ASHLAND OIL, INC. AND ASHLAND EXPLORATION, INC., PETITIONERS V. FRANK GOOD, ET AL. AND MOBIL OIL CORPORATION, ET AL., PETITIONERS V. FERN BATCHELDER, ET AL. AND CITIES SERVICE OIL COMPANY AND CITIES SERVICE COMPANY, PETITIONERS V. CARL F. MATZEN, ET. AL. No. 83-1234, 83-1248 and 83-1278 In the Supreme Court of the United States October Term, 1983 On Petitions for a Writ of Certiorari to the Supreme Court of Kansas Brief for the Federal Energy Regulatory Commission as Amicus Curiae TABLE OF CONTENTS Interest of the Federal Energy Regulatory Commission Statement Argument Conclusion QUESTIONS PRESENTED In the decision under review, the Supreme Court of Kansas held that, under leases containing "market value" royalty clauses, producers of natural gas dedicated to the interstate market must pay royalties to landowners on the basis of an imputed value that substantially exceeds the applicable federal ceiling price for the gas. The government will address the following questions: 1. Whether the state court decision is incompatible with the comprehensive scheme of rate regulation under the Natural Gas Act, 15 U.S.C. 717 et seq., and thus is barred by the Supremacy Clause. 2. Whether the state court decision creates an undue burden on interstate commerce, in violation of the Commerce Clause. INTEREST OF THE FEDERAL ENERGY REGULATORY COMMISSION In the Natural Gas Act, 15 U.S.C. 717 et seq., Congress imposed on the Federal Energy Regulatory Commission /1/ sole responsibility for determining the reasonableness of "rates charged by a natural-gas producer * * * in the sale in interstate commerce of such gas for resale." Phillips Petroleum Co. v. Wisconsin, 347 U.S. 672, 674 (1954). The questions presented in these cases directly implicate the Commission's responsibility for regulating producer rates with respect to sales of gas in the interstate market. The Commission has a vital interest in assuring that uniform enforcement of the federal regulatory scheme is not hampered by state court rulings on matters of local law. STATEMENT Respondents are landowners who filed suit in Kansas state court against certain natural gas producers for the purpose of determining the appropriate royalties owed by the producers for the use of lands leased for the production of gas dedicated to, and sold in, the interstate market (Pet. App. 3a, 30a). /2/ The leases in question provided, inter alia, that the producers were to pay the landholders a percentage (usually one-eighth) of the "market value" of any gas sold off the leased premises (id. at 7a). The state court determined that the market value of the gas may be set at levels significantly higher than applicable federal price ceilings established under the Natural Gas Act, 15 U.S.C. 717 et seq. The question is whether that result violates the Supremacy Clause, and also constitutes an undue burden on interstate commerce, in violation of the Commerce Clause. 1. The gas involved in these actions was produced from the Hugoton field in Kansas, from wells that, for the most part, were drilled prior to 1973 (Pet. App. 4a, 6a). /3/ From sometime after 1960 until November 1978, the gas was sold for resale in interstate commerce (id. at 3a-4a, 6a, 30a, 47a). These producer sales were at all times subject to the just and reasonable ceiling rates imposed by the Commission under the Natural Gas Act. See Phillips Petroleum Corp. v. Wisconsin, 347 U.S. 672 (1954). /4/ In setting ceiling rates for producer sales under the Natural Gas Act. the Commission considered two competing factors: the rates had to be sufficiently high to stimulate production of adequate supplies of gas in the interstate market, but low enough to prevent producers from earning excessive profits. See, e.g., Statement of General Policy No. 61-1, 24 F.P.C. 818, 819 (1960); Area Rate Proceeding (Opinion No. 468), 34 F.P.C. 159, 187 (1965), aff'd sub nom. Permian Basin Area Rate Cases, 390 U.S. 747 (1968). As a result, the Commission developed a two-tiered rate structure, prescribing different rates for different "vintages" of gas depending on the date the particular well was drilled. This rate structure "rested on the theory that for already-flowing gas 'price could not serve as an incentive, and . . . any price above average historical costs, plus an appropriate return, would merely confer windfalls.'" Public Service Commission v. Mid-Louisiana Gas Co., No. 81-1889 (June 28, 1983), slip op. 9 (quoting from Permian Basin Area Rate Cases, 390 U.S. at 797). /5/ 2. The Kansas trial court acknowledged (Pet. App. 33a) that the Commission had set ceiling prices for Hugoton field gas on the basis of vintage, so that "old gas," or gas produced from pre-1973 wells, was priced at levels substantially below those for gas produced from more recent wells. See note 5, supra. /6/ The court concluded, however, that regardless of the vintage of the gas at issue, it would consider the market value of the gas for any given period to be equivalent to the