In the Supreme Court of the United States

Transcription

1 NO In the Supreme Court of the United States MISSOURI GAS ENERGY, ET AL., Petitioners, v. STATE OF KANSAS, DIVISION OF PROPERTY VALUATION, Respondent. On Petition for a Writ of Certiorari to the Supreme Court of Kansas AMICUS CURIAE BRIEF OF THE INTERSTATE NATURAL GAS ASSOCIATION OF AMERICA IN SUPPORT OF PETITIONERS Joan Dreskin General Counsel Interstate Natural Gas Association of America 20 F St., N.W. Suite 450 Washington, D.C (202) jdreskin@ingaa.org Paul Korman Counsel of Record Van Ness Feldman LLP 1050 Thomas Jefferson St., N.W. Suite 700 Washington, D.C (202) pik@vnf.com Counsel for Amicus Curiae May 8, 2014 Becker Gallagher Cincinnati, OH Washington, D.C

2 i TABLE OF CONTENTS TABLE OF AUTHORITIES... ii STATEMENT OF INTEREST... 1 SUMMARY OF ARGUMENT... 3 ARGUMENT... 5 I. NATURAL GAS STORAGE IS VITAL TO ENSURING THE EFFICIENT OPERATION OF INTERSTATE NATURAL GAS PIPELINES AND PROTECTING CONSUMERS FROM PRICE VOLATILITY... 5 A. Pipeline Operations... 6 B. Consumer Protection... 6 II. THE SPLIT BETWEEN THE STATES OVER TAXATION OF STORED NATURAL GAS IMPAIRS THE EFFICIENCY OF A WELL- FUNCTIONING NATIONAL INTERSTATE MARKET... 8 CONCLUSION... 11

3 ii TABLE OF AUTHORITIES Cases Columbia Gas Transmission Corp. v. Exclusive Gas Storage Easement, 776 F.2d 125 (6th Cir. 1985)... 8 Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977) In re Appeals of Various Applicants from a Decision of the Div. of Prop. Valuation of the State of Kansas, 313 P.3d 789 (Kan. 2013)... 6, 8, 10 Missouri ex rel. Barrett v. Kansas Natural Gas Co., 265 U.S. 298 (1924)... 8 Natural Gas Pipeline Co. v. Iowa State Commerce Comm n, 369 F. Supp. 156 (S.D. Iowa 1974)... 6 Peoples Gas, Light & Coke Co. v. Harrison Cent. Appraisal Dist., 270 S.W.3d 208 (Tex. Ct. App. 2008)... 8, 9 Schneidewind v. ANR Pipeline Co., 485 U.S. 293 (1988)... 5, 8 Administrative Cases Central New York Oil & Gas Co., LLC, 116 FERC 61,277 (2006)... 9

4 iii Rate Regulation of Certain Natural Gas Storage Facilities, Order No. 678, 71 Fed. Reg. 36,612 (June 27, 2006), FERC Stats. & Regs., Regs. Preambles [ ] 31,220(2006), order on clarification and reh g, Order No. 678-A, 117 FERC 61,190 (2006)... 5, 7 Statutes 15 U.S.C w (2012) U.S.C. 717c(f)... 5, 11 Regulations 18 C.F.R (a) (2013)... 8 Legislative Material Energy Policy Act of 2005, Pub. L. No , 119 Stat. 594, 688 (2005)... 5 Other Authorities Federal Energy Regulatory Commission, Current State of and Issues Concerning Underground Natural Gas Storage 1 (Sept. 30, 2004), final-gs-report.pdf U.S. Energy Information Administration, U.S. Natural Gas Total Consumption, dnav/ng/hist/n9140us2a.htm (last visited May 6, 214)... 11

5 iv U.S. Energy Information Administration, U.S. Total Natural Gas Underground Storage Capacity, (last visited May 6, 2014) U.S. Energy Information Administration, Weekly Natural Gas Report (Mar. 27, 2014), eia.gov/naturalgas/weekly/archive/2014/03_27/i ndex.cfm... 7

