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 – yesterday was thedeadline for payment – they don’t believe they have to pass thatmoney on to their 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 has recognized that we[producers] have any rights” to hearing on the refunds. The refundamounts were determined by eight interstate pipelines, butproducers have hotly contested the amounts. “We recognize that weowe some, but we don’t owe that much,” the attorney noted.

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.

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