Its prior ruling basically putting the Kansas ad valorem taxcontroversy to rest was based on two incorrect factual assumptions,the U.S. Court of Appeals for the D.C. Circuit conceded last week.But despite the errors, the court said the thrust of its opinionremains the same — Kansas producers owe refunds to customers whopurchased gas in the early 1980s at prices that, because theyincluded the tax, were above the maximum legal limit.

In the Oct. 29 ruling, the appellate court rejected producerarguments that the Commission incorrectly reversed itself in 1998when it held that the tax should not have been passed ontocustomers. As a result of its order, FERC directed Kansas producersto refund $500 million in principal and interest to customers whobought gas in the 1980s at prices that included the ad valorem tax.

But FERC petitioned for rehearing on the issue of the effectivedate for refunds discussed in the October court ruling [AnadarkoPetroleum vs. FERC, No. 98-1227]. The appellate court grantedrehearing, noting that its decision was premised on two incorrectassumptions. First, the court said it didn’t know the taxassessment sent by Kansas to producers between October and Novembereach year was for that calendar year and not the previous year.Second, the Commission said it discovered that producers mostcommonly sought payment of the Kansas tax from their customers inlump-sum transactions, rather than in individual transactions. As aresult, “the Commission was uncertain how to give effect to thecourt’s holding that ‘it is the overcharges made in thoseindividual transactions (plus interest) that the producers must nowpay,'” the court said in its Jan. 21 ruling.

“Whatever the nature of these transactions, the principleembodied in our [October] decision remains unchanged. The Kansastax should not have been subject to reimbursement [by customers]for sales exceeding the maximum lawful price” under the Natural GasPolicy Act of 1978, the court opined.

But the court noted Kansas producers didn’t know the practicewas “questionable” until Oct. 4, 1983. Consequently, it said onlyad valorem taxes collected from customers after that date wereillegal, and producers “must refund the amounts collected withinterest, provided that the tax reimbursements caused their salesto exceed the maximum lawful price.”

The court remanded the issue of the refund date to theCommission for further proceedings. “We leave to the Commission theunenviable task of applying this principle to the facts of ancienttransactions.”

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