maximum prices set by the Commission for "the most currently drilled wells" (id. at 34a). The court rejected the argument that it was precluded from determining market value on a basis other than the applicable federal ceiling price (id. at 35a). The Kansas Supreme Court affirmed (Pet. App. 1a-25a). The court held that, as a general matter, under a market value lease "value is the price which would be paid by a willing buyer to a willing seller in a free market'" (id. at 9a (citation omitted)). It stated that "(m) arket value of property may be shown by proof of comparable sales" (id. at 12a), and that "'(c)omparable sales of gas are those comparable in time, quality, quantity and availability of marketing outlets'" (id. at 15a (citation omitted)). Furthermore, the court held that "quality, as that term is used in defining comparable sales, does not include the 'legal characteristics' of the gas resulting from 'vintaging'" (ibid.). Consequently, the court rejected the argument that, "under the standards of comparability established by * * * decisions (of other courts), the market value of gas committed to the interstate market cannot be higher than the regulated price ceiling for gas of the same vintage" (ibid.). On the particular facts presented in the instant cases, the Kansas Supreme Court upheld the trial court's determination that, even though the interstate gas in question qualified only for the lower vintage rates established by the Commission for old gas under the regulatory scheme of the Natural Gas Act, the "market value" of that gas during the relevant periods was equal to the higher rates for the new gas established by the Commission (Pet. App. 10a-11a, 14a-15a). In so ruling, the court rejected the producers' contentions that its decision would upset the scheme of federal regulation over interstate producer sales, explaining that "(f)ederal regulation * * * does not extend to the determination of royalties" (id. at 20a). The court pointed out that decisions of this Court "have indicated that a producer who is forced to pay higher royalties on a market value lease may go to the federal regulatory agency and request individual relief from the regulated price which it charges its customers" (id. at 16a; see id. at 16a-20a, citing Mobil Oil Corp. v. FPC, 417 U.S. 283 (1974) and FERC v. Pennzoil Producing Co., 439 U.S. 508 (1979)). ARGUMENT These cases present significant constitutional questions concerning the power of state courts to decide local law issues in a manner that impairs the scheme of federal regulation adopted by Congress under the Natural Gas Act. As this Court has recognized, the overriding goals of the Natural Gas Act are "assur(ing) an adequate and reliable supply of gas at reasonable prices" (California v. Southland Royalty Co., 436 U.S. 519, 523 (1978); see also Atlantic Refining Co. v. Public Service Commission, 360 U.S. 378, 388-389 (1959)), and "encouraging the exploration for and development of new sources of natural gas." FPC v. Texaco, Inc., 417 U.S. 380, 388 (1974). The decision of the Kansas Supreme Court undermines these objectives. If permitted to stand, it undeniably would result in a substantial increase in the royalty costs of the affected producers. As a result, the Commission would be required either to increase the producers' rates so as to absorb all or part of these increased costs or, where constitutionally permitted, to compel the producers themselves to bear the increase. See FERC v. Pennzoil Producing Co., 439 U.S. 508, 514 (1979). In so burdening the federal statutory scheme, the state court has acted in violation of both the Supremacy and Commerce Clauses. Accordingly, we submit that review by this Court is clearly warranted. /7/ 1. a. It is well settled that state action is invalid under the Supremacy Clause if it "stands as an obstacle to the accomplishment of the full purposes and objectives of Congress." Silkwood v. Kerr-McGee Corp., No. 81-2159 (Jan. 11, 1984), slip op. 9; Pacific Gas & Electric Co. v. State Energy Resources Conservation & Development Commission, No. 81-1945 (Apr. 20, 1983), slip op. 11; Fidelity Federal Savings & Loan Association v. de la Cuesta, 458 U.S. 141, 153 (1982). This Court has exhibited particular concern with regard to state actions that "could seriously impair the Federal Commission's authority to regulate the intricate relationship between the (gas) purchasers' cost structures and eventual costs to wholesale customers who sell to consumers in other States." Northern Natural Gas Co. v. State Corporation Commission, 372 U.S. 84, 92 (1963). See, e.g., Exxon Corp. v. Eagerton, No. 81-1020 (June 8, 1983), slip op. 7-9; Arkansas Louisiana Gas Co. v. Hall, 453 U.S. 571 (1981); Maryland v. Louisiana, 451 U.S. 725, 746-752 (1981). The Court's sensitivity in this area stems from its recognition that "(t)he federal regulatory scheme leaves no room either for direct state regulation of prices of interstate wholesales of natural gas * * * or