UNITED STATES COURT OF APPEALS FOR THE D.C. CIRCUIT


ANADARKO PETRO CORP

v.

FERC


98-1227a

D.C. Cir. 1999


*	*	*


Randolph, Circuit Judge: Petitioners in these consolidated  cases are
natural gas producers, and the State of Kansas and  the Kansas
Corporation Commission. Four issues are pre- sented. The first
concerns our jurisdiction. The remaining  three deal with the Federal
Energy Regulatory Commission's  resolution of proceedings initiated in
the wake of Public  Service Co. of Colorado v. FERC, 91 F.3d 1478
(D.C. Cir.  1996).


Although we will presuppose knowledge of our opinion in  Public Service
and its predecessor, Colorado Interstate Gas  Co. v. FERC, 850 F.2d
769 (D.C. Cir. 1988), a description of 


the issues before us requires some restatement of the litiga- tion that
brought this matter to its present posture.


I. Prior Proceedings


Title I of the Natural Gas Production Act (NGPA), enacted  in 1978,
imposed maximum lawful prices on first sales of  certain categories of
natural gas, but s 110 of the NGPA  allowed producers to recover from
their customers charges in  excess of the maximum limits "to the
extent necessary to  recover ... State severance taxes attributable to
the produc- tion of such natural gas and borne by the seller." 15
U.S.C.  s 3320(a)(1) (1988) (repealed); see also id. ss 3311-3333 
(1988) (repealed). After passage of the NGPA, the Commis- sion
continued to adhere to an earlier agency opinion1 treat- ing the
Kansas ad valorem tax imposed on producers as such  a severance tax.
See, e.g., Independent Oil & Gas Ass'n of  W.Va., 7 F.E.R.C. p 61,094
(1979); Trio Petroleum Corp., 18  F.E.R.C. p 61,203 (1982). In a
petition filed on October 4,  1983, several customers of Kansas
producers tried unsuccess- fully to persuade the Commission to change
its mind. See  Notice of Petition to Reopen, Reconsider and Rescind
Opinion  No. 699-D, 48 Fed. Reg. 45,287 (1983); Sun Exploration & 
Prod. Co., 36 F.E.R.C. p 61,093 (1986), reh'g denied sub nom. 
Northern Natural Gas Co., 38 F.E.R.C. p 61,062 (1987).


On judicial review, we held in Colorado Interstate that the 
Commission's decision in Sun Exploration "fell short of rea- soned
decision-making." 850 F.2d at 770. We remanded the  matter to the
Commission so that it might, if it could, offer  some "cogent theory
of what makes a tax 'similar' to a  production or severance tax under
s 110" of the NGPA. Id.  at 773. Five years passed before the
Commission acted on  remand. In a ruling handed down after Congress
had re- pealed s 110 of the NGPA,2 the Commission determined that 




__________

n 1 See Opinion No. 699-D, Just and Reasonable Rates for Sales of 
Natural Gas, 52 F.P.C. 915 (1974).


2 On January 1, 1993, the Natural Gas Wellhead Decontrol Act of  1989,
Pub. L. No. 101-60, 103 Stat. 157, came into effect, eliminating  the
price limitations Title I of the NGPA had imposed.


the Kansas ad valorem tax was not the equivalent of a  severance tax
attributable to production and therefore pro- ducers already charging
the maximum price could not recover  the tax from their customers. See
Colorado Interstate Gas  Co., 65 F.E.R.C. p 61,292 (1993), reh'g
denied, 67 F.E.R.C.  p 61,209 (1994). The Commission ordered the
producers to  repay all overcharges made after June 28, 1988, when our
 Colorado Interstate opinion issued. Our opinion, the Com- mission
believed, gave the producers sufficient notice to alter  their sales
practices. See 65 F.E.R.C. at 62,372-73; 67  F.E.R.C. at 61,660.


When we reviewed the Commission's action in Public Ser- vice, we agreed
with the Commission's reconsidered position  on the Kansas tax. But we
disagreed with the Commission  about the extent of the producers'
refund obligation. In our  opinion, "the producers' liability for
refunds extends back to  October [4,] 1983, the date when all
interested parties were  given notice in the Federal Register that the
recoverability of  the Kansas tax under s 110 of the NGPA was at
issue." 91  F.3d at 1490. Although "anything short of full
retroactivity  (i.e., to 1978) allow[ed] the producers to keep some
unlawful  overcharges without any justification at all," we limited
the  producers' liability to October 1983 because that was "the 
earliest date advocated by any party before the court." Id.


