R-195
THEATTORNEYGENERAL
OFTEXAS
AUSTIN~ TEXAS
Warch 6, 1947
Hon. H. L, Winfield, Chairman
Oil, Qas and Conservation Committee
3tite Senate
Austin, Texss 'Opinion He. V-62
Rss Senate Bill 227 providing
for, the sale of sweet or
eour gas for the raufaa-
ture of arrboa black and
establishing a minimum
Dear Sirs priae
we have your letter ef February 28, 1947,
reading as Pollowss
"At @'public herring of the Oil,
Gas and Conservation CoPrmittee February
26th, Benate Bill 227, as amended, by
Hazelwood, on~motion of Senator Harris,
was sent to a sub-committee with in-
structions to obtain an opinion from the
Attorney General of Texas on the validity
of the bill as amended, with instructions
to. raport Mak one week from that date.
"Attrahed hereto is Committee Amend-
ment lo, 1 whioh a-epreseats the entire
bill 8s amended. As Chairman of the Oil,
Gas and Conservation Committee, and rt
the request of the Committee, I am request-
ing an oplnien on (I) the validity or IOlo
galit of' the bill as l wholeg an* (2) the
validity or legality of the following pro-
vision aontained in the amended bill! land
provided (2) that the price paid for SUoh
gas' at the wellhead at least equals the mar-
ket price paid at the wellhe8d in the area
for gas used for light and fuel purposes.D
"You will observe the fact that this
bill would smend, if passed, a conserva-
tion statute now on the books, and that
HOQ. H, L. Winffeld - Page 2, V-62
the placing of the minimum price to be
paid for the gas as quoted above is done
in connection with the conservation fea-
tupes of the existing law, You will also
observe that the language quoted does not
in itself fix the priae OS the gas purchas-
ed under its provisions at any definite or
fixed amount, but the price would Sluctuete
with the ordfnary market price in the field
as it is establlshed from time to time by
ordinary competitive methods for gas which
is used for fuel and light purposes.”
You informed us In a supplemental letter of
March 3, 29’47, 6s Pollows~
“In connection with the request for
the opinion on Senate Bill 227 which was
given to you recently, may I add, as
Chalrmsn of the Committee, that there was
certain teatfmony end evidence before the
Committee Introduced in behalf of this bill
that there now exists e considerable num-
her of gas wells~ in the area affected by
this proposed legislation which have no
pipe line connections OP market outlets for
the gas. In this connection, it is Blso
in evidence that a lack of conneation neces-
sarily results in drainage of non-producing
gas wells in the area 3
“There fs also evidence of the vasDfa-
tion in prices paid for gas used in the
manufacture of carbon black, the history
of such prices ~“SP such #as having been at
times exceptionally low0
The proposed amendment reads as Pollows:
“SECTION 1 c Section 3, Article 6008~3,
Title 102,‘~ of Vernonss Civil Statutes of
the State of Texas, Annotated, Revision of
1925, being Senate Bill No0 407* Acts of the
Forty-fifth Legislature, of the year 1937,
is amended by addlng a new section thereto
to be known as subdivision (e), shall nere-
after read 8s folPowss
“t(e) Gas from any well producing either
Hon. H. L. Winfield - Page ,3, V-62
sweet or sour gas from any common reser-
voir producing both sweet and SOUP gas
may be used for the manufacture of car-
bon black without the prior extraction
of Its gasoline content provided (1) it
is utilized In a plant producing an aver-
age recovery of not less than one and one-
hslf (14) pounds of carbon blebk per thou-
sand cubic feet of such gas, and provided
(2) that the price paid for such gas at the
wellheed at least equals the msrket price
paid at the wellhead in the area for gas
used for light and fuel purposes. Xn arri-
ving at such msrket price, In the case of
a reduction not to exceed one-
hali
souP Y f) cent per thousand cubic feet shall
be allowed for purifying such gas to render
it suitable for light and fuel purposes. If
such gas be used by 8 producer, ang roJ;alty
paid shall be paid on the same basis.'
It is undoubtedly within the province of the
Legislature, under its general powers in connecti.on
with natural resources end conservation, to allow sweet
Or sour gas to be sold for the use of making carbon
blrck. There is no constitutions1 p~ovlsi.on to the
contrsrg.
Further, it is our opinion thstthe Legisla-
ture has the power to require thst the price paid for
such gas shall not be less than the market price paid
in the same producing area for gas used for other pur-
Poses l True, this fixes the market price to be paid
for such gas, but no certain amount Is set. The pro-
vision still permits the minimum price to fluctuate
with the market price paid for other gas in the fields.
It is the reoognlsed law of the land todsy thst a
state legislature could go even further and fix a def-
inite minimum price to be psid on gas if the Leglsla-
ture finds such action necessary for oonservation and
to protect the public interest.
In Rebbia v. Hew York (19X3), 291 U.S. 502,
89 A.L.R. 1416, the Supreme Court concluded ss follows:
"Where the public interest was deemed
to require the fixing of minimum prices, that
expedient has been sustsined., If the law-
Bon. H. L. Winffeld - Page 4, V-62
making body within Its sphere of govern-
ment concludes that the conditions op
practices in an industry make unrestrict-
ed comnetition an insdeouate ssfenuard of
the coa8umer,s interests, produce-waste
harmful to the publlc, threaten ultimately.
to cut off the supply of 8. commodity need-
ed by the public, OT portent the destruc-
tion of the lndustm itself. appropriate
statutes passed in an honest effort to
correct the threatened consequences may
not be set aside baoauae the regulation
adopted fixes prices reaaonably deemed by
the legislature to be f8i.r to thoas en-
gaged in the industry and to the consuming
public a * * se” (Italics ours)
In Sunshine Coal Co. v. Akins (194.0), 310 U.S.
