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KS Case Pits State Law Against FERC

June 15, 1998
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KS Case Pits State Law Against FERC

Filings before the FERC relating to refund of ad valorem taxes improperly collected by Kansas gas producers during the 1980s question whether FERC's authority overrules that of the state legislature.

Several parties filed at the FERC earlier this month to block a motion by producers seeking a general waiver of their obligation to seek refunds of ad valorem taxes from Kansas royalty owners due to passage of Section 7 of Kansas House Bill No. 2419.

The Missouri Public Service Commission, City Utilities of Springfield, NorAm division Innegasco, Proliance Energy, and Missouri Gas Energy are asking the Commission to summarily dispose of the producers' motion as it improperly trespasses on Commission authority.

The filing is the latest round in the battle in which Kansas gas producers are on the hook for $500 million for gas they sold in the late 1980s at prices which - because they included the states ad valorem taxes - were above the legal limit allowed by federal law. In January, the Federal Energy Regulatory Commission denied rehearing of an earlier decision ordering the producers to refund the $500 million, at least 80% of which is in the form of interest. Refunds are to be passed through by pipelines to mostly LDC customers to cover the period between Oct. 4, 1983 and June 28, 1988.

"The two sides of this issue present a stark contrast: on one side, the Commission ordered that producers seek refunds of the unlawfully collected ad valorem tax amounts from royalty owners, while, on the other side, Kansas, through Bill No. 2419, enacted after the Commission's orders, would preclude recovery of those same refund amounts," those challenging the producer motion wrote in their filing. "It is quite clear that Bill No. 2419 was passed with the sole intention of thwarting federal law for the benefit of Kansas royalty owners."

Enforcement of Bill No. 2419 would invalidate the Commission's order to producers to refund the ad valorem taxes collected. "Where compliance with both laws is impossible, federal law is controlling."

Elsewhere on the same battlefront, legislation sponsored by two Kansas senators seeks to amend the Natural Gas Policy Act of 1978 so that interest and penalties are waived on the ad valorem tax refunds. However, Leroy Towns, chief of staff for legislation co-sponsor Pat Roberts, said the bill is not expected to advance out of committee.

Joe Fisher, Houston

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