After our Public Service decision issued, the producers  invoked the
Commission's procedures for making equitable  adjustments to refund
payments "as may be necessary to  prevent special hardship, inequity,
or an unfair distribution of  the burdens." 15 U.S.C. s 3412(c).
Collectively, the produc- ers advanced two claims not explicitly
decided in Public  Service: they requested a waiver of the interest
due on the  overcharges they had to repay for the period between Octo-
ber 1983 and June 1988; and they requested a reduction in  their
repayment obligation to the extent Kansas had over- valued (and thus
overtaxed) the gas they had sold under the  belief that those taxes
were recoverable. In two orders, the  second on rehearing, the
Commission rejected these petitions  for a blanket waiver but said it
would allow individual produc- ers to obtain relief upon a sufficient


Public Service Co. of Colo., 80 F.E.R.C. p 61,264, at 61,952  (1997)
(Public Service Order I), reh'g denied, 82 F.E.R.C.  p 61,058, at
61,213, 61,214 (1998) (Public Service Order II).  The producers also
challenged the Commission's interpreta- tion of the Public Service
decision's starting date for their  repayment obligation. As the
Commission read our opinion,  the producers were liable to pay refunds
of revenues collected  in excess of the applicable maximum price based
upon any tax  bill rendered after October 4, 1983. As against this,
the  producers argued that the Commission should have prorated  the
annual tax bill they received from Kansas in 1984, an  error which
they believed added nine months to the repay- ment obligation imposed
by this court. See Reply Brief of  Petitioners (Producers) at 19.


II. Jurisdiction


With respect to the portions of the orders denying the  producers'
request for a generic, or collective, waiver of  interest on amounts
to be refunded, the Commission tells us  the producers are not
"aggrieved" within the meaning of 15  U.S.C. s 3416(a)(4). The idea is
that they may still seek, and  the Commission may still grant,
individual equitable adjust- ments based on a producer's unique
circumstances. We do  not think this possibility eliminates the injury
the producers,  as a whole, suffered as a consequence of the
Commission's  rulings. The rulings have "necessary legal
significance."  Marathon Oil Co. v. FERC, 68 F.3d 1376, 1379 (D.C.
Cir.  1995). For one thing, no producer would need to request 
individual relief if the Commission had granted a generic  waiver of
interest. For another, the Commission set proce- dures in place for
the customers to receive refunds back to  October 1983, including
interest. See Public Service Order I,  80 F.E.R.C. at 61,956-57. If
the Commission can deny the  producers' claim for a waiver of interest
en masse and order  repayment--as it has done--then the producers may
petition  for judicial review from the Commission's judgment. Other-
wise, one might as well say that a class representative has no 
standing to challenge a district court's order refusing to  certify a


still bring individual claims for relief. That, of course, is not  the
law. See, e.g., Deposit Guaranty Nat'l Bank v. Roper,  445 U.S. 326
(1980).


Marathon Oil Co. is not to the contrary. The details of the  case defy
brief description. Suffice it to say that the court  held only this:
injury-in-fact could not be established on the  basis of speculation
about whether the Commission's refusal  to act would affect later
determinations by the Internal  Revenue Service to grant or deny tax
credits. See 68 F.3d at  1379. Nothing comparable is present here.
There is no  guesswork involved in assessing the impact of the Commis-
sion's decision.3 If the decision stands, a producer could be 
relieved from having to pay interest only by establishing  conditions
specific to itself. See Public Service Order I, 80  F.E.R.C. at
61,952; Public Service Order II, 82 F.E.R.C. at  61,213, 61,214.


III. Interest


The Commission's general policy, in effect for many years,  requires
interest to be paid on various kinds of overcharges.  See Natural Gas
Policy and Procedures, FERC Statutes and  Regulations, Regulations
Preambles 1977-1981, p 30,083  (1979), reprinted in 44 Fed. Reg.
53,493 (1979), aff'd United  States Gas Pipeline Co. v. FERC, 657 F.2d
790, 794-96 (5th  Cir. 1981). This policy serves three purposes: to
"(1) provide  just compensation for the losses, or costs, imposed upon
those  who have paid excessive rates; (2) reflect the benefits which




