After much nudging from the courts, state regulators andindustry, the Federal Energy Regulatory Commission last weekconceded defeat in its battle to justify jurisdiction over a smalllateral in Colorado.

The Commission vacated its 1997 orders that authorized KNWattenberg Transmission LLC to construct a lateral in Colorado toserve two in-state industrial customers. In a complete turnabout,FERC last week bowed to the Tenth Circuit Court of Appeals, whichreversed and remanded the orders citing the Commission’s failure toadequately justify its assertion of jurisdiction over the lateral.The state and the municipal LDC bypassed by the lateral insistedthe KN Wattenberg line was exempt from Commission jurisdictionunder the Hinshaw amendment.

FERC all along had argued the Hinshaw exemption didn’t applyseparately to “discrete” facilities owned by a jurisdictionalpipeline, as in this case. The lateral, which was completed in June1998, is located 57 miles away from KN Wattenberg’s jurisdictionalmainline. But the court found that FERC’s justification forasserting jurisdiction over the lateral appeared to be”inconsistent” with the “plain language of the Hinshaw amendment.”The decision touched off a stir at the Commission, and launched aclose review of the Hinshaw qualifications.

Upon a second glance, however, the Commission last Wednesdaynoted the lateral met the qualifications for a Hinshaw line.”…[W]hen viewed on a stand-alone basis, this lateral meets allthe criteria for a Hinshaw exemption,” the order said [CP97-256].

KN Wattenberg urged the Commission to continue exercisingoversight over its lateral until the issues surrounding theColorado Public Utilities Commission’s (PUC) jurisdiction areresolved. FERC flatly rejected the request.

However, should the Colorado PUC decline to assert jurisdictionover the lateral, KN must notify FERC of the lack of stateregulation. “This Commission would then step in and exercise itsjurisdiction, filing in the regulatory gas,” the order said.

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