McCarter:

This is about the cheapest gas in the whole United States and even Republic has pointed out in the (Voice Overlap) —

Hugo L. Black:

What year?

Charles C. McCarter:

This sale — this contract price that —

Hugo L. Black:

This contract price is about the cheapest [Inaudible] in the United States —

Charles C. McCarter:

Right.

Hugo L. Black:

— back at that time.

Charles C. McCarter:

Right.

Hugo L. Black:

For what — over what year of this time was the contract to run?

Charles C. McCarter:

I think it’s a 20-year contract.

They’ve —

Hugo L. Black:

And you’re saying that you’re offering that as a justification for Kansas [Inaudible] saying that the consumers will have to bear the burden of an increased price although the company from which they had purchased was [Inaudible] enough to make a contract at the lower price?

Charles C. McCarter:

I think that the FPC could strike out these take or pay provisions.

Now, that’s totally different from whether or not the rate per Mcf is reasonable.

A take or pay provision accepts the Mcf rate set out in the contract and simply applies that rate to the amount of gas not taken.

Now, if that is allowed to remain in the contract then it is possible that the consumer’s price would be increased.

There’s no question about that.

Hugo L. Black:

If possible, how can it be avoided?

Charles C. McCarter:

It could be avoided by the Federal Power Commission deciding that this take or pay provision not the reasonable price per Mcf, but this take or pay provision is not in the public interest because —

Hugo L. Black:

Suppose they held that, could they comply with this ratable order with that —

Charles C. McCarter:

Yes sir.

Hugo L. Black:

— increase in price?

Charles C. McCarter:

Yes, sir.

Yes sir, they could.

They could then take ratably and not have any economic penalties attached to them.

They could then lower their takes from the Republic “A” well.

Hugo L. Black:

If they buy from somebody else and under the present factor they’d certainly have to pay a lot more, wouldn’t they?

Charles C. McCarter:

No sir.

Now, I think —

Hugo L. Black:

They’ll have to pay more?

Charles C. McCarter:

Well, I said, “No sir”, for this reason.

Charles C. McCarter:

Your question is assuming something that I don’t think is a fact and that is that they’re going to have to buy more gas.

They’ve got gas running out the rear.

Hugo L. Black:

Well, they’d have to buy — buy from different people under different contracts.

In other words, the old contract did made at the last come from would no longer be any good, would it?

And that means they’d have to make new contract with somebody and these other people, other sellers, want to do what sellers always want to do to get all their market demand.

What effect could that have on the price?

Charles C. McCarter:

I’m handed the note here which may help.

The effective Republic price in 1959 was 16.75 cents.

The effective price of other Northern connections in Kansas was 11.59%.

In other words, you pay less.

Hugo L. Black:

What?

Charles C. McCarter:

In other words, you pay less instead of more for the gas.

Hugo L. Black:

Pays more than the present price?

Charles C. McCarter:

Pay less.

In other words, the effective price of the Northern connections in Kansas other than Republic “A” was 11.59.

So if they, by our order, can take more gas from connections other than Republic “A”, they can take it at a lesser price, not a higher price.

In other words, if our order —

Hugo L. Black:

You mean the order is structured in some way for them in order to get a lower price?

Charles C. McCarter:

That’s correct.

They can.

That is right.

In other words, I’ve been trying to answer your questions on the assumptions you’ve been giving me, the assumptions have not been supported by the facts in the record.

[Inaudible]

Charles C. McCarter:

That’s correct.

That is correct.

I’ve tried to deal with your question straight on but I did want to straighten the record on it Your Honor.

Hugo L. Black:

Well, if that’s true, I would suppose that if you’re cutting off the other side, examine the contract in both ways, what you’re saying is that you get out of that contract that they made and they wouldn’t have to pay you from doing that.

Charles C. McCarter:

That’s right.

Hugo L. Black:

They would lose their contract.

Charles C. McCarter:

That’s right and they can’t — want to do that.