__________

n 3 In addition to Marathon, the Commission cites Southwest Gas  Corp.
v. FERC, 40 F.3d 464, 468 (D.C. Cir. 1994), and Tenneco, Inc.  v.
FERC, 688 F.2d 1018, 1022 (5th Cir. 1982), neither of which make  its
point. Southwest Gas is a run-of-the-mill decision holding that  the
petitioner failed to establish any nonspeculative injury resulting 
from agency action. Tenneco merely holds that the petitioner was  not
aggrieved by the agency's dismissal of an adjudicatory proceed- ing in
order to allow the agency's newly formed investigative  division to
gather more evidence before going forward. See 688  F.2d at 1021. The
dismissal adjudicated nothing; it did not fix  petitioner's rights;
and it did not command petitioner to do or to  refrain from doing
anything. See id.


were available to companies which collected excessive rates;  and (3)
not provide incentives for any party to prolong  litigation." See id.
at 30,546; 44 Fed. Reg. at 53,494. To  these ends, the regulation
governing price increases for the  recovery of severance taxes gave
notice that any such increas- es were "subject to a general obligation
to refund any portion  of the price, together with interest." 18
C.F.R.  s 270.101(2)(e) (1993); see also 18 C.F.R. s 154.102(c).


"Compensation deferred is compensation reduced by the  time value of
money." In re Milwaukee Cheese Wisconsin,  Inc., 112 F.3d 845, 849
(7th Cir. 1997). In this case, compen- sation has been deferred for a
very long time--so long that  the interest on the producers'
overcharges now amounts to  160 percent of the principal. See Reply
Brief of Petitioners  (Producers) at 5, 10. The Commission is
empowered, by  s 502(c) of the NGPA, to make adjustments giving relief
from  its orders "as may be necessary to prevent special hardship, 
inequity or an unfair distribution of burdens." 15 U.S.C.  s 3412(c).
The producers have a list of "equitable" reasons  why the Commission
should have relieved all of them of  having to pay interest: the
litigation has gone on forever; the  Commission is responsible for
much of the delay; the produc- ers relied on the Commission's settled
view that the Kansas  ad valorem tax was a severance tax. We think the
Commis- sion rightly brushed these objections aside.


The Commission's legal errors and the snail-like pace of its 
administrative proceedings are cause for complaint, but are  not in
themselves grounds for altering the producers' interest  obligation.
See Southeastern Michigan Gas Co. v. FERC,  133 F.3d 34, 42-44 (D.C.
Cir. 1998). It is the balance of  equities between the producers and
their customers, not  between the producers and the Commission, that
matters.  As the Commission has recognized, interest is simply a way
of  ensuring full compensation. See Public Service Order II, 82 
F.E.R.C. at 61,215. This is why the delay between the time  of the
customers' injury and the granting of relief is a reason  for awarding
interest, not for denying it, at least when the  delay cannot be laid
at the feet of the customers. See  Milwaukee v. Cement Div. of Nat'l
Gypsum Co., 515 U.S. 189, 


196 (1995); General Motors Corp. v. Devex Corp., 461 U.S.  648, 657
(1983). It is why the producers' contention that they  are being
penalized for their good faith reliance on the  Commission's
long-standing treatment of the Kansas tax mis- apprehends the purpose
of awarding interest. Interest is not  awarded against someone for
conducting litigation in bad  faith; it is, as the Commission knew,
awarded to make the  prevailing party whole. See National Gypsum Co.,


The Commission gave careful consideration to each of the  "equitable"
reasons the producers offered for a generic waiv- er of interest and
said this: "granting a generic waiver of  interest of the ad valorem
Kansas refunds ordered by Public  Service would be inconsistent with
the Court's mandate."  Public Service Order II, 82 F.E.R.C. at 61,214.
That the  Commission correctly read our Public Service opinion cannot 
be doubted. We there rejected the producers' equitable  arguments
against full refunds back to 1983, arguments the  producers now repeat
in support of their request for a  generic waiver of interest
regarding the same period. In  holding that the producers "must refund
the full amount that  they unlawfully collected," 91 F.3d at 1490, we
determined  that the producers had not established "detrimental
reliance,"  id.;4 that even if they had relied on the Commission's
treat- ment of the Kansas tax, passage of the NGPA and the 1983 
petition challenging this treatment rendered their reliance 
unreasonable, id.; and that "we are hard pressed to see how  the
producers would be harmed in any cognizable way even if  they were
required to disgorge every dollar they received in  recovery of the
tax," id. In view of these and other portions  of our Public Service
opinion, the Commission properly con- cluded that it should not grant




