Lone Star Gas Ruling Upheld by Oklahoma Supreme Court

By L. D. Barney | THE JOURNAL RECORD, July 29, 1986 | Go to article overview

Lone Star Gas Ruling Upheld by Oklahoma Supreme Court


L. D. Barney, THE JOURNAL RECORD


The Oklahoma Supreme Court has upheld in a 5 to 4 ruling the formula used by the Oklahoma Corporation Commission in calculating Lone Star Gas Co.'s rate base and cost of gas for its state ratepayers.

In awarding Lone Star a $5.28 million rate increase in November 1983, the commission's computations were based on what is used and useful to Oklahoma ratepayers and not Lone Star's system-wide costof gas investment.

Lone Star operates its natural gas public utility in both Texas and Oklahoma. Its transmission systemspans the heart of Texas, that state's southern plains and Gulf Coast. About 98.3 percent of thecompany's system-wide demand is in Texas.

In Oklahoma, Lone Star's transmission system encompasses only a southeastern portion of the state and accounts for 1.7 percent of total system utilization.

Texas gas is priced higher than Oklahoma gas utilized by the company and computing Lone Star's cost of gas on a system-wide average would increase the cost of gas to Oklahoma ratepayers by $1.22 per thousand cubic feet, the court said.

Oklahoma limits the increase in cost of gas dedicated to the Oklahoma intrastate market while Texas does not, which accounts for the difference.

Lone Star appealed the commission's formula arguing it was caught in a "regulatory squeeze" because the Texas Railroad Commission, the equivalent of Oklahoma's corporation commission, allows Lone Star to roll-in a system-wide average.

The court ruled that Oklahoma has an excess supply of lower priced natural gas and Lone Star benefits by having Oklahoma on its system.

"Lone Star," the court said, "advocated a formula which attributes to Oklahoma ratepayers expenses of the Lone Star operation which are not used and useful to Oklahoma ratepayers.

"A utility rate which provides a fair return upon the fair value of Lone Star's property used and useful in supplying the service furnished can neither be said to be unreasonable or unjust, nor confiscatory in nature.". .

- The staff of House conferees on the committee on tax reform is rumored to be considering a position that would allow the oil and gas industry to keep deductions for intangible drilling costs and percentage depletions in full but, under the regular tax system, a net income offset.

An operator would get the deduction depending on income.

How such an offset could be implemented is apparently still to be worked out but its not likely to benefit companies in the initial phases of a drilling program with little income. . .

- Warren Drilling Co. has apparently hit a good well by re-entering an abandoned Major County attempt and drilling another 800 feet or so deeper.

The Oklahoma City company's Schoeppell 1-7, ne 1/4 Sec 7 20N 12W had calculated open flow on a four-point test of 24 million cubic feet of natural gas daily from the Mizner Hunton formation.

It is flowing 3.6 million cubic feet a day and 31 barrels of condensate on a ba13/64-inch choke with 2,850 pounds of flowing tubing pressure. The gas is being sold to Phillips Petroleum Co.

Total depth of the well was 9,259 feet. It was perforated between 8,720 and 8,732 feet.

The well had previously been drilled to 7,944 feet, reportedly by TXO, then stopped. . .

- The Oklahoma City Assxociation of Petroleum Lease and Title Analysts will hold its next meeting Aug. 19 at the Marriot Hotel on Northwest Highway.

Guest speaker will be Monica A. Amis on "Miscellaneous Title Problems Associated With Bank Failures in Oklahoma.". .

- Petroleum imports from the Organization of Petroleum Exporting Countries increased sharply during the first four months of the year while imports declined from non-OPEC producers, says the American Petroleum Institute. …

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