Court Overturns FERC on Colorado Bypass
The U.S. Court of Appeals for the 10th District has reversed and
remanded an order in which FERC asserted jurisdiction over two KN
Wattenberg Transmission laterals that provide connecting service
from Colorado Interstate Gas to two food-processing plants in Fort
Morgan, CO., thus bypassing the municipal gas provider.
Fort Morgan, the party that was bypassed, challenged the
Commission's jurisdiction in approving construction of the KN
Wattenberg laterals, arguing that the facilities were exempt from
FERC authority under the Hinshaw Amendment, which made them subject
to the jurisdiction of the Colorado Public Utilities Commission
[No. 98-9512]. A pipeline is exempt under the Hinshaw Amendment if
it receives gas within the boundary of the same state in which the
gas is ultimately consumed.
But FERC responded that "individual pieces of segments" of a
jurisdictional interstate pipeline, such as KN Wattenberg, could
not be exempt from Commission regulation under the Hinshaw
Amendment. Pipeline companies were either jurisdictional or
Hinshaw; they couldn't be both, the Commission said.
"...[T]his view seems contrary to prior FERC decisions where
Hinshaw exemptions were granted to separate facilities which were
nonetheless owned by an interstate pipeline," the court ruled in
its June 25th decision. "Courts interpreting the Hinshaw Amendment
have similarly acknowledged that the same company can engage in
both Hinshaw-exempt activities and FERC-regulated activities, at
least as long as the intrastate and interstate activities and/or
facilities are not clearly a part of a single integrated system."
The KN Wattenberg laterals are located 57 miles away from the rest
of the pipeline's system, the decision said.
"...[F]ERC's position in this case does appear inconsistent both
with the plain language of the Hinshaw Amendment and with its prior
published decisions," the court said.
The two food-processing companies in Fort Morgan, Leprino Foods
Co. and Excel Corp., approached KN Wattenberg about building the
laterals after the municipality "trebled" the transportation rate
for gas service in 1995. The laterals receive gas from Colorado
Interstate and transport it to the two companies' facilities,
completely bypassing Fort Morgan's gas service. The bypass cost the
municipality 19% of its annual gas revenues.
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