Opposition Brief — McCarty v. Midwestern Gas Transmission Co.

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es Supreme Court Us.

No. 01-1134

IN THE

Supreme Court of the Hite Snwtesre CLERK

WILLIAM D. MCCARTY, DAVID W. HADLEY, JUDITH G.

RIPLEY, CAMIE J. SWANSON-HULL and DAVID W. ZIEGNER,

in their official capacities as COMMISSIONERS OF THE

INDIANA UTILITY REGULATORY COMMISSION,

Petitioners,

MIDWESTERN GAS TRANSMISSION COMPANY and

SOUTHERN INDIANA GAS AND ELECTRIC COMPANY,

Respondents.

On PETITION FOR A Writ oF CERTIORAKI TO THE

UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT

BRIEF IN OPPOSITION FOR RESPONDENT

MIDWESTERN GAS TRANSMISSION COMPANY

Janet K. PLACE G. Danie KELLEY, Jr.

General Counsel Counsel of Record

NORTHERN PLAINS NATURAL WILLIAM P. DIENER

Gas COMPANY EDWARD P. STEEGMANN

1111 South 103rd Street Ice MILLER

Omaha, Nebraska 68124-1000 One American Square

(402) 398-7886 Box 82001

Indianapolis, Indiana 46282

(317) 236-2100

Attorneys for Respondent

Midwestern Gas Transmission Company

173289 g

COUNSEL PRESS \

(800) 274-3321 * (800) 359-6859

pale

CORPORATE DISCLOSURE STATEMENT

Midwestern Gas Transmission Company (“Midwestern”)

is a wholly owned subsidiary of Border Midwestern

Company. Border Midwestern Company is a wholly owned

subsidiary of Northern Border Intermediate Limited

Partnership. Northern Border Intermediate Limited

Partnership is owned by three general partners, two of which

are wholly owned subsidiaries of Enron Corporation and one

of which is a wholly owned subsidiary of The Williams

Companies, Inc. The Williams Companies, Inc. is a publicly

held company. Northern Border Intermediate Limited

Partnership also has one limited partner, Northern Border

Partners LP, a publicly held company.

TABLE OF CONTENTS

Corporate Disclosure Statement ...............-

TRONe OL COMDIIRE 66's ocd v6 Si ea ws eo evdes bees

Table of Cited Amtneettaes: os i. ccitnticcvcecatecees

TOES OF RINE: 6 is 5 kk hoses in ene Se h00 os

No Question Presented — Dismissal Required ....

Seatemnent OF Gee COMP io cceseencas ieee eee

Deregulated National Market And Open Access

Interstate Transportation ...............00008:

PE FOOOMEIE «én vise nnnkgddeceedeniaeees

FERC’s Unappealed Decision .............ee0:

The IURC (Petitioners) Defers Preemption Issue To

POGRN FOUND ok ks cv iN Si ewerke ee pawdenes

SIGECO Pursues More Litigation ..............

Fee EE ive edkawcc nen ou ka hewn bse

Corrections Pursuant To S. Ct. Rule 15.2 ........

Reasons for Denying the Petition ...............

Question 1 — Presents Nothing But Petitioners’

te rer er rer Terer, ero re 2 rey

Page

ill

Contents

Question 2 Presents Nothing ....-..------+++>:

Question 3 Presents Nothing — SIGECO’s

Harassing, Vexatious Litigation ...........+--

Seventh Circuit Correctly Determined FERC’s

Exclusive Jurisdiction Over Transportation Of

User Purchased Gas In One State To User’s

Facility In Another State. .........--++++eees

ccc vot ccdccevovctevcececcousees

TABLE OF CITEDAUTHORITIES

Page

Cases:

American Gas Association v. FERC, 587 F.2d 1089

Cs St ER 6 ase Uh cosautes buedkanue's 7, 23

Associated Gas Distributors v. FERC, 824 F.2d 981

Set, GE EE Cb Soar eb ksi ans ooeRrs teee 7,23

Baggett v. Department of Professional Regulation,

Board of Pilot Commissions, 717 F.2d 521 (11th

Ge Res Ue i esee tan necknteh asenpeass 15

Norfolk & W.Ry. v. Public Utils. Comm'n, 926 F.2d

FOF GO COED wobec ccncdedwrevesicscs 15

Bud Antle Inc. v. Barbosa, 45 F.3d 1261 (9th Cir.

1995), cert. denied, 516 U.S. 1159 (1995) ..... 15

Bunning v. Commonwealth of Kentucky, 42 F.3d 1008

Se Ma SON bb ds Sed whededdeceVadeCevbecus 15

Cascade Natural Gas Corp. v. FERC, 955 F.2d 1412

SMa: SS 2 Cah C was 0b <raeieschbantes 23; 25

Chaulk Services Inc. v. Massachusetts Comm’n

Against Discrimination, 70 F.3d 1361 (ist Cir.

oo, BAPE RAE LES eee ee re ee ee 15

Communications Telesystems Int'l v. California Pub.

Util. Comm'n, 196 F.3d 1011 (9th Cir. 1999) ... 16

Federal Power Commission v. East Ohio Gas Co.,

SOS Th, GOS on hehe seein 25

Cited Authorities

Page

Federal Power Commission v. Louisiana Power &

Light Co., et al., 406 U.S. 621 (1972) ......... 24, 25

FPC v. Transcontinental Gas Pipeline Corp., 365

Sa hoe 64 Fb Osh ob ECOG 4, 23

Freehold Co.-Generation Associates v. Board of

Regulatory Commissions, 44 F.3d 1178 (3d Cir.

1995), cert. denied, 516 U.S. 815 (1995) ...... 15

Gartrell Construction Inc. v. Aubrey, 940 F.2d 437

Se SG POE i uke sede 600Cs de webusneeenes 15

General Motors Corp. v. Tracy, 519 U.S. 278 (1997)

ohh uk wane ea 64 kek Soaks Oey ene reeks 22

In re Indiana Gas Company, Inc., 122 PUR. 4th 365,

1991 WL 501832 (Ind. URC, 1991) .......... 13, 22

In Re Southern Indiana Gas & Electric Company,

2000 WL 33181398 (Ind. URC 2000) ......... 14

Interstate Natural Gas Co. v. FPC, 331 U.S. 682

Pree Pee eee ee eer poy 26

Michigan Consol. Gas Co. v. Panhandle Eastern

Pipeline Co., 887 F.2d 1295 (6th Cir. 1989), cert.

denied, 494 U.S. 1079 (1990) ............... 22

Michigan Consolidated Gas Company v. FERC,

883 F.2d 117 (D.C. 1989), cert. denied, 494 U.S.

Ne Pee ease @ een ee ee 22, 23, 25

Cited Authorities

Page

Middlesex County Ethics Committee, etc. v. Garden

State Bar Association, 457 U.S. 423 (1982) .... 20

National Fuel Gas Supply Corporation v. Public

Service Commission of New York, 894 F.2d 571

(2d Cir. 1990), cert. denied, 497 U.S. 1004, 1105

SB. CR, TC Ge cevib edhe ceevetebudedansss 23

National Railroad Passenger Corp. v. State of

Florida, 929 F.2d 1532 (11th Cir. 1991) ....... 15

New Orleans Public Service Inc. v. Council of the

City of New Orleans, 491 U.S.350 (1989) ..... l

New York, et al. v. FERC, et al., U.S. __, 122

eR ge Peeper errr re 2, 24, 25

Norfolk & Western Ry. v. Public Utilities Comm'n of

Ohio, 926 F.2d 567 (6th Cir. 1991) ........... 15

Northwest Central Pipeline Co. v. State Corporation

Comm'n, 489 U.S. 493 (1989) ....... cc eee 11, 16

Ohio Bureau of Employment Services v. Hodory,

431 U.S. 471, 97S. Ct. 1898 (1977) .......... 20

Oklahoma Natural Gas Co. v. Federal Energy

Regulatory Commission, 906 F.2d 708 (D.C. Cir.

SPER . c cvcandcusvadavensetd cuaebenasenens 25

Panhandle-Eastern Pipeline Co. v. Michigan Pub.

Serv. Comm'n, 341 U.S. 329 (1951) ........ 5, 13, 22

vii

Cited Authorities

Page

Panhandle-Eastern Pipeline Co. v. Public Service

Comm'n of Ind., 332 U.S. 507 (1947) ....... 5, 13, 22

Phillips Petroleum Co. v. Wisconsin, 347 U.S. 672

Sead ees etal tienkindevc ede wes oa 6¥ee% 6, 26

Public Utility Commission of California v. FERC,

900 F.2d 269 (D.C. Cir. 1990) ............ 23, 25, 26

Public Service Commission of the State of N.Y. v.

Mid-Louisiana Gas Company, et al., 463 U.S. 319

ERO ok SbbUSURa al dié-cens kus O0eund baeoksi 6

Ramsden v. Agribank, 214 F.3d 865 (7th Cir. 2000)

cndsthadebcsuntakases Chtecseeaetaniavees 21

Schneidewind v. ANR Pipeline Co., 485 U.S. 293

DU an0d-ddeeshcucnsteadsksasunteatenun 11, 16

Solid Waste Agency of Northern Cook County v.

United States Army Corp., _ U.S. _, 121

Pe es SEE sa bu seaweed averedbesccdence 28

Sunshine Anthracite Coal Co. v. Adkins, 310 U.S.

PE Es bla 0c bheredksbeobbedweddesnes 8

Town of Lockport v. Citizens for Community Action

at Local Level Inc., 430 U.S. 259 (1977) ...... 12

Transcontinental Gas Pipeline Corporation v. State

Oil & Gas Board of Mississippi, 474 U.S. 409

APP Epes fee, Poy ore ee sree eee ee 5, 6

Vill

Cited Authorities

Page

United Distribution Company v. FERC, 88 F.3d 1105

(D.C. Cir. 1996), cert. den. sub nom American

Public Gas Ass'n v. FERC, 520 U.S. 1224 (1997)

dv cbadeeac ewer she deceds weet ebaes 5, 6, 23, 26

United Pipeline Company v. Federal Power

Commission, et al., 385 U.S. 83 (1966) ....... 24

Utilities Commission of Ohio v. United Fuel Gas Co.,

DSF Ges EE -V 0 on 0b dee eens woods 1, 15, 18

Williams Natural Gas Co. v. City of Oklahoma City,

890 F.2d 255 (10th Cir. 1989), cert. denied,

Pe Se ee Eo bn hic Ut Geb eueecnbeueds 21

Statutes:

Ses CE ch vcdeccesverddpacaaseks passim

TE ES, re ore et 22

Se ee FETED Facceucbasvsecedivviseneeds 4

ED Ca Oe POPE bh v'e ohewscseeas twee 7,27

Sana CRUD bod er te dekateawbresewes 9, 20

tats Foe BF Ff MPTP ITT Tree Lee 2

ERTS PM RB ere erp saree 27

WEES SUE: A ei ie 6

Cited Authorities

Page

Ee RAs PEE cube wd scovacanséeaieeeuiawre 27

[RRS 0 fo RR ee eT ee 2, 22

Be GP iines OF PU DEMEEEIIOED 0 05 ee'vp boss ob e008 042 6

Ee Roe OU UUEETEOED oc cineca vevesstuessiene 6

Fe Wes IP PUULEINGD hv cc tind vecesbevendes 6

To Ca). S is Re een 24

co 8 oi Se er re 2

RE I ine 0d Cain bbe edd vd ndeeanes 20

OEE chev ineetedetvsdndedyces 8

ERA rrr iy 8,9, 10

ny Secehe di ce hy ees y eh oeeane eas 9,10

ee ere 9

Pes SE ES UE boo 6:0) 00d 64 Sv ee veden ss 28

PE cs Ldubhins vibteeeseudnesiaeaee 2

i aD ocho dub wus eens ahes eho hereuees 2

Rules:

d's a ang bikin ew baad CaO Casa 1,14

Oi I i iat ee 12

Cited Authorities

Other Authorities:

CCH Utility Law Reports, 9 5802 ..............

Pe ees OF CT EET oh s'vcsetnaveusandaces

See Cs Oe nds 89 Ce ear FeV ed ins bess

ok 8 8 Ro eer ey eee

Ses OP I oie ae SNe eins ceaghienekss

House Conference Report No. 101-100, U.S. Code,

Cong. & Admin. News (USCCAN), Vol. 2 (1989)

House Rept. No. 102-474(I) re proposed Sec. 204,

“Rules in Local Distribution Bypass Cases.” 1992

USCCAN 1953 (102nd Cong., 2d Sess., 1992) ...

TABLE OF APPENDICES

Appendix A — Additional Statutory Provisions ...

Appendix B — Opinions, Orders And Notices Of

The Federal Energy Regulatory Commission

Issued December 16, 1998 .......ccscccccees

Appendix C — Order On Motion To Dismiss Of The

State Of Indiana, Indiana Utility Regulatory

Commission Dated Janudry 27,1999 .........

Appendix D — Request Of The Midwestern Gas

Transmission Company For Blanket Authority . .

Appendix E — Affidavit Of Mike A. Stokdyk Dated

MEE A 0 hh ak be beets ER RTO KON be e.8

Page

4la

60a

NO QUESTION PRESENTED —

DISMISSAL REQUIRED

The “questions” asserted by Petitioners are based on

misquotes and misconstructions of the Seventh Circuit’s

decision, and present nothing. Petitioners “questions” are far

worse than being argumentative, contrary to S. Ct. Rule 14.1(a)

— the Petition should be summarily dismissed.

The Seventh Circuit in regard to Younger abstention,

adopted the unanimous view of the First, Sixth, Ninth and

Eleventh Circuits, n.20, infra, that this Court does not require

Younger abstention where State proceedings are “on their face

plainly invalid”, Utilities Commission of Ohio v. United Fuel

Gas Co., 317 U.S. 456, 468-69 (1943), or “perhaps” where

federal preemption is “facially conclusive”, New Orleans Public

Service Inc. v. Council of the City of New Orleans, 491 U.S. 350,

367 (1989) (NOPSI). A State has no valid interest in pursuing

patently or facially invalid actions or proceedings. See infra,

pp. 15-18.

A fair reading of the Seventh Circuit’s determination of

facially clear preemption is not as concocted and misquoted by

Petitioners that such was baséd on “its preliminary view that

the State law ‘seems’ to be preempted... ”. Pet. (i), or a “quick

look at the merits”, or “lowered the bar to ‘seems’ preempted,”

or created a “lax ‘seems’ preemption standard” (Pet. 11, 14,

19). To the contrary, the Seventh Circuit adopted an unbroken

line of cases (“It seems to us, as it has seemed to the other courts

to have addressed the issue”), including multiple cases

from three circuits, n.26, infra, as well as an uncontested

jurisdictional decision of this Court, that the unbundled

transportation of user purchased gas in one State to the user’s

facility in another State “via Midwestern’s. pipeline is the

transportation of natural gas in interstate commerce”, for which

the exclusive regulatory jurisdiction is given to FERC pursuant

to Section 1(b) of the Natural Gas Act (NGA, “§ 1(b)”),

15 U.S.C. § 717(b).! M.App. 4a.

That transportation of user purchased natural gas out-of-

state into the user’s in-state facility is within § 1(b)’s

unambiguous grant of jurisdiction to FERC over “transportation

of natural gas in interstate commerce”’, every circuit has found

to be clear, beyond any doubt. Preemption could not be more

facially conclusive, clear or readily apparent, as found by the

Seventh circuit. See pp. 21-28.

These circuits’ decisions were affirmed by this Court’s

recent decision, New York, et al. v. FERC, etal., US. _,

122 S. Ct. 1012, 1022-23 (2002), under language in § 2(b)’ of

the Federal Power Act strikingly similar to § 1(b) of the NGA

(where like under the NGA, FERC has jurisdiction over

wholesale sales, but not retail sales, and over transmissions in

1. Section 1(b) has been limited by the Natural Gas Policy Act of

1978, Pub.L. 95-621, 15 U.S.C. § 3301 et seg. (“NGPA”) and the Natural

Gas Wellhead Decontrol Act of 1989, Pub.L.101-60, amending certain

provisions of 15 U.S.C. § 3301 et seg. (“NGWDA”) in “Subchapter VI,

Coordination With Natural Gas Act” which limits § 1(b) and other

provisions of the NGA from applying to “first sales”. 15 U.S.C. § 3431.

Section 1(b) and other relevant statutory texts are reproduced in

Midwestern’s Appendix hereto(M.App.) at 1a. Petitioners are “P.App.”

2. Section 2(b), 16 U.S.C. § 824(b)(1) states m part:

The provisions of this subchapter shall apply to the

transmission of electric energy [like transportation in

§ 1(6)] in interstate commerce and to the sale of electric

energy at wholesale [like wholesale gas § 1(b)] .. . but

... Shall not apply [like the NGA’s proviso] to any other

sale of electric energy . . . the Commission . . . shall not

have jurisdiction, . . . over facilities used for the generation

of electric energy or over facilities used in local distribution

or only for the transmission of electric energy in intrastate

(Emphasis added.)

interstate commerce, with a similar proviso regarding local

distribution) that unbundled retail transmission is subject to

FERC’s jurisdiction over “transmission of electric energy in

interstate commerce” which this Court found to be clear and

unambiguous. Preemption as found by the Seventh Circuit could

not be more facially conclusive, clear or readily apparent.

See infra, pp. 21-28.

The Seventh Circuit did not create any exception to Younger

based on the FERC case being first filed — Petitioners’

misconstruction at the base of Question 3. To the contrary, in

addition to finding Younger inapplicable because of the facially

clear preemption, the Seventh Circuit found Younger

inapplicable based on SIGECO’s “vexatious”, “harassing”

litigation, “aimed at undoing the results of federal regulatory

proceedings,” (P.App. 8a) a proceeding where SIGECO and

Indiana appeared, in which FERC decided the very issues raised

by SIGECO’s subsequent, but voluntarily stayed, Petition before

the IURC (petitioners herein ordered a stay “deferring the federal

preemption issue for resolution by federal forums”), which

FERC decision neither SIGECO nor the Indiana agency

appealed, and SIGECO filed several more IURC petitions and

a State Court action, all “aimed at undoing” the FERC decision

and certifications of the transportation for GPC and Scepter.

See infra, pp. 21-28.

