CHAPTER 31 SENATE BILL No. 546* An  Act concerning retail natural gas suppliers; relating to franchise agreements; compensation. Be it enacted by the Legislature of the State of Kansas:

      Section  1. (a) When the service rights of a retail natural gas supplier
are terminated by a city during the period in which a valid franchise is in
effect and the service rights are assumed by the terminating city, or an
entity acting on behalf of or as an agent for the city, the governing body
of the city shall acquire from the terminated supplier the parts of the
local natural gas distribution system necessary to serve all customers
within the previously franchised area and the terminated supplier shall
sell the system to the governing body of such city for which it shall be
fairly compensated. Such compensation shall be an amount mutually
agreed upon by the affected parties or an amount determined by the
following formula:

      (1) The depreciated replacement cost for the gas utility facilities in
the territory in which the service rights have been terminated. As used
in this paragraph, ``depreciated replacement cost'' means the original in-
stalled cost of the facilities, adjusted to present value by utilizing a na-
tionally recognized index of utility construction costs, less accumulated
depreciation based on the book depreciation rates of the selling utility,
as filed with and approved by the state corporation commission, which
are in effect at the time of acquisition;

      (2) the depreciated replacement costs of the remaining proportion of
any take or pay contracts or participation agreements;

      (3) the depreciated replacement cost for the gas utility facilities out-
side the affected territory used in providing service to the formerly fran-
chised area. Such facilities shall include all compression, regulating or
transmission facilities throughout the terminated utility's integrated sys-
tem, the value of which shall be determined by the depreciated replace-
ment cost formula in paragraph (1) multiplied by the percentage of the
terminated utility's total retail sales to customers in the affected area
during the 12 months next preceding the effective date of the sale;

      (4) all reasonable and prudent costs of detaching the gas system fa-
cilities to be sold, including the reasonable costs of studies and inventories
made to determine the facility's value and all reasonable and prudent
costs of reintegrating the remaining gas system facilities of the retail gas
supplier whose service rights are terminated;

      (5) an amount equal to the net revenues received during the 12
months next preceding the date of termination of the service rights from
the customers within the affected area of the retail gas supplier whose
service rights are terminated. As used in this paragraph, ``net revenues''
means the total revenues received by the terminated utility for gas service
within the affected area less franchise and sales taxes collected and the
cost of gas recovered in the revenues. This number shall be multiplied
by the number of years remaining in any franchise contract; and

      (6) an amount equal to the state and federal tax liability created by
the taxable income pursuant to the provisions of this paragraph and par-
agraphs (1), (2), (3), (4) and (5) by the retail gas supplier whose service
rights are terminated, calculated, without regard to any tax deductions or
benefits not related to the sale of assets covered herein.

      (b) If the parties are unable to agree upon the amount of compen-
sation to be paid pursuant to this act after 60 days following the date of
termination of service rights, either party may apply to the district court
having jurisdiction where any portion of the facilities are located for de-
termination of compensation. Such determination shall be made by the
court sitting without a jury.

      Sec.  2. In addition to the fair cash value of any plant and appurte-
nance thereto determined pursuant to K.S.A. 12-811, and amendments
thereto, a retail natural gas supplier whose service rights have expired by
reason of failure of the renewal of a valid franchise shall be entitled to
compensation for all reasonable and prudent costs of detaching the gas
system facilities to be sold and all reasonable and prudent costs of rein-
tegrating the remaining gas system facilities of such retail gas supplies
less the value of all gas system facilities replaced by the new facilities
required for the reintegration of the remaining gas system facilities, plus
an amount equal to the gross revenues received from the customers
within the affected area during the 12 months next preceding the date of
expiration of the most recent valid franchise, less taxes and the cost of
gas.

 Sec.  3. This act shall take effect and be in force from and after its
publication in the statute book.

Approved April 4, 2002.
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