__________

n 4 This part of our Public Service decision distinguishes Panhan- dle
Eastern Pipe Line Co. v. FERC, 93 F.3d 62 (D.C. Cir. 1996), in  which
we sustained the Commission's order mandating a refund  without
interest because the Commission's error not only prolonged  the
litigation, but also caused the losing party to forego a viable 
alternative means of recovering from the prevailing party. See id.  at


because, to do so, it would have to assess the equities in a  manner
contrary to Public Service.5


Estate of French v. FERC, 603 F.2d 1158 (5th Cir. 1979),  which the
producers invoke, does not favor a different out- come. The court of
appeals held that "equitable consider- ations" did not allow the
Commission to award interest  against a petitioner seeking an economic
hardship waiver for  the seven years it took to decide his claim
because a delay of  that length was unreasonable per se. See id. at
1167-68.  Here, by contrast, the Commission acted quite promptly on 
the producers' petition for a waiver of interest. There may  have been
untoward delay here, but it occurred between our  remand in Colorado
Interstate and the Commission's reversal  of its treatment of the tax.
There is an ocean of difference  between being required to pay
interest on a lawful obligation  (as the producers are being required
to do here) and being  required to pay interest while waiting for the
Commission to  decide whether one deserves a hardship waiver (which is
what  the court refused to allow in French).


IV. Tax-on-Tax


One of the curious features of the complex system by which  Kansas
taxed the production of natural gas was the way in  which assessors
"grossed up" the value of the gas by approxi- mately 10 percent to
reflect the producers' ability to recover  the Kansas tax at the time
of sale. See Ensign Oil & Gas,  Inc., 71 F.E.R.C. p 61,204, at 61,750
(1995). The producers  now argue that the Commission should reduce the
amount of 




__________

n 5 Whether the Commission's determination that Public Service 
"foreclosed the granting of relief on a generic basis to all
producers,  regardless of their individual circumstances," Public
Service Order  II, 82 F.E.R.C. at 61,214, is inconsistent with its
statement that it  retains equitable discretion to adjust individual
producer liability in  cases of hardship, see id.; see also id. at
61,217, is a question not  before us and one on which we reach no
judgment. Our decision  today does not affect the Commission's
established standards for  granting hardship waivers and does not
prohibit individual parties  from seeking hardship waivers in a
proceeding under NGPA  s 502(c), 15 U.S.C. s 3412(c).


their refund liability to their customers by the amount of this 
"tax-on-tax" because it rested on the false assumption that  they
could recover the tax and because they now have no way  of recouping
the inflated taxes they paid to Kansas. We hold  that the Commission
properly determined that the producers  are responsible for refunding
the Kansas tax-on-tax.


In terms of equity, the tax-on-tax problem disturbed the  balance of
equities between the producers and Kansas, not  between the producers
and their customers. There is no  reason why, in the Commission's
words, "overcharged con- sumers should forego refunds they are
entitled to, to the  extent producers paid more ad valorem taxes to
Kansas  localities than they should have." Public Service Order II, 82
 F.E.R.C. at 61,219.6


V. Refund Date


In Public Service, we said that we would "not require  refunds of taxes
recovered with respect to production before  October 1983 because
there is before us no controversy over  those monies." Public Service,
91 F.3d at 1490-91. Our use  of the phrase "with respect to
production," which appears  three times in the opinion, see id. at
1490, 1492, has generated  some confusion, particularly in view of our
decision on the  merits that the Kansas tax was not a severance tax
attribut- able to production within s 110's meaning. 91 F.3d at 1482-
86. On remand, the Commission interpreted taxes "with  respect to
production" to mean "revenues collected based  upon any tax bill
rendered after October 4, 1983," Public  Service Order II, 82 F.E.R.C.
at 61,220; accord Public Ser- vice Order I, 80 F.E.R.C. at 61,953
n.25. Because Kansas  levied its ad valorem tax annually and collected
it through a  bill sent toward the end of each year, the producers
objected  to the Commission's interpretation because it appeared to 
them to impose an additional nine months of liability. See 




__________

n 6 Given this ground of decision in Public Service Order II,  there is
no need for us to address the producers' arguments that  the
Commission misconstrued Ensign Oil & Gas, Inc., 71 F.E.R.C.  p 61,204
(1995), in Public Service Order I.


