Indiana Seeks Shared Jurisdiction in Bypass Case
Indiana regulators and FERC are weighing a potentially
groundbreaking case that, in the end after court review, could
award "complementary jurisdiction" to both states and the federal
government in instances where interstate pipelines are seeking to
bypass local distribution companies (LDCs) in order to directly
serve end-use customers.
In a hotly contested case before the Indiana Utility Regulatory
Commission (IURC), Midwestern Gas Transmission is challenging an
Indiana anti-bypass law that essentially requires out-of-state
transporters of natural gas to first receive a certificate from the
state commission to provide service to a customer in a rural area.
This has become a major issue in Midwestern's pursuit to build a
small lateral to provide service to a new facility, Grain
Processing Corp. in Daviess County, IN. Southern Indiana Gas &
Electric (SIGECO), which sees itself as being robbed of a potential
customer, has petitioned the IURC to issue a "cease and desist"
order against Midwestern's project arguing it would violate the
The issue has spilled over into the FERC arena, where SIGECO has
asked the Commission to defer to Indiana law when considering
whether or not to grant Midwestern's application to serve Grain
Processing. "It would be arbitrary in the extreme for the
Commission to act on the application without regard to the
provisions of Indiana law or the decision of the IURC," said the
Evansville, IN, utility in its protest.
Midwestern has asked FERC to reject SIGECO's argument on the
grounds that its "transportation service for [Grain Processing]
clearly constitutes transportation in interstate commerce, subject
to the exclusive jurisdiction of the Commission. Midwestern's
project does not involve the local distribution of gas." Moreover,
the pipeline noted FERC rejected the argument now being raised by
SIGECO in a 1993 case. Midwestern and its attorney declined to
comment any further, except to say the case was not a bypass
because it involved a new customer.
In a nutshell, "we're [SIGECO] saying that under Indiana law
it's a 'no brainer' that we get to serve them. And Midwestern is
saying that 'FERC law - federal law - is superior to state law, and
since we're an interstate pipeline not governed by Indiana, we're
going to serve them directly,'" said George A. Porch, an outside
attorney for the utility. The case is shaping up to be a "classic
state vs. federal conflict" that could go all the way to the
Supreme Court, he believes.
Porch saidIndianawould like to see the courts to give it shared
jurisdiction in potential bypass cases. For instance, FERC would
authorize construction of laterals and would have jurisdiction up
to "Point X," while states would have jurisdiction over facilities
such as regulator stations for reducing pressures on interstate
lines, odorizers and meters, as well as authorizing actual gas
service, he said.
The outcome of the case will definitely have repercussion on
Indiana LDCs or pipelines seeking to do bypasses in that state, but
it also could have ramifications for other states "depending on
what FERC does...FERC really has never addressed this issue
before," he said, adding that it isn't taking this case lightly.
"In the past, FERC's kind of blown off this kind of thing. This one
they seem to be interested in." In fact, "this is the first case
where I can recall that they've asked for an environmental
assessment of this kind of situation," he said. Also, Commission
staff members recently "came out and walked both lines" -
Midwestern's proposed route and an existing, "environmentally
benign" SIGECO line located less than a mile from the Grain
Processing facility site.
Porch said the Supreme Court decision in General Motors vs.
Tracy "gives us hope" the state's role in bypass cases will be
recognized. "Previously in bypass cases, the interstate pipeline
won them. Here, the court held that an out-of-state shipper of gas
into the state of Ohio is subject to an Ohio use tax because that's
a local distribution function. And that supports our situation.
We're saying 'well the state still has some local distribution
control even if an interstate pipeline serves a new customer
As a footnote to its decision, the high court cited two Michigan
cases that raised issues similar to those in SIGECO-Midwestern. The
court declined to comment, leaving it an open issue to be decided
later. And Porch believes this is the case to settle it once and
for all. If SIGECO should lose at FERC, it would appeal to the D.C.
Circuit Court of Appeals. A decision there favorable to SIGECO
would put it in conflict with a ruling by the Michigan Circuit
Court of Appeals, which would make the case ripe for a Supreme
Court review, Porch said. In the alternative, the utility could
file for Supreme Court review when the case reaches the Indiana
Supreme Court, he noted.
As for a decision from the IURC and FERC, Porch believes that
"we ought to know from one or both" by the first of next year.