381, the Court upheld .a statute fixing the price of coal.
In Federal Power, Commission v. Wetural Ma ?lpe Line Co 0
(1?42), 315 U.S. 575, the court upheld an act fixing the
price of natural gas where the enactment declared that
‘the business of transporting and selling natural gas
and ultimate distribution to the public is affected with
a public interest.” In a concurring opinion of Justices
Black, Douglas and laurphy, it is said, “In a recent se-
ries of cases, this Court haa held that legislative price
fixing is not prohibited by the due process cleuse. -We
believe that , In so holding, it has returned, In part et
least, to the constitutional principles which prevailed
for the first 100 years of our history.”
The fixing of the minimum price for gas as
that price received in the area for gas used for light
and fuel purposes is just and reasonable. using nature1
gas for the manufacture of carbon black requires enormous
quantities of the State,s natural resources which cannot
be replaced 0 The fixing of a minimum price on the gas
used for such purposes will insure that competition among
the various gas owners will not drive the price thereof
down to the point where the go3 will be wasted and lm-
Properly used 0
T(he act does not conflict wi,th the sntl-trust
statutes D It could in no wise be'construed aa an agree-
ment betKeen individuala OP corporations ~8s to a mlnimun
Price. The.act does not exempts those selling or buying
gas for carbon black purposes from the anti-trust ata-
tutes D If those persons combined to fix the market price
.I
Hon. Ii. L. Winfield - Page 5, v-62
of gas at sn arbitrary rate, they would be subject to
prosecution. If freedom of enterprise and competition
should be vi.oleted by any combination of gas buyers in
an sttempt to set a msrket price in a field, the buyens
Could be prosecuted the same as if this 'Act did not
exist.
The requirement of this act is that the price
to be paid must at least equal the market price paid for
gas in the area for fuel and light purposes. It is a
~maxlmum of long standing that "that Is certain which can
be made certain". The market prlae for gas in a given
area for fuel and light purposes can be asoertained by
a court or fact-finding body, It is a mstter suscep-
tible of proof; FOP tax purposes the Comptroller is re-
quired to~determine the market value of gas produced.
Article 7047b(3). The Railroad Commission is reauired
to fix the reasonable price of gss'for certain purposes.
Article 6053.
But for individuals. or corporstions about to
enter into a contract under, this Bill, it may be very
difficultto know exactly what the'msrket price in the
area is. There may be,dlfferent prices within the area,
all of which prices are not known t.6 those oontracting.
Such prioes msg be changed from hour to hour or day to
day, without,knowled#e on the pert of the persons con-
traoting. The word area" itself is capable of different
cons tlruc tlons. Row much territory is included% Does it
mean the producing area, the entire field, or only a seg-
ment? If a segment, how large a segment% It is recom-
mended that the word "area" be, d'efined more particularly.
In order to obviate any danger of the act's be-
ing deolared unconstitutional because it does not speak
in definite and s ecific terms (see Lone Star Gss Co. vs.
Kelly, 140 Tex. 1& 165 S.W. (26) 446, whioh held void
for indefiniteness'en order ~of the Rallrosd Commission
as to malodorant used in gas) it Is recommended that.the
act included a section providing that the msrket price
paid et the wellheed in the area for light and fuel pur-
poses shall be determined by the Railroad Commission
after notice of hearing; that the Commission shell there-
after publish such price in its win and branch offices;
and that ~psrties contracting under this Bill be permitted
to'eccept such posted price as the,minimum price fixed by
this Bill.
It is further reoommended thst the set contain
Hon. Ii. L. Winfield - Page 6, V-62
a recitation within Itself and In the emergency clause
that the production and sale of sweet OP aour gas for
the purposes of msnufacturlng carbon black is affected
with the public interest, Suggested amendments in that
regard are herewith sttached.,
SUMMARY
Committee Amendment No, 1 to Senste Bill
Ro. 227 which provides that sweet or sour gas
may be sold for the purpose of msnufacturing
carbon black under conditions stated In the
amendment, including requirement that the price
psid therefor she14 not be less thsn the msrket
price paid for other gas in the same producing
area, is constitutional and does not conflict
with the anti-trust laws of Texas.
Youra very truly
Greenhill
Assistant
JRG/aom/lh
APPROVED: Harch 6, 1947
,,.’
SUGGESTBDAPlBNDMEMTS
TO SENATE BILL 227
I.
Committee Amendment No. - to Senate Bill 227.
Amend Senate Bill 227 by inserting after Section
a new Section to be numbered Section
-reed as followss
"S?ZCTIOB~ The production and sale of
sweet or SOUP gas for the purpose of manufactur-
ing carbon black is hereby declared to be a mat-
ter which is affected with a public interest."
II.
Committee Amendment No. to Senate Bill 227.
'Amend Senate Bill 227, Section 6 (the emergency
clause) by inserting after the word "land owners"
and before the word "creates" in Line 4, the fol-
lowing:
*and the fact that the manufacture of
cerbon black from sweet OP sour gas is a
matter and business which affects the pub-
lic interest."
III.
Committee Amendment No. to Senate Bill 227.
Amend the caption by inserting after the word
Rpurposes" in the third from the last line, the fol-
lowing:
"declaring the sale of sweet or SOUP
gas for the purpose of manufacturing carbon
black to be a matter and business affecting
the public interest."