'Exclusivity' of FERC Jurisdiction over Local Laterals Questioned
An Indiana case that confronts the issue of whether regulating
heretofore FERC-jurisdictional pipeline laterals should be shared
with states has yielded somewhat conflicting decisions at the
regulatory level so far. As a result, the potentially
precedent-setting issue seems destined for resolution by state and
federal appellate courts.
The case has become something of a cause celebre for Southern
Indiana Gas & Electric (SIGECO) and other gas LDCs, who insist
that shared jurisdiction between FERC and the states is in order
because such laterals are mimicking services that historically have
been provided by natural gas distributors. The proceeding,
according to attorneys, has captured the attention of both LDCs and
For LDCs, "their concern is this [lateral] could be a Pandora's
box. They're seeing it as a lost opportunity. Before they pretty
much had no competition from the pipelines. But this could be a new
era in the gas industry in Indiana pending the outcome of this
particular matter," said Ryan Soultz, a spokesman for the Indiana
Utility Regulatory Commission (IURC).
The issue surfaced when Midwestern Gas Transmission proposed
constructing a small-diameter lateral to directly provide service
to a new facility, Grains Processing Corp. in Daviess County, IN.
SIGECO, which saw Midwestern as a potential threat to its service
territory, petitioned Indiana regulators to issue a "cease and
desist" order against the proposed project for violating a state
law requiring out-of-state gas transporters to first obtain
certification to serve an in-state customer. The case set the stage
for a classic state vs. federal tug of war.
In a Jan. 27th ruling, the IURC essentially left open the issue
of whether to enforce the state certification statute in the
Midwestern case. Instead, it chose to stay the proceedings until
the issue of whether federal law preempts Indiana law is resolved
on appeal at FERC and the D.C. Circuit Court of Appeals. The IURC
concluded that acting on SIGECO's petition before the preemptive
issue was settled would be "contrary to principles of economy and
efficiency." In short, state regulators dodged the issue and
"punted" it to the courts, said George A. Porch, an outside
attorney for the utility. The IURC ruling was in marked contrast to
FERC's December order asserting "exclusive" jurisdiction over the
Midwestern lateral and authorizing construction of the project
Significantly, the IURC did not dispute FERC's jurisdiction over
the Midwestern lateral project, conceding that the federal agency
was "surely within its authority" to claim jurisdiction. But, it
noted, the question of whether that jurisdiction is exclusive "is
not a question for FERC alone to determine." Rather, it should be
left to the courts.
Porch indicated last week SIGECO planned to seek rehearing at
the IURC, asking the state commission to look more favorably on its
petition for a cease-and-desist order or, in the alternative, to
clarify that its stay of the proceedings in the Jan. 27th order
meant that construction of the lateral also was stayed. The utility
thinks this was the IURC's intent in its decision even though it
wasn't specifically spelled out, Porch said. It's concerned that
without more explicit direction from the IURC, Midwestern will
proceed to build the lateral. Midwestern declined on Friday to make
any comment. However, in a letter to FERC last week the pipeline
requested approval of a change in an environmental condition by
"no later" than Feb. 5 so it could "promptly" begin construction of
Indiana's order does not specifically halt the construction of
the lateral, said IURC's Soultz, "nor does it create the permission
[for Midwestern] to go forward" with it. "My gut is telling me
since there's a petition for rehearing before the FERC that I would
think that would serve as some kind of injunction," he told NGI.
If unsuccessful on rehearing at the IURC, Porch said SIGECO will
petition the Indiana Court of Appeals. It also has asked for a
rehearing of FERC's decision, and assuming it is turned down there,
SIGECO intends to petition the D.C. Circuit Court. Last week, FERC
issued a tolling order in the case, which essentially allows itself
more time to decide the utility's rehearing request.
Indiana regulators concede the "weight" of the federal circuit
court decisions on the preemption issue so far do not bode well
for its state certification statute, and suggest it "would not
survive a federal challenge." But despite this, the IURC refused to
grant Midwestern's request to dismiss SIGECO's action based solely
on FERC's decision in the case.
SIGECO believes FERC and the states should have "complementary"
jurisdiction over small-diameter laterals built by interstate
pipelines to directly serve customer load in Indiana, according to
Porch. "We're not saying it should be all state or all federal."
Such laterals have elicited the concern of SIGECO and other LDCs
because, he said, they tend to duplicate existing distribution
facilities and displace service that would otherwise be provided by
LDCs. But FERC did not find this to be the case with the Midwestern
The central legal question in SIGECO vs. Midwestern is "whether
interstate commerce runs...all the way to the local plant, or
whether there's room for states to regulate matters with a local
interest, such as the impact on ratepayers...taxing authority and
safety issues," Porch said. "...[W]e think we have an interest in
gas being delivered for consumption in Indiana - how it's
regulated, how it's delivered [and] how it's taxed."
He thinks the Supreme Court decision in General Motors vs. Tracy
supports the state's regulatory role in cases such as Midwestern.
The high court specifically held that an out-of-state shipper of
gas into the state of Ohio was subject to the state's use tax
because it was performing a local distribution function.