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FERC Should Concede Defeat On Hinshaw Issue

FERC Should Concede Defeat On Hinshaw Issue

The National Association of Regulatory Utility Commissioners (NARUC) and Wyoming and Colorado regulators last week urged the FERC majority to throw in the towel in its effort to re-cast its authority as it relates to the Hinshaw amendment.

At the eye of the storm is a Tenth Circuit Court of Appeals decision that reversed and remanded Commission orders authorizing KN Wattenberg Transmission LLC, an interstate pipeline, to construct a lateral in Colorado to directly serve two in-state industrial customers. The municipal LDC that was bypassed argued that FERC exceeded its jurisdiction because the lateral met the requirements for being a Hinshaw line exempt from the Natural Gas Act (NGA).

The court found that FERC's justification for asserting jurisdiction over the lateral appeared to be "inconsistent both with the plain language of the Hinshaw amendment.....and with its prior published decisions." The ruling has caused quite a stir at the Commission, and has prompted a close review of the Hinshaw provision.

"The court's decision is correct. Accordingly, the Commission should abandon any effort to breathe new life into the 'whole person' analysis on remand in this proceeding," NARUC told the FERC majority [CP87-256]. FERC had argued the Hinshaw amendment must apply to the "whole" pipeline system, or not at all; it cannot apply to discrete facilities. Based on that logic, which some have called circular, the Commission said it was justified in asserting jurisdiction over the lateral, which is unconnected to KN's mainline. In rejecting FERC's theory, the court pointed out there were numerous companies that operated both FERC jurisdictional pipelines and intrastate Hinshaw lines.

The Wyoming Public Service Commission (WPSC) called FERC's interpretation of the Hinshaw amendment both "novel and strained," saying that in the end the Commission could "vitiate it, rendering it a nullity." FERC is sweeping the Hinshaw amendment "aside for the convenience of expanding its reach into matters of local concern," the state commission noted.

NARUC's and the WPSC's comments were in response to the Commission's order on remand requesting interested parties to give their views on the "scope and application" of the Hinshaw amendment to the NGA in this proceeding. FERC took this unusual step because how it ultimately decides the case on remand, it said, will be "important for [its] mandate under both the Natural Gas Act and its open-access program."

In the order, Commissioner William Massey dissented from the majority, saying the court's decision was "unequivocal" in its conclusion that the initial FERC orders approving the KN Wattenberg lateral were inconsistent with the Hinshaw amendment. He urged the Commission to "accede to the court's determination that our previous orders were in error."

Many believe the Commission is hesitant to accept the Tenth Circuit's decision because it fears it may signal an erosion of its authority to the states. "Nowhere in the court's opinion is there a suggestion that interstate pipelines will now be subject to state jurisdiction," said the Colorado Public Utility Commission in its brief.

If not FERC, then who has jurisdiction over the disputed line? Colorado regulators say they do, and are in the process of exercising such jurisdiction over the rates and service on KN Wattenberg's lateral. NARUC said it deferred to Colorado on this issue.

Susan Parker

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