The question of who – federal or state regulators, or both – hasjurisidiction over small interstate pipeline laterals that directlyserve end-use customers has been left unresolved at the regulatorylevel, and now is poised to be sent to state and federal appellatecourts.

The issue is at the center of a hotly contested case in whichMidwestern Gas Transmission has been stymied in its efforts tobuild a 2.8-mile lateral to provide service to a new facility,Grains Processing Corp. in Daviess County, IN. Southern Indiana Gas& Electric (SIGECO), which sees Midwestern as a potentialthreat to its service territory, petitioned Indiana regulators toissue a “cease and desist” order against the proposed project forviolating a state law requiring out-of-state gas transporters tofirst obtain certification to serve an in-state customer.

In a Jan. 27th ruling, the Indiana Utility Regulatory Commission(IURC) essentially decided not to decide – at least for now – theissue of whether federal regulatory authority preempts the statecertification law in Midwestern’s case. In so doing, stateregulators “punted” the issue to the courts. The IURC ruling was inmarked contrast to FERC’s December order asserting “exclusive”jurisdiction over the Midwestern lateral and authorizingconstruction of the project [CP98-538].

The IURC recognized that while FERC was “surely within itsauthority” to claim jurisdiction over the project, the question ofwhether that jurisdiction is exclusive “is not a question for FERCalone to determine.” Consequently, it stayed the proceedings at thestate level until the preemptive jurisdictional question can besettled by the courts.

SIGECO plans to petition the Indiana Court of Appeals in May toreview the IURC’s decision not to enforce the state’s certificationstatute pending the outcome of the preemptive issue, said George A.Porch, an outside attorney for the utility. It also has asked for arehearing of FERC’s decision, and assuming it is turned down there,SIGECO intends to petition the D.C. Circuit Court of Appeals. Theutility insists FERC’s order directly conflicts with its policy todefer to states when drawing boundaries between electrictransmission and local distribution. It noted the same courtesyshould be extended to states in gas matters.

Indiana regulators conceded that the “weight” of the federalcircuit court decisions on the jurisdictional preemption issue sofar appeared to indicate that its state certification statute”would not survive a federal challenge.” In light of this, theysaid that acting on SIGECO’s cease-and-desist petition before thepreemptive issue was settled would be “contrary to principles ofeconomy and efficiency.” But recognizing that there was “underlyingstate interest entrusted to this agency,” the IURC refused to grantMidwestern’s request to dismiss SIGECO’s action based solely onFERC’s decision in the case.

SIGECO believes FERC and the states should have “complementary”jurisdiction over small laterals built by interstate pipelines toserve direct cutomer loads in Indiana, according to Porch. “We’renot saying it should be all state or all federal.” Such lateralshave elicited the concern of SIGECO and other LDCs nationwide, hesaid, because their service is mimicking certain functions thathistorically have been provided by distributors.

The central legal question in SIGECO vs. Midwestern is “whetherinterstate commerce runs…all the way to the local plant, orwhether there’s room for states to regulate matters with a localinterest, such as the impact on ratepayers…taxing authority andsafety issues,” Porch said. “…[W]e think we have an interest ingas being delivered for consumption in Indiana – how it’sregulated, how it’s delivered [and] how it’s taxed.”

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