Indiana regulators and FERC are weighing a potentiallygroundbreaking case that, in the end after court review, couldaward “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 a rural area.This has become a major issue in Midwestern’s pursuit to build asmall lateral to provide service to a new facility, GrainProcessing Corp. in Daviess County, IN. Southern Indiana Gas &ampElectric (SIGECO), which sees itself as being robbed of a potentialcustomer, has petitioned the IURC to issue a “cease and desist”order against Midwestern’s project arguing it would violate thestate 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 FERC rejected the argument now being raised bySIGECO in a 1993 case. Midwestern and its attorney declined tocomment any further, except to say the case was not a bypassbecause it involved a new customer.

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.

Porch saidIndianawould like to see the courts to give it sharedjurisdiction in potential bypass cases. For instance, FERC wouldauthorize construction of laterals and would have jurisdiction upto “Point X,” while states would have jurisdiction over facilitiessuch as regulator stations for reducing pressures on interstatelines, odorizers and meters, as well as authorizing actual gasservice, he said.

The outcome of the case will definitely have repercussion 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 said, 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 recently “came out and walked both lines” -Midwestern’s proposed route and an existing, “environmentallybenign” SIGECO line located less than a mile from the GrainProcessing facility site.

Porch said the Supreme Court decision in General Motors vs.Tracy “gives us hope” the state’s role in bypass cases will berecognized. “Previously in bypass cases, the interstate pipelinewon them. Here, the court held that an out-of-state shipper of gasinto the state of Ohio is subject to an Ohio use tax because that’sa local distribution function. And that supports our situation.We’re saying ‘well the state still has some local distributioncontrol even if an interstate pipeline serves a new customerdirectly.'”

As a footnote to its decision, the high court cited two Michigancases that raised issues similar to those in SIGECO-Midwestern. Thecourt declined to comment, leaving it an open issue to be decidedlater. And Porch believes this is the case to settle it once andfor all. If SIGECO should lose at FERC, it would appeal to the D.C.Circuit Court of Appeals. A decision there favorable to SIGECOwould put it in conflict with a ruling by the Michigan CircuitCourt of Appeals, which would make the case ripe for a SupremeCourt review, Porch said. In the alternative, the utility couldfile for Supreme Court review when the case reaches the IndianaSupreme Court, he noted.

As for a decision from the IURC and FERC, Porch believes that”we ought to know from one or both” by the first of next year.

Susan Parker

©Copyright 1998 Intelligence Press, Inc. All rightsreserved. The preceding news report may not be republished orredistributed in whole or in part without prior written consent ofIntelligence Press, Inc.