A federal appeals court in Washington, DC last Tuesday rejected a petition for review of an order in which FERC ruled Questar Gas Co.’s status as a Commission-exempt Hinshaw pipeline would be endangered if municipal utilities distributed natural gas delivered by Questar to customers across Utah’s southern border.

Intermountain Municipal Gas Agency, a group of southern Utah and northern Arizona municipalities, sought review of a December 2001 decision, which said the Questar Gas-owned pipeline faced losing its Hinshaw exemption if Intermountain’s municipal members transported gas received from Questar in Utah across the state line into Arizona — either for delivery to municipalities in northern Arizona or for transportation by a municipal-owned pipeline through Arizona and back across the state line to a municipality in southern Utah. Questar Gas is a local distribution company (LDC) that serves Utah.

The Hinshaw Amendment, which Congress enacted in 1954, exempts a pipeline from Natural Gas Act (NGA) regulation if it delivers gas within the boundaries of a single state, and that gas is consumed entirely in that state.

In arguing its case at FERC in mid-2001, Intermountain Municipal Gas posed several scenarios under which a municipal-owned pipeline would take gas received from Questar and transport it temporarily over the border to Arizona and back into Utah for consumption, or transport it to a Utah municipality for distribution to adjoining municipalities in northern Arizona. The group said this would allow Arizona communities to be served without compromising the Hinshaw status of Questar Gas, but the Commission disagreed.

FERC countered that not only would Questar’s FERC-exempt status be endangered, but the municipalities could come under federal jurisdiction for transporting gas across state lines.

The U.S. Court of Appeals for the D.C. Circuit declined to rule on whether the Hinshaw Amendment permitted gas to be delivered out of state temporarily and then returned for ultimate consumption to the state of delivery, saying Intermountain Municipal Gas “did not raise it [this issue] in the petition for rehearing before FERC” that it filed in January 2002.

Nor did the court address Intermountain Municipal’s claim that the direct distribution of Questar-transported gas by a Utah municipality to an Arizona municipality is exempt from the NGA because it is considered “local distribution.” Because the municipal group “failed to raise this argument in its rehearing petition, we are foreclosed from considering it as well,” the three-judge panel said.

The court saw the dispute over FERC regulation of the transportation of municipalities as a side issue in the case. “Whether or not FERC may regulate municipalities, however, it has indisputable authority to regulate Questar if its Hinshaw exemption is lost. That FERC’s potential exercise of jurisdiction over Questar may affect Intermountain’s member municipalities does not defeat the agency’s jurisdiction.”

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