STATEMENT OF THE CASE

The unregulated third party natural gas sales out-State to

the industrial users, GPC and Scepter, and the unbundled

transportation by Midwestem of the user-purchased natural gas

in interstate commerce into the users’ in-State facilities — giving

rise to SIGECO’s forum shopping and vexatious litigation before

FERC, the TURC and an Indiana Circuit Court — were the result

of the congressional mandates from 1978 to 1989 in the NGPA

and NGWDA creating a competitive integrated national natural

gas market and the congressionally encouraged FERC

requirements (Orders 436 and 636° ) for unbundled, open access

interstate pipeline transportation. Federal law requires

Midwestern to provide unbundled interstate transportation

service to customers, like GPC and Scepter, on a non-

discriminatory basis. 18 C.F.R. §§ 284.8 and 284.9.

The unambiguous language of NGA § 1(b) leaves no doubt

that ever since 1938, the last foot of unbundled transportation

of user-purchased out-State gas into the user’s in-State facility

is transportation in interstate commerce subject to FERC’s

exclusive jurisdiction. Further, the history of deregulation,

unbundling and open access, demonstrates that such is now more

than ever necessary to effectuate the Congressional mandates,

infra, pp. 4-8. Indeed, several amendments set forth again and

again that such last foot of the interstate journey into the user’s

facility is within FERC’s exclusive jurisdiction over

the transportation of natural gas in interstate commerce, infra,

pp. 26-28. Indiana’s legislative attempt to assume regulatory

jurisdiction over such are patently, clearly, facially invalid as

preempted, infra, pp. 14-18.

Deregulated National Market And Open Access

Interstate Transportation. While unbundled interstate

pipeline transportation of user-purchased natural gas from out-

of-State to users’ facilities in-State has been occurring for more

than 40-50 years, historically it was uncommon and not

encouraged — despite this Court’s affirmance that FERC’s

jurisdiction over “transportation in interstate commerce”

encompasses unbundled transportation of user owned gas into

the user’s plants “as § 7 require[s] the Commission to certificate

the transportation of gas pursuant to the sale.” See FPC v.

Transcontinental Gas Pipeline Corp., 365 U.S. 1, 3 (1961)

affirming FPC’s denial of a Section 7 certificate (15 U.S.C.

§ 717f(c)) for unbundled transportation of user-owned gas based

3. Order 656, 57 FR. 13267-02 (1992), and Order No. 436,

50 FR 424085-01 (October 18, 1985) amending and adding various parts

of 18 C.F.R. 284.

on non-jurisdictional considerations “including” the unpreferred

use of gas to displace coal to produce electricity and the concern

for the effect of unregulated prices on wholesale prices.

The 1938 NGA‘ gave FERC independent grants of

jurisdiction over (i) wholesale sales of natural gas and (ii) over

the transportation of natural gas in interstate commerce.’ Under

NGA’s regulatory structure, the interstate pipelines purchased

the gas from the producers, selling a bundled product

(transportation and gas) to the local distribution companies

(LDC’s) throughout the country, and then LDC’s distributed

the gas to consumers. However, the structure had unintended

consequences on the supply side. In the interstate wholesale

market regulated by FERC, the prices for natural gas from

producers were set at a rate below the price in the second

unregulated intrastate market. This resulted in two different

markets for natural gas with gas being withheld from the national

market and national shortages but excess supply in certain

intrastate areas.°

Beginning in 1978 with the NGPA and concluding in the

1989 NGWDA, Congress created an integrated, competitive

4. With respect to the history leading to the NGA, see United

Distribution Company v. FERC, 88 F.3d 1105, 1123 (D.C. Cir. 1996)

cert. den. sub nom American Public Gas Ass'n v. FERC, 520 U.S. 1224

(1997).

5. States, not FERC, have jurisdiction over in-State bundled sales

of natural gas to industrial users by interstate pipelines, as FERC has

only wholesale sales jurisdiction. Panhandle-Eastern Pipeline Co. v.

Public Service Comm'n of Ind., 332 U.S. 507, 516-22 (1947) and

Panhandle-Eastern Pipeline Co. v. Michigan Pub. Serv. Comm'n,

341 U.S. 329 (1951). Today, the States’ jurisdiction with respect to first-

sale gas is questionable. See Transcontinental Pipeline Corporation v.

State Oil & Gas Board of Mississippi, 374 U.S. 409, 422 (1986),

infra, p. 6. :

6. See the history set forth in Transcontinental Gas Pipeline

Corporation v. State Oil and Gas Board of Mississippi, 474 U.S. 409,

422 (1986).

6 ‘

national natural gas market by deregulating essentially “any sale”

of natural gas to anyone, specifically including “to any person

for use by such person” (except a sale by a pipeline or an LDC),

whether for resale, consumption, interstate or intrastate, i.e.,

the purchased gas by GPC and Scepter.’ The deregulation of

such “first sales” encompassed not only price, but market entry

and exit.* Some States saw the deregulation as an opportunity

for State regulation, but this Court quickly disagreed, holding

that the answer “whether Congress in revising a comprehensive

Federal regulatory scheme to give market forces a more

significant role in determining the supply, demand and the price

of natural gas, intended to give the States the power it had denied

FERC, ... must be in the negative.” Transcontinental Gas

Pipeline Corporation v. State Oil & Gas Board of Mississippi,

474 U.S. 409, 422 (1986).

At the outset of the deregulation effort, it became apparent

that a national market could not develop in the face of interstate

pipelines being able to refuse transportation services to

others to protect pipeline sales to third parties. The market

function was indeed subject to market power — monopoly

power.’ Open access and unbundling were required. In a series

of orders, mainly Order 436 in 1985, FERC then attempted to

7. See 15 U.S.C. § 3301(21), and Public Service Commission of

the State of N.Y. v. Mid- Louisiana Gas Company, et al., 463 U.S. 319,

324 (1983) (the definition of “first sale” meant that “there may be many

first sales of a single volume of gas between the well and the pipeline’s

customers”).

8. 15 U.S.C. § 3431(a)(1)(A), (b)(1)(A) and (C) essentially deleted

a “regulatory milestone” from the NGA (Phillips Petroleum, infra) and

provided that jurisdiction under § 1(b) of the NGA shall not apply to a

first sale, that any amount paid for a first sale “shall be deemed just and

reasonable” for purposes of §§ 4 and 5 of the NGA and that a certificate

cannot be denied or conditioned under § 7 of the NGA because of a first

sale price. (M.App. 4a). See also 50 FR 42408, 42418 (Oct. 18, 1985).

9. United Distribution Company v. FERC, 88 F.3d 1105, 1123

(D.C. Cir. 1996), cert. den. sub nom, American Public Gas Ass'n v.

FERC, 520 vU. S. 1224 (1997).

prompt the interstate pipelines to unbundle and to give open

access transportation service to industrial users, LDC’s and any

other first-sale buyer. Congress had specifically sought to

encourage direct purchases by users, effectively authorizing the

Commission to discriminate by issuing certificates of public

convenience and necessity “for the transportation in interstate

commerce of natural gas used [and owned] by any person for

one or more high priority uses.”

With enactment of the 1989 NGWDA, Congress sought

an unregulated, integrated national gas market in which

“{ajll sellers must be able to reasonably reach the highest

bidding buyer in an increasingly national market. All buyers

must be free to reach the lowest selling producer, and obtain

shipment of its gas to them on even terms with other

suppliers.”'' The Joint Committee stressed the necessity for

open transportation markets and that FERC must continue to

insure “open access” by regulation of the pipelines’ monopoly

power. In response to these Congressional urgings, in 1992

FERC went from mere incentives under Order 436 to mandatory

unbundling and open access under Order No. 636.'”

10. 15 U.S.C. § 717f(c)(2). (M.App. 2a-3a). Before this

amendment to Section 7, FERC issued Order No. 533 permitting

unbundled interstate transportation of natural gas purchased by high

priority users from producers which the D.C. Circuit affirmed as

“a legitimate, experimental approach for dealing with the apparently

skewed nature of our half-free market”. American Gas Association v.

FERC, 587 F.2d 1089, 1097 (D.C. Cir. 1978). See also Associated Gas

Distributors v. FERC, 824 F.2d 981, 1042 n. 41 (D.C. Cir. 1987), where

the D.C. Circuit rejected an argument that this amendment to Section 7(c)

of the NGA, § 717f(c)(2), creates an inference that FERC’s jurisdiction

over transportation of user owned gas in interstate commerce does not

extend to transportation into an end-user’s facility).

11. House Conference Report No. 101-100, 101-29, U.S. Code,

Cong. & Admin. News (USCCAN), Vol. 2 (1989), pp. 51, 53, 56.

12. “The Commission believes that to accomplish [Congress’]

objectives, it is vital to give all gas purchasers (LDC’s and end-users,

(Cont’d)

Today, downstream marketers and market centers exist

along with secondary interstate transportation markets for resold

pipeline capacity.'? The Congressional efforts at a competitive

national natural gas market served through non-discriminatory

open access interstate transportation allow all buyers to reach

the lowest cost producers and all sellers to reach the highest

bidding buyers. This has resulted in the vast majority of

industrial, electric generators and commercial end users and

the LDC's bypassing the pipelines and buying gas from parties

other than pipelines'* — in other words, reach a competitive

national market for gas and purchase mandatory non-

discriminatory unbundled interstate transportation (in both a

primary and secondary market) back into the purchaser’s facility.

FERC Proceedings. On May 12, 1998, Midwestern filed

a request with the FERC seeking authorization to construct and

operate facilities to be used to transport natural gas to GPC.

M.App. 8a. SIGECO and the Indiana Office of Utility

Consumer Counselor, an agency of the State of Indiana,

intervened. (M.App. ila) That the IURC did not appear makes

no difference.'* SIGECO filed a protest contending that

Midwestern’s interstate transportation service to GPC would

violate Indiana law, Ind. Code 8-1-2-87 (“Section 87”) and/or

(Cont'd) |

such as industrials and gas-fired electric generators) the ability to

make market driven choices about the price of gas as a commodity

and about the cost of delivering the gas”. (57 FR 13267, 13269,

emphasis added].

13. See FERC Order No. 637, 65 FR. 10156 (Feb. 9, 2000);

CCH Utility Law Reports, 4 5802.

14. Id., pp. 6325-6326.

15. The Office of Consumer Counselor is an “agency” and

represent: “ratepayers, consumers and the public in ... in all other

proceedings including proceedings before federal agencies. .. .”

Ind. Code 8-1-1.1-4.1. Public officials of a government are in privity

with their government as to official acts and successive litigation.

Sunshine Anthracite Coal Co. v. Adkins, 310 U.S. 381, 402-03 (1940).

Ind. Code 8-1-2-87.5 (“Section 87.5”), M.App. 12a-13a, which

purport to require a certificate for any entity that “is engaged in

the transportation of gas from outside Indiana for its direct sale

or delivery to any end-user consumer or consumers within this

State... .” Section 87.5(b). M.App. 6a-7a. SIGECO also

objected based on asserted stranded costs, environmental

problems, that GPC had not negotiated in good faith with

SIGECO and for a myriad of other reasons. M.App. B, passim.

FERC’s Unappealed Decision. On December 16, 1998,

the FERC issued its order authorizing Midwestern’s construction

and operation of facilities for provision of interstate

transportation service to GPC. M. App. B. The FERC

specifically rejected SIGECO’s contentions and held based on

indistinguishable decisions by three Federal Circuits that the

NGA preempts § 87 and/or § 87.5, the Indiana statutes pursuant

to which SIGECO claimed that the URC had jurisdiction over

the Midwestern-GPC transaction. M. App.15a-19a. Neither

SIGECO, nor the State appealed under 15 U.S.C. § 717r(b), the

exclusive avenue for challenging FERC’s decisions.'®

The IURC (Petitioners) Defers Preemption Issue To

Federal Forums. On June 11, 1998, SIGECO filed a petition

before the IURC for a cease and desist order against Midwestern

providing transportation for GPC because of non-compliance

with Sections 87 and 87.5. M.App. 41a et seg. Petitioners

_ misstate that: “On June 11, 1998, the IURC began a proceeding

targeting Midwestern’s . . . .” Pet. 4. On January 27, 1999, the

TURC, acknowledging “that the weight of federal decisions

would suggest that the application of the Indiana statutes to

the instant petition would not survive a federal challenge,

stayed SIGECO’s proceeding (which stay remains to this

16. On October 13;-1999, Midwestern filed an application

with the FERC for the Scepter interstate transportation service of natural

gas to be purchased by Scepter in the unregulated national market.

M.App. 60a-64a. After notice (64 F.R. 57,635 (1999)), and after no

protest was filed, Midwestern automatically received FERC approval.

18 C.F.R. § 157.205(i)(1).

day) “while the federal preemption question progresses

through federal channels. . .. We are in effect deferring the

federal preemption issue for resolution by federal forums.”

M.App. 57a. Petitioners misstate that the stay was only pending

the FERC proceedings. Pet. 4.

SIGECO Pursues More Litigation. After the stay, on

April 14, 1999 SIGECO filed an action in State court seeking

to stop Midwestern’s construction of the GPC lateral under a

roadway, which proceeding the State court stayed (Cir.’s App.

105, 119), and filed in January 2000 two more petitions before

the IURC based on Sections 87 and 87.5.

The District Court. In April, 2000, Midwestern filed this

action seeking to enjoin SIGECO and Petitioners from

proceeding under the Indiana statutes which purport to require

certification to transport user-purchased gas out-of-State to the

user’s Indiana facilities as such were preempted by § 1(b) of

the NGA. The District Court granted motions to dismiss, holding

that it was compelled to abstain under Younger in deference to

SIGECO’s IURC proceedings.

The Seventh Circuit’s Decision. The Seventh Circuit

recognized that Younger abstention is not required if the State

proceeding and statute are facially invalid:

If the State does not have such an interest,

if for example, it is seeking to regulate activities

that clearly are under exclusive federal control, there

is no basis for invoking Younger. See Chaulk

Services Inc. v. Massachusetts Comm'n Against

Discrimination, 70 F.3d 1361, 1370 (istCir. 1995),

and cases cited there; Norfolk & Western Ry. v. Public

Utilities Comm'n of Ohio, 926 F.2d 567, 573

(6th Cir. 1991). (P.App. 6a.)

The Seventh Circuit determined that when the NGA grants

FERC jurisdiction, “such is exclusive and preempts State

regulation,” citing Northwest Central Pipeline Co. v. State

Corporation Comm'n, 489 U.S. 493, 506-07 (1989) and

Schneidewind v. ANR Pipeline Co., 485 U.S. 293, 300-01

(1988). Then, in light of the three circuits which previously

decided the precise issue before it, n.26, infra, the Court held:

It seems to us, as it has seemed to the other courts

to have addressed the issue [citations omitted to

the Tenth, the D.C. and the Sixth Circuits] that the

transportation of natural gas bought and produced

out-of-State to Indiana residents via Midwestern’s

pipeline is interstate transportation. . . . (P.App. 4a).

Hence, the Court determined that Indiana had no valid interest

in requiring [URC permission to transport gas from out-of-State

to the Indiana purchasers: “Mere defiance of clear federal law

removing an area from potential state regulation is not [a valid

State] interest.” P.App. 7a.

This was not, as petitioners misstate, that the Seventh Circuit

simply held that “it ‘seems’ to be preempted” or that it created

“a lax ‘seems’ preempted standard” Pet. 9, or that the Court

simply said “it ‘seems’ to us, these circuits were correct.” Pet. 14.

All the matters which Petitioners castigate the Seventh Circuit

for not discussing were fully discussed in the decisions of the

Sixth, Tenth and District Court of Columbia Circuits adopted

by the Seventh Circuit.

The Seventh Circuit did not hold that once a FERC petition

is filed, subsequent State proceedings can be enjoined, as

Petitioners assert in Question 3. Rather, the Seventh Circuit

found Younger inapplicable for an additional reason —

“harassing,” “vexatious litigation” by SIGECO “aimed at

undoing the results of [a FERC] proceeding,” (P.App. 6a, 8a.)

because the FERC action was first filed, first decided, and

unappealed — an action in which Indiana and SIGECO appeared

and decided all the issues which SIGECO later sought to present

to the petitioners here. The IURC proceedings remained at an

$$$

early stage (indeed, had been stayed by the petitioners here

“deferring the federal preemption issue for resolution by the

federal forums”). M.App. 57a. Based on these facts, the Seventh

Circuit held that the Younger policy “has no applicability to a

case such as this, in which. . . a federal proceeding (here before

the Federal Energy Regulatory Commission) ... reaches

completion while the state proceeding is still pending at an early

stage...."

The Seventh Circuit reasoned that:

we cannot see how the Younger doctrine is impaired

by forcing a disputant to make his arguments in the

first authorized forum to become seised of his

dispute. ... There is a peculiar perversity in

SIGECO’s invocation of the Younger doctrine. . . .

SIGECO is arguing for using the doctrine to split

the proceedings between the federal and state

agencies. The injunction sought by Midwestern

merely seeks to prevent vexatious litigation by a

disappointed party, namely SIGECO, in the Federal

regulatory proceedings. [P.App. Sa-6a]

The Seventh Circuit then concluded, not merely because of any

first filed concept, but that:

SIGECO must be enjoined from harassing

the Purchasers and Midwestern by pursuing

State regulatory proceedings aimed at undoing

the results ofa federal regulatory proceeding. [P.App. 8a].

Corrections Pursuant To S. Ct. Rule 15.2.'* In addition to

the corrections noted heretofore, SIGECO’s Brief 2-8 contains

17. P.App. 3a, quoting Town of Lockport v. Citizens for Community

Action at Local Level Inc., 430 U.S. 259, 264, n.8 (1977)): “[P]rincipals

of comity and federalism do not require that a federal court abandon

jurisdiction that it has properly acquired simply because a similar suit is

later filed in state court.”

18. Sprinkled throughout the Petition and SIGECO’s Brief are

repeated references to “local distribution service” or “local delivery” of

(Cont'd)

not a single reference to the Record or Appendix as to any fact,

but attaches a map concerning various pipelines, makes

unsupported assertions about the quantity of SIGECO’s sales

to large industrial users, its territory, about supposedly having

to provide service at some unknown cost if GPC or Scepter

should return to the fold, that SIGECO doesn’t want to sell gas

to industrial users, the economic motive of pipelines to connect

to an LDC, whether the GPC/Scepter arrangements foster

competition — who knows the truth of these untested assertions

and other statements which dehor the record? SIGECO’s Brief

should be ignored or stricken.

The only thing which is clear is that SIGECO tried to get

GPC’s business by making presentations to GPC, and failed.

