The National Association of Regulatory Utility Commissioners(NARUC) and Colorado regulators earlier this week urged the FERCmajority to throw in the towel in its effort to re-cast itsauthority under the Hinshaw amendment.
At the eye of the storm is a Tenth Circuit Court of Appealsdecision that reversed and remanded Commission orders authorizingKN Wattenberg Transmission LLC to construct a lateral in Coloradoto serve two in-state industrial customers. The municipal LDC thatwas bypassed argued that FERC exceeded its jurisdiction because thelateral met the requirements for being a Hinshaw line exempt fromthe Natural Gas Act (NGA).
The court found that FERC’s justification for assertingjurisdiction over the lateral appeared to be “inconsistent bothwith the plain language of the Hinshaw amendment…..and with itsprior published decisions.” The decision has caused quite a stir atthe Commission, and has prompted a close review of the Hinshawqualifications.
“The court’s decision is correct. Accordingly, the Commissionshould abandon any effort to breathe new life into the ‘wholeperson’ analysis on remand in this proceeding,” NARUC told the FERCmajority [CP87-256]. FERC had argued that KN Wattenberg’s “whole”transmission system had to be Hinshaw in order to qualify for theexemption. Since that wasn’t the case, the Commission said it wasjustified in asserting jurisdiction over the lateral, which wasbuilt in June 1998. In rejecting FERC’s theory, the court pointedout there were numerous companies that operated both FERCjurisdictional pipelines and intrastate Hinshaw lines.
The “Court of Appeals, after surveying legislative history andapplicable case law, had little apparent difficulty in concludingthat the facilities at issue in this case met the Hinshawdefinition,” said the association of state regulators. NARUCadvised the Commission to follow the court’s lead in this case.
NARUC’s comments were in response to the Commission’s order onremand requesting interested parties to give their views on the”scope and application” of the Hinshaw amendment to the NGA in thisproceeding.
In the order, Commissioner Williams Massey dissented from themajority, saying the court’s decision was “unequivocal” in itsconclusion that the initial FERC orders approving the KN Wattenberglateral were inconsistent with the Hinshaw amendment. He urged theCommission to “accede to the court’s determination that ourprevious orders were in error.”
Given the change in “regulatory landscape,” FERC in the orderasked parties to comment on whether it should alter its policyregarding its “jurisdictional analysis” under the Hinshawamendment. NARUC agreed FERC could change regulatory policies tomatch “changes in regulatory philosophy or technique,” but itstressed “it may not…..change clear statutory commands,” which itbelieves it would be doing if it tinkered with the Hinshawprovision.
Some believe the Commission is hesitant to accept the TenthCircuit’s decision because it fears it may signal erosion of itsauthority to the states. “Nowhere in the court’s opinion is there asuggestion that interstate pipelines will not be subject to statejurisdiction,” said the Colorado Public Utility Commission in itsbrief.
“It is not as if a finding that the new KN [Wattenberg] line isa Hinshaw facility will cause the dam to burst, ousting otherwiseinterstate pipeline companies or facilities from FERC authority. Ifanything, the situation is reversed: if the new KNW line is not aHinshaw facility, almost nothing is,” the state regulators noted.
If not FERC, then who has jurisdiction over the disputed line?Colorado regulators say they do, and are in the process ofexercising such jurisdiction over the rates and service on KNWattenberg’s lateral. NARUC said it deferred to Colorado on thisissue.
On the flip side of the debate, KN Wattenberg this week urgedthe Commission to reaffirm “as clearly and as strongly as possible”its initial decision of exclusive NGA jurisdiction over itsdelivery lateral. “The exercise of the Commission’s NGAjurisdiction is essential to provide the end-users in this casewith the benefits of the [FERC’s] pro-competitive bypass policy.The purpose of that policy is to give captive customers…..greateraccess to transportation alternatives by promoting competitionbetween local distribution companies and interstate pipelines.”
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