6 1 STATEMENT OF INTEREST 1 The Interstate Natural Gas Association of America ( INGAA ) 2 is a non-profit national trade association 1 This brief is filed with the consent of the parties, who were given 10 days notice. No party or counsel for a party authored this brief in whole or in part. No party, counsel for a party, or person other than amicus curiae, its members, or counsel made any monetary contribution intended to fund the preparation or submission of this brief. 2 INGAA s members and their subsidiaries (indicated in parentheses in the following) include: Alliance Pipeline; Boardwalk Pipelines (Gulf Crossing Pipeline, Texas Gas Transmission, LLC, and Gulf South Pipeline); Carolina Gas Transmission Corporation; Cheniere Energy, Inc. (Creole Trail Pipeline and Sabine Pass LNG); Columbia Pipeline Group (Columbia Gulf Transmission, Columbia Gas Transmission, Millennium Pipeline, and Crossroads Pipeline); Dominion Energy (Dominion Transmission Corporation, Dominion Cove Point LNG, L.P., and Iroquois Gas Trans. Sys. L.P.); DTE Energy (DTE Pipeline and Vector); Enable Midstream Partners (Enable Gas Transmission and Enable Mississippi River Transmission); Enbridge Energy Company, Inc. (Destin Pipeline Co. LLC, Garden Banks Gas Pipeline, Nautilus Pipeline Co., and Stingray Pipeline Co.); Energy Transfer Partners LP (Fayetteville Express Pipeline, Florida Gas Transmission Pipeline, Panhandle Eastern Pipeline Co., Sea Robin Pipeline, Tiger Pipeline, Transwestern Pipeline Co., Trunkline Gas Co., and Trunkline LNG Co.); EQT Corporation (Equitrans); Iroquois Pipeline Operating Company (Iroquois Gas Transmission); Kinder Morgan, Inc. (Cheyenne Plains Gas Pipeline Co., Colorado Interstate Gas Co., El Paso Natural Gas Co., Horizon Pipeline Co., KM Illinois Pipeline, KM Louisiana Pipeline, Midcontinent Express, Mojave Pipeline, Ruby Pipeline, Southern Natural Gas, Southern LNG, Elba Express, Gulf LNG, Natural Gas Pipeline Company of America, Tennessee Gas Pipeline Co., TransColorado Gas Pipeline, and Wyoming Interstate Co.,); National Fuel Gas Supply Corporation (Empire Pipeline, Inc., National Fuel Gas Supply

7 2 comprised of interstate natural gas pipeline companies regulated by the Federal Energy Regulatory Commission ( FERC ) pursuant to the Natural Gas Act ( NGA ). 15 U.S.C w (2012). INGAA s members operate approximately 200,000 miles of interstate natural gas pipelines and, significantly for this case, 175 FERC-jurisdictional interstate natural gas storage fields in 25 states across the United States, including Kansas. The vast majority of natural gas transported and sold in interstate commerce in the United States travels on INGAA members pipelines. This Court has recognized that storage facilities connected to interstate natural gas pipelines are a part of the transportation of natural gas in interstate commerce. As a national trade association, INGAA has Corporation); National Grid; ONEOK, Inc. (Guardian Pipeline, LLC, Midwestern Gas Transmission Co., Northern Border Pipeline Company, OkTex Pipeline Company, and Viking Gas Transmission Company); Pacific Gas & Electric Company; Piedmont Natural Gas; Questar Pipeline Company (Overthrust Pipeline Co., Questar Pipeline, and Questar Southern Trails Pipeline); Sempra Pipelines and Storage; Southern Star Central Gas Pipeline, Inc.; Spectra Energy (Algonquin Gas Transmission Co., Big Sandy Pipeline, East Tennessee Natural Gas Co., Gulfstream Natural Gas System, Maritimes and Northeast Pipeline, LLC, Ozark Gas Transmission, Southeast Supply Header, and Texas Eastern Transmission Corporation); TransCanada Corporation (ANR Pipeline Co., Bison Pipeline, Gas Transmission Northwest Corporation, Great Lakes Transmission System, North Baja Pipeline, Iroquois Gas Transmission, Northern Border Pipeline Co., Portland Natural Gas Transmission System, and Tuscarora Gas Transmission); WBI Energy Transmission, Inc. (Williston Basin Interstate Pipeline Co.); and Williams (Black Marlin Pipeline, Gulfstream Natural Gas System, Pine Needle LNG Company, Northwest Pipeline Corporation, and Transcontinental Gas Pipe Line Corporation).

