Public Service Co. of Colorado v. F.E.R.C.

• Decision Date: 02 August 1996
• Docket Number: 94-1481,94-1489 and 95-1138,Nos. 94-1418,s. 94-1418
• Citation: 91 F.3d 1478
• Parties: PUBLIC SERVICE COMPANY OF COLORADO, et al., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, OXY USA Inc., et al., Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1478

91 F.3d 1478

320 U.S.App.D.C. 17

PUBLIC SERVICE COMPANY OF COLORADO, et al., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent OXY USA Inc., et al., Intervenors.

Nos. 94-1418, 94-1481, 94-1489 and 95-1138.

United States Court of Appeals, District of Columbia Circuit.

Argued Jan. 12, 1996.

Decided Aug. 2, 1996.

On Petitions for Review of an Order of the Federal Energy Regulatory Commission.

Mark L. Evans argued the cause for petitioner Anadarko Petroleum Corporation, et al. (Producer Petitioners), with whom John S. Martin was on the briefs. Thomas R. Schwarz, Jr., Jefferson City, MO, argued the cause for petitioner Missouri Public Service Commission, with whom David W. D'Alessandro and Kelly A. Daly, Washington, DC, were on the briefs. Karol L. Newman, Washington, DC, argued the cause for petitioners Public Service Company of Colorado and Cheyenne Light, Fuel and Power Company, with whom James D. Albright, Denver, CO, was on the briefs.

Eric L. Christensen, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent, with whom Jerome M. Feit, Solicitor, was on the brief.

Thomas R. Schwarz, Jr., Jefferson City, MO, and David W. D'Alessandro, Washington, DC, were on the brief for intervenor Missouri Public Service Commission. Penny G. Baker, Jefferson City, MO, entered an appearance. Emery J. Biro, III, Houston, TX, Jay G. Martin, Douglas F. John, Washington, DC, Kevin M. Sweeney, Kerry R. Brittain and Norma J. Rosner were on the brief for intervenors in support of respondent. Mark L. Evans, Jay G. Martin, Washington, DC, Marge O'Connor, J. Stephen Martin, Houston, TX, and Kerry R. Brittain were on the brief for the Producer Intervenors. Gary W. Boyle, Tulsa, OK, was on the brief for intervenor Williams Natural Gas Company. Martin J. Bregman, Topeka, KS, entered an appearance for intervenor Western Resources, Inc. Donald C. Shepler, Jr., Washington, DC, and James Howard entered appearances for intervenor Colorado Interstate Gas Company. Bruce A. Connell, Houston, TX, entered an appearance for intervenor Conoco, Inc. Michael L. Pate entered an appearance for intervenor OXY USA, Inc. Frank X. Kelly, George J. Meiburger, Mark C. Schroeder and Steve Stojic, Washington, DC, entered appearances for intervenor Northern Natural Gas Company. Kathy L. Cox, Fort Worth, TX, entered an appearance for intervenor Union Pacific Resources Company. Andra B. Greene, Newport Beach, CA, and Buddy J. Becker, Lakewood, CO, entered appearances for intervenor K N Energy, Inc. Thomas R. O'Donnell, Denver, CO, entered an appearance for intervenor Public Service Company of Colorado and Cheyenne Light, Fuel and Power Company. Andrew N. Greene, Washington, DC, and Elisabeth Y. Pendley, Arglington, VA, entered appearances for intervenor K N Interstate Gas Transmission Co. James F. Moriarty, Washington, DC, entered an appearance for intervenor Missouri Gas Energy.

Before: WILLIAMS, GINSBURG and SENTELLE, Circuit Judges.

Opinion for the Court filed by Circuit Judge GINSBURG.

Concurring Opinion filed by Circuit Judge SENTELLE.

GINSBURG, Circuit Judge:

Until 1993 the Natural Gas Policy Act (NGPA) established the maximum lawful price that a producer could charge its pipeline customers for natural gas; under § 110 of the Act, the producer could adjust that price upward in order to recover its payment of a state severance tax. The Federal Energy Regulatory Commission, on remand from our decision in Colorado Interstate Gas Co. v. FERC, 850 F.2d 769 (1988), held that ad valorem taxes levied by Wyoming and Colorado are, but the ad valorem tax levied by Kansas is not, a severance tax within the meaning of § 110. The Commission then ordered producers to refund payments received from pipelines in recovery of the Kansas tax with respect to production occurring after the Colorado Interstate decision. The Commission directed the pipelines in turn to channel those refunds to their customers, but decided not to make the pipelines liable for any amounts not received from producers.

