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Indiana Seeks Shared Jurisdiction in Bypass Case

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 &amp 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 state law.

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 directly.'"

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.

Susan Parker

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