Northwest Central Pipeline Corporation v. State Corporation Commission of Kansas

PETITIONER: Northwest Central Pipeline Corporation
RESPONDENT: State Corporation Commission of Kansas
LOCATION: Texas State Comptroller

DOCKET NO.: 86-1856
DECIDED BY: Rehnquist Court (1988-1990)
LOWER COURT: Kansas Supreme Court

CITATION: 489 US 493 (1989)
ARGUED: Nov 29, 1988
DECIDED: Mar 06, 1989

ADVOCATES:
Frank A. Caro, Jr. - on behalf of the Appellees
Harold L. Talisman - on behalf of the Appellant
Michael R. Lazerwitz - as Amici Curiae supporting Appellees

Facts of the case

Question

Media for Northwest Central Pipeline Corporation v. State Corporation Commission of Kansas

Audio Transcription for Oral Argument - November 29, 1988 in Northwest Central Pipeline Corporation v. State Corporation Commission of Kansas

William H. Rehnquist:

We'll hear argument first this morning in No. 86-1856, Northwest Central Pipeline Corporation v. The State Corporation Commission of Kansas.

Now, Mr. Talisman, you may proceed whenever you're ready.

Harold L. Talisman:

Mr. Chief Justice, may it please the Court:

This is another case involving a regulation of the Kansas Corporation Commission which is designed to alter the purchasing practices of interstate natural gas pipelines that are regulated under the Natural Gas Act.

I say it's another case because on two prior occasions, in 1958 in Cities Service Gas Company versus The Kansas Corporation Commission and in 1963 in Northern Natural Gas Company versus The Kansas Corporation Commission, this Court held invalid Kansas Corporation Commission regulations which intruded on federal regulation under the Natural Gas Act.

There as here the Kansas Corporation Commission contended that those regulations were necessary for it to carry out its functions in the regulation of production from Kansas fields.

In Northern Natural Gas Company, this Court squarely held that the Kansas Corporation Commission could not either directly or indirectly intrude on federal regulation of purchasing practices of interstate pipeline companies.

And it therefore held that a Kansas regulation which had directed a pipeline company to take gas in a certain manner in that field to be invalid under the supremacy clause.

More recently, in 1986 in Transcontinental, this Court upheld and it reaffirmed the Northern Natural decision although the gas in that case was federally deregulated.

Since the gas in this case is old gas, gas that remains subject to federal regulation, it's our view that this case falls squarely within the confines of the Northern Natural decision and a fortiori, Transcontinental.

Now, the Kansas Commission contends they have... that they have circumvented this Court's prohibitions in Northern Natural and in the Transco case because the regulation in this case is nominally addressed to producers.

But the record shows clearly that the purpose and effect of the regulation is to alter the purchasing practices of interstate pipelines.

Indeed, it was justified on the basis that it would cause interstate pipelines to buy more Kansas gas at the expense of gas from other sources outside of Kansas on pain of suffering an economic penalty.

It's for this reason that we contend that the regulation in this case is the same type of case that we had in Northern Natural, but it's in sheep's clothing.

With that brief introduction, let me outline the facts.

The regulation that we're talking about in this case applies to the Kansas Hugoton Field.

It is one of the largest, if not the largest, gas field and one of the old gas fields in the United States.

Northwest Central is one of several interstate pipeline companies that purchased gas from the Kansas Hugoton Field under long-term contracts.

The natural gas pipeline companies that purchase gas in this field have invested hundreds of millions of collars in pipeline facilities to take gas in the field.

And those facilities were authorized by the Federal Energy Regulatory Commission upon a showing that there would be sufficient reserves to support the investments that were made.

The gas which Northwest Central and other pipelines take in this field is commingled with gas which they take from other sources in other states.

This gas is transported and sold in interstate commerce to retail... to distributors that resell the gas for ultimate consumption for residential, commercial and industrial use.

The rates that are charged by Northwest Central and other pipelines are regulated by the Federal Energy Regulatory Commission under the Natural Gas Act on a cost-of-service basis.

And the cost to purchase gas is probably the... no doubt the largest item in the cost of service, and the mix of gas affects that cost.

And, therefore, the cost to purchase gas is subject to very, very close scrutiny by the Federal Energy Regulatory Commission including prudency reviews as to the mix of gas being used.

Now, the Kansas Commission has authority to regulate production in Kansas.

Under Kansas law, the objective is for the regulation to provide that each owner in a common pool will get its fair share of the gas in place.

So, the purpose of the law is not to promote Kansas gas, but rather to provide a basis upon... in which each producer will get his share of the gas.

In doing that, Kansas establishes allowables for each well on a monthly basis.

The allowables are basically a limit on how much well... how much each well can produce.