Opinion ID: 723905
Heading Depth: 2
Heading Rank: 4

Heading: The Pipeline as Guarantor

Text: 55 In the Colorado Interstate Remand Order the Commission required interstate pipelines to pass through any ad valorem tax refunds they receive from first sellers, 65 FERC at 62,374, but made it clear that pipelines will not be required to be guarantors of refunds. Id. The MPSC, on behalf of the customers of the Williams pipeline, was the only party to challenge that decision. The FERC adhered to its position, however, adding that Williams should not be treated differently than other similarly situated pipelines. Williams Natural Gas Co., Dkt. Nos. TA89-1-43-004 and RP89-39-005, slip op. at 5 (FERC order June 2, 1994), clarification denied, Williams Order, 69 FERC p 61,373. The MPSC properly dispatches the FERC's afterthought with the observation that it is routine for one pipeline to be required to make refunds while others are not--because the one is challenged and the others are not. 56 In its petition for review, the MPSC raises three objections to this aspect of the Commission's decision. First, it observes that under § 4 of the NGA the Commission is authorized to order refunds of any amounts collected from consumers in excess of what is just and reasonable. 15 U.S.C. § 717. Second, the MPSC contends that until the Colorado Interstate Remand Order was issued in December 1993, Williams should have understood that when it was allowed to continue collecting from its customers the amount of the Kansas tax subject to refund, it became conditionally obligated to refund any amount later determined to be unlawful. Indeed, Williams received explicit notice in 1989 that the Commission was considering whether monies collected in recovery of the Kansas tax would have to be refunded. Williams Natural Gas Co., 47 FERC p 61,114 at 61,341. According to the MPSC, this notice should have prompted Williams to take reasonable steps to assure that it could in turn obtain refunds from its suppliers. Third, the MPSC asserts that the Commission should have required Williams to put the monies it received for the Kansas tax into escrow (or post a bond or obtain a letter of credit) in order to assure their return if need be. Escrow arrangements are commonly used when a rate increase is conditionally allowed to take effect until the agency determines whether it is lawful. See, e.g., Transcontinental Gas Pipe Line Corp. v. FERC, 866 F.2d 477, 479 (D.C.Cir.1989). 57 The Commission responds, first, that there is well-established precedent for treating pipelines as mere conduits for the flow of refunds from producers to consumers. See, e.g., Public Utils. Comm'n of Cal. v. FERC, 24 F.3d 275, 278 (D.C.Cir.1994). Second, the FERC explains that accepting Williams' rates subject to refund means simply that the agency would order refunds if appropriate after the remand proceedings in Colorado Interstate, not that Williams was expected to pay the tax monies into escrow (or take equivalent steps) in order to assure that they would be available if refunds were ordered. Third, the Commission maintains that it could not have directed Williams to set up an escrow arrangement because the pipeline was obligated by contract to pay producers the amount of the Kansas tax. The Commission points to § 601(c) of the NGPA, 15 U.S.C. § 3431(c), which guarantees a pipeline full recovery of its gas purchase costs. 58 The Commission's arguments are not convincing. Surely Williams' contractual obligation does not extend to paying to producers sums unlawfully recovered. While § 601(c) requires that a pipeline be allowed fully to recover its gas purchase costs, that provision also authorizes the Commission to deny recovery of costs that are unjust or unreasonable. Moreover, the Commission would not have violated § 601(c) by requiring that the taxes be placed in escrow while the agency determined whether they could indeed be recovered under § 110. An escrow arrangement would have preserved the rights of all parties. If the Commission ultimately decided that the taxes were recoverable under § 110, then the producers would be entitled to the amount in escrow, including any accrued interest. If, as happened, the Commission decided that the taxes were not recoverable, then the amount in escrow could have been refunded to the ratepayers (again, [320 U.S.App.D.C. 31] with interest). In either event, the pipelines would have recovered their full gas purchase costs. 59 Regardless whether the Commission abused its discretion by failing to require an escrow or its equivalent--a matter we need not decide today--the MPSC's petition for review must be denied. Insofar as it seeks prospective relief, the issue is moot: Wellhead prices have been totally deregulated since 1993, there are no longer any maximum lawful prices for producer sales, and whether a producer recovers severance taxes is a matter of negotiation between buyer and seller. As for monetary relief, it is too late now for the Commission to require that Williams pay the severance taxes into escrow; the pipeline has long since paid the monies to the producers. 60 Nor does the MPSC make out any legal or equitable principle that would suggest holding Williams accountable for the Commission's failure to protect consumers. The pipelines were, as the Commission has reminded us, mere conduits; they had no financial interest in this dispute. The Commission's failure to impose an escrow or other arrangement did not benefit the pipelines, and it is not clear why they should be at risk because the FERC may have been remiss. Nor was Williams obliged either by contract or by regulation to take any precaution against the possibility that a producer would fail to refund monies due to consumers. Therefore, there is no ground upon which the court can say that the Commission was required to hold the pipeline--which was charged first with the task of collecting tax payments and then of distributing tax refunds--liable if the responsible producer defaults on its refund obligation.