[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