M.App. 26a. It also failed to convince FERC that there was

“anti-competitive” behavior, or that Midwestern’s interstate

transportation was uneconomic, or that SIGECO had stranded

costs, and failed in arguing that the [URC was not preempted.

M.App. 15a-23a. Put simply — SIGECO was competing

and lost.

Indiana has provided the means for SIGECO to compete

by having special rates and tariffs for large industrial users, as

well as the authority to negotiate contracts with such industrial

users. See the discussion by the IURC, Jn re Indiana Gas

Company, Inc., 122 PUR. 4th 365, 1991 WL 501832 (Ind. URC,

1991). SIGECO now reaps the benefits of a competitive national

market and purchases all of its gas in the same markets as GPC

(Cont'd)

gas to consumers by which they seek to replace the word “transportation”

with “local distribution” — like “Midwestern contracted . . . to provide

GPC with local distribution,” SIGECO 2, or “the Court upheld [States’]

authority to regulate an interstate pipeline’s ‘delivery service,’ ”

mis-describing the Panhandle cases, Pet. 18, and misstating that the

Panhandle cases hold “that States can exercise authority over ‘bypass

service’ ”, Pet. 7, 6. The mis-descriptions of facts and law are too many

to correct.

and Scepter and no doubt purchases such gas in much, much

larger quantities.'®

What SIGECO is really seeking is exactly what Congress

sought to avoid when it required FERC to take away monopoly

power from the interstate pipelines, requiring them to unbundle

and provide open access non-discriminatory transportation. Now

SIGECO wants to have this monopoly power for itself and the

other LDC’s which would no doubt create the same anti-

competitive conditions that existed prior to Order 636 and be

subject oniy to regulation by Indiana so that the industrial

consumers are captives to SIGECO. There can be no doubt that

monopoly power in transportation will distort the competitive

gas sales markets which Congress sought.

REASONS FOR DENYING OR

DISMISSING THE PETITION

Question 1 — Presents Nothing But Petitioners’

Concoctions. Finding no conflict between the decision of the

Seventh Circuit and any of this Court or of the other circuits,

petitioners embark upon a repetitious series of misquotes to

create the illusion that the Seventh Circuit created a novel

“*seems’ preempted” exception to Younger. These are

patent misconstructions and this Court should summarily

dismiss the Petition because there is no attempt to comply with

S. Ct. Rule 14.1(a).

This Court in both NOPSI/ (where this Court found that the

New Orleans City Council’s actions were not clearly or facially

seeking to regulate or interfere with wholesale rates) and in

Utility Commissioners of Ohio (where this Court sustained

enjoining the State Commission’s actions and orders seeking to

regulate wholesale rates which were clearly and facially

~ preempted by the Federal Power Act), recognized that Younger

abstention is not required where State proceedings or law is

19. See In Re Southern Indiana Gas & Electric Company, 2000

WL 33181398 at * 3 (Ind. URC 2000).

clearly, patently or facially invalid as encroaching upon exclusive

federal jurisdiction.

The Seventh Circuit joined the holdings of the First, Sixth,

Ninth and Eleventh Circuits pursuant to Utility Commissioners

of Ohio and NOPSF° — that Younger abstention, which

20. P.App. 6a-7a, adopting Chaulk Services, Inc. v. Massachusetts

Commission Against Discrimination, 70 F.3d 1361 (1st Cir.

1995) (reversing the district court’s abstention, holding:

“a number of courts have held that Younger abstention is inappropriate

where a claim of preemption is ‘facially conclusive’ and/or ‘readily

apparent’, because no significant State interests are served. It is clear

that the State tribunal has acted beyond the lawful limits of its authority.”);

Bud Antle Inc. v. Barbosa, 45 F.3d 1261 (9th Cir. 1995), cert. denied,

516 U.S. 1159 (1995) (reversing the district court’s abstention under

Younger where it was “readily apparent” that State agency’s assertion

of jurisdiction was preempted under Federal law); Bunning v.

Commonwealth of Kentucky, 42 F.3d 1008 (6th Cir. 1994) (where the

Court concluded that abstention is not required in a case presenting

facially conclusive claims of Federal preemption), Gartrell Construction

Inc. v. Aubrey, 940 F.2d 437, 441-42 (9th Cir. 1991) (“no significant

State interest is served where the State law is preempted by Federal law

and preemption is ‘readily apparent.’ .. . Younger abstention is not

required. . . . Preemption is readily apparent under [Federal procurement

regulation]”); National Railroad Passeng: Corp. v. State of Florida,

929 F.2d 1532, 1537 & n.12 (lithCir. 1991) (“in the present case, the

new language of the Rail Passenger Service Act clearly indicates that

State and local laws are preempted; thus, the District Court would not

be required to abstain [under Younger] from enjoining any ongoing State

criminal proceeding”); Baggett v. Department of Professional Regulation,

Board of Pilot Commissions, 717 F.2d 521, 524 (11th Cir. 1993) (same);

Norfolk & W.Ry. v. Public Utils. Comm'n, 926 F.2d 567, 573 (6th Cir.

1991) (determining that FRA preempted State administrative rule,

preemption was “facially conclusive” so abstention not required);

see also Freehold Co.-Generation Associates v. Board of Regulatory

Commissions, 44 F.3d 1178-87 & n.6 (3d Cir. 1995), cert. denied,

516 U.S. 815 (1995) (“the alleged intrusive action is not by the federal

government, but, on the contrary, by a state regulatory agency.

We conclude that abstention is not appropriate in this case and does not

(Cont'd)

ee ee

“presupposes that the State has a valid interest that it is seeking

to enforce,” is not required

if the State does not hav such an interest, if for

example, it is seeking to regulate activities

that clearly are under exclusive federal control... .

See Chaulk Services, Inc. v. Massachusetts Comm 'n

Against Discrimination, 70 F.3d 1361, 1370 (1st Cir.

1995) and cases cited there. ... Mere defiance of

clear federal law removing an area from potential

State regulation is not such an interest.?’ [P.App.

6a-7a. |

Here, Indiana by statute, and SIGECO by the proceedings

in question, seek to regulate the interstate transportation of user

purchased gas in one State to the end-user’s facility in another

State. This, the Seventh Circuit found, adopting the three other

circuits that had so held (“It seems to us, as it has seemed to the

other courts to have addressed the issue, [see n.26, infra]’’) is

the transportation of natural gas in interstate commerce within

FERC’s § 1(b) jurisdiction, which in accordance with this

Court’s decisions is exclusive, preempting State regulation.

Northwest Central Pipeline Corp. v. State Corporation Comm'n,

489 U.S. 493, 506-07 (1989); Schneidewind v. ANR Pipeline

Co., 485 U.S. 293, 300-01 (1988).

Not able to challenge the correctness of the Seventh

Circuit’s adoption of the facially clear exception to Younger

(Cont'd)

warrant extended discussion”); Communications Telesystems Int'l v.

California Pub. Util. Comm'n, 196 F.3d 1011, 1017 (9th Cir. 1999)

(preemption must be “readily apparent” to prevent abstention).

21. Petitioners contend that NOPS/ broadly defines the State’s

interest as being the “regulation of utilities” by the State, Pet. 10,

but again selectively quote out of context, ignoring that the interest

referenced in NOPS] is not simply regulating utilities but rather the more

focused, limited State interest of “regulating intrastate retail rates”

461 U.S. at 377 (emphasis added).

and the adoption of the circuits which have found the interstate

transportation of user- owned gas in one State to and including

the last foot of transportation into the user’s facility within

FERC’s exclusive jurisdiction, petitioners embark upon the

concoction that the Seventh Circuit created a novel “ ‘seems’

preempted” exception to Younger.

Petitioners’ attribution of apparently dispositive significance

to the single, commonplace phrase “It seems to us” in the Court

of Appeals’ opinion, while ignoring the parallel use “as it has

seemed to the other courts” is at best is just plain silly — at

worst, misleading. Pet. 12-13. As the parallel construction of

this sentence demonstrates, the Seventh Circuit is describing

its own holding (“It seems to us”) in exactly the same terms as

it is describing the holdings of the other circuits to address the

issue. Petitioners do not and cannot contend that the opinions

of these other circuits (see pp. 22-26, infra) are anything other

than unequivocal holdings against petitioners’ position.

Described in the same terms (“seems”), so too is that

of the Seventh Circuit — it is not a gratuitous “quick look”,

Pet. 11, 13, nor has it “lowered the bar to ‘seems’ preempted,”

Pet. 14, or to a “lax ‘seems’ preempted standard.” Pet. 19.

Petitioners continue playing fast and loose in another

“straw man” argument — the notion that the Seventh Circuit

held the mere assertion of a preemption claim precludes Younger

abstention. Pet. 13-14. The Court of Appeals again did nothing

of the sort, but rather expressly recognized, in accordance

with NOPSI, that any such rule “would be question begging.”

(“This is not to say that a defense of federal preemption

automatically defeats Younger, the position rejected in [NOPS]T].

That would be question begging. The State court has the same

right and power to decide a defense of preemption as it does to

decide any other federal defense”) P.App. 6a-7a.

Petitioners then attack the circuits (now joined by the

Seventh Circuit) on the facially clear or readily apparent

exception to Younger as being a “full blown assault” by the

circuits on Younger. Pet. 13-14. (Pet:*-oners do not and cannot

identify a split in the circuits or identify even a single case

supporting their own position, nor is this fairly within any

question vresented.) The “assault” is yet another figment of

petitioners’ imagination. These cases are based on Younger,

Utility Commission of Ohio, and NOPSI and do no more than

to recognize the necessity of a valid State interest as an “entry

requirement” to the extraordinary circumstances needed to

justify abstention in the first instance. (See n.20, supra.)

The State perforce has no such interest where its actions clearly

encroach upon an exclusive federal domain and are thus facially

invalid. Utilities Commission of Ohio so holds with respect to

State encroachment upon FERC’s exclusive domain. 317 U.S.

at 469. To say, as do the circuits’ decisions, n.20, supra,

that such facial invalidity of the State’s asserted interest is

“readily apparent”, “conclusive”’, “facially conclusive”, “clear”,

etc. are but different words for the same thing. Petitioners are

casting about for error in the semantic nuances associated with

synonymous terms without ever establishing a contravention

of this Court’s precedents.

Question 2 Presents Nothing. Much like Question 1,

Question 2 is based upon a misconstruction that the Seventh

Circuit rejected abstention “based on an appellate assumption”

that the “regulatory commissioners are prosecuting the

State proceedings to serve the commercial interest of a

private utility....” As set forth above, the Seventh Circuit’s

decision is well grounded, not based on any assumption.

See also, infra, pp. 21-18. Obviously, there could have been no

such assumption by the Seventh Circuit — the TURC is not

prosecuting the State proceedings as petitioners represent.

Quite the opposite, SIGECO brought all the proceedings,

see infra, pp. 19-21. Petitioners voluntarily stayed SIGECO’s

proceedings “deferring the federal preemption issue for

resolution by federal forums”. M.App. 57a.

Question 3 Presents Nothing — SIGECO’s Harassing,

Vexatious Litigation. In Question 3, petitioners once again

misconstrue, by taking out of context, several words in the

Seventh Circuit’s opinion. Petitioners assert that “in addition to

its ‘seems preempted’ standard”, the Seventh Circuit assertedly

“swept away the rights of the State courts and agencies to decide

the constitutionality of State laws” where a Federal agency

“becomes first ‘seised’ of the dispute . . . to which the State is

not a patty.” Pet. 19. Of course, Indiana was a party to the FERC

proceedings. See n.15, supra.

But more importantly, the language upon which petitioners

seize is but a part of the Seventh Circuit’s analysis leading to its

conclusions that the injunction sought by Midwestern “merely

seeks to prevent vexatious litigation by a disappointed party,

namely SIGECO, in the FERC regulatory proceeding,” and that

SIGECO “must be enjoined from harassing the purchasers

and Midwestern by pursuing a State regulatory proceeding

aimed at undoing the results of a Federal regulatory proceeding.”

P.App. 6a, 8a. These conclusions of the Seventh Circuit can

only be viewed in the backdrop of its determination that Younger

“has no application to a case such as this. . . , In which, . . .

a federal proceeding (here before the Federal Energy

Regulatory Commission) overlapping the state proceeding

reaches completion while the state proceeding is still pending

at an early stage”.

The Court noted that SIGECO appeared in the FERC

proceeding in which Midwestern sought certification, and made

essentially all of the arguments against certification as it sought

to raise in the Indiana proceedings, including that FERC should

not rule before Midwestern received a certificate from the IURC.

P.App. Sa.

So what confronted the Seventh Circuit, assertedly requiring

abstention, was not merely [URC initiated proceedings against

Midwestern with Midwestern running to federal court — the

classical abstention case. Rather this case presents: (1) a first-

filed FERC case seeking the required FERC approval for

unbundled interstate transportation of user-purchased gas in one

State to the users’ facilities in another State, (2) filed before

SIGECO’s petition to the IURC, (3) a FERC decision while the

SIGECO petition had been voluntarily stayed by these

petitioners’ Order “deferring the federal preemption issue for

resolution by federal forums,” M.App. 57a, (which makes this

case an inappropriate vehicle for this Court’s consideration of

any Younger issue), (4) in which FERC proceeding, the State

appeared through the OUCC, (5) in which FERC proceedings

SIGECO made all the various objections which it sought to

remake before the URC, (6) which FERC decision neither the

State” nor SIGECO appealed as required to a federal circuit

court of appeals, 15 U.S.C. § 717r(b) — and (7) SIGECO filed

a further state court action against Midwestern, as well as two

subsequent IURC proceedings against Midwestern, “aimed at

undoing” the FERC decision.

If there was ever harassing, vexatious litigation, this case

is it — Younger does not require abstention, unless Younger is

“turned on its head”!

Interestingly, petitioners raise no error or challenge to the

Seventh Circuit’s determination that harassing, vexatious

litigation does not require Younger abstention. Such has never

been doubted in this Court’s decisions. Middlesex County Ethics

Committee, etc. v. Garden State Bar Association, 457 U.S. 423,

437 (1982) (because there was “no bad faith or harassment” or

other exceptional circumstances dictating to the contrary, the

federal court should abstain). Moreover, no principle of federal

law, whether comity or statute,”> is violated when state parties

22. “Ifthe state voluntarily chooses to submit to a federal forum,

principles of comity do not demand that the federal court force the case

back into the State’s own system.” Ohio Bureau of Employment Services

v. Hodory, 431 U.S. 471, 480, 97 S. Ct. 1898, 1904 (1977).

23. The situation presented here is similar to the “relitigation

exception” recognized under the Anti-Injunction Act, 28 U.S.C. § 2283,

(Cont'd)

and courts are enjoined from collaterally ..:king final FERC

orders. See Williams Natural Gas Co. v. Cit} -f Oklahoma City,

890 F.2d 255, 259-60 (10th Cir. 1989), cert. den., 497 U.S. 1003

(1990) (determining that an injunction should issue against State

proceedings enjoining an interstate pipeline company from

acting pursuant to a final FERC order which constituted an

impermissible collateral attack on the FERC order, and

abstention was inappropriate).

Seventh Circuit Correctly Determined FERC’s Exclusive

Jurisdiction Over Transportation Of User Purchased Gas In

One State To User’s Facility In Another State.

Petitioners and SIGECO want to exclude from FERC’s

interstate transportation — any transportation to an end-user,

or the “last foot’ into an end-user’s facility.2* No such language

can be found in the NGA.

(Cont'd)

which allows a federal court to enjoin state proceedings “that attempt to

readjudicate previously decided matters” creating vested federal rights.

See, e.g., Ramsden v. Agribank, 214 F.3d 865, 868 (7th Cir. 2000).

Like Younger, the Anti-Injunction Act prescribes a point of demarcation

at which comity concerns end and an enforcement of federal judgments

creating vested federal rights begins. In face of Midwestern’s federally

adjudicated right pursuant to the FERC certificates to provide interstate

transportation service to GPC and Scepter, no more than the Anti-

Injunction Act do principles of comity animating Younger abstention

prohibit issuance of an injunction against SIGECO’s “vexatious” and

“harassing” collateral attacks on the FERC decision. P.App. 6a, 8a.

24. Petitioners term this “direct delivery to a consumer”,

Petition p. 19, or “delivery service to an end-user consumer,” Pet. 18,

or “local delivery service” to end-use consumers. Pet. 17. SIGECO’s

view of the marketplace is that while the purchase of gas has been

deregulated, the second step — transportation from the wellhead to

the LDC — is within FERC’s jurisdiction but the final step is always

“local distribution by the LDC” reserved to the States. SIGECO Brief,

p. 6. SIGECO wants the “direct local service to reach all customers”

excluded from interstate transportation. SIGECO Brief 8.

The plain language of § 1(b) grants FERC jurisdiction over

“transportation of natural gas in interstate commerce” and

defines “interstate commerce’”’ as “commerce between any point

in a State and any point outside thereof... .” 15 U.S.C.

§ 717a(7). The language and its applicability to the transportation

of user-purchased natural gas in one State to the user’s facility

in another State is clear, unquestionable. It is, therefore, no

surprise that petitioners can find no support in § 1(b) or any

case of a Circuit Court of Appeals or of this Court’ that the last

foot of unbundled transportation of user-purchased gas in one

State to the user’s facility in another, is other than transportation

in interstate commerce. Just as the Seventh Circuit found

FERC’s jurisdiction to be clear and exclusive, other circuits

have likewise found FERC’s jurisdiction over such unbundled

transportation into the user’s facility to be “undoubtable” “hardly

conceivable” to find a better fit, “clearly within FERC’s

transportation jurisdiction”.*® This Court similarly found such

25. Petitioners reliance on General Motors Corp. v. Tracy, 519 U.S.

278 (1997) is simply wrong. 7racy did not rule on any issue in this case.

In addition to acknowledging the holding of the circuits at n.14,

this Court also noted the legislative changes since 1938 and that there

might be questions raised by such and “we do not decide this issue,”

519 U.S. at 305, n.13, and further noted that § 1(b) “remains unchanged,”

519 U.S. at 305, n.13 but did not discuss that 15 U.S.C. § 3431 limited

§ 1(b) and other provisions of the NGA from applying to “first sales”.

Petitioners’ reliance on Panhandle-Indiana and Michigan is also wrong.

These cases said nothing of “local delivery service” being outside

FERC’s jurisdiction. Both decisions were grounded in § 1(b)’s grant of

only wholesale, but not retail, sales jurisdiction to FERC and said nothing

whatever about unbundled interstate transportation. Indeed, this Court

in Tracy repeatedly described these cases as recognizing the power of

States “to regulate all in-State gas sales directly to consumers... .”

