The U.S. Court of Appeals for the 10th District has reversed andremanded an order in which FERC asserted jurisdiction over two KNWattenberg Transmission laterals that provide connecting servicefrom Colorado Interstate Gas to two food-processing plants in FortMorgan, CO., thus bypassing the municipal gas provider.

Fort Morgan, the party that was bypassed, challenged theCommission’s jurisdiction in approving construction of the KNWattenberg laterals, arguing that the facilities were exempt fromFERC authority under the Hinshaw Amendment, which made them subjectto the jurisdiction of the Colorado Public Utilities Commission[No. 98-9512]. A pipeline is exempt under the Hinshaw Amendment ifit receives gas within the boundary of the same state in which thegas is ultimately consumed.

But FERC responded that “individual pieces of segments” of ajurisdictional interstate pipeline, such as KN Wattenberg, couldnot be exempt from Commission regulation under the HinshawAmendment. Pipeline companies were either jurisdictional orHinshaw; they couldn’t be both, the Commission said.

“…[T]his view seems contrary to prior FERC decisions whereHinshaw exemptions were granted to separate facilities which werenonetheless owned by an interstate pipeline,” the court ruled inits June 25th decision. “Courts interpreting the Hinshaw Amendmenthave similarly acknowledged that the same company can engage inboth Hinshaw-exempt activities and FERC-regulated activities, atleast as long as the intrastate and interstate activities and/orfacilities are not clearly a part of a single integrated system.”The KN Wattenberg laterals are located 57 miles away from the restof the pipeline’s system, the decision said.

“…[F]ERC’s position in this case does appear inconsistent bothwith the plain language of the Hinshaw Amendment and with its priorpublished decisions,” the court said.

The two food-processing companies in Fort Morgan, Leprino FoodsCo. and Excel Corp., approached KN Wattenberg about building thelaterals after the municipality “trebled” the transportation ratefor gas service in 1995. The laterals receive gas from ColoradoInterstate and transport it to the two companies’ facilities,completely bypassing Fort Morgan’s gas service. The bypass cost themunicipality 19% of its annual gas revenues.

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