[Federal Register Volume 59, Number 109 (Wednesday, June 8, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13875]


[[Page Unknown]]

[Federal Register: June 8, 1994]


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DEPARTMENT OF ENERGY
[Docket Nos. TA89-1-43-004 and RP89-39-005]

 

Williams Natural Gas Co.; Order Granting in Part and Denying in 
Part Rehearing and Rejecting Motion for Summary Judgment and Providing 
Notice to Colorado and Wyoming Producers of Further Proceedings

Issued June 2, 1994.

    On March 17, 1994, the Missouri Public Service Commission (Missouri 
PSC) filed a request for rehearing of a Commission letter order issued 
February 15, 1994,\1\ accepting certain tariff sheets and supplemental 
information filed by Williams Natural Gas Company (Williams), and 
terminating a technical conference. For the reasons discussed below, 
the Commission grants in part and denies in part the request for 
rehearing. The Commission also rejects a motion for summary judgment of 
one of the issues raised in the rehearing, and issues a notice of 
further proceedings.
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    \1\Williams Natural Gas Co., 66 FERC  61,198 (1994).
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Background

    On March 1, 1989, Williams submitted its proposed annual adjustment 
to its PGA clause in Docket No. TA89-1-43-000, to be effective May 1, 
1989.\2\ Reflected in the PGA, inter alia, was $18,087,099 in payments 
that Williams made to its producer-suppliers to reimburse them for 
their payments of ad valorem taxes to Kansas, Colorado, and Wyoming. 
The producers had charged these amounts to Williams as an add-on to the 
ceiling prices permitted by Section 110 of the Natural Gas Policy Act 
(NGPA).\3\ Williams reflected these amounts in its PGA as net 
adjustments to its unrecovered gas costs. Several protesters claimed 
that the ad valorem tax reimbursements could be contract reformation 
costs that should not be reflected in Williams' PGA. By order issued 
April 27, 1989, the Commission accepted and suspended the filing 
subject to a technical conference to address this and other issues, and 
subject to Commission ``review of the additional information requested 
regarding ad valorem tax reimbursements and pricing dispute 
settlements.''\4\ The suspension order stated that these costs related 
to taxes assessed by the states of Kansas, Colorado, and Wyoming. On 
May 30, 1989, Williams filed revised tariff sheets to comply with the 
directives in the April 27, 1989 order.
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    \2\Williams also filed tariff sheets in Docket No. RP88-39-000 
to eliminate its standby service rates.
    \3\Section 110 of the NGPA permitted producers to charge as an 
add-on to the maximum lawful price ``State severance taxes 
attributable to the production of such natural gas.'' 15 U.S.C. 
3320(a). All NGPA price ceilings were eliminated as of January 1, 
1993.
    \4\Williams Natural Gas Co., 47 FERC  61,114 at 61,340 (1989); 
reh'g 48 FERC  61,017 (1989).
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    The technical conference was held in 1989, but Staff held its 
report in abeyance while the issue of whether certain Kansas ad valorem 
taxes were severance taxes eligible for recovery under NGPA section 110 
was being decided in another case before the Commission. In 1988, in 
Colorado Interstate Gas Company (CIG)\5\ the U.S. Court of Appeals for 
the D.C. Circuit had remanded to the Commission the issue of whether 
the Kansas ad valorem tax was a severance tax qualifying under NGPA 
section 110 as an add-on to the maximum lawful price. On December 1, 
1993, the Commission issued its order in the CIG case.\6\ On remand, 
the Commission stated that, to determine if a tax was a ``severance 
tax'' for purposes of NGPA section 110, there had to be a systematic 
analysis of whether the tax is more like a severance tax on the 
production of gas as opposed to a personal property tax on the value of 
the gas remaining in the ground or on other production assets of the 
lease. The Commission found that the Kansas ad valorem taxes are not a 
tax on production and thus do not qualify as severance taxes 
recoverable under NGPA section 110. Accordingly, the Commission ordered 
all Kansas producers that had unlawfully charged any interstate 
pipeline for such taxes after the June 28, 1988 date of issuance of the 
Court's decision in the CIG case, to repay the excess over the maximum 
lawful price to the pipelines, and for the pipelines to pass those 
refunded costs along to its customers.
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    \5\Colorado Interstate Gas Co. v. FERC, 850 F.2d 769 (DC Cir. 
1988).
    \6\65 FERC  61,292 (1993); reh'g denied 67 FERC  61,209 
(1994).
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    Missouri PSC sought clarification of the Commission's statement in 
CIG that it would not require that pipelines be guarantors of refunds 
of the Kansas ad valorem taxes. Missouri PSC asked the Commission to 
clarify that it was not prejudging the merits of this issue in the 
instant Williams case. Missouri PSC argued that, because Williams' 
instant rates were protested and accepted subject to refund, Williams 
could have taken steps to protect itself, such as establishing an 
escrow account to ensure that it would be able to account for tax 
reimbursements. In the order on remand in CIG, the Commission found 
that this issue would be addressed in the instant proceeding, based 
upon the rulings in the CIG proceeding.\7\
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    \7\67 FERC  61,209 at fn. 46 (1994).
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    Following the CIG order, the Commission, by the February 15, 1994 
letter order, accepted Williams' revised tariff sheets in this case. 
The Commission also accepted the supplemental information filed by 
Williams on May 30, 1989, subject to Williams refunding the Kansas ad 
valorem taxes reflected in its filing according to the methodology set 
out in CIG, and the Commission terminated the technical conference. The 
Commission held that all other issues addressed in the technical 
conference regarding Williams' PGA are now moot, since Williams no 
longer has a PGA mechanism after restructuring.