for state regulations which would indirectly achieve the same result." Northern Natural Gas Co., 372 U.S. at 91. b. Because the decision of the Kansas Supreme Court would result either in higher prices to consumers or lower incentives to producers, it impermissibly collides with the federal scheme of regulation of gas producer sales. In FERC v. Pennzoil Producing Co., 439 U.S. at 514, this Court held that the Commission is empowered under the Natural Gas Act to grant "an individual producer a rate increase at variance with the established area or national rate in order to accommodate an increase in royalty costs." /8/ Because the decision below establishes royalty rates on the basis of a market value in excess of the applicable just and reasonable rates, /9/ the Commission may decide, in light of Pennzoil, the increase the producers' rates in order to provide adequate incentives for further production of this old gas. /10/ Indeed, to the extent that the increased royalty costs may cause the producers' costs to exceed the revenues that the producers are authorized to collect under the applicable just and reasonable rates, the Commission may be compelled to grant individual rate relief in order to avoid imposing confiscatory rates. See Pennzoil, 439 U.S. at 519. /11/ If the Commission does raise producer rates, the result would be higher gas costs to consumers. On the other hand, if the Commission determines not to increase the producers' rates, the producers would have little incentive to continue maximum production of this relatively low cost gas. Once again the public interest would suffer and the statutory goals would be thwarted as a result of either a decreased gas supply or the replacement of low cost Hugoton field gas by more costly gas produced elsewhere. In short, the Kansas court's decision provides the Commission with a Hobson's choice: for the Commission to pass through the higher royalty costs to the consumer would drastically increase the price, contrary to a long established rate structure; for the Commission to require the producers to bear the costs would eliminate the incentive for continued maximum production. Under either alternative, the federal regulatory scheme would have to be altered to accommodate the Kansas court's decision. The Supremacy Clause bars such a result. Moreover, the mere fact that, under Pennzoil, the Commission has the authority to grant individual rate relief to producers in order to accommodate state-imposed increases in royalty costs does not alter the situation. As this Court held in Maryland v. Louisiana, 451 U.S. at 751 (footnote and citations omitted): Even if the (Commission) ultimately determined that such expenses should be passed on in toto, this kind of decisionmaking is within the jurisdiction of the (Commission); and the (state) statute * * * is inconsistent with the federal scheme and must give way. At the very least, there is an "imminent possibility of collision." The (Commission) need not adjust its ruling to accommodate the (state) statute. To the contrary, the State may not trespass on the authority of the federal agency. c. The fact that the Kansas court's decision is in the area of local contract law does not alter the analysis. As this Court stated in Northern Natural Gas Co., 372 U.S. at 98, without accommodation by state authorities to the federal scheme under the Natural Gas Act, "the scope of federal regulatory power would vary in accordance with the kaleidoscopic variations of local contract law." Indeed, in several recent cases, the Court has held that state contract law must be subordinated to the Commission's regulatory responsibilities under the Natural Gas Act. In Arkansas Louisiana Gas Co. v. Hall, supra, the Court invalidated a state court decision awarding damages in a breach of contract action brought by a natural gas producer against an interstate pipeline. The state court's damage award rested on the producer's claim that, under a favored nations clause in the applicable gas sales contract, it was entitled to collect a higher price for the gas. However, because the higher rate had not been filed with the Commission as required by the Natural Gas Act, the Court ruled that the state court's award of damages violated the "filed rate doctrine." In so ruling, the Court rejected the argument that the state court "ha(d) done no more than determine the damages (the producers) have suffered as a result of (a) breach of the contract" and that "(n)o federal interests * * * (were) affected by the state court's action." 