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High Court Asks DOJ to Examine Gas Taxation Issue

October 19, 2009
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The U.S. Supreme Court has agreed to take up a case involving Missouri Gas Energy (MGE) and whether an Oklahoma county has the right to tax natural gas temporarily stored by the Kansas City, MO-based distributor in Oklahoma.

The high court has asked the Department of Justice to analyze the legal issues arising from the dispute between MGE and the property tax assessor in Woods County in the Oklahoma Panhandle.

In October 2008 the Oklahoma Supreme Court overturned a lower court's decision, ruling MGE owed Woods County taxes for gas stored in the North Hopeton facility. The Kansas City distributor challenged the ruling, claiming that it was immune to the taxation under the the Commerce Clause of the U.S. Constitution. Millions of dollars are at stake in the case.

Harriet Miers, former White House counsel, filed the petition for certiorari earlier this year on behalf of MGE.

The crux of the case involves the clash of local-state laws with federal laws -- an issue into which the Supreme Court likes to sink its teeth. Specifically, in this case the issue is whether states and local governments have the power to levy an ad valorem tax on a distributor's natural gas that is stored temporarily in an interstate pipeline system. The outcome of the case could have far-reaching impact on other gas distributors.

The Oklahoma Supreme Court found that "all of the natural gas [at] issue had been delivered to Panhandle Eastern Pipeline Co., an interstate natural gas pipeline carrier, for transport, delivery and storage. The transportation of natural gas in interstate commerce includes the temporary storage of that gas. Thus neither the gas delivered to Panhandle Eastern for transport nor the gas delivered to Panhandle Eastern for storage may be subject to local ad valorem taxation under the U.S. Constitution," argued the American Gas Association (AGA), which represents gas local distribution companies (LDCs), in an amicus curiae brief before the Supreme Court.

"It is indisputable that natural gas in Panhandle Eastern's storage facility is in interstate commerce...Since FERC [Federal Energy Regulatory Commission] has found that Panhandle Eastern's storage facility serves interstate commerce, the actual molecules of gas stored there constitute gas that is being transported in interstate commerce," the AGA said.

"The Commerce Clause has long been interpreted to prohibit the states from taxing property 'in transit' in interstate commerce," the distributor group said.

"The persons most impacted by ad valorem taxes imposed by local jurisdictions like Woods County, OK, will be LDCs and the 64 million consumers served by AGA's members to who these costs may be passed."

MGE, a subsidiary of Southern Union Co., serves more than 500,000 gas customers in 155 western Missouri communities. It does not supply gas to Oklahoma.

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