Rehearing

    On March 17, 1994, the Missouri PSC filed for rehearing of the 
February 15, 1994 letter order. Missouri PSC argues that, while the 
issue of the Kansas ad valorem taxes may have been resolved by the 
Commission's decision in CIG, Williams' PGA also included payments made 
by Williams to producers to reimburse them for Colorado and Wyoming ad 
valorem taxes. Missouri PSC argues that the issue as to whether the 
Colorado and Wyoming taxes are severance taxes under NGPA section 110 
has never been addressed. Accordingly, Missouri PSC argues that the 
Commission should not have accepted the compliance tariff sheets or 
terminated the refund obligation in this proceeding until the 
Commission has determined whether Colorado and Wyoming ad valorem taxes 
were eligible for recovery under NGPA section 110.
    Missouri PSC also claims that the refund methodology in CIG should 
not be applied here because the circumstances in the instant case 
differ from those in CIG. Missouri PSC contends that, in CIG, the 
Commission found that Kansas first sellers of gas that collected 
revenues in excess of the NGPA maximum lawful price as a result of the 
reimbursement of the Kansas taxes had to refund those amounts, with 
interest, to their customers, and that the pipeline was then to flow 
the refunds through to its customers through a lump-sum payment. 
Missouri PSC contends that the refund liability in CIG was contingent 
upon the pipelines' recovery of the subject costs from its suppliers. 
Missouri PSC claims that the subject tariff sheets in the instant 
proceeding were accepted subject to refund, and that such refund should 
not be contingent on Williams receiving any refunds of the costs from 
producers. Missouri PSC claims that it does not matter when Williams 
paid the related taxes to its suppliers. The issue, contends Missouri 
PSC, is that Williams included these taxes in its rates that are 
subject to refund. Accordingly, Missouri PSC argues that the Commission 
should order Williams to immediately refund amounts collected from its 
customers for the unlawful reimbursements of Kansas property taxes.