519 U.S. at 281. Of course, the NGPA/NGWDA raise issues as to

whether States can regulate “first sales”, whether in-State or out-of-

State in the new competitive national market. See n.8, supra.

26. See Michigan Consol. Gas Co. v. Panhandle Eastern Pipeline

Co., 887 F.2d 1295, 1300 (6th Cir. 1989), cert. denied, 494 U.S. 1079

(Cont'd)

within FERC’s jurisdiction. FPC v. Transcontinental Gas

Pipeline, supra.

There is no limitation on FERC’s interstate transportation

jurisdiction based on whether the gas is to be consumed or resold

or whether it is the “last foot” to consumption. “The Act gives

the Commission jurisdiction over interstate transportation

of natural gas as a separate and distinct matter, whether

(Cont'd)

(1990) (Michigan PSC enjoined from asserting jurisdiction over FERC

certificated unbundled interstate transportation of user-owned gas to

user’s facility where the Court found it “hardly conceivable” to find a

better fit with FERC’s interstate transportation jurisdiction); Michigan

Consolidated Gas Company v. FERC, 883 F.2d 117, 120 (D.C. 1989),

cert. denied, 494 U.S. 1079 (1990) (the Court had “no difficulty”

affirming FERC’s jurisdiction to grant a certificate of convenience and

public necessity for the interstate transportation to a user’s facility);

Public Utility Commission of California v. FERC, 900 F.2d 269, 273-77

(D.C. Cir. 1990) (unbundled interstate transportation of user-owned gas

is transportation of natural gas in interstate commerce does not end at

the “last foot of pipe” before going into the end-user’s facility); and

Cascade Natural Gas Corp. v. FERC, 955 F.2d 1412, 1416 (10th Cir.

1992) (FERC has exclusive jurisdiction to authorize unbundled

transportation services for user-owned gas to the user’s facility as such

“undoubtedly falls within” FERC’s interstate transportation jurisdiction).

See also United Distribution Companies v. FERC, supra, (FERC has

interstate transportation jurisdiction over LDCs’ capacity sales to

their own end-users because gas sales element was severed, unbundled

from the transaction, with FERC retaining jurisdiction over interstate

transportation component, 88 F.3d at 1153, and sustaining FERC’s

exclusive transportation jurisdiction and regulatory preemption of

States with respect to LDCs’ buy/sell agreements with their users,

id. at 1154-55); National Fuel Gas Supply Corporation v. Public Service

Commission of New York, 894 F.2d 571,579 (2d Cir. 1990), cert. denied,

497 U.S. 1004, 1105 S. Ct. 3240 (1990) (FERC has exclusive jurisdiction

concerning replacement of 1.6 miles of interstate pipeline and not

required to obtain a State environmental certificate because FERC has

the authority to consider environmental issues, “State may not engage

in concurrent site specific environmental review;” and see also American

Gas Association, supra, and Associated Gas Distributors, supra.

the transportation is for hire or for sale and whether this

sale is for consumption or resale.” United Pipeline Company v.

Federal Power Commission, et al., 385 U.S. 83, 89 (1966).

The independent jurisdictional grant over interstate

transportation allows FERC jurisdiction over curtailment plans

for both jurisdictional wholesales and non-jurisdictional retail

sales, because the Act does not limit the interstate transportation

jurisdiction, as it does the sales jurisdiction. See Federal Power

Commission v. Louisiana Power & Light Co., 406 U.S. 621,

636 (1972) (“Though the [NGA’s] application to ‘sales’ is limited

to sales of interstate gas for resale, the Act applies to interstate

‘transportation’ regardless of whether the gas transported is

ultimately sold retail or wholesale.”), approved in New York,

supra, 112 S. Ct. at 1022.

Just last month, in New York, et al. v. Federal Energy

Regulatory Commission, et al., supra, based on similar

unambiguous language in a nearly identical provision of the

Federal Power Act, 16 U.S.C. § 824(b), this Court affirmed

FERC’s regulation of unbundled retail electric transmissions

based on FERC’s exclusive jurisdiction over “the transmission

of electric energy in interstate commerce. ...” 16 U.S.C.

§ 824(b), see n.2, supra.

The statutory text thus unambiguously authorizes

FERC to assert jurisdiction over two separate

activities — transmitting and selling [just as does

the NGA over transportation and selling]. It is

true that FERC’s jurisdiction over the sale of power

has been specifically confined to the wholesale

market [as under the NGA for gas]. However,

FERC’s jurisdiction over electric transmission

contains no such limitation [neither does the NGA

for transportation]. Because the FPA authorizes

FERC’s jurisdiction over interstate transmissions,

without regard to whether the transmissions are sold

to a reseller or directly to a consumer [as does the

NGA over interstate transportation], FERC’s

exercise of this power is valid. [112 S. Ct. at 1024].

Change the words “transmission” to “transportation” and

“electric” to “gas”, and the cases are indistinguishable.

Petitioners’ reliance on the terms “local distribution” in the

proviso portion of § 1(b) (much like the proviso language of

the FPA) to encompass the last foot of interest transportation to

an end-user was rejected in all of the circuit court cases (and in

New York, supra, under the FPA).?’ This Court has repeatedly

held the proviso language is “surplusage” and does not limit

“any jurisdiction otherwise granted under § 1(b)” and is to be

strictly construed. Federal Power Commission v. East Ohio Gas

Co., 338 U.S. 464, 471 (1950) (the terms “local distribution”

in the proviso were “surplusage which was ‘not actually

necessary’ ”); Federal Power Commission v. Louisiana Power

& Light Co., et al., 406 U.S. 621, 638 (1972) (“it is well

established that the proviso was added to the Act merely for

27. Public Utilities Commission of California, supra, 900 F.2d at

276 (distribution conjures up receiving a large quantity of some good

and parceling it out among many takers. The legislative history of the

Natural Gas Act supports this view and undercuts any suggestion that

final delivery to an end-user transfers the terminal stage of transportation

into distribution); Cascade Natural Gas, 955 F.2d at 1418-21 (“local

distribution’ as Congress viewed the term, involves two components,

the retail sale of natural gas and its local delivery, normally through a

network of pipelines designed to supply local consumers” such that

“by-pass transactions did not entail the realm of local retail sales that

Congress intended to reserve to the States” Michigan Consolidated Gas

Co., supra, 883 F.2d at 121-22 (rejecting the argument that by-pass to

an end-user involves “local distribution” where the gas was purchased

out-of-State from third parties and the pipeline merely transported the

gas into an end-user in interstate commerce). See also Oklahoma Natural

Gas Co. v. Federal Energy Regulatory Commission, 906 F.2d 708, 710

(D.C. Cir. 1990) (local distribution is “a network of small local lines

used to transmit gas from a large interstate pipeline to individual

consumers spread out in a local geographic area — not a high pressure

line connecting an interstate pipeline to a single end-user”).

clarification and was not intended to deprive FPC of any

jurisdiction otherwise granted by § 1(b).”); Phillips Petroleum

Co. v. Wisconsin, 347 U.S. 672, 678 (1954) (“we noted that

‘{e]xceptions to the primary grant of jurisdiction in § 1(b)(1)

ought to be strictly construed’ ”); Interstate Natural Gas Co. v.

FPC, 331 U.S. 682, 690-91 (1947) (same).

The Circuit Courts of Appeal have uniformly held that the

meaning of “local distribution” is not merely transportation to

an end-user, but the breaking down, parceling out and sale of

gas to multiple users in a local area, n.27, supra. “Insofar as

Congressional committees spoke to the matter, therefore, they

appear to have viewed distribution as confined to its parceling

out function (and probably) even more narrowly, to parceling

out accompanied by retail sales.” Public Utility Commission of

California, 900 F.2d at 276 (emphasis in original).

Merely because transportation is provided by local

distribution companies to gas users does not mean that it is not

the transportation of natural gas in interstate commerce —

interstate transportation jurisdiction extends to the local

distribution companies’ sales of unbundled transportation

Capacity to the their own end-users where the gas sales element

and the transportation element are severed, unbundled with

FERC maintaining jurisdiction over the interstate transportation

element. See United Distribution Companies v. FERC, supra,

88 F.3d at 1150-56 (sustaining various aspects of Order 636’s

mandatory unbundling and that the interstate transportation

jurisdiction extends to FERC’s regulation of local distribution

companies’ capacity sales and buy/sell arrangements of

transportation to their end-users, and preempts State regulation

to the contrary.)

Aside from the clear language in § 1(b), later provisions of

the NGPA and the NGWDA also demonstrate that FERC’s

interstate transportation jurisdiction encompasses the last foot

of transportation of user-owned gas from out-of-State into the

user’s facility in-State. For instance, consistent with the historical

definition of local distribution, Congress in the NGPA expressly

defined “distribution companies” as engaged in the breaking

down and parceling out of natural gas and sales for consumption.

See NGPA § 2(17), where Congress defined a local distribution

company as “any person, other than an interstate pipeline or

intrastate pipeline engaged in the transportation, or local

distribution, of natural gas and the sale of natural gas for ultimate

consumption.” 15 U.S.C. § 3301(17) (emphasis added). Nothing

in this definition indicates that Congress ever considered

transportation of user-owned gas to an end user for consumption

(or at the “last foot”) to be the domain of local distribution.

In 1978 as a part of the Congressional effort to attack the

imbalances in the natural gas supply, Congress amended NGA

§ 7 to allow FERC to give preference or discriminate in

certificating unbundled interstate transportation of user-owned

gas to high priority users’ facilities. 15 U.S.C. § 717f(c)(2);

M.App. la-2a. If FERC did not have jurisdiction over

transportation of user owned gas in interstate commerce into an

end-user’s facility pursuant to § 1(b), the amendment would

make no sense. Concurrently, in the 1978 NGPA, Congress

sought to protect previous certifications for unbundled

transportation of user-owned natural gas into utility generation

units by prohibiting FERC from revoking any earlier granted

certificate for such transportation into generating facilities to

replace coal because of such use being an unpreferred use, i.e.

gas versus coal.. 15 U.S.C. § 3394(a): “[T]he Commission may

not . . . revoke or amend any certificate of public convenience

and necessity issued before January 1, 1969 under Section 7 of

the Natural Gas Act ... for the transportation of natural gas

owned by any electric utility. . .” for a ten year period after

November 9, 1978. App. at 3a. Again, Congress recognized

FERC’s § 1(b) interstate transportation authority over the

transportation of user-purchased gas in one State into the user’s

facility in another State.

Finally, in the 1992 Energy Policy Act, Congress expressly

affirmed the competition which it had encouraged, not only in

the integrated, competitive and unregulated national gas market,

but also competition in transportation markets. Congress

considered further amendments to the NGA and NGPA as a

part of the Energy Policy Act of 1992 including requiring 60

day notice to an LDC of a prospective bypass so state

commissions could consider providing more flexible rates for a

LDC to compete. See House Rept. No. 102-474(I) re proposed

Sec. 204, “Rules in Local Distribution Bypass Cases.” 1992

USCCAN 1953 (102nd Cong., 2d Sess., 1992) Instead, Congress

enacted a declaration that “natural gas consumers and producers,

and the national economy, are best served by competitive natural

gas wellhead market.” P.L. 102-486, Sec. 202, entitled “Sense

of Congress”.”®

In sum, Congress has created an integrated, deregulated

competitive national market for the sale and purchase of natural

gas, including sales to any end-user. It also recognized that for

there to be a market where the lowest cost producers could reach

the highest bidding purchasers, and vice versa, FERC had to

require unbundled, open access transportation. This allowed the

LDC’s and the industrial users to bypass the interstate pipelines

and purchase gas from others in the integrated national market.

Petitioners and SIGECO now argue the last foot of interstate

transportation to any consumer is subject to State jurisdiction.

If this is true, then all Congress accomplished in the last

25 years is to transfer the “market function subject to market

power” — that is, a monopoly power — from the interstate

pipelines to the LDC’s and to exclusive State jurisdiction.

28. Here, there is no plain meaning to overcome. In fact, the plain

meaning is established independently of the foregoing. See Solid Waste

Agency of Northern Cook County v. United States Army Corp., __ U.S.

__, 121 S. Ct. 675, 681 (2001).

That is ridiculous. If this were true, Congress would have

changed it, too.

CONCLUSION

The Petition for a Writ of Certiorari to the United States

Court of Appeals for the Seventh Circuit should be dismissed

or denied.

Respectfully submitted,

JANET K. PLACE

General Counsel G. DANiEL KELLEY, Jr.

NORTHERN PLAINS NATURAL Counsel of Record

Gas CoMPANY WILLIAM P. DieNeR

1111 South 103rd Street EDWARD P. STEEGMANN

Omaha, Nebraska 68124-1000 Ice MILLER

(402) 398-7886 One American Square

Box 82001

Indianapolis, Indiana 46282

(317) 236-2100

Attorneys for Respondent

Midwestern Gas Transmission Company

ts ena eed AES Ge Ut st AN RRO A HN et Na AS Np MAID Dein EOL ANTE ALI ARE Ee LIOR ITE

APPENDIX

APPENDIX A — ADDITIONAL STATUTORY

PROVISIONS

15 U.S.C.A.§ 717. Regulation of natural gas companies

* * *

(b) Transactions to which provisions of chapter applicable

The provisions of this chapter shall apply to the

transportation of natural gas in interstate commerce, to the

sale in interstate commerce of natural gas for resale for

ultimate public consumption for domestic, commercial,

industrial, or any other use, and to natural-gas companies

engaged in such transportation or sale, but shall not apply to

any other transportation or sale of natural gas or to the local

distribution of natural gas or to the facilities used for such

distribution or to the production or gathering of natural gas.

* * * *

15 U.S.C.A. § 717f. Construction, extension, or

abandonment of facilities

* * *

(1)(A) No natural-gas company or person which will be

a natural-gas company upon completion of any proposed

construction or extension shall engage in the transportation

or sale of natural gas, subject to the jurisdiction of the

Commission, or undertake the construction or extension of

any facilities therefor, or acquire or operate any such facilities

Appendix A

or extensions thereof, unless there is in force with respect to

such natural-gas company a certificate of public convenience

and necessity issued by the Commission authorizing such

acts or operations: Provided, however, That if any such

natural-gas company or predecessor in interest was bona fide

engaged in transportation or sale of natural gas, subject to

the jurisdiction of the Commission, on February 7, 1942,

over the route or routes or within the area for which

application is made and has so operated since that time, the

Commission shall issue such certificate without requiring

further proof that public convenience and necessity will be

served by such operation, and without further proceedings,

if application for such certificate is made to the Commission

within ninety days after February 7, 1942. Pending the

determination of any such application, the continuance of

such operation shall be lawful.

(B) In all other cases the Commission shall set the matter

for hearing and shall give such reasonable notice of

the hearing thereon to all interested persons as in its judgment

may be necessary under rules and regulations to be prescribed

by the Commission; and the application shall be decided

in accordance with the procedure provided in subsection (e)

of this section and such certificate shall be issued or denied

accordingly: Provided, however, That the Commission may

issue a temporary certificate in cases of emergency, to assure

maintenance of adequate service or to serve particular

customers, without notice or hearing, pending the

determination of an application for a certificate, and may by

regulation exempt from the requirements of this section

temporary acts or operations for which the issuance of a

certificate will not be required in the public interest.

Appendix A

(2) The Commission may issue a certificate of public

convenience and necessity to a natural-gas company for the

transportation in interstate commerce of natural gas used by

any person for one or more high-priority uses, as defined, by

rule, by the Commission, in the case of —

(A) natural gas sold by the producer to such person; and

(B) natural gas produced by such person.

* - * *

15 U.S.C.A. § 3394. Limitation on revoking or amending

certain pre-1969 certificates of public convenience and

necessity

(a) General rule

The Commission may not, during the 10-year period

beginning on November 9, 1978, revoke or amend any

certificate of public convenience and necessity issued before

January 1, 1969, under section 7 of the Natural Gas Act

[15 U.S.C.A. 717f] for the transportation of natural gas

owned by any electric utility except upon the application of

the person to whom such certificate was issued.

* * * *

Appendix A

15 U.S.C.A. § 3431. Coordination with the Natural

Gas Act

(a) Jurisdiction of the Commission under the Natural Gas

Act

(1) Sales

(A) Application to first sales

For purposes of section 1(b) of the Natural Gas Act

[15 U.S.C.A. § 717(b)], the provisions of the Natural Gas

Act [15 U.S.C.A. § 717 et seq.] and the jurisdiction of the

Commission under such Act shall not apply to. any natural

gas solely by reason of any first sale of such natural gas.

* * * *

Ind. Code § 8-1-2-87 Gas utilities; necessity certificates;

requirements

Sec. 87.(a) When used in this section, unless the context

otherwise requires:

(1) The term “gas” means natural gas, artificial or

manufactured gas, and mixed gas.

(2) The term “necessity certificate” means a certificate

of public convenience and necessity issued by the

commission pursuant to the provisions of this section, which

certificate shall be deemed an indeterminate permit.

Appendix A

(3) The term “rural area” means territory within the state

of Indiana that is outside the corporate limits of a

municipality.

(4) The term “gas utility” means and includes any public

utility selling or proposing to sell or furnish gas directly to

any consumer or consumers within the state of Indiana for

his, its or their domestic, commercial, or industrial use.

(5) The term “gas distribution service” means the

furnishing or sale of gas directly to any consumer within the

state of Indiana for his or its domestic, commercial, or

industrial use.

(b) It is hereby declared that in order adequately to

protect the public interest in the distribution of gas to

consumers within the state of Indiana, it is necessary and

desirable that to the extent provided in this section the holding

of necessity certificates should be required as a condition

precedent to the rendering of gas distribution service in rural

areas of the state of Indiana.

commence the rendering of gas distribution service in any

rural area in the state of Indiana in which it is not actually

rendering gas distribution service on February 26, 1945,

without first obtaining from the commission a necessity

certificate authorizing such gas distribution service, defining

and limiting specifically the rural area covered thereby, and

stating that public convenience and necessity require such

gas distribution service within such rural area by such gas

utility; and no gas utility required by this section to hold a

Appendix A

necessity certificate for any rural area shall render gas

distribution service within such a rural area to any extent

greater than that authorized by such necessity certificate or

shall continue to render gas distribution service within such

a rural area if and after such necessity certificate has been

revoked or transferred as in this section provided.