453 U.S. at 579 (footnote omitted). The Court noted that the Commission had specifically found that permitting the damages award "could have an 'unsettling effect...on other gas purchase transactions' and would have a 'potential for disruption of natural gas markets . . . '" (ibid.). The Court further observed (453 U.S. at 580 (citation omitted)): Even were the Commission not on record in this case, the mere fact that respondents brought this suit under state law would not rescue it, for when Congress has established an exclusive form of regulation, "there can be no divided authority over interstate commerce." Congress here has granted exclusive authority over rate regulation to the Commission. In so doing, Congress withheld the authority to grant retroactive rate increases or to permit collection of a rate other than the one on file. It would surely be inconsistent with this congressional purpose to permit a state court to do through a breach-of-contract action what the Commission itself may not do. The Court reasoned that any other result "would give inordinate importance to the role of contracts between buyers and sellers in the federal scheme for regulating the sale of natural gas" (id. at 582). It also pointed out that "to permit parties to vary by private agreement the rates filed with the Commission would undercut the clear purpose of the congressional scheme" (ibid.). This same reasoning applies with respect to royalty disputes over federally regulated gas. Unless the applicable federal ceiling prices are used by state courts as the basis for calculating royalties, state law would take precedence over the federal regulatory scheme and the Commission would be required to accommodate the exercise of its statutory responsibilities to the disparate decisions of state courts. This principle also finds support in California v. Southland Royalty Co., supra. There, a mineral lease owner entered into a 50-year lease with a producer who obtained from the Commission a certificate of convenience and necessity of unlimited duration authorizing the sale in interstate commerce of gas produced from the leasehold. After expiration of the lease, the owner arranged to sell the gas to an intrastate purchaser at the higher prices available in the intrastate market. This Court held that the owner could not, without first obtaining Commission approval under Section 7(b) of the Natural Gas Act, 15 U.S.C. 717f(b), terminate the obligation to serve the interstate market pursuant to the certificate. In reaching this result, the Court refused to accept the notion that "expiration of a lease to mineral rights terminated all obligation to provide interstate service," noting that, if such were the case, "producers would be free to structure their leasing arrangements to frustrate the aims and goals of the Natural Gas Act" (436 U.S. at 530). The Court agreed with the Commission that "under the statute the obligation to continue service attached to the gas, not as a matter of contract but as a matter of law" (id. at 526). Thus, it was the regulatory status of the gas under federal law, not the incidents of ownership under local contract law, that the Court deemed controlling. The Court pointedly observed, in this regard, that "'(a) regulatory statute such as the Natural Gas Act would be hamstrung if it were tied down to technical concepts of local law'" (id. at 530, quoting United Gas Improvement Co. v. Continental Oil Co., 381 U.S. 392, 400 (1965)). The decision of the Kansas court that, in determining royalties, state courts may disregard the regulatory status of the gas under federal law (Pet. App. 15a), cannot be squared with the decision in Southland Royalty. The Kansas court sought to justify its decision on the ground that "(f)ederal regulation * * * does not extend to the determination of royalties" (Pet. App. 20a). In considering the Supremacy Clause issue, however, it is of no moment that the Commission does not have jurisdiction under the Natural Gas Act over payment of royalties under a typical natural gas lease. See Mobil Oil Corp. v. FPC, 463 F.2d 256 (D.C. Cir. 1971), cert. denied, 406 U.S. 976 (1972). The question under the Supremacy Clause is whether the state has exercised its authority over matters of local law in a manner that is inconsistent with the federal scheme established by the Commission for regulating producer sales in interstate commerce, an area in which the Commission unquestionably has jurisdiction under the Act. See Phillips Petroleum Co. v. Wisconsin, supra. Indeed, the court in Mobil noted in dicta that royalties based on prices above the federal ceiling might be invalid as contrary to public policy and the court left open the possibility that such royalties might also be found to contravene the Supremacy Clause (463 F.2d at 265). In sum, under the Supremacy Clause, Kansas contract law must give way to the overarching scheme of federal regulation of interstate sales of natural gas for resale under the Natural Gas Act. Accordingly, for the purpose of computing royalties, state courts must determine market value on the basis of the applicable federal ceiling prices. 