Motion

    Missouri PSC also filed a motion for summary judgment in this 
proceeding on March 17, 1994, arguing that there is no material 
question of fact or law in this proceeding regarding the Kansas 
property taxes, and repeats the arguments made on rehearing regarding 
the need for immediate refunds by Williams of amounts it paid to 
reimburse producers for Kansas ad valorem taxes. Therefore, Missouri 
PSC moves that the Commission immediately order Williams to immediately 
calculate the amount of Kansas property taxes recovered in its rates 
subject to refund, and to promptly refund those amounts.
    On April 1, 1994, Williams filed an answer to Missouri PSC's 
motion, arguing that the motion is a collateral attack on CIG, and is 
an attempt to induce the Commission to amend the CIG order, or to 
misapply it to the instant proceeding. Williams contends that the CIG 
order was a broad industry-wide determination that established refund 
procedures applicable to all pipelines reflecting Kansas ad valorem 
taxes in their rates. Williams contends that the Commission's letter 
order in the instant proceeding confirmed that the CIG ruling is fully 
applicable to Williams, and that the ruling should be applied to all 
pipelines in a uniform, non-discriminatory manner. Williams states that 
the Commission determined in CIG that pipelines will not be required to 
be guarantors of refunds from producers, even in situations similar to 
the instant case. Williams contends that Missouri PSC is wrongfully 
attempting to overturn that determination. Williams also claims that 
this determination that pipelines should not be guarantors of refunds 
is consistent with the Commission's determinations in other producer 
refund situations where rates were accepted subject to refund.8 
Williams also argues that it would be unfair for the Commission to 
order it to pay refunds before it collects these payments from its 
producers.
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    \8\Citing Refunds Resulting from Btu Measurement Adjustments, 
Order No. 399, FERC Stats. and Regs., Regs. Preambles 1982-1985, 
30,597 at 31,154, reh'g Order No. 399-A, FERC Stats. and Regs., 
Regs. Preambles 1982-1985, 30,612 (1984), vacated in part on other 
grounds, Interstate Natural Gas Ass'n of America v. FERC, 756 F.2d 
166 (D.C. Cir. 1985), cert. denied sub nom., Pennzoil Co. v. 
Associated Gas Distributors, 474 U.S. 847 (1985).
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Discussion

Further Proceedings
    The Commission agrees with Missouri PSC that there are issues in 
the instant proceeding that had not been resolved when the Commission 
issued its February 15, 1994 letter order terminating the technical 
conference in this proceeding. First, the issue remains as to whether 
the Wyoming and Colorado ad valorem taxes paid by Williams to its 
producer-suppliers are production taxes that producers in these states 
could recover from their customers as an add-on under NGPA section 110 
to the otherwise applicable maximum lawful price. The issue must still 
be addressed by the Commission pursuant to the standards established by 
the Commission in its order on remand in CIG. If the severance taxes 
are so recoverable by the producers, then they were properly paid to 
the producers by Williams and did qualify as gas costs recoverable 
under Williams' PGA. If they were not so recoverable, then the 
producers could be required to refund these amounts and issues would 
arise as to Williams' right to recover the amounts in its PGA. 
Accordingly, the Commission grants in part rehearing, and reverses its 
decision to terminate this proceeding.9
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    \9\Missouri PSC has not shown a reason why it was error to 
accept the tariff sheets in the February 15, 1994 order. As the 
Commission is not terminating the proceeding, the rates reflected in 
such tariff sheets remain subject to refund.
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    The Commission also finds that additional information and briefing 
is necessary in order to decide the remaining issues of whether the 
Wyoming and Colorado ad valorem taxes are severance taxes eligible to 
be recovered by first sellers under NGPA section 110 as an add-on to 
the maximum lawful, first-sale, ceiling price. The Commission finds 
that fairness dictates that Williams and its Wyoming and Colorado 
producers be allowed to address the Commission's recent decision in CIG 
as it applies to the instant proceeding, and more specifically, as it 
applies to the Wyoming and Colorado ad valorem taxes. In CIG, the 
Commission established a test to use in determining whether a state tax 
qualifies as a severance tax that would be includable as a gas cost 
under the NGPA. The Commission directs Williams to submit to the 
Commission, within 20 days of the date of this order, a filing that 
sets forth: (1) The amounts of Wyoming and Colorado ad valorem taxes 
reflected in Williams' PGA filings beginning with the rates in the 
instant proceeding and ending on the December 31, 1992 expiration date 
of the NGPA ceiling rates; and (2) the text of the state laws or 
regulations pertaining to the taxes at issues. Producers that recovered 
the Wyoming and Colorado ad valorem taxes are invited to intervene in 
this proceeding within 40 days of the date of this order. In addition, 
within 40 days of the date of this order, Williams must (and any 
producer wishing to do so may) file an analysis of why the Wyoming and 
Colorado ad valorem taxes qualify for recovery under the CIG test, and 
thus were properly includable in Williams' PGA filing. Parties to this 
proceeding are invited to file answers to Williams' filing within 60 
days of the date of this order.