* * * *

Ind. Code § 8-1-2-87.5 Transportation of gas; necessity

certificate; application; public hearing; grounds for

granting certificate; revocation

Sec. 87.5. (a) For purposes of this section,

“transportation of gas” means physical transmission,

exchange, backhaul, displacement, or any other means of

transporting gas, including gathering.

(b) Any person, corporation, or other entity that:

(1) is engaged in the transportation of gas from outside

Indiana for direct sale or delivery to any evid use consumer

or consumers within this state;

(2) is engaged in the transportation of gas solely within

this state on behalf of any end use consumer or consumers;

(3) is an end use consumer engaged in the transportation

within this state of gas owned or acquired by such end use

consumer for use in this state, other than transportation on

the premises where the gas is consumed;

Appendix A

is a public utility as defined in section 1 of this chapter and

must obtain a necessity certificate from the commission

before it may engage in any activities described in this

subsection. This subsection does not apply to a gas utility

operating pursuant to an indeterminate permit or necessity

certificate issued under section 87 of this chapter, nor to the

production, sale, and gathering of natural gas produced in

Indiana.

Ind. Code § 8-1-2-87.6 Exemption of Indiana produced

natural gas; petition and hearing on rates for purchase

or transport

Sec. 87.6. (a) Except as provided in this section, the

production, gathering, sale, or transportation of Indiana

produced natural gas is exempt from this chapter.

(b) Any person, corporation, or other entity engaged in

the production, gathering, sale, or transportation of natural

gas produced in Indiana may petition the commission to:

(1) require a gas utility certified under section 86 or 87

of this chapter to purchase or transport Indiana produced

natural gas owned by the petitioning entity; and

(2) set the rates for the purchase or transportation of

that gas.

APPENDIX B — OPINIONS, ORDERS AND NOTICES OF

THE FEDERAL ENERGY REGULATORY COMMISSION

ISSUED DECEMBER 16, 1998

Commission Opinions, Orders and Notices

Midwestern Gas Transmission Company

Docket No. CP98-538-000

Order Authorizing Construction and Operation of Facilities

Under Blanket Certificate and Denying Protests

(Issued December 16, 1998)

Before Commissioners: James J. Hoecker, Chairman; Vicky A.

Bailey, William L. Massey, Linda Breathitt, and Curt H

(acute)ebert, Jr.

On May 12, 1998, Midwestern Gas Transmission Company

(Midwestern) filed a prior notice request pursuant to its Part

157 blanket certificate issued in Docket No. CP82-414-000'

and the prior notice procedures provided in Sections 157.205

and 157.211 of the Commission’s regulations, for authorization

to construct and operate a delivery tap, a delivery lateral, and a

meter station. The proposed facilities will be used to transport

and deliver gas to anew customer, Grain Processing Corporation

(GPC), an industrial end-user. In accordance with the discussion

below, we will grant Midwestern’s request.

1. 20 FERC P 62,411 (1982). Southern Indiana Gas and Electric

Company argues in its protest that Midwestern erroneously relies

on a blanket certificate issued in Docket No. CP82-412-000 to

Midwestern’s affiliate, East Tennessee Natural Gas Company.

- Although Midwestern inadvertently used the East Tennessee docket

number in its prior notice application, we are authorizing

Midwestern’s request under its blanket certificate which was issued

in Docket No. CP82-414-000.

Appendix B

I. Background and Proposal

Midwestern is a natural gas company under the Natural

Gas Act (NGA), engaged in the transportation of natural gas in

interstate commerce and the construction of facilities for the

transportation of gas pursuant to Part 284 and Part 157,

respectively, of the Commission’s regulations.

GPC is a manufacturer and marketer of various corn-

based products. It is constructing a new corn processing plant

in Daviess County, Indiana that it intends to make fully

operational during the summer of 1999. GPC plans to begin

receiving natural gas supplies in early 1999 to test its new

equipment before the plant becomes fully operational. GPC

requested service from Midwestern which then filed the prior

notice request at issue in this proceeding.

Midwestern proposes to install an 8-inch hot tap on its

30-inch diameter, 2100 Line in Knox County, Indiana, on its

existing right-of-way; install 2.84 miles of 8-inch lateral line

extending from the proposed hot tap to GPC’s new plant in

Daviess County, Indiana; and install a meter station with dual

6-inch orifice meter runs and electronic gas measurement

equipment (EGM) on a site provided by GPC. Midwestern

proposes to own, operate, and maintain the hot tap,

interconnecting pipeline, meter station and EGM.

In addition, Midwestern proposes to construct and install

a dual run, two-stage pressure regulator, gas heating facilities

and odorization facilities which GPC will own, operate, and

maintain.

10a

Appendix B

Midwestern states that the project will cost

approximately $2,760,000 for which it will be reimbursed

by GPC. The proposed lateral would have a maximum

volume of 40,000 Dth of natural gas. Midwestern plans to

deliver up to 10,000 Dth/d of natural gas to GPC.

During the winter of 1998/1999, Midwestern proposes

to commence delivery of small amounts of gas to GPC to

test GPC’s plant processing equipment pursuant to an

interruptible gas transportation agreement under Midwestern’s

Rate Schedule IT. When GPC’s plant begins full operation

during the summer of 1999, Midwestern will provide service

pursuant to a firm transportation agreement under Midwestern’s

Rate Schedule FT-A.

Midwestern states that it does not expect the addition of

the proposed facilities to have any significant impact on its

peak day and annual deliveries. Further, Midwestern states

that it will have sufficient capacity to accomplish deliveries

to GPC without detriment or disadvantage to its other

customers.

II. Interventions, Protests and Answers

Pursuant to Section 157.205(i), authorization to construct

and operate qualifying facilities under a blanket certificate

is automatic provided no protests to the activity are filed

within 45 days of the date notice is issued by the Commission.

If a protest is filed, authorization is granted if the protest is

withdrawn within 30 days after the 45-day notice period.”

2. See Sections 157.205(h) and (1)(2) of the Commission’s

regulations.

lla

Appendix B

If a protest is not withdrawn, the prior notice request proceeds

as an application for case-specific authorization.’

On June 1, 1998, in accordance with Section 157.205 of

the Commission’s regulations, notice of Midwestern’s prior

notice request was published in the Federal Register (63 Fed.

Reg. 29723). Within the 45-day notice period provided by

the prior notice procedures, timely, unopposed motions to

intervene were filed by the Indiana Office of Utility

Consumer Counselor; GPC; Proliance Energy, LLC; Northern

Indiana Public Service Company (NIPSCO); and Southern

Indiana Gas & Electric Company (SIGECO).* SIGECO filed

a request for an evidentiary hearing.

NIPSCO and SIGECO also filed protests to Midwestern’s

proposal which they have not withdrawn. They argue that

Midwestern’s construction and operation of the lateral

pipeline without state authorization would violate Indiana

law. Further, they contend that Midwestern’s proposal may

be anti-competitive, lacks market support, would result in

wasteful duplication of facilities, would increase costs borne

by SIGECO’s customers, and would have substantial adverse

environmental impact.

Midwestern and GPC filed answers to the protests.

SIGECO filed a response and motion requesting the

Commission to accept the pleadings SIGECO filed with the

3. See Section 157.205(g) of the Commission’s regulations.

4. Timely, unopposed motions to intervene are granted by

the operation of Rule 214 of the Commission’s regulations (18 C.F.R.

§ 385.214).

12a

Appendix B

Indiana Utilities Regulatory Commission (IURC) that are

related to this proceeding. Midwestern and GPC filed answers

and motions requesting the Commission to accept the

pleadings they filed with the IURC. While our rules do not

permit answers to protests or to answers,” we may, for good

cause, waive a rule.° We find good cause to do so in this

instance. To ensure a complete and accurate record, we will

accept all pleadings tendered to date for filing.

III. Discussion

A. Jurisdiction

SIGECO contends that Midwestern’s construction and

operation of the proposed lateral pipeline without state

authorization would violate Indiana law. SIGECO states that

it has filed a pending petition before the IURC, arguing the

point.’ SIGECO contends that Indiana law requires

Midwestern, as a gas utility in Indiana, to obtain a certificate

5. See 18 C.ER. § 385.213(a)(2).

6. 18 C.ER. § 385.101(e).

7. SIGECO filed a petition with the IURC requesting that it

issue an order directing Midwestern “to cease and desist from

engaging in the rendering of gas service in rural areas of Indiana,

including the transportation of gas from outside Indiana for direct

sale or delivery to consumers within the state” on grounds that

Midwestern’s proposed service to GPC would violate Indiana Code

sections 8-1-2-87 and 8-1-2-87.5. Midwestern has moved to dismiss

SIGECO’s petition arguing that the IURC has no authority to require

Midwestern to receive state authorization before it may provide the

service proposed in this proceeding.

13a

Appendix B

of public convenience and necessity from the IURC since

Midwestern would be transporting natural gas from outside

Indiana for direct delivery to an end-user within the state.®

SIGECO cites Public Service Commission of Indiana v.

Panhandle Eastern Pipe Line Company (Indiana v. Panhandle)

to support its argument that certain activities of natural gas

pipeline companies are subject to URC regulation.» SIGECO

maintains that the Indiana state court found, and the United

States Supreme Court affirmed, that the business of

transporting and selling natural gas for ultimate distribution

to the public is affected with the public interest mandating

state regulation and control. Further, the court found

Panhandle to be a public utility subject to state regulation

with respect to direct sales to end-users.

SIGECO and NIPSCO argue that the Commission should

not act on Midwestern’s application until after the IURC

issues a final order in response to SIGECO’s petition before

the IURC. They contend that the TURC should have the initial

opportunity to apply state law to the facts of this case and

_ that the TURC’s findings are material to the Commission’s

public convenience and necessity analysis.

8. Citing Indiana Code, Secticn 8-1-2-87.5 which states: [a]ny

person, corporation, or other entity that is engaged in the

transportation of gas from outside Indiana for direct sale or delivery

to any end-use consumer or consumers within this state must obtain

a necessity certificate from the [[URC] before it may engage in [such

transportation of gas].

9. 71 N.E. 2d 117 (Ind.), aff’d, 332 U.S. 507 (1947).

ee ee

l4a

Appendix B

SIGECO states that many of the issues before the

Commission, including the application of Indiana law to

Midwestern’s application, the extent to which the NGA may

preempt aspects of state law, and the manner in which these

jurisdictional boundaries should be drawn with regard to this

project, are also pending before the IURC. SIGECO contends

that the Commission should defer further action on

Midwestern’s application pending a decision from the IURC

on the issues of state law and the appropriate division between

state and federal authority as it applies to the facilities and

services proposed by Midwestern.

In that regard, SIGECO submits that the Commission

has shown substantial deference to state commissions on

jurisdictional determinations. For example, it states, in Order

No. 888, the Commission acknowledged in the electric

regulation context that defining the boundary between state

and federal jurisdiction would be highly case-specific, and

indicated that it would defer generally to state commissions,

applying the Commission’s seven local distribution

indicators, to determine “where to draw the jurisdictional

line” as to public utilities providing electric transmission

service.'°

10. Promoting Wholesale Competition Through Open Access

Non-Discriminatory Transmission Services by Public Utilities;

Recovery of Stranded Costs by Public Utilities and Transmitting

Utilities, Order No. 888, FERC Statutes and Regulations, Regulations

Preambles January 1991-June 1996 P 31,036, at pp. 31,783-84 (1996),

order on reh’g, FERC Statutes and Regulations P 31,048 (1997), order

on reh’g, Order No. 888-B, 81 FERC P 61,248 (1997), order on reh’g,

Order No. 888-C, 82 FERC P 61,046 (1998).

Rn ee

15a

Appendix B

Midwestern and GPC respond that no portion of the service

Midwestern proposes to provide to GPC involves the local

distribution of gas. Rather, they maintain, Midwestern will

provide interstate transportation of natural gas directly to an

end-user and thus the service is subject to the Commission’s

exclusive NGA jurisdiction.

Commission’s Response

Section 1(b) of the NGA gives the Commission jurisdiction

over the transportation of natural gas in interstate commerce,

the sale in interstate commerce of natural gas for resale, and the

natural gas companies engaged in such transportation or sale."

Section 1(b) reserves to the states jurisdiction over any other

sale of natural gas and the local distribution of gas.

Further, the Commission’s jurisdiction, where it applies

under the NGA, is exclusive.'? Thus, the Commission has

exclusive jurisdiction over the transportation of natural gas in

interstate commerce and the facilities used for such

transportation.'?

11. 15 U.S.C. § 717(b).

12. See Northwest Central Pipeline Corp. v. State Corporation

Commission of Kansas, 109 S.Ct 1262, 1274 (1989); Schneidewind v.

ANR Pipeline Co., 485 U.S. 293, 300-01 (1988) (Schneidewind);

Northern Natural Gas Co., v. State Corporation Commission of Kansas,

83 S.Ct. 646, 650 (1963); Public Utilities Commission of California v.

FERC, 900 F.2d 269, 274 (D.C. Cir. 1990) (California PUC); National

Fuel Gas Supply Corp. v. Public Service Commission of New York, 894

F.2d 571, 576-77 (2d Cir. 1990), cert. denied, 497 U.S. 1004 (1990)

(National Fuel).

13. Schneidewind, 485 U.S. at 299-301; National Fuel, 894 F.2d

at 576-77.

l6a

Appendix B

In interpreting the NGA and its legislative history, the

Commission and the courts consistently have held that the

transportation of natural gas by an interstate pipeline directly

to an end-user constitutes transportation in interstate

commerce, not local distribution, and, as such, is subject

| to the Commission’s exclusive jurisdiction.'* Both the

| Commission and the courts consistently have concluded that

tie-in facilities such as valves, meters and lateral lines

(i.e., the facilities Midwestern proposes to construct to serve

GPC) which are integrated with a pipeline’s interstate

transmission system, and which are designed to connect such

pipeline system to an end-user, are not local distribution

facilities.'°

14. See Cascade Natural Gas Corp. v. FERC (Cascade), 955

F.2d 1412, 1417-19; Oklahoma Natural Gas Co. v. FERC (ONG),

906 F.2d 708, 710 (D.C. Cir. 1990); Public Utilities Commission of

California v. FERC (California PUC), 900 F.2d 269, 277 (D.C. Cir.

1990); Michigan Consolidated Gas Co. v. FERC, 883 F.2d 117, 121-

22 (D.C. Cir. 1989), cert. denied 494 U.S. 1079 (1990); Michigan

Consolidated Gas Co. v. Panhandle Eastern Pipe Line Co., 689

F.Supp. 729,732-38 (W.D. Mich. 1988), aff’d, 887 F.2d 1295, 1300-

01 (6th Cir. 1989, cert. denied, 494 (1990); KN Wattenberg

Transmission Limited Liability Co. (KN Wattenberg), 81 FERC P

61,167, at pp. 61,739-90 (1997); Panhandle Eastern Pipe Line Co.,

64 FERC P 61,211 (1993); Mojave Pipeline Co., 41 FERC P 61,040,

at pp. 61,116-18 (1987), order on reh’g, 42 FERC P 61,351, at

p. 62,002 (1998) (Mojave).

15. ONG, 906 F.2d at 710 (lateral line connecting interstate

| pipeline to end-user is not a local distribution line); California PUC,

900 F.2d at 277 (acts which constitute interstate transportation remain

as such even though they end in deliveries to end-users through tie-

in facilities); KN Wattenberg, 81 FERC at p. 61,739 (a lateral is not

(Cont’d)

17a

Appendix B

Further, in determining where interstate transportation

ends and local distribution begins, the Commission has stated

that the term “local distribution facility” connotes a network

of small local lines used to transmit gas from a large interstate

pipeline to individual consumers spread out in a local

geographic area — not a high-pressure line connecting an

interstate pipeline to a single end-user. The courts have

agreed: “[d]istribution conjures up receiving a large quantity

of some good and parcelling it out among takers.””'®

In FPC v. East Ohio Gas Company (EastOhio),'’ the

United States Supreme Court held that Commission

jurisdiction extended over “the high-pressure trunk lines to

the point where pressure was reduced and the gas entered

local mains.”'* In California PUC, the court held that “acts

which constitute transportation for Section 1(b) purposes

under East Ohio remain such even though they end in delivery

(Cont’d)

a local distribution facility); Williams Natural Gas Co., 46 FERC P

61,160, at p. 61,559 (lateral which connects mainline to end-user is

an essential and integral element of the interstate transportation of

natural gas).

16. California PUC, 900 F.2d at 276; ONG, 906 F.2d 710.

17. 338 U.S. 464 (1950).

18. Id. at 470. In response to the Court’s finding in East Ohio,

Congress later amended the NGA by creating the Hinshaw exception

which exempts from the Commission’s jurisdiction transportation

by a company that operates exclusively in one state if its rates and

services are regulated by the state. See NGA § 1(c) 15 U.S.C. § 717(c).

18a

Appendix B

(at high pressure) to end-users.””'® The circuit court distinguished

a 1951 United States Supreme Court case that upheld Michigan’s

power to veto the retail sale by an interstate pipeline to a large

end-user despite exclusive federal jurisdiction over the interstate

transportation of the gas”° on the basis that the transaction at

issue involved the bundled sale of gas to the end-user.”' The

court stated that “under modern conditions where the end-user

often owns the gas and uses the pipeline solely for transportation,

application of East Ohio removes this fulcrum for state power.”

In Cascade, the court declined to decide the jurisdictional issue

based on the pressure in the line but instead relied on the fact

that the pipeline’s bypass of an LDC to directly serve an end-

user involved only interstate transportation and did not involve

a retail sale of gas by the pipeline to the end-user.”

Thus, under any of these lines of reasoning, Midwestern’s

proposed service to GPC constitutes interstate transmission of

natural gas, not local distribution. Midwestern will deliver the

gas to GPC at mainline pressure, there is no retail sale by

Midwestern to GPC, and Midwestern will not deliver the gas

through a network of small local lines connected to individual

consumers within a local geographic area.

19. 900 F.2d at 277.

20. Panhandle v. Michigan, 341 U.S. 329 (1951).

21. 900 F.2d at 277.

22. Id.

23. 955 Fi2d at 1420.

19a

Appendix B

SIGECO’s reliance on Indiana v. Panhandle is misplaced.

In that case, the Court found that states have jurisdiction over

a pipeline’s direct sale of natural gas to an end-user.

Midwestern is not proposing to make direct sales to GPC;

its proposal involves only interstate transportation of gas.

Further, the courts and the Commission have explicitly found

that Indiana v. Panhandle is inapposite where the pipeline is

merely transporting gas supplies directly to an end-user as

in this case.”

