Kansas gas producers facing huge payback
The U.S. Federal Energy Regulatory Commission has ordered Kansas natural gas producers to refund consumers an estimated $500 million plus interest.
FERC said Kansas producers included the Kansas ad valorem-or local property-taxes in the price of gas produced from Oct. 4, 1983, to June 28, 1988. That practice was later determined to be in violation of the 1978 Natural Gas Policy Act (NGPA).
The commission ordered Amoco Production Co., Anadarko Petroleum Corp., Mobil Oil Corp., Oxy USA Inc., Union Pacific Resources Co., and many smaller producers to begin refunding the money to pipelines within 180 days.
The pipelines, in turn, must pass the refunds through to their customers.
FERC said if producers can prove the payments are a hardship, it may allow them to spread the refunds over 5 years.
Background
The commission said many states have imposed ad valorem taxes on gas production, and it had viewed the Kansas tax as a severance tax and allowed producers to recover the cost in rates of gas sold to interstate pipelines.The interpretation was challenged in court, and in 1988, the District of Columbia circuit court of appeals ordered FERC to explain how the Kansas ad valorem tax could be viewed as a severance tax in light of NGPA.
The commission then concluded the tax should be viewed as a property tax and as a remedy suggested refunds of ad valorem taxes that had been collected after June 28, 1983, the date of the appeals court's remand.
But the court rejected that date and ordered refunds as of Oct. 4, 1983, the date that the first petitions challenging FERC's earlier orders were filed. The U.S. Supreme Court recently upheld the appellate court's opinion.
Kansas officials opposed the refunds, saying it will be virtually impossible to identify affected consumers from a decade ago.
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