Senator George Parkhouse                             Opin. No. WW-29
The Senate of The State of Texas
Austin, Texas                                        Re:   Constitutionality    of
                                                           Committee     Su.bstitute
Dear Senator    Parkhouse:                                 for Senate Bill, LOI.

             Wi.th reference   to your letter of February 6, 1957, requesting an
opini.on on the constitu,tionality  of the above captioned bi.lll, we tende,r the lollow-
ing opinion:

            SUMMARY      OF COMMITTEE         SUBSTITUTE      FOR S. B. NO.      101

             Section 1 declares the policy, intention and purposes of the Legislature.
The policy of the Legislature      is declared to be to save, protect and preserve         the
soi, of thi,s State for posterity.    It is stated that in many areas of “.he State there
is a total lack of surface water:> but that in many of such areas there is an ample
supply of underground water whi,ch might be used to water such 1an.d and grow
cover crops that would prevent wind as well. as water erosion due $0 excessi,ve
rainfall, thereby permj.tting soil conservation         practices.  It is fti,rther stated that
where there exists ample subsurface          reservoirs    of water, the cost of pumpin.g
such water is prohibitive,     but there are great reservoirs       of naturai gas prodwed
and sold at prices such as would permit the pumping of water for irrigati~oxn, and
would ai,d in the prevention of soi.1 erosi,on, and would promote the general wel~fare.
Because of their importance,       Sections 2 and 3 are quoted in farl,l.,as hollows:

              “Sec. 2. From and after the effective date of this act-. every
       person owning or operating any gas weI.1,from which natural gas
       is produced, sold or used off the premises     on which such gas we!l
       is located in order to aid in the prevention of soil erosion and the
       protecti,on of the soil, shall make available,  from the production
       of such gas well, to the person or perSons engaged in agricul,tural
       acti,vjties u,pon such premises,  if requested to do so, gas from the
       production of said well, up to an, amount equal to the royalty i,nterest
       of the owner of the land on which said well is located, as reflected
       by the terms of the oil and gas lease of such person owning or
       operating said gas well, for the operation by such person or pesson,s
Senator    George     Parkhouse,     Page   2 (WW-29)




          engaged in agricultural  activities of pumps necessary    for the
          pumping of said water, as may be necessary      and propar for
          the irrigation of such portion of said premises   as may be de-
          voted to the growth of agricultural  products or to pasture or
          orchard use, to the end that the soil upon which said agricul-
          tural produc~ts are grown shall be preserved    and protected
          from erosion due to any cause:.”

                ““Sec. 3, The prices, terms and conditions upon which,
          natural gas sha1.l be made available under thi.s act shall be
          determined     by negotiation between the parties.     In the event
          of their inability to agree as to any or all of such prices, terms
          and conditions,     either party to the negotiation may apply to the
          Railroad Commission        of Texas to fix same.    In reaching its
          determination,     the Railroad Commission      shall consider the
          necessity    of the applicant for the gas for the purposes specified
          herein, the value of such gas and its components,        the efficient
          operation of the gas wells of the producer of the gas, the obliga-
          tions assumed by such producer in the sale or other disposition
          of such gas, and all other factors relevant to the effectuation        of
          the policy and purposes of this act with justice to all concerned.”

            Sec. 4 provides that under this act, the procedure before the Railroad
Commission     shall be that applicable to such proceedings   by general law and orders
promulgated    by the Commission     and provides that appea1.s may be taken from its
decisions  in the same manner.

               Sec.   5, relates   to parties   to such proceedings.

            Sec. 6 provides that this act shall not create an obligation on the part
of the operator of a gas well to furnish gas for use off the premises    from which
it is produced or to assume any public utility duties to the public at large.

           Sec. 7 provides that in case of a controversy   before the Commission,
the owner or operator of the gas well or wells involved shall make available to
the persons entitled thereto natural gas as prescri.bed in Set, 2 on such tempo-
rary terms and conditions as the Commission     shall prescribe   by order or gen-
eral rule subject to adjustment retroactively.

               Sec. Elprovides for penalties against         an owner or operator     who fails
to comply      with any duty imposed by the act.
Senator    George   Parkhouse,   Page    3 (WW-29)




              Sec. 9 declares all laws or parts       of laws in conflict    with the act
repealed    to the extent of such conflict.

             Sec.   10 is a standard    saving   or severability   clause.

              Sec. 11 delcares    an emergency    and suspends      the constitutional
reading    rule, and provides    that the act shall take effect    from and after its
passage.

            We have examined the proposed legislation     with particular reference
to a majority decision of the Supreme Court of Oklahoma1 holding a similar bill
violative of Article  2, Section 24, of the Oklahoma Constitution in that the act
constituted a taking of property without due process    of law. Phillips Petroleum
Company v. Corporation      Commission    of Oklahoma, et al., Cause No. 37250,
November    20, 1956, (as yet reported only in an advance sheet, Volume 27, The
Journal, pa 1920).

           An opposite result was reached when the validity of the same bill
was questioned before a three-judge   Federal  District Court.  Phillips Petroleum
Company v. Ray C. Jones, et al., December     12, 1955, No. 6794, Civil. Docket,
District Court for United States Western District of Oklahoma,    (not yet reported).

