The Supreme Court last week refused to review a case in whichKansas gas producers could wind up paying millions of dollars incustomer refunds for selling gas in the 1980s at prices that,because they incorporated the state’s ad valorem tax, may have beenabove the allowed legal limit.

BP Amoco Plc, Occidental Petroleum, Exxon Mobil and UnionPacific Resources Group asked the high court to address the narrowissue of whether producers should have to pay interest on anyrefunds they might be liable for if they sold Kansas gas at pricesthat exceeded the legal levels of the Natural Gas Policy Act(NGPA). The issue is an important one, given that about 80% of therefund amounts potentially owed by producers are said to beinterest.

The producers’ request stems from a 1998 decision in which FERCdirected Kansas producers to pay refunds to LDC customers whopurchased gas produced in Kansas between 1983 and 1988 at illegalprices. At the time, it was estimated that the refunds could total$500 million-plus.

For many producers, both major and small, the FERC ruling wasthe ultimate irony since it required them to pay big time for amistake that its predecessor, the Federal Power Commission, made in1974 when it held the Kansas ad valorem tax could be recovered byproducers as an add-on under the NGPA. A lawsuit was filedchallenging the 1974 decision, and the U.S. Court of Appeals forthe D.C. Circuit remanded the case to FERC, which reversed itselfon the recoverability of the tax in 1998. Producers asked theCommission to give them an across-the-board waiver of the interest,but FERC rejected their request.

What now? The ball is in FERC’s court, says one Washington D.C.lawyer close to the case. “The Commission better start somehearings now, and figure out who owes what,” he said. He estimatedthat FERC will have to decide refund claims in about 1,000 separatecases or more.

Susan Parker

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