Refunds

    The Commission denies in part rehearing as it applies to Missouri 
PSC's request that partial refunds be immediately ordered for the full 
amount of the Kansas ad valorem taxes reflected in the filing. The 
Commission made a ruling in CIG as to how these taxes were to be 
refunded by the producers to the pipelines (including Williams) and 
then, in turn, by the pipelines to their customers. The finding in CIG 
as it applies to Williams, will not be overturned here.
    The only difference that Missouri PSC points out between the CIG 
case and the instant case is that in the instant case the rates were 
accepted subject to refund. The Commission fails to see why that would 
dictate the outcome Missouri PSC requests. The acceptance of certain 
rates subject to refund does not determine the manner in which the 
Commission will order that those refunds be made. While Missouri PSC 
did protest the inclusion of ad valorem taxes in Williams' instant PGA 
filing, and the Commission did accept that filing subject to refund, 
that is not to say that if the Commission found that such taxes were 
not a production cost that the pipeline must deduct them entirely even 
before it had recovered these costs from its producers. Rather, the 
acceptance subject to refund meant that the Commission would order 
whatever refunds it found to be appropriate when it made a 
determination on the underlying issue. The Commission made that 
determination in CIG.
    The Commission did state, in its order on remand in CIG, that 
refunds would be appropriate from the date producers ``could have taken 
steps to protect themselves, such as establish an escrow account for 
such tax reimbursement,''10 but that reference was to the 
effective date of refunds and not to the issue of whether the pipeline 
must guarantee all refunds. Further, Williams merely included in its 
PGA filing the tax costs that it had paid to its producers. Hence, 
there would be no additional revenues for Williams to put into an 
escrow account. The producers, on the other hand were recovering 
unlawful tax costs, the proceeds of which could have been set aside for 
future refund obligations. Therefore, there is no reason why Williams 
should guarantee refunds when the Commission has found in CIG that 
other pipelines did not have that same obligation. Accordingly, the 
Commission finds that the instant case is not different from the GIG 
case in a manner that would require that the Commission to order 
refunds in a manner that is inconsistent with our decision in CIG. As 
the Commission has denied this request for rehearing regarding refunds, 
the Commission will reject the motion for summary judgment as moot.
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    \1\065 FERC at 62,373.
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The Commission Orders

    (A) Notice is hereby provided to all producers in Colorado and 
Wyoming that a proceeding is being instituted in this docket to 
determine if the ad valorem taxes of those two states are recoverable 
as production costs. Producers that recovered the Wyoming and Colorado 
ad valorem taxes may file to intervene in this proceeding within 30 
days of the date of this order.
    (B) Rehearing is granted in part, in that the instant proceeding is 
not terminated.
    (C) Rehearing is denied in part, in that the Commission will not 
order further refunds in this case at this time.
    (D) Missouri PSC's motion for summary judgment is rejected.
    (E) Williams is directed to file, within 20 days of this order:
    (1) the dollar amounts of Wyoming and Colorado ad valorem taxes 
reflected in the subject filing and subsequent PGA filings through the 
December 31, 1992 expiration date of the NGPA ceiling prices; and
    (2) the text of the state laws or regulations pertaining to the 
Wyoming and Colorado ad valorem taxes at issues; and
    (F) Williams is directed to file, within 40 days of this order, an 
analysis, under the CIG test, of why those taxes qualify for recovery 
in the instant PGA filing.
    (G) Within 40 days of the date of this order, producers that 
recovered the Wyoming and Colorado ad valorem taxes are invited to 
intervene in this proceeding, and are also invited to file their 
analysis of why those taxes qualify for recovery in the instant PGA 
filing under the CIG test.
    (H) Parties to this proceeding may file answers to Williams' filing 
within 60 days of the date of this order.

    By the Commission.
Lois D. Cashell,
Secretary.
[FR Doc. 94-13875 Filed 6-7-94; 8:45 am]
BILLING CODE 6717-01-P