                                                    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."
