Natural gas producers scored a big victory last week when theFederal Energy Regulatory Commission opened the door for them topost surety bonds in lieu of the multi-million-dollar refunds tocustomers that are due to be paid by March 9th.

The surety bonds will furnish producers with a “means ofpreserving [their] working capital” until disputes over pipelines’calculations of the amounts owed by individual producers areresolved, according to the Commission. At the same time, it willprovide a “protective mechanism” ensuring that customers will bepaid the refunds owed them, a FERC staff member noted. The downsideto bonding is that producers will have to continue paying intereston their refund principal as long as the bond is in effect.

Producers also still have the option to pay disputed refundamounts into an escrow account. The benefit of this alternative isthat producers won’t be required to pay any interest, and therefunds will not be distributed to customers until disputes areresolved.

The Commission also granted Anadarko Petroleum’s specificrequest to post a bond for its refund amount that it claims is owedby Panhandle Eastern, its former owner.

The Commission last week did not rule on producers’ bid topostpone the refund payment deadline until July 9th. Barring a stayfrom the courts, “I would doubt very much that the Commission willchange that deadline,” said the FERC staff member.

The total refunds owed are estimated at $500 million, of whichabout 80% is said to be interest alone. The recipients of therefunds will be mostly LDC customers who bought gas produced inKansas between 1983-1988 at prices that, because they included thestate’s ad valorem tax as an add-on, exceeded the level allowedunder the Natural Gas Policy Act (NGPA).

Susan Parker

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