Petitioner Public Service Company of Colorado and a subsidiary (jointly PSCC), supported by the Missouri Public Service Commission (MPSC) as an intervenor, challenge the Commission's authority to limit the retroactivity of the producers' liability for refunds of the Kansas tax. As a petitioner the MPSC also objects to the Commission's order relieving Williams Natural Gas Company of any obligation to guarantee the refund of the Kansas taxes that Williams collected from its customers, as to which Williams intervenes in support of the FERC, and to the Commission's decision that the Wyoming and Colorado taxes are severance taxes.

Four producers petition for review of the Commission's decision that the Kansas tax is not a severance tax. These Producer Petitioners also maintain that the FERC's decision worked a change in the law that should be applied prospectively only. As Producer Intervenors the same group argues in the alternative that the Commission properly limited their liability for the refunds of the Kansas tax to the date of the Colorado Interstate decision. Joined by another producer, the five so-called Indicated Producers intervene in support of the Commission regarding the Wyoming and Colorado taxes.

We conclude that the Commission could properly determine that the Kansas ad valorem tax was not, and that the Colorado and Wyoming ad valorem taxes were, sufficiently similar to a severance or production tax to qualify for recovery under § 110 of the NGPA. Contrary to the Commission, however, we hold that the producers must refund all the Kansas taxes they collected since October 1983 when all interested parties were first put on notice that the taxes might not be recoverable under § 110. On the question whether Williams should be required to guarantee the refunds due from its producers to its customers, we find no ground upon which to require that the FERC hold the pipeline liable.

I. Background

From 1978 until 1993 producer prices for natural gas were subject to maximum lawful levels specified in the NGPA. 15 U.S.C. §§ 3311-19. Section 110 of the NGPA permitted a producer to charge an amount in excess of those ceilings to the extent necessary to recover its payment of "State severance taxes attributable to the production of such natural gas," 15 U.S.C. § 3320(a)(1). For this purpose, a severance tax was defined as "any severance, production, or similar tax, fee, or other levy imposed on the production of natural gas" by a state or Indian tribe, 15 U.S.C. § 3320(c).

In Sun Exploration and Production Co., 36 FERC p 61,093 (1986), the Commission determined that the Kansas ad valorem tax qualified as a severance tax under § 110 because it was based upon production factors. In Colorado Interstate we concluded that the Commission's analysis in Sun Exploration "fell short of reasoned decision-making," and we remanded the matter for a more "cogent theory of what makes a tax 'similar' to a production or severance tax under § 110." 850 F.2d at 770, 773. Reflecting our indulgent standard of review for a question so bound up in administrative policy-making, we noted that while the court "cannot defer to a vacuum," we would defer to "any Commission interpretation of § 110 that is not precluded by the statutory language and traditional methods of statutory construction, and that is reasonable." Id. at 774.

We also offered the Commission some guidance. A severance tax is a cost imposed upon producing, while a property tax is a cost imposed upon holding, a resource; the non-recoverability of a severance tax is a disincentive to produce, while the non-recovery of a property tax is not a disincentive and, to the extent that extraction reduces the value of the reserves to which the property tax is applied, might even be an incentive to produce. Id. at 771. On the other hand, if in computing the value of a property for the purpose of levying a property tax "a state sought to capitalize the annual production (or revenue) enjoyed by each producer by multiplying it by a single fixed figure, the [property] tax would plainly be similar enough to a production tax to qualify under § 110." Id. at 772.

Upon remand, the Commission identified two essential differences between a severance tax and a property tax:

First, a ... severance tax is on the volume or value of the commodity removed, as assessed at the time of removal. A property tax ... is on the value of the gas remaining in the ground as well as on the value of wells and other production assets on the lease, at the time of the tax assessment.

Second, ... once the unit of gas is produced and the severance tax is applied to it, that unit of gas is never again subject to the severance tax. On the other hand, a property tax ... is applied to a unit of gas reserves each year--year after year--until that unit of gas finally is produced and removed from the property being valued.

Colorado Interstate Gas Co., 65 FERC p 61,292 at 62,370-71 (1993) (emphases in original) (hereinafter Colorado Interstate Remand Order), reh'g denied, 67 FERC p 61,209 (1994) (hereinafter Colorado Interstate Rehearing Order). Applying these distinctions, the Commission concluded that the Kansas tax did not qualify as a severance tax for three principal reasons: (1) it was based upon the value of the gas property rather than upon its current production; (2) the volume of production was relevant principally for determining the present value of the gas reserves; and (3) the reserves were taxed year after year until removed from the ground and sold. Id. at 62,371-72.

The Commission ordered producers to refund the Kansas taxes they had collected since June 1988, the date of our Colorado Interstate decision which, in the FERC's view, first put producers on notice that the tax might not be recoverable under § 110. Id. at 62,373. The Commission also ordered pipelines to flow-through the refunds to customers as...