8 3 a strong interest in ensuring that natural gas shipped on its members interstate pipeline transportation systems, including storage facilities, is subject to taxation only where the taxing entity possesses the proper jurisdictional authority and power to tax. The decision below contradicts well-settled law restricting states ability to impose a tax on gas in transit in interstate commerce, including natural gas stored in FERC-jurisdictional interstate facilities owned and operated by interstate natural gas pipeline companies pursuant to FERC-approved transportation and storage agreements. INGAA is also deeply concerned that the decision below will encourage other states and localities to impose similar taxes on the numerous interstate storage facilities in other states. This may result in some states joining Kansas and Oklahoma in levying such taxes and other states joining Texas, which has held that such a tax violates the U.S. Constitution. The current split on the authority of states to levy such taxes threatens the effective functioning of the nation s natural gas transportation system because some states may impose burdensome taxation on natural gas in interstate commerce. Such taxes also inflate the cost of transportation to shippers and the price of natural gas to consumers. SUMMARY OF ARGUMENT Storage plays a vital role in the natural gas industry. Because the volume of natural gas delivered to the pipeline will not perfectly match demand by customers, storage facilities aid the efficient management of the day-to-day operations of interstate natural gas pipelines, allowing pipelines to dependably

9 4 meet consumer needs. In addition, storage can reduce pipeline customers exposure to volatile spot market prices. In the decision below, Kansas joined Oklahoma in concluding that it could levy ad valorem taxes on natural gas in storage facilities operated by interstate natural gas pipelines. The State of Texas has reached the opposite conclusion. If left unresolved, this split in authority among the States will unduly burden the interstate market for natural gas by encouraging the shippers on natural gas pipelines to avoid interstate pipelines with storage facilities in states like Kansas and Oklahoma which levy ad valorem taxes on stored natural gas. Shippers on natural gas pipelines do not exercise control over the individual molecules of gas after tendering them to the pipeline. Therefore, to avoid taxation of their in-transit gas, they may avoid using any interstate pipeline with storage facilities in a taxing state. This behavior threatens the efficient operation of the federally-regulated interstate natural gas marketplace and could impair the efficient operation of the interstate pipeline grid. State taxation may also thwart Congressional efforts to encourage the development of more interstate natural gas storage facilities. 3 3 INGAA will not repeat the legal arguments of Petitioners that favor granting the Petition. INGAA s brief is intended to demonstrate the national importance of the issue in this case.

10 5 ARGUMENT I. NATURAL GAS STORAGE IS VITAL TO ENSURING THE EFFICIENT OPERATION OF INTERSTATE NATURAL GAS PIPELINES AND PROTECTING CONSUMERS FROM PRICE VOLATILITY This Court has recognized that [u]nderground gas storage facilities are a necessary and integral part of the operation of piping gas from the area of production to the area of consumption. Schneidewind v. ANR Pipeline Co., 485 U.S. 293, 295, n. 1 (1988). Congress acknowledged the importance of storage in the interstate natural gas market and sought to encourage the development of more storage facilities when it enacted section 312 of the Energy Policy Act of 2005 ( EPAct 2005 ). Energy Policy Act of 2005, Pub. L. No , 312, 119 Stat. 594, 688 (2005) (codified as amended at 15 U.S.C. 717c(f)). 4 When implementing EPAct 2005, FERC noted [t]he underground storage of natural gas is critical in assuring that overall demands and specific requirements of natural gas customers are met. Rate Regulation of Certain Natural Gas Storage Facilities, Order No. 678, 71 Fed. Reg. 36,612 (June 27, 2006), FERC Stats. & Regs., Regs. Preambles [ ] 31,220 at P 8 (2006), order on clarification and reh g, Order No. 678-A, 117 FERC 61,190 (2006). 4 EPAct 2005 permitted FERC to authorize storage providers to charge market-based rates for new storage capacity so long as consumers are protected.