             The main questions for our determination        are (a) whether the bill
is violative of Article   1, Section 17, of the Constitution   of Texas, rel.ating to
property taken for public use; (b) whether the bill violates Article         1, Section 16,
of the Constitution   of Texas, protecting the obligations     of contracts;   and (c)
whether the bill. violates substantive   due process afforded by Article        1, Section
19, of the Constitution   of Texas and the 14th Amendment        to the Federal Consti-
tution.

             The Constitution    of Texas authorizes     the conservation   of our natural
resources,     Article XVI, Section 59~2, Vernon’s Annotated Constitution.          That
the State has the constitutional    authority to enact reasonable      regulatory   legis-
lation for the conservation    of our natural resources      when not otherwise in con-
travention of constitutional    principles,   is settled law. 31a Tex. Jur., Oil and
Gas, Set, 354.     The constitutional   provision construed in the Oklahoma case,
w,       provided a detailed method for ascertaining        compensation    for property
taken for a public usee2 This provision         differs from the provisions    of Article  1,

1.   Two Justices dissenting.
2.   See Appendix.
Senator   George   Parkhouse,   Page 4 (WW-29)




Section 17, of the Texas Constitution.    In our opinion, the duty to make gas
available to irrigators,  as created by the Act, constitutes  a “taking” within
the meaning of Article   1, Section 17, of the Constitution of Texas.

             We must presume that the Railroad Commission,            in enforcing the
provisions   of this Act, will do so with the provi.sions of Article      1, Section 17,
of the Texas Constitution     in mind.     We see no reason why the Commission
could not adopt rules and regulations        that would fully satisfy this constitutional
requirement.     However,    since the Act itself does not set up machinery        for
determining    the question of whether an applicant is entitled to the benefits pro-
vided by the Act, it will be incumbent upon the Railroad Commission              to first
determine that a particular      applicant will apply the use of the gas to the purpose
of soil conservation.     Otherwise,    an order of the Commission      making gas avail-
able under the Act would be questionable         on the ground that the taking was not
for a public purpose.     While a particular     order of the Commission       might be held
violative of Article   1, Section 17, by an appellate court, because that order might
be declared unreasonable,       arbitrary,   or capricious,  3 this possibility   does not
make the bill unconstitutional      on its face.

            The above quoted language in Section 2 of the bill presents an entirely
different question.   While it is true that the Act’s basic objective, soil conserva-
tion, lies within the pale of the state’s police power and authority, the provisions
of Section 2 limiting the amount of gas available to the owner of the surface of
land from which the gas is produced to an amount not more than that owner’s
royalty interest creates a fatal discrimination     as between those surface owners
owning royalty interests   and those who do not.

             Under the provisions     of the Fourteenth Amendment        of the Federal
Constitution  and Arti,cle 1, Section 19, of the Constitution      of Texas, the Legis-
lature cannot pass legislation     which makes an improper discrimination            by con-
ferring the privileges    on a class arbitrarily    selected from a large number of
pers,ons standing in the same relationship       to the pri.vileges and purposes of an
act, without a reasonable    distinction of substantial difference,       16a C.J.S.,   Con-
stitutional Law, Section 489.     In order to be valid, a statutory     classificati.on



3.   For example,      see Marrs v, Railroad Commission,    142 Tex. 293, 177 S.W.2d
     941, where the court held a proration order of the commission      violative of
     Article   1, Section 17, of the Constitution of Texas and stated that the order
     constituted a ““taking” within the meaning of that provision,
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        Senator   George   Parkhouse,   Page   5 (WW-29)




        must reasonably     promote some proper object of public welfare or interest,
        must rest on real and eubstantial differencea,     having a natural, reasonable,
        and substantial   relation to the subject of the legislation, and must affect
        alike all persons or things within a particular    class, or similarly   situated.
        Hawaii Brewing Corp. v.-Bowles,       Em. App. 148 F.2d 846, Fort Worth and D-C,
        Ry. ‘Co. v. Welch, Civ. App. 183 S.W.2d 730, 735, error ref”d.       In our opinion,
        the discrimination    between surface owners owning royalty and such owners
        who do not own royalty has no reasonable      basis in the declared purpose of the
        legislation.

                     As to the constitutional    question of the impairment     of the obligations
        of contract,   it is well settled that the obligations   of contracts   must yield to a
        proper exercise      of the police power, and vested rights cannot inhibit the proper
        exercise   of the police power.     Treigle v. Acme Homestead        Assn.,  297 U.S. 189,
        197 (1936).    16 C.J.S. Constitutional    Law, Section 175. Where the ‘takingW is
        for a public purpose and ‘“due process ” is served by a method for fixing value,
        the impairment      of contracts becomes     immaterial.    The true owner of the gas
        at the time of taking may be paid for its value whether he owns by contract of
        purchase or by holding a mineral title to land.

                                               SUMMARY

                     It is our opinion that committee        substitute for Senate Bill
                     No. 101 is unconstitutional       on the ground that the limita-
                     tion on gas made available under the bill~to persons having
                     royalty interests      in connection with the surface devoted to
                     agricultural    activities,   as provided by Section 2 of the bill,
                     constitutes    an unreasonable     classification  between persons
                     similarly    situated.    We are of the opinion, however, that
                     the bill is not otherwise unconstitutional.

                                                              Very   truly yours,

                                                              WILL    WILSON
                                                              Attornev   General



        HB:tiw
                                                                  Houghton    Brownlee,    Jr,
        APPROVED:                                                 Assistant


        OPINION     COMMITTEE
        H. Grady    Chandler, Chairman
