The producer refund case has taken a unique turn as severalpipelines have stepped up to argue that while natural gas producersmust pay them the $500 million in refunds – today is the deadlinefor payment – they don’t believe they have to pass that money on totheir customers.

ANR Pipeline is the latest pipeline to argue that it should bepermitted to retain its share of the refunds because flowing themoney through to customers would violate a settlement agreementthat it reached in 1992 with shippers on its system. Natural GasPipeline Company of America (NGPL) and El Paso Natural Gas havemade similar arguments.

“ANR and its settling customers negotiated a settlementcompromise that specifically limited ANR’s obligation to flowthrough only such producer refunds actually received within afinite time period,” which has expired, said the pipeline incomments at FERC {RP98-54]. ANR believes it is “reasonable toassume” its customers were aware of the producer refunds at issuewhen they agreed to “limit the time” for flowing through producerrefunds on ANR.

Colorado Interstate Gas (CIG) took a different tack, arguingthat FERC lacked jurisdiction over direct sales by pipelines totheir customers and, therefore, could not order them to passthrough the refund amounts. Whether pipelines should flow backthese refunds “is governed solely by the contract between thepipeline and the end-user,” it told the Commission.

In another major move, FERC last week issued 20 new dockets inthe refund case, setting producers’ refund settlements for comment- a precursor to possible hearings to resolve the disputes overrefunds amounts owed by individual producers. This is a “majordevelopment” for producers, said a Washington D.C. attorney closeto the case. “It’s the first time that the Commission hasrecognized that we [producers] have any rights” to hearing on therefunds. The refund amounts were determined by eight interstatepipelines, but producers have hotly contested the amounts. “Werecognize that we owe some, but we don’t owe that much,” theattorney noted.

In an emergency motion filed last week, CIG urged FERC to rejectproducers’ individual requests for hearings on their refundsettlement offers. It insisted these were not “genuine settlementoffers,” but rather were “thinly-veiled attempts by the producersto delay fulfilling their obligations to provide full refunds ofthe Kansas ad valorem taxes…”

Producers got another shot in the arm when the Commission ruledthe pipelines must return to producers any refunds that are”wrongfully taken,” the attorney noted. Upon receiving the refundpayments, which are due today, pipelines have 30 days to distributethe refunds. Producers will pay “just what we [estimate] we owe,not the 100% of what they [the pipelines] invoiced us for,” he toldNGI. A producer has the option to pay the refund in full, put it anescrow account pending resolution of a dispute over amount owed, orto post a bond guaranteeing payment at a later date.

The recipients of the refunds will be customers, mostly LDCs,that purchased gas produced in Kansas between 1983-1988 at pricesthat, because they included the state’s ad valorem tax, exceededthe legal limit allowed by the Natural Gas Policy Act of 1978.

Susan Parker

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