11 6 A. Pipeline Operations FERC-regulated underground storage facilities perform a critical operational role in transporting gas in interstate commerce from the wellhead to the customer by balancing and controlling pressure along the lines. In the decision below the Kansas Supreme Court recognized that [s]torage is integral to the pipelines operations, and natural gas is continually deposited and removed to satisfy essential pipeline pressure and balancing requirements, as well as to permit interstate transportation such as the simultaneous delivery and redelivery of natural gas at distant locations. In re Appeals of Various Applicants from a Decision of the Div. of Prop. Valuation of the State of Kansas, 313 P.3d 789, 793 (Kan. 2013). Specifically, interconnections to storage give a pipeline operator a place to inject excess gas when more is being received by the pipeline than delivered, as well as a source for withdrawal of gas when more is being delivered to customers than is received by the pipeline. The indispensability of storage facilities to the function of load balancing in pipeline operations renders them necessary for the proper operation of [a gas] pipeline. Natural Gas Pipeline Co. v. Iowa State Commerce Comm n, 369 F. Supp. 156, 159 (S.D. Iowa 1974). If pipeline customers avoid using storage facilities in states levying ad valorem taxes, pipelines may face operational difficulties in meeting the demands of the marketplace. B. Consumer Protection FERC has noted that [s]torage can have a moderating influence on gas prices by allowing

12 7 customers to build up underground inventories during times of lower demand, and then rely on these supply stores to avoid paying high spot market gas prices. Order No. 678 at P 9. In a report on natural gas storage, FERC s staff concluded that [s]torage may be the best way of managing gas commodity price[.] Federal Energy Regulatory Commission, Current State of and Issues Concerning Underground Natural Gas Storage 1 (Sept. 30, 2004), EventCalendar/Files/ final-gsreport.pdf. The report went on to explain that when cold weather or other market conditions create more demand for [natural] gas than domestic production or imports can satisfy, [natural] gas that has been put in storage can be withdrawn to make up the difference. Id. at 4. The extreme cold during the winter of illustrates both the importance of adequate natural gas storage facilities and the consequence of inadequate storage facilities and inadequate inventory. The inventory of stored natural gas fell to a 10-year low [this winter] as freezing temperatures led to record natural gas demand and storage withdrawals. U.S. Energy Information Administration, Weekly Natural Gas Report (Mar. 27, 2014), naturalgas/weekly/archive/2014/03_27/index.cfm. Without storage, natural gas consumers would have faced increased exposure to spot price volatility.

13 8 II. THE SPLIT BETWEEN THE STATES OVER TAXATION OF STORED NATURAL GAS IMPAIRS THE EFFICIENCY OF A WELL- FUNCTIONING NATIONAL INTERSTATE MARKET This Court has long recognized that with respect to the interstate natural gas industry, [t]he paramount interest is not local but national, admitting of and requiring uniformity of regulation. Missouri ex rel. Barrett v. Kansas Natural Gas Co., 265 U.S. 298, (1924). Storage facilities are part of the interstate transmission of natural gas. Numerous courts, including this Court, have found that gas storage facilities are a necessary and integral part of the transportation of natural gas in interstate commerce as a matter of federal law. Schneidewind, 485 U.S. at 295, n. 1; Columbia Gas Transmission Corp. v. Exclusive Gas Storage Easement, 776 F.2d 125, (6th Cir. 1985). FERC, the federal agency with exclusive jurisdiction over the interstate transportation of natural gas, has expressly defined interstate transportation of natural gas to include storage of natural gas. 18 C.F.R (a) (2013). Yet, instead of ensuring uniformity, the decision below exacerbates a split among state courts. The Kansas Supreme Court acknowledged that the Oklahoma Supreme Court and Texas Court of Appeals have split on whether similar ad valorem taxes on natural gas stored in an interstate pipeline violated the Commerce Clause. In re Appeals of Various Applicants, 313 P.3d at 798 (citing In re Assessment of Pers. Prop. Taxes Against Missouri Gas Energy, 234 P.3d 938, (Okla. 2008); Peoples Gas, Light &