SIGECO’s reliance on Order No. 888 to support its

argument that the Commission should defer to the [URC

regarding our jurisdiction over Midwestern’s proposed

facilities and transportation service is equally unavailing. In

Order Nos. 888 and 888-A, the Commission never stated that

it would defer to states in determining whether the

Commission or the state has jurisdiction over electric

transmission. Indeed, the Commission emphasized that “if

unbundled retail transmission in interstate commerce occurs

voluntarily by a public utility or as a result of a state retail

access program, the Commission has exclusive jurisdiction

over the rates, terms and conditions of such transmission.”

Rather, the Commission explained that, where states

unbundle retail sales, “it will give deference to their

determinations as to which facilities are transmission and

which are local distribution,” provided the states making such

determinations apply the seven criteria established by the

24. Cascade, 955 F.2d at 1417-19; Panhandle Eastern Pipe Line

Co., 42 FERC P 61,076, at pp. 61,389-49 (1988).

25. Order No. 888-A at p. 30,335.

20a

Appendix B

Commission in Order No. 888,”° and it did so in order to allocate

costs and set rates properly for both transmission and local

distribution services.’

The circumstances discussed in Order Nos. 888 and 888-A

do not parallel those at issue in this proceeding. In Order Nos.

888 and 888-A, the Commission was addressing unbundled

retail transmission and the deference to be accorded a state

regulatory authority’s recommendations for drawing of a

jurisdictional line between Commission-jurisdictional and state-

jurisdictional facilities for purposes of allocating costs and

setting rates.”* Here, in contrast, we are not dealing with a state-

approved unbundling of retail sales or the cost allocation and

ratemaking consequences of such action by a state.

SIGECO contends that Midwestern’s and GPC’s argument

that the Commission has exclusive jurisdiction over interstate

transportation does not necessarily divest the IURC of its

jurisdiction over Midwestern’s proposal. SIGECO points to

General Motors v. Tracy (Tracy), in which the United States

Supreme Court discussed the evolution of state and federal

regulation of natural gas markets, including the changes that

have enabled large industrial customers to contract to receive

service directly from interstate pipelines, rather than from an

LDC.” According to SIGECO, the Court states that these

26. Id.

27. Id. at pp. 30,336-37.

28. Id. at pp. 30,336-37.

29. 117 S.Ct. 811 (1997).

2la

Appendix B

regulatory changes did not undermine the states’ authority

over matters that affect the service to be provided to captive

customers served by LDCs.*° Further, SIGECO contends, the

Court stated that the rate impact on an LDC’s captive

customers resulting from a large industrial customer choosing

to avoid service from an LDC had an impact on local interests

sufficient to support regulation by the state. Finally, SIGECO

maintains, the Court specifically refused to endorse decisions

of various courts of appeal that have ruled that the

Commission has sole authority to regulate bypass transactions

where the sale of gas occurs outside of the state and the

interstate pipeline company merely transports gas to the

industrial customers.*!

SIGECO’s argument that the Supreme Court’s decision

in Tracy supports SIGECO’s position that the IURC has the

authority to review Midwestern’s proposal is without merit.

Tracy did not address the specific issue raised by SIGECO

in this proceeding. In Tracy the Court was addressing a

challenge to Ohio’s sales tax exemption for gas sales made

by state-regulated LDCs, but not for sales by gas marketers.

The issue was whether the opportunities for competition

between gas marketers and LDCs to supply gas to end-users

30. Id. at 817.

31. Id. atn.14. (Specifically, the Court cites Cascade, 955 F.2d

at 1414-1422; Michigan Consolidated Gas Co. v. Panhandle Eastern

Pipe Line Co., 887. F.2d 1295, 1299-1301 (6th Cir. 1989), cert. denied,

494 U.S. 1079 (1990); Michigan Consolidated Gas Co. v. FERC,

883 F.2d 117, 121-122 (D.C. Cir. 1989), cert. denied, 494 U.S. 1079

(1990). The Court stated “[w]e express no view on the correctness

of these decisions”).

22a

Appendix B

require treating them as similarly situated for Commerce

Clause purposes. The Court held that they were not similarly

situated for claims of facial discrimination since the LDCs’

state-regulated bundled gas product was sufficiently

distinguished from the independent marketers unbundled gas

sales. Therefore, Ohio’s tax on independent marketers’ gas

sales did not violate the Commerce Clause.

In support of its conclusion that states have a legitimate

interest in regulating gas sales to consumers, the Court

referenced the NGA’s mandate that states have the authority

to regulate retail sales of natural gas (it.cluding direct sales

to industrial customers) and its prior decisions upholding

such mandate.*? The Court recognized, however, that the

NGA and the Commerce Clause prohibit the states from

regulating the interstate transportation of natural gas.”

Nowhere did the Court state or suggest that states have the

authority to regulate the interstate transportation of natural

gas by an interstate pipeline directly to an end-user.

Further, SIGECO erroneously characterizes the Tracy

footnote in which the Court states that it “expresses no view”

on the correctness of the decisions by several U.S. Courts of

Appeals upholding the Commission’s NGA jurisdiction to

regulate the transportation of gas by an interstate pipeline

directly to an end-user.** The Court’s statement in the footnote

32. Tracy, 117 S.Ct, citing Panhandle v. Indiana, 332 U.S. 507

(1947), and Panhandle v. Michigan, 341 U.S. 329 (1951).

33. 117 S.Ct. at 820-21.

34. Id. at 827, n.14.

23a

Appendix B

was not a refusal to endorse the referenced decisions; rather,

the Court explicitly disavowed any view on the bypass

decisions.

Further, the cited footnote in no way challenges or

undermines the integrity of the appellate decisions (two of

which the Court refused to consider upon petitions for

certiorari)*® that confirm the Commission’s preemptive

certificate authority over transportation facilities. Rather, the

Court’s denial of certiorari suggests that the Court found that

those cases either did not decide an important question of

federal law that needed to be settled by the Court or did not

decide an important federal question in a way that conflicts

with relevant decisions of the Court.*°

Finally, the Commission has rejected claims similar to

SIGECO’s contending that Indiana certification was needed

for an interstate transportation project. In Panhandle Eastern

Pipe Line Company, the Commission stated “[c]oncerning

the need for state certificate authorization, it is clear that

Panhandle’s proposal involves the transportation of natural

gas in interstate commerce over which the Commission has

exclusive jurisdiction. Thus, Indiana has no jurisdiction in

35. See Michigan Consolidated Gas Co. v. FERC, 883 F.2d 117

(D.C. Cir. 1989), cert. denied, 494 U.S. 1079 (1990); Michigan

Consolidated Gas Co. v. Panhandle Eastern Pipe Line Co., 689

F.Supp. 729 (W.D. Mich. 1988, aff’d 887 F.2d 1295 (6th Cir. 1989),

cert. denied, 494 U.S. 1079 (1990).

36. See Rule 10 of the Rules of the Supreme Court of the United

States.

24a

Appendix B

this matter and a state certificate is not required.”*’ We affirm

that decision here.

For all the reasons discussed above, we find that the

Commission has exclusive jurisdiction over Midwestern’s

proposal and that Midwestern is not required to obtain a

certificate from the IURC to construct and operate the

facilities or to provide transportation service to GPC through

those facilities.

B. Bypass Arguments

SIGECO states that GPC’s new plant is located within

SIGECO’s franchise area and is less than one-half mile from

its existing natural gas distribution system. Thus, SIGECO

argues, Midwestern’s proposal is an uneconomic and

unreasonable bypass of SIGECO’s system with potentially

severe impacts on it and its existing customers. Further,

SIGECO contends, to the extent that it is unable to serve

large industrial customers located within its service territory

because an interstate pipeline decides to provide direct

distribution service to an end-user, the fixed costs of

SIGECO’s distribution system will be spread among a

progressively smaller customer base. SIGECO argues that

this puts upward pressure on its rates which harms customers,

limits growth, and erodes its competitive position.

The Commission has held that pipeline service to new

customers who are not currently receiving gas service from

37. Panhandle Eastern Pipe Line Co., 64 FERC P 61,211, at

p. 61,612 (1993).

25a

Appendix B

a protesting LDC does not constitute a bypass of the LDC.**

Thus, the service to GPC proposed by Midwestern does not

constitute a bypass of SIGECO since SIGECO is not currently

providing such service to GPC. Rather, SIGECO’s protest is

based on the assumption that it will lose the opportunity to

capture GPC’s business for itself if the Commission grants

Midwestern’s request for a certificate. As the Commission

has stated, lost opportunity is not the same as cost shifting.

There are at present no LDC costs being recouped through

this potential market. Since this is a new plant, SIGECO

cannot claim reduced revenues or load, and neither the

duplicative facilities nor cost-shifting arguments are relevant.

Further, GPC will pay for the new Midwestern facilities;

accordingly, no costs will be shifted to existing Midwestern

shippers. What SIGECO really objects to is competition from

interstate pipelines. We have consistently held, however, that

the public interest is served by fostering such competition.”®

There is no merit to SIGECO’s claim that Midwestern’s

proposal would result in wasteful duplication of facilities.

Neither SIGECO nor Midwestern has ever served GPC, and

neither has existing facilities connected to GPC’s new plant

to do so. Further, GPC has agreed to reimburse Midwestern

for the facilities’ costs. Since GPC has requested service from

Midwestern rather than SIGECO, only Midwestern will

construct facilities and thus there will be no duplication of

facilities as alleged by SIGECO.

38. Texas Eastern Transmission Corp., 71 FERC P 61,020,

at p. 61,088 (1995); Mojave Pipeline Co., 69 FERC P 61,244, at

p. 61,921 (1994).

39. 50 FERC P 61,069, at p. 61,149 (1990).

26a

Appendix B

SIGECO also argues that Indiana state law prohibits

wasteful duplicative utility facilities and services.*° We have

found that Midwestern’s proposal falls within the

Commission’s exclusive jurisdiction. Thus, the cited Indiana

law has no bearing on Midwestern’s proposal.

SIGECO contends that GPC summarily rebuffed

SIGECO’s attempts to negotiate an agreement for utility

services to GPC’s new plant despite SIGECO’s allegedly

superior proposal. SIGECO states that it cannot determine

from Midwestern’s application whether Midwestern is the

lowest cost provider. Further, SIGECO submits, Midwestern

did not explain GPC’s unwillingness to consider SIGECO’s

service as an alternative to Midwestern’s. Thus, SIGECO

submits, there is no evidence to support a finding that

Midwestern’s proposal represents the lowest-cost alternative

or that there was a fair competitive process for GPC’s

business.

Midwestern denies that it has engaged in any

anticompetitive or unduly discriminatory behavior. GPC

states that, contrary to SIGECO’s contentions, SIGECO’s

representatives met with and provided service proposals to

GPC. GPC states that it considered a number of suppliers

and service providers for natural gas service to its new plant,

including SIGECO, Midwestern, and other interstate

pipelines. After its review of the various available service

options and providers, GPC determined that receiving natural

gas through a direct connection to Midwestern, an open

access interstate transportation provider, would be the most

cost-effective and otherwise appropriate option. According

40. Citing Indiana Code Section 8-1-2-86.

PO ee a ree

27a

Appendix B

to GPC, it gave fair consideration to SIGECO’s proposal but

simply did not determine that proposal to be its preferred

alternative. GPC maintains that its ability to obtain open

access transportation directly from Midwestern and the

resulting natural gas cost efficiencies, were crucial factors

in its decision to construct a new facility, to locate it in

southern Indiana, and in the potential success of the new

plant.

The Commission’s current policy is to allow competition

between local distribution companies and interstate pipelines

where there is no indication that the end-user’s choice of the

pipeline’s proposed service was the result of the pipeline’s

anti-competitive or unduly discriminatory behavior. This

policy is based upon a belief that on a national level, natural

gas consumers are better served by a competitive natural gas

market which encourages improved services at lower costs.*!

We note that GPC approached Midwestern and requested

Midwestern to establish a delivery point to provide

transportation service to GPC. Under current Commission

. policy, we strive to honor the decision by an end-user on

whether it is economic to undertake direct service from a

pipeline supplier.*? This policy allows all participants in

the natural gas market greater access to the market.

The Commission has stated that it is not willing to shield

41. See, e.g., ANR Pipeline Company, 71 FERC P 61,289 |

(1995); Paiute Pipeline Company, 68 FERC P 61,199 (1994);

Northern Natural Gas Company, 46 FERC P 61,270 (1989).

42. See Peoples Natural Gas Company, 59 FERC P 61,121, at

Pp. 61,475 (1992).

28a

Appendix B

local distribution companies from the effects of competitive

forces, because it believes that in the final analysis, all

consumers will benefit from the Commission’s pro-

competitive policies.*

| GPC made its choice to solicit the services of Midwestern

| based upon what it perceived its best interests to be. GPC

has merely exercised its right to seek competitive sourcing

| for gas services. It is difficult to attribute this to unfair

| competition on Midwestern’s part. Further, Midwestern is

| required to honor valid requests for open access service on a

| nondiscriminatory basis. Midwestern’s award of capacity to

| GPC was effectuated in full compliance with the terms of

| Midwestern’s tariff. Under these circumstances, we find that

| Midwestern has not engaged in anticompetitive or unduly

discriminatory behavior.

| SIGECO and NIPSCO are concerned that Midwestern’s

proposal to construct a pipeline with 30,000 Dth/d of capacity

in excess of GPC’s current needs means that Midwestern may

be seeking to create its own Indiana local distribution system.

SIGECO submits that Midwestern must make a subsequent

prior notice filing if it intends to use the proposed pipeline

facilities to serve additional customers.

Although we agree that Midwestern must make

subsequent prior notice filings if it intends to connect

additional customers to the proposed lateral pipeline, we

43. ANR Pipeline Company, 71 FERC P 61,289 (1995); Paiute

Pipeline Co., 68 FERC P 61,064, order deferring consideration, 69

FERC P 61,247 (1995), order on reh’g, 70 FERC P 61,227 (1995);

NorthwestPipeline Corp., 54 FERC P 61,191, at p. 61,574 (1991).

LE MR enema en eae

29a

Appendix B

disagree that Midwestern may be seeking to create a local

distribution system by constructing excess capacity.

Midwestern states that GPC requested it to install a pipeline

capable of accommodating a transportation quantity

of approximately 40,000 Dth/d, i.e., an 8-inch line, in

anticipation of GPC’s planned expansions of the plant.

Further, sizing the line to accommodate future expansions

will prevent future environmental disturbances and avoid

further inconvenience to landowners. F urthermore, no costs

will be shifted to existing customers as a result of

construction of an 8-inch diameter lateral because GPC is

fully reimbursing Midwestern for the cost of the facilities.

Under these circumstances, we have no reason to object to

the excess capacity Midwestern proposes to construct.

C. Request for Hearing

SIGECO requests an evidentiary hearing to address

alleged disputed issues of fact including the extent of any

duplication of facilities; whether GPC considered SIGECO’s,

or anyone’s, competing proposal; whether Midwestern’s

agreement with GPC represents the lowest-cost alternative

for GPC; a comparison of Midwestern’s and SIGECO’s

proposals to serve GPC in terms of the construction costs,

the capital and related operating expenses, the rates, terms,

and conditions, and the environmental impacts. SIGECO

argues that the Commission should at least require the parties

to submit the underlying service agreements between

Midwestern and GPC to determine whether the competitive

process was fair.

30a

Appendix B

The requirement for a trial-type evidentiary hearing

applies only to disputed issues of material fact that cannot

be resolved on the basis of the written record.“ We believe

that the parties had an adequate opportunity to present their

views and the Commission had an adequate record upon

which to base its decision. For the reasons discussed above,

we find that SIGECO’s protest does not raise any issues of

anti-competitive or unduly discriminatory behavior on the

part of Midwestern and that there are no material facts in

dispute in this proceeding requiring a hearing. Rather, the

evidence shows that Midwestern’s proposal will provide GPC

with options it desires to better serve its interests. For all the

reasons provided above, we find Midwestern’s proposai is

required by the public convenience and necessity.

As noted above, because of the protest to Midwestern’s

prior notice filing, the Commission treated the filing as an

application for specific Section 7(c) authorization. It is

the Commission’s policy not to grant Section 7(c) case-

specific authority to construct and operate facilities when

the applicant can do so under its blanket certificate.*

The Commission, therefore, will authorize Midwestern to

construct and operate the subject facilities under its Part 157

blanket certificate authorization.

44. See, e.g., Amador State Lines, Inc. v. U.S., 685 F.2d 333

(9th Cir. 1892); Boston Carrier, Inc. v. ICC, 728 F.2d 1508 at 1511

n.5 (D.C. Cir. 1984).

45. See Gas Transport, Inc., 50 FERC P 62,013 (1990);

Tennessee Gas Pipeline Co., 55 FERC P 61,437 (1991).

3la

Appendix B

IV. Environmental Analysis

On October 9, 1998, after reviewing Midwestern’s prior

notice application and the environmental comments by

SIGECO in this docket, the Commission’s staff issued a

Notice of Intent to Prepare an Environmental Assessment

For The Proposed GPC Sales Tap Project and Request For

Comments on Environmental Issues (NOI). Five parties

responded with comments regarding the NOI: SIGECO, the

U.S. Fish and Wildlife Service (FWS), the Federal Aviation

Administration, GPC, and Midwestern. These comments are

addressed in the Environmental Assessment (EA) prepared

by the Commission’s staff. The EA recommends several

mitigation measures, which we adopt and upon which this

order’s authorization is conditioned.

As discussed, Midwestern’s proposed facilities will be

used to provide gas service to a corn processing plant under

construction by GPC. Because the GPC plant is a

nonjurisdictional facility and already under construction, the

EA does not consider GPC’s plant.

The FWS states that the bottomland forest present in

Midwestern’s project area includes valuable habitat for

wildlife, including, potentially, the federally listed Indiana

bat and the bald eagle. The FWS states that the bald eagle is

not likely to occur in the project area and is therefore not of

concern. Further, based on mist-net surveys conducted by

Midwestern as requested by the FWS, no Indiana bats are

present. Thus, the FWS has concluded, and the EA concurs,

that the proposed project would not adversely affect any

federally endangered or threatened species.

