Opinion ID: 1265995
Heading Depth: 1
Heading Rank: 7

Heading: jurisdiction: state-federal

Text: The first issue is one of jurisdiction with respect to the determination and payment of royalties under both market value and proceeds leases. On October 24, 1966, the controversy between Mobil and the plaintiff landowners pending in Kansas district courts over amounts paid and to be paid by Mobil to plaintiffs in their status as lessors or royalty owners, was referred to the FPC upon the complaint of Mobil. ( Mobil Oil Corporation v. Carl F. Matzen, et al., Docket No. RI 67-114.) These proceedings were consolidated with Pan American Petroleum Corporation v. Leland C. Waechter, et al., Docket No. RI 67-400. Amoco Production Company is successor in interest to Pan American and was the party defendant in Waechter v. Amoco Production Co., 217 Kan. 489, 537 P.2d 228, adhered to after rehearing, 219 Kan. 41, 546 P.2d 1320. By order issued June 23, 1967, the FPC stated the question at issue as follows: The common question presented is whether royalty payments made to the lessors named in these proceedings are subject to this Commission's jurisdiction under the Natural Gas Act. By a vote of three to two, the FPC determined it had jurisdiction under the Natural Gas Act over the oil and gas leases now before this court and the amounts of royalty payments thereunder. The purport of the decision was that royalty payments under both market value and proceeds leases could not be based on an amount in excess of the FPC ceiling rate. The Commission was reversed in Mobil Oil Corporation v. Federal Power Commission, supra. Mobil held the FPC has no jurisdiction over a royalty owner, over oil and gas leases executed by him, or over a dispute between a royalty owner and his producer as to the amount of royalties payable under such leases. Anyone questioning the foregoing has but to refer to Exxon Corp., FPC Declaratory Order-Royalty, Docket No. RI 76-29 (May 18, 1976), wherein the FPC said: The Commission's jurisdiction over royalty payments by producers to lessors was rejected by the Court in Mobil Oil Corporation v. F.P.C., 463 F.2d 256 (D.C. Cir.1972), cert. den'd, 406 U.S. 976 (1976). The Court held that although the Commission had jurisdiction over rates charged by a producer, it had no jurisdiction over the rate [or price] utilized in computing the royalty payment.  (emphasis supplied) (p. 2) Thus, in the specific area under consideration, federal jurisdiction in which the FPC is authorized to act is limited to fixing just and reasonable rates charged by a producer for the protection of the consumer. The FPC has no jurisdiction over the price utilized in computing royalty payments. The Constitution of the United States established a federal system of dual sovereignty. For purposes here concerned, federal jurisdiction consists of that conferred by the Constitution and valid Congressional enactments. Governmental powers not delegated to the United States by the Constitution are reserved by the Tenth Amendment to the states  or to the people. An essential feature of our dual system is that in some areas federal jurisdiction is exclusive. In others, state jurisdiction is exclusive, and in still others, federal and state jurisdiction is concurrent. (16 Am.Jur.2d, Constitutional Law, § 198-209, pp. 433-448.) In its broadest context, the power to regulate (and therefore to protect) commerce is an express grant of Constitutional authority to the federal government. When the federal sovereignty in this area has been implemented, state acts which are in conflict must give way. But the Constitutional provision is not a universal grant, available under any and all conditions. It is an express and specific allocation of legislative power, and it is Congress that regulates commerce among the states and with foreign nations. The United States Supreme Court has determined that Congress, by the enactment of the Natural Gas Act, did not intend the federal government to occupy the entire field of regulatory jurisdiction to the exclusion of the states. ( Power Comm'n v. Panhandle Co., 337 U.S. 498, 502-515, 93 L.Ed. 1499, 1503-1510, 69 S.Ct. 1251. Power Comm'n v. Hope Gas Co., 320 U.S. 591, 609-613, 88 L.Ed. 333, 348-350, 64 S.Ct. 281.) In Power Comm'n v. Panhandle Co., supra, it was said: ... [T]he Natural Gas Act was designed to supplement state power and to produce a harmonious and comprehensive regulation of the industry. Neither state nor federal regulatory body was to encroach upon the jurisdiction of the other. Congress enacted this Act after full consideration of the problems of production and distribution. It considered the state interests as well as the national interest. It had both producers and consumers in mind. Legislative adjustments were made to reconcile the conflicting views. (emphasis supplied) ( Id. at 513) In F.P.C. v. Transcontinental Gas Corp., 365 U.S. 1, 5 L.Ed.2d 377, 81 S.Ct. 435 (January 23, 1961), the Court said: ... Congress, in enacting the Natural Gas Act, did not give the Commission comprehensive powers over every incident of gas production, transportation, and sale. Rather, Congress was `meticulous' only to invest the Commission with authority over certain aspects of this field, leaving the residue for state regulation. Panhandle Eastern Pipe Line Co. v. Public Service Comm'n, 332 U.S. 507. (emphasis supplied) ( Id. at 8) and further: ... When Congress enacted the Natural Gas Act, it was motivated by a desire `to protect consumers against exploitation at the hands of natural gas companies.' Sunray Mid-Continent Oil Co. v. Federal Power Comm'n, 364 U.S. 137, 147. To that end, Congress `meant to create a comprehensive and effective regulatory scheme.' Panhandle Eastern Pipe Line Co. v. Public Service Comm'n, 332 U.S. 507, 520. See, Public Utilities Comm'n v. United Fuel Gas Co., 317 U.S. 456, 467. It is true, of course, that Congress did not desire comprehensive federal regulation; much authority was reserved for the States. ( Id. at 19) We have here the clearest possible example of a gas field over which there is concurrent state and federal jurisdiction. In the area of jurisdiction to determine royalty payments, either the state or federal government regulatory power must prevail  only one sovereign has jurisdiction. Clearly, Congress could have given the FPC jurisdiction to use the ceiling rate to determine royalty payments due Kansas landowners; just as clearly, Mobil teaches it has not done so. Congress was meticulous only to invest the FPC with authority over certain aspects of the interstate transportation and sale of natural gas, leaving the residue of the power to be exercised by the states. Indeed, the Commission's jurisdiction is limited only to that conferred by the Act  to fix just and reasonable rates with respect to gas moving in interstate commerce for resale to protect consumers against exploitation at the hands of natural gas companies. No express or implied power was conferred upon the Commission with respect to lessor-landowners or their royalty interest in the natural gas produced from their land. The Act is silent concerning the use of the FPC ceiling rate to determine the lessee's royalty payments to the lessors. The jurisdiction conferred by the Natural Gas Act was for the limited purpose of protecting the consuming public. A just and reasonable rate is fixed by the FPC for that purpose. Where that purpose has been exercised, the FPC's jurisdiction under the Act is exhausted. It is at an end, and may not be expanded by the courts. The rate fixed under FPC's limited jurisdiction for the purpose of protecting the consumer may not be used for another purpose  to measure the payment of royalty. Mobil decided the FPC's jurisdiction under the Natural Gas Act does not extend to a royalty owner, a lease contract between the landowner and producer, or the payment of royalty thereunder, and further, that the FPC ceiling rate fixes no limit on the measure of royalty to be paid under a lease. See, Placid Oil Company v. Federal Power Commission, 483 F.2d 880 (5th Cir.1973); Mobil Oil Corp. v. FPC, 417 U.S. 283, 41 L.Ed.2d 72, 94 S.Ct. 2328 (1974). The rate fixed for a purpose within the FPC's jurisdiction may not be used for a different purpose wholly outside that agency's jurisdiction. The FPC rate may not be used by this court as the measure of royalty under these leases.