Reply Brief of Petitioners (Producers) at 19. We find our- selves in
agreement with neither the Commission nor the  producers. Both focus
on the tax transaction between pro- ducers and Kansas rather than the
sales transactions between  the producers and their customers. Our
decision in Public  Service required the producers to refund all taxes
passed  through to customers after October 4, 1983. In other words, 
the phrase "with respect to production" means "when sold."


Public Service used the prepositional phrase "with respect  to
production" three times to modify three different objects.  The
opinion first stated that "we do not require refunds of  taxes
recovered with respect to production before October  1983." 91 F.3d at
1491-92 (emphasis added). Here, "taxes  recovered" means taxes passed
through at sale because that  is how taxes are "recovered." The second
instance is this:  "Producers are liable to refund all Kansas ad
valorem taxes  collected with respect to production since October
1983." Id.  at 1492 (emphasis added). Here, the natural first reading
of  "taxes collected" might be taxes levied by Kansas because we 
normally think of states, not private entities, as tax collectors.  In
context, however, the better reading of "taxes collected" is  taxes
collected from customers through higher prices. The  final instance
is: "The customers are limited, however, to  recovery of taxes paid
with respect to production since Octo- ber 1983...." Id. (emphasis
added). This last sentence  focuses most clearly on the sales
transaction rather than the  tax transaction because it is the
customers who are doing the  paying. In order to show that this is the
correct interpreta- tion, we need to look at the way the taxation and


During the period in question, Kansas would send a tax bill  to the
producers near the end of the year assessing a well's  raw value
during the previous year. See Public Service, 91  F.3d at 1484. That
value was determined by a number of  factors including the volume of
the reserve, the physical  capital at the well site, and the rate of
production. See id. at  1484-85. It is also significant that the rate
of production  factor was averaged over the lengthier of two time
periods-- three or five years--whenever production had lasted that 


long. See id. at 1484. After receiving the state tax bill for a  given
year, the producers would take advantage of the federal  recovery
policy by raising their prices in individual transac- tions to reflect
their individual tax liability.


Between October 1983 and January 1984, the producers  overcharged
customers to recover state taxes assessed  against the value of their
wells in 1982. The producers seem  to argue that one should look only
to the tax bill they received  from Kansas in 1984 for the 1983 tax
year and then reduce it  by roughly 75% (assuming even production over
the year).7  That argument focuses on the tax transaction, which is
the  wrong transaction. The transaction that caused the harm is  the
sales transaction, and it is the overcharges made in those  individual
transactions (plus interest) that the producers must  now repay.8


VI. Kansas


The State of Kansas and the Kansas Corporate Commis- sion joined in
this litigation to mitigate the "real and se- vere.... impact on the
gas industry in Kansas as a whole and  the economy of the state of
Kansas as a whole." Final Initial  Brief of Petitioners (Kansas) at
13. While it may be true that  interest refunds could cause some
marginal producers to fold,  it is hard to see how the people of
Kansas have actually been  injured. Kansas was able to collect taxes
during this entire  period (including their "tax-on-tax"); it has
enjoyed the time  value of this money; and no one is asking the State
to pay  back anything. If it is important to Kansas to limit the 




__________

n 7 An accurate calculation would be far more complex because of 
variations in production levels, especially when a well is new. See 
Public Service, 91 F.3d at 1483-85; Colorado Interstate, 850 F.2d at 


8 We are aware that although our decision reverses the Commis- sion, it
might put the producers in a worse position than they would  have been
if they had not challenged the Commission's starting date  for
refunds. At oral argument, we suggested this possible outcome  to
producers' counsel, but despite receiving notice, the producers 
continued to press their objection to the Commission's date.


economic damage on marginal producers, it retains numerous  avenues for
aiding them. It appears, however, the only  action taken by Kansas
with respect to the producers' refund  liability was adverse. See Kan.
Stat. Ann. s 55-1624 (enacted  Apr. 20, 1998). Indeed, some of the
producers in this case  have already petitioned the Commission for
equitable relief  from losses resulting from the state law. See Notice
of  Motion for Waiver, 63 Fed. Reg. 30,736 (1998).


* * *


For the reasons stated, the Commission's decision regard- ing the
starting date for refunds is set aside and the cases are  remanded for
the entry of an order prescribing a starting  date consistent with
this opinion. In all other respects, the  petitions for judicial
review are denied.