Tom C. Clark:

Well, [Inaudible]

Charles C. McCarter:

That’s right.

I think that is —

Tom C. Clark:

[Inaudible]

Charles C. McCarter:

As a matter of fact, I think they’d love to lose this lawsuit to just hold it.

They don’t have to pay for the gas.

Now, in short, it seems to me that there is no conflict but rather there is harmony.

Our Kansas order will protect the Kansas landowners and the Kansas producers, and this is a very vital need for the public.

On the other hand, the FPC will have the ability to protect the consumer.

Together, the public is fully protected.Congress contended and even what this Court has said should be the case that a comprehensive and effective regulatory scheme should be provided.

Now, I’d like to point out that the factual basis.

Earl Warren:

[Inaudible] take or pay provision in the contract [Inaudible]

Charles C. McCarter:

Are you asking, are there take or pay provisions in all the contracts?

No.

Earl Warren:

No, I’m saying, how common are they?

Charles C. McCarter:

How common are they?

Take or pay contracts are fairly common provision nowadays.

However, the record in this case does not tell us whether the contracts in other states contain take or pay contracts.

Now, this is an important point.

In view of their basic contention, namely, they’re going to have to pay for gas they don’t take.

It seems to me the State Commission ought to have evidence presented to them and that this Court ought to be able to review evidence which shows what the provisions in the contract in other states are.

Do they have take or pay contracts which are going to force the thing the Honorable Justice Black refers to.

Do the contracts have make-up provisions in them?

Now, a make-up provision simply provides that if you have to at some particular time, pay for a gas that you do not take, you will nevertheless have the opportunity at a later time to make up and take that gas which you paid for earlier, so that in the long run, they might not be having to pay for any gas that they didn’t take.

The net result of this would be, there’d be no increase cost in the price of gas beyond that contracted for and that increased price will according — accordingly not be passed on to the consumer and there’d be no conflict to the Natural Gas Act.

The record is highly speculative.

It is uncertain and yet to be determined what these facts are and another thing yet to be determined, this is something that has been referred to here from time to time, and that is, “What is the market?”

“What are the markets of Northern?”

The record doesn’t tell it.

We don’t know whether the FPC could issue some more certificates and let the increased amount of gas be adequately consumed.

Charles C. McCarter:

These things are just not in the record.

Now, all I’m saying is that with the factual basis to support appellant contentions not in the record, it doesn’t seem to me they’re reconstituted or entitled to any sort of consideration here.

Now, appellant attacks the motive of the State Commission in issuing its ratable take orders.

It says that the appellee was seeking to force more gas, more Kansas gas into interstate commerce.

Now these allegations are simply not true.

The purpose of the Kansas rate of a take order was to require all purchasers including Northern to pay gas rates.

And this purpose is spelled out on the face of the Act.

It says we want to protect the landowners and the producers in an equitable way.

Now let me make my point clear.

We’re not seeking to protect the landowners and producers at the expense of the consumer.

We’re seeking to protect this set of landowners against this set.

We’re trying to let all landowners, all producers have the easy sense, an equal amount of gas taken from their wells, the ratable amount.

Hugo L. Black:

Who would have to [Inaudible] kind of thing?

Charles C. McCarter:

State Corporation Commission does release it.

Hugo L. Black:

It was done on — I thought most of the states do not simply provide assistance or ratable amounts for each wells.

Is that — am I wrong in that?

Charles C. McCarter:

Yes, you are wrong in — you are correct in that they have proration orders which assigned the maximum amount a well may take.

You are incorrect in saying that there are no — you did say that there are no states that do not have ratable take orders, they do.

Hugo L. Black:

Well, I know.

I didn’t —

Charles C. McCarter:

Most states simply —

Hugo L. Black:

I was asking, if I was incorrect in thinking that most of them did.

I [Inaudible]

Charles C. McCarter:

Pardon me.

Most states have just proration orders.

