The Supreme Court earlier this week refused to review a case inwhich Kansas gas producers could wind up paying millions of dollarsin customer 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 Corp. and UnionPacific Resources Group asked the high court to address the narrowissue of whether individual producers should also be required topay interest in the event it’s found 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 could be interestalone.

The producers’ request stems from a 1998 decision in which FERCdirected Kansas producers to pay an estimated $500 million-plus toLDC customers who purchased gas produced in Kansas between 1983 and1988 at illegal prices.

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.

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