The Kansas Supreme Court is being asked to resolve a case in which southwest Kansas irrigators accused the Texas-Kansas-Oklahoma Gas of using an inappropriate method of calculating natural gas bills for customers. The Kansas Corporation Commission sided with TKO Gas, but the Kansas Court of Appeals found for complainants. (Screen capture/Kansas Reflector)
TOPEKA — Independent Oil and Gas Company hit natural gas nearly a century ago while drilling 2,600 feet below the surface of Hugoton at its Crawford No. 1 site in Stevens County.
Field workers in that oil-and-gas patch during the 1920s may not have appreciated they’d marked the center of Hugoton Field, one of the largest gas repositories in the United States. Southwest Kansas now features thousands of wells and thousands of miles of pipeline carrying gas across the country.
The business of selling natural gas, which provides heat for homes and drives irrigation equipment in crop fields, is at the vortex of a pending regulatory dispute to be decided 360 miles east of Hugoton by the Kansas Supreme Court in Topeka.
Three Hugoton-area farms — Circle H Farms, Rome Farms and Stegman Farms — and Kansas resident Richard Hanson filed a complaint in 2014 with the Kansas Corporation Commission asserting Texas-Kansas-Oklahoma Gas, or TKO, relied since 2007 on an imprecise method of determining the amount of gas received by customers. TKO’s approach, the complaint said, resulted in overcharging customers by nearly 9.5%.
“It’s a very simple complaint,” said Lee Thompson, a Wichita attorney representing the farms. “It focuses on a discrete practice and that … they had been consistently overbilled due to a mismeasurement.”
The initial KCC staff report recommended TKO be fined $7,100, compelled to stop misrepresenting gas piped to customers and ordered to reimburse customers for overcharges dating to 2012.
A second report by staff at KCC shifted in tone by referring to the dispute as a “billing error” that nevertheless resulted in “potentially reasonable” charges on customers. In addition, that follow-up report indicated the financial condition of TKO — a Dalhart, Texas, middleman company that buys and resells natural gas — was precarious. Forcing the company to issue refunds wasn’t in the public interest, the report said.
The three-member KCC ultimately acknowledged the company’s consistent miscalculation of gas provided clients, but concluded the rate assessed wasn’t unreasonable under state law.
The trio of southwest Kansas farmers relying on TKO gas to run irrigation pumps responded to the KCC’s decision by moving the case to Stevens County District Court.
Not so fast
District Court Judge Bradley Ambrosier, who was among judges that took legal action in 2016 against Gov. Sam Brownback for delaying appointment of a magistrate judge, ruled the billing error was unfair and ordered TKO to refund as much as $100,000 to the complainants.
Ambrosier’s opinion reversing the KCC said the regulatory agency’s conclusions were “factually, logically and legally erroneous” and “not supported by the record or the evidence.”
In 2020, the Kansas Court of Appeals subsequently determined the KCC mishandled the case and failed to resolve problems of overcharging customers of TKO. The appellate court also said TKO’s approach was “neither honest nor fair.”
The Court of Appeals’ opinion said the district court didn’t have authority under Kansas law to order a utility company to refund overpayments. Instead, the appeals court directed the KCC to craft a remedy to the billing injustice that balanced interests of customers and the public.
Jeremy Graber, an attorney with the Foulston Siefkin firm, appealed the case on behalf of TKO to the Kansas Supreme Court. He took a no-harm, no-foul approach last week during oral arguments before the state’s highest court. He urged justices to uphold the KCC’s approach to the conflict.
“You’re obviously pushing hard for deference to the commission,” said Justice Caleb Stegall, who asked Graber to rebut the Court of Appeals’ view the KCC misapplied state law in the case.
Graber said the Court of Appeals was led astray when it assumed complainants received less gas than they paid for and were consequently overcharged by TKO. In fact, he said, the farmers paid natural gas rates that were competitive with other supply options in southwest Kansas.
“This case is not about fraud or misrepresentation,” Graber said. “TKO never admitted there was ever any billing error and the KCC expressly found no misrepresentation.”
Justice Dan Biles said the KCC did conclude TKO failed to fully disclose in contracts with its clients how it went about calculating customers’ bills for natural gas. Biles suggested the process relied upon by TKO could be viewed as unlawful.
In response to a question from Supreme Court Justice K.J. Wall, the irrigators’ attorney said it would be unreasonable to allow TKO to perpetuate a flawed process of deciding how much consumers paid for natural gas.
“The reasonableness in rates in this case is, in my humble opinion, a red herring or a straw-man argument advanced by TKO to take the focus off the specific misconduct,” Thompson said.
Thompson said the KCC improperly decided TKO didn’t engage in manipulation of the gas rate because it persistently used the imprecise method of calculating bills. The state’s utility regulators should require companies to accurately portray gas consumption in terms of billing, he said.
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