32a

Appendix B

Midwestern has agreed to compensatory mitigation ratios

for restoration of trees within forested habitat of present

wildlife. However, long-term impact on present wildlife

nevertheless would be associated with the removal of the

trees; therefore, avoidance of tree clearing is preferable,

where possible. The Commission’s staff has determined that

Midwestern could avoid clearing one acre of bottomland

hardwood forest by relocating the exit point for its directional

drill. Therefore, to minimize the long term effects of the

proposed project, the EA recommends that Midwestern

relocate the exit point for the directional drill of the West

Fork White River east of milepost (MP) 1.54 to avoid the

bottomland hardwood forest. In addition, the EA recommends

that Midwestern not clear any trees between the east bank of

the river and the exit point for the directional drill.

The EA also analyzes the alternative plan submitted by

Midwestern to open-cut the West Fork White River in the

event directionally drilling fails. The EA finds that the

alternative plan is generally acceptable and would approve

the additional work space required should Midwestern have

to open cut. However, if Midwestern does has to cross the

West Fork White River using the open-cut technique, the

EA recommends that Midwestern:

a. limit the width of the construction right-of-way,

not including extra work spaces, to 50 feet through the

riparian area along the east side of the river;

b. replant trees within the temporary portion of the

construction right-of-way between MPs 1.45 and 1.49

according to the ratios suggested for this project by the IDNR;

and

33a

Appendix B

c. monitor the success of tree planting in accordance with

Midwestern’s Floodway Forest Mitigation Plan.

In its comments on the NOI, SIGECO raised the concern

that “the Army Corps of Engineers may have improperly

authorized this activity [the proposed project] under a nationwide

permit.” However, the U.S. Army Corps of Engineers (COE)

has subsequently confirmed that Nationwide 12 permit, issued

by COE to Midwestern on April 3, 1998, is appropriate for all

proposed project activities, including the crossing of Patrick

Ditch, the horizontal directional drilling of West Fork White

River, and the alternate open-cut method of crossing the West

Fork White River.

Midwestern proposes to use 100-foot-wide construction

right-of-way for its pipeline, of which about half will be

permanent right-of-way and half temporary construction right-

of-way. Midwestern has stated that the construction work area

would be reduced to the 50-foot-wide permanent right-of-way

corridor through wetland areas. Extra work spaces would total

about 8.4 acres. Of this 8.4 acres, 0.11 acre would be located in

the nparian, bottomland hardwood forest.

In reducing the proposed 100-foot-wide construction ri ght-

of-way width to 50 feet in wetland areas, the Commission’s

staff has concluded that 100 feet is wider than necessary to install

an 8-inch-diameter pipeline in other portions of the route.

Therefore, to minimize impact on the bottomland hardwoods

and upland forests, the EA recommends that Midwestern also

limit the width of the construction right-of-way through all

forested areas to 50 feet.

34a

Appendix B

In its comment on the NOI, SIGECO stated that “it

appears that Midwestern and the state expedited the historic

preservation and archeological review process to such an

extent that meaningful review was not done” and that

the review “may have overlooked cultural resources.”

We disagree. Midwestern contacted the Indiana State Historic

Preservation Office (SHPO) regarding the need for a cultural

resources survey of the proposed project area. In a letter dated

February 13, 1998, the SHPO indicated that most of the

pipeline alignment east of the West Fork White River had

been previously evaluated, and that based on the results of a

previous investigation, only that portion of the project west

of the river would require a survey.

Midwestern completed a cultural resources survey (west

of the West Fork White River) which covered a 150-

foot-wide corridor, extra work spaces and pipeyards.

Two prehistoric sites and two historic sites were identified

as a result of the survey. None of these sites were

recommended as eligible for the National Register of Historic

Places (NRHP). No evidence of any previously recorded sites

was identified. Subsequently, Midwestern contacted the

SHPO (letter dated March 26, 1998) identifying additional

access roads, a pipeyard, and access/ turning areas on the

east side of the river. In a letter dated April 24, 1998,

addressing both these additional areas and the cultural

resources survey report, the SHPO indicated that “the

proposed improvements to eastern access roads should have

no effect on significant archaeological resources, as long as

all construction is limited to previously disturbed areas” and

that no further investigation of the eastern pipeyard was

warranted. The SHPO also concurred that the four

35a

Appendix B

archaeological sites were not likely to yield significant

information, and no further investigation of the sites appeared

to be warranted.“

In further comments, SIGECO provided a brief records

and literature review of the “vicinity of Maysville” to

evidence that the area has a high potential for historic and

prehistoric resources. This potential already been identified

by the SHPO and was the basis for the SHPO’s conducting a

survey of the previously unsurveyed portions of the proposed

project. The survey report includes a literature review and

records search of the area within a three-mile radius of

the proposed project. The documented historical and

archaeological importance of the area notwithstanding, the

on-the-ground survey identified no NRHP-eligible cultural

resources. The Commission’s staff has reviewed and concurs

in the results of the SHPO’s cultural resources survey report.

Thus, we find SIGECO’s concerns unfounded and its

allegations unsubstantiated.

The no-action alternative would preclude Midwestern

from providing the proposed service to GPC. GPC would

then be forced to make alternative arrangements for natural

gas or to use other energy sources, such as fuel oil or coal.

Therefore, while denial of Midwestern’s application would

avoid the environmental impact identified in the EA, the use

46. The surveying and testing of the portion of the project east

of the West Fork White River is documented in a report meeting the

Secretary of the Interior’s Standards and Guidelines for the currently

proposed project. The report has been reviewed by the SHPO and

the Commission’s staff in accordance with Section 106 of the National

Historic Preservation Act.

36a

Appendix B

of fuels other than natural gas could result in more diverse

impacts, particularly on air quality.

The no-action alternative also would cause a delay in

Midwestern’s ability to provide gas service would affect

GPC’s plans to test its plant equipment, currently under

construction, in April 1999.

Aside from the no-action alternative, SIGECO stated that

it could provide natural gas service to GPC with fewer

facilities and less environmental impact than Midwestern’s

proposal. SIGECO’s franchise area. However, it is not clear

whether SIGECO could construct the necessary facilities in

the time frame required by GPC. Further, it is not known

whether SIGECO’s facilities could provide GPC with the

same levels of service proposed by Midwestern (i.e., up to

10,000 dekatherms of gas per day for plant start-up, with

expansion up to 40,000 dekatherms per day). Moreover, as

discussed above, GPC states that it considered and rejected

SIGECO as a gas supplier. GPC further stated that its ability

to obtain open access transportation directly from Midwestern

and the resulting natural gas cost efficiencies were crucial

factors in its decision to construct the plant.

Therefore, while the EA concludes that SIGECO’s

alternative may be environmentally preferable to

Midwestern’s proposal based solely on environmental

grounds, it is not likely that SIGECO could meet the time

frames required by GPC. Further, the Commission’s policy

of promoting competition, as discussed above, makes

SIGECO’s proposed alternative less desirable.

hme etn eed soba nia cms

LSS Ae TNE a Le a

37a

Appendix B

With adoption of the above-discussed recommendations

and implementation of the mitigation measures set forth in

the appendix to this order, the EA concludes that

Midwestern’s project would not constitute a major Federal

action significantly affecting the quality of the human

environment.

V. Conclusion

At the hearing held on December 16, 1998, the

Commission on its own motion received and made a part of

the record in this proceeding, all evidence, including the

applications and exhibits thereto, submitted in support of

the authorization sought herein, and upon consideration of

the record,

The Commission orders:

(A) Midwestern is authorized to construct and operate

the proposed facilities under its Part 157 blanket certificate,

all as more fully set forth in this order, subject to the

conditions set forth herein and in the appendix to this order.

(B) SIGECO’s and NIPSCO’s protests, and SIGECO’s

request for a hearing, are denied.

environmental staff by telephone and/or facsimile of any

environmental noncompliance identified by other Federal,

State, or local agencies on the same day that such agency

notifies Midwestern. Midwestern shall file a written

confirmation of such notification with the Secretary of the

Commission within 24 hours.

Appendix B

Appendix

Environmental Mitigation Conditions

1. Midwestern shall follow the construction procedures

and mitigation measures described in its application and

identified in the environmental assessment (EA), unless

modified by this Order. Midwestern must:

a. request any modification to these procedures,

measures, or conditions in a filing with the Secretary of the

Commission (Secretary);

b. justify each modification relative to site-specific

conditions;

c. explain how that modification provides an equal

or greater level of environmental protection than the original

measure; and

d. receive approval in writing from the Director of

the Office of Pipeline Regulation (OPR) before using that

modification.

2. The Director of OPR has delegated authority to take

whatever steps are necessary to ensure the protection of all

environmental resources during construction and operation

of the project. This authority shall allow:

a. the modification of conditions of this Order; and

39a

Appendix B

b. the design and implementation of any additional

measures deemed necessary (including stop work authority)

to assure continued compliance with the intent of the

environmental conditions as well as the avoidance or

mitigation of adverse environmental impact resulting from

project construction and operation.

3. Prior to any construction, Midwestern shall file an

affirmative statement with the Secretary, certified by a senior

company official, that all company personnel, environmental

inspectors, and contractor personnel will be informed of the

environmental inspector’s authority and have been or will

be trained on the implementation of the environmental

mitigation measures appropriate to their jobs before

becoming involved with construction and restoration

activities.

4. Midwestern shall relocate the exit point for the

directional drill of the West Fork White River east of milepost

(MP) 1.54 to avoid the bottomland hardwood forest.

In addition, Midwestern shall not clear any trees between

_ the east bank of the river and the exit point for the directional

drill.

5. If Midwestern has to cross the West Fork White River

using the open-cut technique Midwestern shall:

a. limit the width of the construction right-of-way,

not including extra work spaces, to 50 feet through the

riparian area along the east side of the river;

40a

Appendix B

b. replant trees within the temporary portion of the

construction right-of-way between MPs 1.45 and 1.49

- according to ratios suggested for this project by the Indiana

Department of Natural Resources;

c. monitor the success of tree planting in accordance

with Midwestern’s Floodway Forest Mitigation Plan.

6. Midwestern shall limit the width of the construction

right-of-way through all forested areas to 50 feet.

Federal Energy Regulatory Commission

85 FERC P 61,358, 1998 WL 878038 (F.E.R.C.)

4la

APPENDIX C — ORDER ON MOTION TO DISMISS

OF THE STATE OF INDIANA,

INDIANA UTILITY REGULATORY COMMISSION

DATED JANUARY 27, 1999

STATE OF INDIANA

INDIANA UTILITY REGULATORY COMMISSION

CAUSE NO. 41197

IN THE MATTER OF THE PETITION BY

SOUTHERN INDIANA GAS AND ELECTRIC

COMPANY FOR THE INDIANA UTILITY

REGULATORY COMMISSION TO ORDER

MIDWESTERN GAS TRANSMISSION COMPANY TO

CEASE AND DESIST FROM ENGAGING IN THE

RENDERING OF GAS DISTRIBUTION SERVICE IN

RURAL AREAS OF INDIANA, INCLUDING THE

TRANSPORTATION OF GAS FROM OUTSIDE

INDIANA FOR DIRECT SALE OR DELIVERY TO

CONSUMERS WITHIN THE STATE OF INDIANA

RESPONDENT: MIDWESTERN GAS TRANSMISSION

COMPANY

ORDER ON MOTION TO DISMISS

APPROVED: JANUARY 27, 1999

BY THE COMMISSION:

Camie Swanson-Hull, Commissioner

Scott R. Jones, Assistant Chief Administrative Law J udge

42a

Appendix C

On June 11, 1998, Southern Indiana Gas and Electric

Company (“Petitioner” or “SIGECO”) filed its Complaint

in the above-captioned matter against Midwestern Gas

Transmission Company (“Respondent” or “Midwestern’’).

On June 18, 1998, Indiana Gas Company, Inc. filed its

“Petition to Intervene of Indiana Gas Company, Inc.” which

appears in the following words and figures, to-wit:

(H.1.)

On June 23, 1998, Respondent filed its “Motion for

Extension of Time” which appears in the following words

and figures, to-wit:

(H.1.)

Said Motion was granted by docket entry dated July 16,

1998. On June 26, 1998, Northern Indiana Public Service

Company filed its “Petition of Northern Indiana Public

Service Company to Intervene” which appears in the

following words and figures, to-wit:

(H.1.)

On July 20, 1998, Respondent filed its “Motion to

Dismiss Petition, Or Alternatively for Stay and Certification

to the Court of Appeals” which appears in the following

words and figures, to-wit:

(H.1.)

Also on July 20, 1998, Respondent filed its “Memorandum

in Support of Motion to Dismiss Petition, or Alternatively

43a

Appendix C

for Stay and Certification to the Court of Appeals” which

appears in the following words and figures, to-wit:

(H.1.)

On July 27, 1998, the Board of Directors for Utilities of

the Department of Public Utilities of the City of Indianapolis

d/b/a Citizens Gas and Coke Utility (“Citizens Gas”) filed

its “Petition to Intervene of Citizens Gas and Coke Utility”

which appears in the following words and figures, to-wit:

(H.I.)

On August 18, 1998, the Petitioner filed its “Response

of Southern Indiana Gas and Electric Company to Motion of

Midwestern Gas Transmission Company to Dismiss Petition,

or Alternatively, for a Stay and Certification to the Court of

Appeals” which appears in the following words and figures, -

to-wit:

(H.I.)

On August 25, 1998, Indiana Gas Company, Inc. and

Citizens Gas and Coke Utility filed their “Joint Response of

Intervenors Indiana Gas Company, Inc., Citizens Gas and

Coke Utility and Northern Indiana Public Service Company

in Opposition to Midwestern Gas Transmission Company’s

Motion to Dismiss” which appears in the following words

and figures, to-wit:

44a

Appendix C

(H.1.)

On September 2, 1998, Respondent filed its “Motion for

Leave to File a Reply” which appears in the following words

and figures, to-wit:

(H.I1.)

Also on September 2, 1998, Respondent filed its

“Reply of Midwestern Gas Transmission Company to

Response of Southern Indiana Gas and Electric Company”

which appears in the following words and figures, to-wit:

(H.1.)

On September 8, 1998, Community Natural Gas

Company, Inc. filed its “Community Natural Gas Company,

Inc.’s Petition to Intervene” which appears in the following

words and figures, to-wit:

(H.L)

On September 23, 1998, Grain Processing Corporation

filed its “Verified Petition of Grain Processing Corporation

to Intervene” which appears in the following words and

figures, to-wit:

(H.1.)

Also on September 23, 1998, Grain Processing

Corporation filed its “Statement in Support of Midwestern

Gas Transmission Company” which appears in the following

words and figures, to-wit:

45a

Appendix C

(H.I.)

On September 28, 1998, the Petitioner filed its “Motion

of Southern Gas and Electric Company for Leave to File its

Response to the Reply of Midwestern Gas Transmission

Company and Grain Processing Corporation’s Statement in

Support of Midwestern” which appears in the following

words and figures, to-wit:

(H.1.)

Also on September 28, 1998, the Petitioner filed its

“Response of Southern Indiana Gas and Electric Company

to the Reply of Midwestern Gas Transmission Company and

Statement in Support of Grain Processing Corporation” which

appears in the following words and figures, to-wit:

(H.L)

On October 14, 1998, Community Natural Gas Company,

Inc. filed its “Community Natural Gas Company, Inc.’s

Statement in Support of Southern Indiana Gas and Electric

Company, Indiana Gas Company, Inc., Citizens Gas and Coke

Utility, and Northern Indiana Public Service Company” which

appears in the following words and figures, to-wit:

(H.1.)

On December 22, 1998, Midwestern filed its

“Midwestern Gas Transmission Company’s Second Motion

to Dismiss Based on FERC Decision” which appears in the

following words and figures, to-wit:

46a

Appendix C

(H.I.)

On December 30, 1998, Grain Processing Corporation

filed its “Request of Grain Processing Corporation for Ruling

on Motion to Dismiss” which appears in the following words

and figures, to-wit:

(H.1.)

On January 14, 1999, Petitioner filed its “Response of

Southern Indiana Gas & Electric Co. to Midwestern

Transmission’s Second Motion to Dismiss Based on FERC

Decision in Request of Grain Processing Corporation for a

ruling on that Motion” which appears in the following words

- and figures, to-wit:

(H.L.)

On January 14, 1999, certain of the Intervenors filed their

“Intervenors Indiana Gas Company, Inc., Citizens Gas &

Coke Utility and Northern Indiana Public Service Company

in Opposition to Midwestern Gas Transmission Company’s

Second Motion to Dismiss Based on FERC Decision and a

Request of Grain Processing Corporation for a Ruling on

Motion to Dismiss” which appears in the following words

and figures, to-wit:

(H.L.)

The Commission based upon the above-described filings

and the applicable law, now finds as follows:

47a

Appendix C

1. Pending Motions and Petitions. The Commission

finds that the Respondent’s Motion for Leave to File a Reply

filed on September 2, 1998 should be granted. The Motion

of Petitioner filed on September 28, 1998 for Leave to File

its Response to the Reply of Midwestern Gas Transmission

Company and Grain Processing Corporation’s Statement in

Support of Midwestern should also be granted.

The petitions to Intervene of Indiana Gas Company, Inc.,

Northern Indiana Public Service Company, Citizens Gas,

Community Natural Gas Company, Inc., and Grain Processing

Corporation should all be granted. The Respondent’s request

to take administrative notice of the Federal Energy Regulatory

Commission’s decision issued December 16, 1998 in Docket

No. CP98-S38-000 should be granted.

2. Background. The Petitioner is a corporation,

organized and existing under the laws of the State of Indiana

and is engaged as a public utility in the rendering of gas utility

service to the public in Indiana, including Daviess County.

The Respondent is a natural gas Company under the federal

Natural Gas Act (“NGA”) engaged in the transportation of

natural gas in interstate commerce and in the construction of

facilities for the transportation of gas. The Intervenor Grain

Processing Corporation (“GPC”) is a manufacturer and marketer

of various corn-based products and is constructing a new

com processing plant in Daviess County, Indiana, which it

intends to make fully operational during the summer of 1999.

According to the facts agreed upon by the parties, GPC

requested service from the Respondent who filed a prior noticed

request with the Federal Energy Regulatory Commission.

48a

Appendix C

The service which the Respondent would provide GPC would

be the interstate transportation of gas which GPC would

purchase itself outside of the State of Indiana. The FERC

docketed the Respondent’s request as Docket No. CP98-538-000

on May 12, 1998. The Respondent’s request before the FERC

was for authorization to construct and operate a delivery tap,

a delivery lateral, and a meter station, which facilities would

be used to transport and deliver gas to a new customer, GPC,

as an industrial end-user. In addition to the Complaint that

the Petitioner filed initiating this proceeding, Petitioner,

SIGECO, filed with the FERC a request for an evidentiary

hearing within the 45-day notice period provided by the prior

notice procedures of that federal agency. Additionally,

NIPSCO and SIGECO filed protests to Midwestern’s

proposal before the FERC.

