Indiana regulators and FERC are weighing a potentiallygroundbreaking case that, in the end after court review, could give”complementary jurisdiction” to both states and the federalgovernment in instances where interstate pipelines are seeking tobypass local distribution companies (LDCs) in order to directlyserve end-use customers.

In a hotly contested case before the Indiana Utility RegulatoryCommission (IURC), Midwestern Gas Transmission is challenging anIndiana anti-bypass law that essentially requires out-of-statetransporters of natural gas to first receive a certificate from thestate commission to provide service to a customer in an LDC serviceterritory. This has become a major issue in Midwestern’s pursuit tobuild a small lateral to provide service to a new facility, GrainProcessing Corp. in Daviess County, IN. Southern Indiana Gas &Electric (SIGECO), who sees itself as being robbed of the newplant’s service, has petitioned the IURC to issue a “cease anddesist” order against Midwestern’s project, arguing that it wouldviolate the state law.

The issue has spilled over into the FERC arena, where SIGECO hasasked the Commission to defer to Indiana law when consideringwhether or not to grant Midwestern’s application to serve GrainProcessing. “It would be arbitrary in the extreme for theCommission to act on the application without regard to theprovisions of Indiana law or the decision of the IURC,” said theEvansville, IN, utility in its protest.

Midwestern has asked FERC to reject SIGECO’s argument on thegrounds that its “transportation service for [Grain Processing]clearly constitutes transportation in interstate commerce, subjectto the exclusive jurisdiction of the Commission. Midwestern’sproject does not involve the local distribution of gas.” Moreover,the pipeline noted that FERC rejected the argument now being raisedby SIGECO in a 1993 case involving Panhandle Eastern Pipe Line.

In a nutshell, “we’re [SIGECO] saying that under Indiana lawit’s a ‘no brainer’ that we get to serve them. And Midwestern issaying that FERC law – federal law – is superior to state law, andsince we’re an interstate pipeline not governed by Indiana, we’regoing to serve them directly,” said George A. Porch, an outsideattorney for the utility. The case is shaping up to be a “classicstate vs. federal conflict” that could go all the way to theSupreme Court, he believes.

At the very least, Porch said Indiana is looking for regulatorsor the courts to give them shared jurisdiction in potential bypasscases. For instance, FERC would authorize construction of lateralsand would have jurisdiction up to “Point X,” while LDCs would havejurisdiction over facilities such as regulator stations forreducing pressures on interstate lines, odorizers and meters, aswell as authorizing actual gas service, he said.

The outcome of the case will definitely have an affect onIndiana LDCs or pipelines seeking to do bypasses in that state, butit also could have ramifications for other states “depending onwhat FERC does….FERC really has never addressed this issuebefore,” he advised, adding that it isn’t taking this case lightly.”In the past, FERC’s kind of blown off this kind of thing. This onethey seem to be interested in.” In fact, “this is the first casewhere I can recall that they’ve asked for an environmentalassessment of this kind of situation,” he said. Also, Commissionstaff members last week “came out and walked both lines” -Midwestern’s proposed route and an existing, “environmentallybenign” SIGECO line located less than a mile from new GrainProcessing facility.

Porch said the recent Supreme Court decision in General Motorsvs. Tracy “gives us hope” that the state’s role in bypass caseswill be recognized. “Previously in bypass cases, the interstatepipeline won them. Here, the court held that an out-of-stateshipper of gas into the state of Ohio is subject to an Ohio use taxbecause that’s a local distribution function. And that supports oursituation. We’re saying ‘well the state still has some localdistribution control even if an interstate pipeline serves a newcustomer directly.'”

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