As Recommended by Senate Committee on



S.C.R. 1616 would urge the Congress to enact legislation providing relief from penalties and interest on refunds that the Federal Energy Regulatory Commission (FERC) has ordered Kansas natural gas producers to pay. Such refunds, to be paid retroactively to 1983 with interest, were for property tax costs included in natural gas rates. Kansas producers had already paid the required refunds, including interest, retroactive to 1988, as required by a FERC order issued in 1993. However, in 1996, the D.C. Circuit Court reversed FERC's decision and required repayment of refunds retroactive to 1983.

The resolution finds that the D.C. Circuit Court's 1996 decision imposes upon producers an unjust and punitive burden, possibly exceeding $500 million.


The origin of the D.C. Circuit Court's recent decision was a determination made in 1974 by the Federal Power Commission, FERC's predecessor, that Kansas ad valorem tax qualified for recovery under the Natural Gas Act as a severance tax, to be recovered in wellhead rates. FERC subsequently authorized recovery of the severance tax in rates under Section 110 of the Natural Gas Policy Act of 1978. In 1983, Northern Natural Gas, an interstate pipeline company, petitioned FERC to reconsider the Federal Power Commission's Kansas tax ruling. Northern Natural Gas contended that the Kansas ad valorem tax did not qualify as a severance tax. Consequently, the tax could not be collected from natural gas purchasers under Section 110 of the Natural Gas Policy Act. In 1986 and 1987, FERC denied Northern Natural Gas' request for rehearing and reaffirmed its earlier position that the Kansas ad valorem tax qualified as a severance tax. Colorado Interstate Gas Company appealed to the United States Court of Appeals for the D.C. Circuit the decision by FERC to reject Northern Natural Gas' petition. In 1988, the D.C. Circuit Court remanded FERC's order for further explanation as to why the Kansas tax qualified as a severance tax under Section 110 of the Natural Gas Policy Act. In 1993, five years after the Court's decision, FERC issued its order on remand and established that natural gas producers should not be able to recover the cost of the Kansas tax and ordered the payment of refunds by first sellers retroactive to 1988--the date of the Colorado Interstate Gas decision. Producers appealed the decision to the D.C. Circuit Court, which concurred with FERC that the Kansas ad valorem tax was not eligible for recovery. The D.C. Circuit Court ordered refunds for production retroactive to October 1983--the date upon which notice was published of Northern Natural Gas' petition in the Federal Register. Following that decision, producers filed petitions with the Supreme Court but on May 12, 1997, the Supreme Court refused to hear the appeal.

Testimony in support of this resolution was presented by Donald P. Schnacke, Kansas Independent Oil and Gas Association, and Jamie Clover Adams, Legislative Liaison for the Governor. There were no opponents.

1. *Supplemental notes are prepared by the Legislative Research Department and do not express legislative intent. The supplemental note and fiscal note for this bill may be accessed on the Internet at