Some states have ration —

Hugo L. Black:

If that was done — if that were done, you wouldn’t have any problem in this case, would you, [Inaudible]?

Charles C. McCarter:

Oh yes sir.

We would.

Hugo L. Black:

You would?

Charles C. McCarter:

Yes sir.

Our proration orders do not guarantee ratable production.

All they do is set the maximum amount of gas that maybe taken if a company chooses not to take the maximum amount.

It might choose to take more from one than from another.

So the only way we can guarantee ratable production is the order.

Hugo L. Black:

There’s lot of facts and circumstances involved in that, wouldn’t they?

That this company has to take [Inaudible] what the ratable is — ratable amount to take from these wells and then rely through the action by the state if they’ve made a miscalculation?

Charles C. McCarter:

No.

The company does do that but when the State Corporation Commission reviews that action and issues an order which shows them where they stand status wise, puts them on notice that if — status wise, they’re not taking ratably they better start doing it and then the penalties will catch after that.

Now, one more point on the motive point that I think is very important, they assert to kind of take — make them take more gas from Kansas and hurt Oklahoma, hurt Texas.

I call to Your Honors’ attention that Oklahoma, Texas and 15 other State Attorneys General have filed a brief amicus curiae saying validate this order.

This is what the State of Oklahoma wants.

This is what the State of Texas want.

They’re important for owners, for landowners and producers that are important to the public interest.

Now, let me just mention, the Railroad Commission of Texas versus Permian Basin Pipeline under 302 S.W. 2d 238 appealed dismissed, 358 U.S. 37.

That case is exactly important.

The same types of contracts were involved.

The same questions of law were involved; jurisdiction of FPC question is involved.

Interstate commerce was involved, due process, all of it.

The same type of order, ratable-take orders, everything is the same including counsel.

The company is a subsidiary of Northern or was not a part of Northern.

In that case, the Texas courts upheld the ratable take order as serving a balanced public interest and this Court in reviewing the matter on appeal determined that the case should be dismissed for not raising a substantial federal question.

Now, for the foregoing reasons, I would like to submit that this Court heard the decision of the Kansas Supreme Court upholding the validity of the ratable take orders and I urge you to do so because it will accomplish justice.

Now, I don’t say that just colloquially.

I really, sincerely mean they will protect the consumer.

The FPC can take care of that.

It will protect the producers.

It will protect the landowners and it will indeed provide equity for all.

[Inaudible]

Charles C. McCarter:

Yes sir.

[Inaudible]

Charles C. McCarter:

If it is to be remanded, it would be remanded for the purpose of determining whether Northern is contractually obligated to pay for it.

William J. Brennan, Jr.:

[Inaudible]

Charles C. McCarter:

Yes sir.

William J. Brennan, Jr.:

[Inaudible]

Charles C. McCarter:

That’s right.

Yes sir.

That’s correct.

William J. Brennan, Jr.:

How would that dispose [Inaudible]?

Charles C. McCarter:

I don’t think it would adequately dispose of it but they contend —

William J. Brennan, Jr.:

Certainly would not dispose [Inaudible] this is a matter within the jurisdiction of the — of proper interpretation of the federal statute.

Charles C. McCarter:

That is correct.

It would not.

William J. Brennan, Jr.:

Within its jurisdiction and if that’s the fact, other than the immaterial concept of argument.

Charles C. McCarter:

That is correct.

I think it is and I think it’s important for the — as long as the case is here for the Court to lay down the law on this point.

If the FPC has jurisdiction as to the matters or the state, the company is entitled to know, the state ought to know.

I certainly think the states (Voice Overlap) —

William J. Brennan, Jr.:

[Inaudible]

Charles C. McCarter:

Well, I’m in an agreement with you so I kind of hate to tell you about the other side but —

William J. Brennan, Jr.:

[Inaudible]

Charles C. McCarter:

I prefer it not be remanded, but if it must be remanded, that is better than reversal.

I’ll put it that way.

[Inaudible]