14 9 Coke Co. v. Harrison Cent. Appraisal Dist., 270 S.W.3d 208, (Tex. Ct. App. 2008), cert. denied 131 S. Ct. 2097) (2011) (emphasis added)). In 2008 the Solicitor General opposed review of the Oklahoma decision, relying significantly on the then-unsettled proceedings in Texas. Br. for United States as Amicus Curiae 7-8, Missouri Gas Energy v. Schmidt (U.S. No ). Since then the Texas courts have ruled and the split between the states is now crystal clear. Only a decision from this Court can provide the uniformity and predictability required. The result of these conflicting decisions is an interstate natural gas transportation system in which stored gas is taxed in two states, untaxed in one state, and uncertainty abounds as to how the remaining 22 states in which storage facilities operate will decide the question. 5 INGAA expects that without action from this Court, other states in need of revenue will find the Kansas/Oklahoma approach of taxing out-of-state entities transporting natural gas through their state to be appealing. The imposition of these taxes in certain states, like Kansas and Oklahoma, which have been declared unconstitutional in other states, like Texas, has the potential to distort and balkanize the interstate natural gas transportation market. When shippers 5 Additional uncertainty exists because underground natural gas storage facilities are not always located in a single state. For example, the FERC-certificated Stagecoach Storage Facility is located in both Tioga County, New York and Bradford County, Pennsylvania. Cent. New York Oil & Gas Co., LLC, 116 FERC 61,277 at P 3 (2006).

15 10 provide gas to a natural gas pipeline, the shipper has no control over where a particular molecule of gas may go. The shipper merely specifies the receipt and delivery points without dictating what path the gas may take on its journey. Some INGAA members have storage facilities in multiple jurisdictions and the pipeline currently determines where the gas will be stored. The Kansas Supreme Court s assertion that in this interstate natural gas transportation system [t]here is axiomatically a substantial nexus between Kansas and gas stored in this state because the gas was located in Kansas on the assessment date is anything but self-evident. In re Appeals of Various Applicants, 313 P.3d at 799. Under the overly broad definition of the required substantial nexus adopted by the Kansas Supreme Court, to avoid taxation, shippers of natural gas would have to avoid pipelines with storage facilities in taxing states like Kansas and Oklahoma, even if the receipt and delivery points for that gas are outside of those two states. Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977), reh g denied, 430 U.S. 976 (1977). Shippers can also be expected to select certain pipelines or transportation paths to avoid using storage facilities in Oklahoma and Kansas while preferring facilities in Texas. This will negatively impact buyers and sellers of natural gas in tax levying states. Gas customers in certain states will have greater access to stored gas while other customers will not. This defeats the uniform system of regulation that Congress sought to establish in the Natural Gas Act. In addition to its impacts on the market, the ad valorem taxes levied by Kansas and Oklahoma may

16 11 discourage the creation of new storage facilities both in those states and in others where uncertainty about whether such taxes will be imposed remains. This directly conflicts with and counteracts Congress intent to encourage the expansion of natural gas storage. 15 U.S.C. 717c(f). Despite Congress efforts, natural gas storage has not kept pace with America s growing use of natural gas. Since the United States Energy Information Administration ( EIA ) began tracking the underground storage of natural gas in 1988 through 2012 (the most recent year for which EIA data on total storage capacity is available), natural gas storage capacity has increased only 11 percent. EIA, U.S. Total Natural Gas Underground Storage Capacity, us2a.htm (last visited May 6, 2014). Over that same time consumption of natural gas has risen by 42 percent. EIA, U.S. Natural Gas Total Consumption, (last visited May 6, 214). Construction of new storage fields may be adversely affected by the different tax regimes and the uncertainty created by the ability of some states to levy ad valorem taxes in the future. CONCLUSION It is critical to the uniform operation of the nation s interstate gas pipeline network that this Court uphold the long-standing limitations and prohibitions against states attempting to tax natural gas moving in interstate commerce. Accordingly, the Petition should be granted.

17 12 Respectfully submitted, Paul Korman Counsel of Record Van Ness Feldman LLP 1050 Thomas Jefferson St., N.W. Suite 700 Washington, D.C (202) Counsel for Amicus Curiae May 8, 2014