3. SIGECO’s Petition. The thrust of SIGECO’s

Petition before this Commission is that the Respondent

threatens to render gas distribution service in rural areas of

Indiana without having obtained from the Commission a

necessity certificate authorizing it to do so. The Petition states

that the rendering of gas distribution service by the

Respondent without such a certificate would be unlawful,

unreasonable, and in violation of I.C. 8-1-2-87 (b). Further,

the Petition states that I.C. 8-1-2-87.5 requires that any entity

“engaged in the transportation of gas from outside Indiana

for direct sale or delivery to any end use consumer or

consumers within the state” must have a necessity certificate

from the Commission to do so. (Petition at page 2) The

Petition requests that the Commission investigate this matter

and find the Respondent to be in violation of I.C. 8-1-2-87 (b)

and/or I.C. 8-1-2-87.5 and order the Respondent to cease

————Eeeee

49a

Appendix C

and desist the rendering of gas distribution service in rural

areas of the State of Indiana, including the transportation of

gas from outside Indiana for direct sale or delivery to any

‘consumer within the State.

4. Respondent’s Motion to Dismiss. In its Motion to

Dismiss, the Respondent Midwestern argues that the

transportation of natural gas for GPC in interstate commerce

by Midwestern is subject to the exclusive jurisdiction of

the FERC under the NGA. 15 U.S.C. Section 717 (b). The

Respondent also asserts that because it will be serving a

customer and facility new to the service area, no issues of

by-pass are present. Thus, any action by this Commission to

assert authority over Midwestern’s transportation service to

GPC for gas which GPC purchases outside Indiana is

preempted by the NGA. In Support of its arguments, the

Respondent cites five decisions from federal courts of appeals

that have upheld the FERC’s exclusive jurisdiction to regulate

the interstate transportation of natural gas, including the

interstate transportation of natural gas directly to end users,

and rejecting state attempts to regulate such transactions.

See Cascade Natural Gas Corp., supra, (10 Cir.) 955 F.2d

at 1412-1419; Public Utilities Comm. of California, supra,

(D.C. Cir.) 900 F.2d at 274-276; National Fuel Gas Supply

Corp. v. Public Service Commission of N.Y., 894 F.2d 571,

579 (2™ Cir.), cert. Denied, 110 S.Ct. 3240 (1990); Michigan

Consolidated Gas Co. v. Panhandle Eastern Pipeline Co.,

689 F.Supp, 729, 732-738 (W.D. Mich. 1988), affd., 887 F.2d

1295, 1300-1301 (6 Cir, 1989), cert. Denied, 110 S.Ct. 1806

(1990) (Related case at Michigan Consolidated Gas Co. vy.

F.E.R.C., 883 F.2d 117, 121-122 (D.C. Cir. 1989),

cert. Denied, 110 S.Ct. 1807 (1990)); Public Service Comm.

of W. Va. V. FP.C., 437 F.2d 1234, 1283-1239 (4" Cir. 1971).

50a

Appendix C

In its Memorandum in support of its Motion to Dismiss,

the Respondent states that the FERC has addressed the nature

of its jurisdiction over interstate facilities in Indiana, in

circumstances similar to those in the instant Petition. In

Panhandle Eastern Pipeline Co., Docket No. CP93-116-000,

August 5, 1993, 64 FERC P61, 211, the interstate pipeline

requested authorization under 18 C.F.R. §§157.205 and

157.212 to construct facilities to provide firm transportation

service to a customer of a local distribution company. Both

the Office of the Utility Consumer Counselor and the LDC

filed Motions to Intervene and protested Midwestern’s

Application before the FERC. The LDC argued that the

pipeline transportation service would result in a wasteful

duplication of facilities and cost shifting among the LDC’s

customers. The LDC also contended that the customer might

be a public utility subject to the IURC’s jurisdiction under

I.C, 8-1-2-87.5. Another Intervenor before the FERC in the

Panhandle Eastern proceeding argued that the interstate

pipeline proposal should also be approved by the IURC, as

well as by the FERC. The FERC concluded that “it is clear

that Panhandle’s proposal involves the transportation of

natural gas in interstate commerce over which the

Commission (FERC) has exclusive jurisdiction” (citation

omitted). Thus, Midwestern argues in the instant cause,

Indiana has no jurisdiction in this matter and a state certificate

is not required. Alternatively, the Respondent argues that this

Commission should stay any further proceedings until the

FERC has issued its decision and order in Docket No.

CP98-538-000 and should certify the purely legal question

raised to the Indiana Court of Appeals for decision and

determination, pursuant to I.C. 8-1-3-10.

Sla

Appendix C

5. Responsive Arguments. SIGECO and the similarly

interested Intervenors supporting SIGECO’s position replied

to Midwestern’s arguments with the position that the five

federal circuit court decisions did not sufficiently support

Midwestern’s position that interstate transportation is the

same as local distribution of gas. They also argue that,

because the federal decisions cited by the Respondents are

from circuits other than the Seventh Circuit they are not

controlling authority for the purpose of adjudicating

SIGECO’s instant petition. Further, they argue that local

distribution occurs when gas is supplied to an end user and

that state certification is required for that service even when

the gas was purchased outside of the state of delivery. To the

extent a conflict exists between federal and state statutes,

SIGECO and the Intervenors argue that the Commission is

bound to support and enforce the Indiana statutes leaving

questions of constitutional law to other forums. SIGECO and

the similarly interested Intervenors are also opposed to the

certification of the legal question to the Indiana Court of

Appeals, arguing that the matter would most conveniently

be resolved by the IURC.

6. Respondent’s Second Motion to Dismiss.

On December 22, 1998, Midwestern renewed its Motion to

Dismiss based upon a FERC decision issued in Docket No.

CP98-538-000 on December 16, 1998 authorizing

Midwestern to construct and operate facilities to transport

natural gas for GPC. The Second Motion to Dismiss also

requested that the Commission take administrative notice of

the FERC’s decision, which is appended to the Motion and

which we have previously found should be granted. In its

December 16, 1998 Order, the FERC held that it has exclusive

52a

Appendix C

jurisdiction over Midwestern’s proposed service to GPC, and

that the service constitutes interstate transmission of natural

gas, and not local distribution. (FERC Order at pages 5-8)

The FERC also held that the proposed service to GPC

involves no interstate retail sale which may be regulated by

the states, rather that the proposed pipeline will be used solely

for transportation of gas in interstate commerce.

In its Second Motion, Midwestern argues that the FERC

decision collaterally estops subsequent litigation over the

issue because (1) the issues sought to be estopped are within

the statutory jurisdiction of the FERC; (2) the FERC was

acting in a judicial capacity; (3) the parties to that proceeding,

and to the proceeding before the IURC have had a fair

opportunity to litigate the issues before the FERC; and

(4) the FERC decision is subject to judicial review.

See U.S. v. Utah Construction and Mining Co., 86 S.Court

1545, 1560 (1966); McClanahan v. Remington Freight

Lines, Inc., 517 N.E.2d 390, 394 (Ind. 1988). In its Second

Motion, Midwestern also argues that if the TURC is not

inclined to dismiss SIGECO’s Petition, any proceedings in

this Cause should be stayed pending the outcome of any

rehearing before the FERC and/or judicial review before the

United States Court of Appeals as described by Section 19 (a)

and (b) of the Natural Gas Act. 15 U.S.C. Sec. 717 (r) (a)

and (b). In light of the FERC Order and the exclusivity of

judicial review under Section 19 of the Natural Gas Act,

Midwestern withdrew its prior alternative request for

certification of the legal issue by the Commission to the

Indiana Court of Appeals.

53a

Appendix C

7. Responses to Second Motion to Dismiss. Petitioner

and certain of the similarly interested Intervenors respond to

the Second Motion to Dismiss with two basic arguments.

First, that whatever the FERC’s Order says, the responsibility

of this Commission is to enforce the Indiana Statutes, and

that even though the FERC Order contains a determination

that it preempts the Indiana Statutes, the Commission’s

Statutory duty is to enforce, not invalidate, Indiana law.

See General Motors Corp. v. Indianapolis Power & Light

Co., 654 N.E.2d 752, 763 (Ind.Ct. of Appeal 1995), Sunshine

Promotions Inc. v. Ridlen, 483 N.E.2d 761, 765 (Ind.Ct. of

Appeal 1985), State ex rel. Bash v. Medical Licensing Board

of Indiana, 451 N.E.2d 691, 696 (Ind.Ct. of Appeal 1983),

Consolidated Rail Corp. y. Smith, 664 F.Supp. 1228, 1223

(N.D.Ind. 1987). Second, SIGECO and the similarly

interested Intervenors argue that the FERC Order does not

collaterally estop litigation of any question before this

Commission in this proceeding. In that connection, they argue

that the FERC had no Statutory authority to declare Indiana

Code Sections 8-1-2-87 and 87.5 invalid, and thus, the issues

which the Respondent seeks to estop this Commission from

considering were not within the Statutory jurisdiction of the

FERC. SIGECO and the similarly interested Intervenors also

argue that the FERC, in entering its Order, was not acting in

its judicial capacity, but rather as an interested party

advocating its own position. Thus, they conclude that they

did not have a fair opportunity to litigate the preemption issue

before the FERC. Additionally, the responsive parties argue

that under Indiana law, collateral estoppel only applies where

particular issues are adjudicated in one forum and are then

put at issue in a subsequent suit on a different cause of action

between the same parties or their privies. See McClanahan

54a

Appendix C

v. Remington Freight Lines, Inc., 517 N.E.2d 390, 394

(Ind. 1998). The argument follows that since the instant

proceeding was initiated prior to the issuance of the FERC

decision collateral estoppel would not apply.

8. Findings. The facts in this case, for purposes of

resolving the Respondent’s motion to Dismiss, are not in

dispute, and therefore, a hearing is not necessary prior to

this Commission’s rendering of findings thereon. The

Petitioner is a public utility rendering the provision of gas

utility service to the public in the State of Indiana including

Daviess County, Indiana. Intervenor GPC is a manufacturer

and marketer of various corn-based products and is

constructing a new corn processing plant in Daviess County,

Indiana. GPC has requested the services of the Respondent

for the purposes of transportation, in interstate commerce,

of natural gas which GPC intends to purchase outside of the

State of Indiana and have delivered to its facility in Daviess

County, Indiana. The Petitioner argues that such

transportation of natural gas, even if transported in interstate

comnerce to an end-use customer within the State of Indiana,

recuies certification under Indiana law even if the natural

zas is owned by the end-use customer prior to its

transportation. The Respondent argues that such transactions

fall within the NGA and thus are subject to the exclusive

jurisdiction of the FERC. The Respondent has supported this

position with decisions from federal circuits which have

- found that state assertions of jurisdiction for the purpose of

requiring certification for the provision of such services are

preempted by the federal statutes, and that the FERC’s

jurisdiction regarding such matters is exclusive. The

Respondent has also provided this Commission with a 1993

55a

Appendix C

FERC decision based upon facts similar to the instant

proceeding in which the FERC found that its jurisdiction

was exclusive.

The Petitioner and certain of the similarly interested

Intervenors have argued that the federal authorities which

the Respondent relies upon do not include Seventh Circuit

decisions, and thus, this Commission is not bound by them.

In assessing the arguments of the parties, we are mindful of

the fact that the Seventh Circuit, by which this Commission

is bound, has been silent on the issue presented in the instant

proceeding. Thus, we may only consider the five federal

decisions involving facts similar to those present in this

proceeding which the Respondent relies upon as persuasive.

The Petitioners and certain of the similarly interested

Intervenors have also argued that whether or not the Indiana

statute, to the extent it may conflict with the federal statute,

is constitutional, unconstitutional, or otherwise preempted,

is not a decision for this Commission to make, but rather,

the charge to this Commission is simply to enforce the state

statutes. This is a strong argument which may not be taken

lightly.

The Respondent’s Second Motion to Dismiss is based

upon a FERC decision issued on December 16, 1998

regarding facts common to the instant proceeding as well as

the proceeding before the FERC, and specifically finds that

the Indiana law requirement is preempted by the federal law.

The Respondent argues in its Second Motion to Dismiss that

the Petitioner and the similarly interested Intervenors are

collaterally estopped from challenging the preeminence of

the federal statutes. The Petitioner and the similarly interested

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Appendix C

Intervenors have responded with the argument that the FERC

is without authority to make such a ruling and that this

Commission does not owe the FERC’s decision deference

with regard to the FERC’s interpretation of federal and state

statutes in any event. Further, the Petitioner and the similarly

interested Intervenors argue that the FERC decision does not

collaterally estop the instant litigation.

We agree with the Petitioner that this Commission is just

as entitled to interpret statutes as is the FERC. We further

appreciate that our function as a state administrative agency

is to enforce the statutes entrusted to it, rather than to find

that such statutes are unconstitutional. However, the

Respondent has demonstrated that states in other federal

circuits have been unsuccessful in attempting to enforce state

certification statutes when federal jurisdiction has been

asserted exclusively. The FERC has recently removed any

doubt as to whether it would assert exclusive jurisdiction

over the proposed transactions as between the Intervenor GPC

and the Respondent Midwestern and while the FERC is surely

within its authority to assert jurisdiction over these

transactions, the exclusivity of that jurisdiction is not a

question for FERC alone to determine. Thus, the question as

to whether the FERC’s jurisdiction is preemptive as applied

to the Indiana statutes certainly is a federal question currently

before a federal authority. On January 15, 1999 SIGECO filed

its Request for Rehearing before the FERC.

Based upon all of the above, we find that the

Respondent’s Second Motion to Dismiss should be denied.

While the recent FERC decision makes clear its assertion of

exclusive jurisdiction, the FERC is not a reviewing body of

nee he Rn ne ee eee ae

57a

Appendix C

this forum. It does appear that the wei ght of federal decisions

would suggest that the application of the Indiana statutes to

the instant petition would not survive a federal challenge.

And, advancing to hearing on the instant proceeding while

the preemption question remains pending before a federal

forum would be contrary to principles of economy and

efficiency. Because there is an underlying state interest

entrusted to this agency, we will not grant the Respondent’s

Motion to Dismiss while the issue is pending before federal

forums. In fact, were the issue of by-pass present in this

proceeding, we would have more receptively considered

convening an evidentiary hearing now while the preemption

question progresses through federal channels. As we are in

effect deferring the federal preemption issue for resolution

by federal forums, we need not reach the collateral estoppel

argument raised by the parties in this proceeding. For this

reason, we conclude that this proceeding should be stayed

pending further resolution of the federal question before

proper reviewing authorities.

IT IS THEREFORE ORDERED BY THE INDIANA

UTILITY REGULATORY COMMISSION that:

1. The Petitions to Intervene described herein are hereby

granted.

2. The Respondent’s Motion for Leave to file a Reply

filed on September 2, 1998 is hereby granted; the Motion of

Petitioner filed on September 28, 1998 for Leave to File its

Response to the Reply of Midwestern Gas Transmission

Company and Grain Processing Corporation’s Statement in

support of Midwestern is hereby also granted.

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Appendix C

3. Midwestern Gas Transmission Company’s Second

Motion to Dismiss based on FERC’s decision in Docket No.

CP98-S38-000 is hereby denied; however, this proceeding

is stayed pending further federal review, reconsideration, or

appeal of that decision.

4. This order shall be effective on and after the date of

its approval.

MCCARTY, KLEIN, RIPLEY, SWANSON-HULL

CONCUR; ZIEGNER DISSENTS:

APPROVED: JANUARY 27, 1999

I hereby certify that the above is a true and correct copy of

the Order as approved.

s/ Joseph M. Sutherland

Joseph M. Sutherland, Executive

Secretary to the Commission

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Appendix C

STATE OF INDIANA

INDIANA UTILITY REGULATORY COMMISSION

CAUSE NO. 41197

IN THE MATTER OF THE PETITION BY SOUTHERN

INDIANA GAS AND ELECTRIC COMPANY F OR THE

INDIANA UTILITY REGULATORY COMMISSION TO

ORDER MIDWESTERN GAS TRANSMISSION

COMPANY TO CEASE AND DESIST FROM ENGAGING

IN THE RENDERING OF GAS DISTRIBUTION SREVICE

IN RURAL AREAS OF INDIANA, INCLUDING THE

TRANSPORTATION OF GAS FROM OUTSIDE INDIANA

FOR DIRECT SALE OR DELIVER TO CONSUMERS

WITHIN THE STATE OF INDIANA

RESPONDENT: MIDWESTERN GAS TRANSMISSION

COMPANY

DISSENT OF

Commissioner David E. Ziegner

I respectfully dissent from the majority opinion in this

Cause. I agree with the majority statements that the

Commission’s “. . . function as a state administrative agency

is to enforce the statutes entrusted to it. . .-” L also agree

with the majority that Respondent’s Second Motion to

Dismiss should be denied. However, I do not believe that a

Stay is the appropriate action for the Commission since I

believe our state statute is still in effect. | would prefer to

rule on the merits of the case.

s/ Commissioner David E. Ziegner

Commissioner David E. Ziegner

60a

APPENDIX D — REQUEST OF THE MIDWESTERN

GAS TRANSMISSION COMPANY FOR

BLANKET AUTHORITY

UNITED STATES OF AMERICA

BEFORE THE

FEDERAL ENERGY REGULATORY COMMISSION

Midwestern Gas Transmission Company

Docket No. CP00- -000

REQUEST UNDER BLANKET CERTIFICATE

PRIOR NOTICE PROCEDURE

Pursuant to Sections 157.205 and 157.211 of the

Regulations of the Federal Energy Regulatory Commission

(“Commission”) and blanket authority granted in Docket

No. CP82-414-000 on September 1, 1982, Midwestern Gas

Transmission Company (“Midwestern”) hereby provides

prior notice that it intends to construct and operate a delivery

tap under its blanket authority to facilitate deliveries of

natural gas to Scepter, Inc. (“Scepter”), an industrial

end-user. In support hereof, Midwestern states as follows:

IDENTITY OF APPLICANT

The exact legal name of Midwestern is Midwestern Gas

Transmission. Midwestern is a corporation organized and

existing under the laws of the State of Delaware. The location

of Midwestern’s principal place of business is located at 1001

Louisiana Street, Houston, Texas 77002. The names, titles,

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Appendix D

mailing addresses and telephone and facsimile

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