2. The decision below is also flawed because it unduly burdens interstate commerce. The result would be to increase the revenues paid to Kansas landowners at the expense of out-of-state gas purchasers. This sort of economic protectionism is prohibited under the Commerce Clause. More than sixty years ago, this Court held that "(n)atural gas is a lawful article of commerce and its transmission from one State to another for sale and consumption in the latter is interstate commerce." Pennsylvania v. West Virginia, 262 U.S. 553, 596 (1923). Accordingly, "(a) state law * * * of the State where the gas is produced * * * , which by its necessary operation prevents, obstructs or burdens such transmission is a regulation of interstate commerce, -- a prohibited interference" (id. at 596-597). Whether a particular state action constitutes an undue burden on the interstate production and transmission of natural gas is measured by the test enunicated in Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970) (citation omitted): Where the statute regulates even-handedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits. If a legitimate local purpose is found, then the question becomes one of degree. And the extent of the burden that will be tolerated will of course depend on the nature of the local interest involved, and on whether it could be promoted as well with a lesser impact on interstate activities. See Arkansas Electric Cooperative Corp. v. Arkansas Public Service Commission, No. 81-731 (May 16, 1983), slip op. 18. Application of that standard here establishes the constitutional error of the Kansas court. As noted above (see pages 8-10, supra), the decision below would either result in higher rates to consumers of interstate gas or, if the producers are required to bear the costs, would threaten the interstate supply by reducing the incentives for the production of Kansas gas for the interstate market. In either case, the Kansas landowners would benefit at the expense of interstate gas consumers. This state-imposed regime must fail, however, because under the Commerce Clause "a State may not accord its own inhabitants a preferred right of access over consumers in other States to natural resources located within its borders." City of Philadelphia v. New Jersey, 437 U.S. 617, 627 (1978). See New England Power Co. v. New Hampshire, 455 U.S. 331, 338-339 (1982); Maryland v. Louisiana, 451 U.S. at 753-760. CONCLUSION The petitions for a writ of certiorari should be granted. Respectfully submitted. REX E. LEE Solicitor General ELLIOTT SCHULDER Assistant to the Solicitor General WILLIAM H. SATTERFIELD General Counsel JEROME M. FEIT Solicitor THOMAS E. HIRSCH III Attorney Federal Energy Regulatory Commission MARCH 1984 /1/ The term "Commission" refers to the Federal Power Commission prior to Cotober 1, 1977, and to the Federal Energy Regulatory Commission thereafter. See 42 U.S.C. (Supp. V) 7171-7172, 7295(b). /2/ "Pet. App." refers to the appendix to the petition for a writ of certiorari in No. 83-1234. /3/ The Kansas court stated that "(a)lmost all of the gas in issue is classified as 'old' gas, sometimes called 'flowing' gas" (Pet. App. 6a). In Commission parlance, flowing gas is gas produced from pre-1973 wells. See page 3 & note 5, infra. /4/ The Natural Gas Policy Act of 1978 (NGPA), 15 U.S.C. 3301 et seq., which extended the federal regulatory authority to all producer sales, including sales of gas in the intrastate market (see Energy Reserves Group, Inc. v. Kansas Power & Light Co., No. 81-1370 (Jan. 24, 1983), slip op. 4), did not become effective until December 1, 1978. See 15 U.S.C. 3311(b)(4)(C). Consequently, the NGPA'S regulatory scheme is not involved in these cases, although, in the Commission's view, the Kansas court's decision would have a similarly adverse impact on the Commission's responsibilities under the NGPA. See notes 7 & 11, infra. /5/ The Commission's initial approach to vintaging under the Natural Gas Act focused on the date of the contract governing the sale. By 1970, the Commission's just and reasonable ceiling price applicable to Hugoton field gas ranged from 12.5› to 19› per Mcf (depending on the date of the pertinent gas sales contract); in July 1972, the range was increased to 13.5› to 20› per Mcf. Area Rate Proceeding (Opinion No. 586), 44 F.P.C. 761, 786-787 (1970), aff'd sub nom. Hugoton-Anadarko Area Rate case, 466 F.2d 974 (9th Cir. 1972). In 1974, the Commission changed the vintaging approach by focusing not on the contract date, but on the date when the pertinent wells were first drilled. For sales of Hugoton field gas produced from wells drilled on or after January 1, 1973, the ceiling price was raised to 50› per Mcf (escalated 1› per year) as of June 21, 1974 (Just and Reasonable National Rates for Sales of Natural Gas (Just Rates) (Opinion No. 699-H), 52 F.P.C. 1604, 1650-1651, 1655 (1974), aff'd sub nom. Shell Oil Co. v. FPC, 520 F.2d 1061 (5th Cir. 1975), cert, denied, 426 U.S. 941 (1976), and 93› per Mcf (escalated 1› per year) as of July 27, 1976 (National Rates for Jurisdictional Sales of Natural Gas (Opinion No. 770-A), 56 F.P.C. 2698, 2806, 2811 (1976), aff'd sub nom. American Public Gas Association v. FPC, 567 F.2d 1016 (D.C. Cir. 1977), cert. denied, 435 U.S. 907 (1978)). For gas produced from wells drilled on or after January 1, 1975, the maximum price was raised to $1.42 per Mcf (escalated 1› per quarter) as of July 27, 1976 (56 F.P.C. at 2806, 2811). By contrast, for sales of flowing gas (i.e., gas produced from pre-1973 wells), the maximum price was raised to 23.5› per Mcf as of January 1, 1976, and then to 29.5› per Mcf as of July 1, 1976. Just Rates (Opinion No. 749), 54 F.P.C. 3090, 3123, 3128 (1975), aff'd sub nom. Tenneco Oil Co. v. FPC, 571 F.2d 834 (5th Cir.), cert. dismissed, 439 U.S. 801 (1978). In addition, the Commission set a minimum rate for sales of interstate gas produced from the Hugoton field. As of 1970, the minimum rate was 10› per Mcf (Opinion No. 586, 44 F.P.C. at 789). The minimum rate was raised to 18› per Mcf as of January 1, 1976 (Opinion No. 749, 54 F.P.C. at 3124, 3128). In the proceedings establishing the just and reasonable rates for Hugoton field gas, the Commission considered the producers' royalty costs together with other production costs. The Commission estimated the royalty costs as amounting to no more than 16% of the ceiling rate. See, e.g., Just Rates (Opinion No. 699), 51 F.P.C. 2212, 2272 (1974); Opinion No. 770-A, 56 F.P.C. at 2753. /6/ The court described the vintaging approach as "an artificial way of distinguishing some of the current costs as opposed to older costs in the development of the field * * * (for) (t)he purpose of * * * justify(ing) repression of the prices allowed" (Pet. App. 33a). /7/ The petition for a writ of certiorari in Kewanee Oil Co. v. Holmes, No. 83-1250 (filed Jan. 28, 1984), presents questions under the Supremacy and Commerce Clauses that are quite similar to the questions presented here, except that in Kewanee the questions arise in the context of federal regulation under the NGPA, rather than under the Natural Gas Act. For the reasons set forth in this brief, we believe that the Kansas court's decision in Kewanee is incorrect and would have a substantial adverse impact on the regulatory scheme under the NGPA. See note 11, infra. Accordingly, we submit that the Court should either grant the petition in Kewanee together with the instant petitions and set the cases for argument in tandem, or should defer disposition of the Kewanee petition pending the outcome of these cases. /8/ The increase in royalty costs in Pennzoil resulted from a settlement between the producers and the lessor following the commencement of state court litigation involving the lessor's contention that a "market value" royalty clause refers to the unregulated price of natural gas in the intrastate market, rather than to the applicable interstate rates set by the Commission. See 439 U.S. at 511. The Court in Pennzoil took note of the Commission's position that "construction of such clauses is a question of federal law, and that the 'market' referred to is that for interstate gas" (id. at 511 n.2). Contrary to the apparent belief of the Kansas Supreme Court (Pet. App. 20a), however, this Court in Pennzoil did not address, let alone answer, the constitutional questions presented here. The Pennzoil case involved judicial review of the Commission's refusal to grant an individual producer a rate increase above the applicable area and national rates. Because the Court in Pennzoil was reviewing action by the Commission, and not action by a state, it had no occasion to confront the Supremacy and Commerce Clause issues that are before the Court in these cases. /9/ The producers allege that the Kansas court's decision would raise their royalty costs in some cases to approximately 60% of the ceiling prices previously established by the Commission. 83-1234 Pet. 15; 83-1248 Pet. 8 n.12; 83-1278 Pet. 7. /10/ In response to the decision below, several petitioners have filed applications with the Commission seeking permission to increase their rates. The Commission has not yet acted on these applications. /11/ Confiscation is most likely to occur where the producer is selling not at the applicable ceiling rate, but at the substantially lower federal minimum rate. See page 4 note 5, supra. The potential for confiscation is even greater for sales of old gas made after the effective date of the NGPA, because of the higher prices for new gas established in that Act. Indeed, the Kansas Supreme Court has already held that the royalties for NGPA sales can be based on the price for stripper well gas (15 U.S.C. 3318) regardless of the NGPA ceiling rate actually applicable to the gas. Holmes v. Kewanee Oil Co., 233 Kan. 544, 664 P.2d 1335 (1983), petition for cert. pending, No. 83-1250 (filed Jan. 28, 1984). Because of the significant difference between the NGPA stripper well price and the lower NGPA prices applicable to most old gas (see 15 U.S.C. 3314 and 3315), some sellers of old gas would likely have to pay royalties in excess of the applicable federal ceiling rate under the NGPA. See 83-1250 Pet. 13-14 & n.7.