Fort Morgan v. Colorado Puc, 06SA118.
| Decision Date | 23 April 2007 |
| Docket Number | No. 06SA118.,06SA118. |
| Citation | 159 P.3d 87 |
| Parties | CITY OF FORT MORGAN, Petitioner-Appellee v. The COLORADO PUBLIC UTILITIES COMMISSION; Commissioner Gregory E. Sopkin; Commissioner Polly Page; and Commissioner Carl Miller, Respondents-Appellants. and KN Wattenberg Transmission, L.L.C.; Leprino Foods Company; and Cargill Meat Solutions Corporation, Intervenors-Appellants. |
| Court | Colorado Supreme Court |
Anderson, Dude & Lebel, P.C., Wm. Kelly Dude, Colorado Springs, Colorado, Colorado Municipal League, Geoffrey T. Wilson, Denver, Colorado, Attorneys for Amicus Curiae The Colorado Association of Municipal Utilities and The Colorado Municipal League in Support of the City of Fort Morgan.
In this appeal from the Morgan County District Court pursuant to section 40-6-115(5), C.R.S. (2006), we review and reverse a judgment of the district court setting aside a decision of the Public Utilities Commission ("PUC" or "Commission").1
Because the City of Fort Morgan, a home rule city, owns and operates a natural gas utility within its boundaries, the district court ruled that the PUC lacked jurisdiction to issue a certificate of public convenience and necessity ("CPCN") to another public utility for the operation of a natural gas pipeline serving two industrial customers within the City.
The PUC found that Leprino Foods Company and Excel Corporation both required firm natural gas transportation service, as opposed to interruptible service, because each conducts a perishable food business requiring constant delivery of natural gas. Leprino manufactures dairy products, and Excel is a beef processor.
Fort Morgan refused to provide firm natural gas transportation service to either company. Finding that Fort Morgan was unable or unwilling to provide adequate utility service, the PUC issued a CPCN to KN Wattenberg, L.L.C. ("KN Wattenberg" or "KNW") for the operation of a pipeline to provide firm natural gas transportation service to Leprino and Excel.
Based on its findings of substantially inadequate service and Fort Morgan's inability or unwillingness to provide adequate utility service, which are supported in the record, we hold that the PUC acted properly within its jurisdiction to grant this CPCN. The district court erred in concluding that (1) article XXV and article V, section 35 of the Colorado Constitution prohibited the PUC from issuing this CPCN and (2) section 40-5-102, C.R.S. (2006) prohibited the PUC from issuing this CPCN unless KN Wattenberg first obtained a permit from Fort Morgan.
Fort Morgan, a home rule municipality, is the location of two industrial perishable food producers, Leprino Foods Company and Excel Corporation.2 Leprino manufactures dairy products; Excel is a beef processor. Both of the companies rely exclusively on natural gas as the energy source for conducting their businesses. Both became customers of Fort Morgan's municipal natural gas utility in the early 1990s.
Fort Morgan owns and operates its own utility for selling and/or transporting natural gas to residential and commercial customers. Its natural gas system, serving more than 4,000 customers, consists of ninety-one miles of main lines and sixty-eight miles of service lines. Fort Morgan built a line to serve Leprino and Excel, whose payments for natural gas transportation accounted for approximately 25 percent of Fort Morgan's natural gas revenues by the year 1996, at the time the dispute leading to this case began.
Leprino and Excel initially had purchased their natural gas supply from Fort Morgan. Later, they became transportation customers only. Under this arrangement they purchased natural gas from a supplier other than Fort Morgan and paid the City to transport the gas from the Colorado Interstate Gas Company ("CIG") pipeline to their facilities.
In November 1995, Fort Morgan tripled its rates. Leprino and Excel unsuccessfully sought rate reductions. Unable to secure a firm natural gas transportation service commitment from Fort Morgan, as opposed to interruptible service, they turned to KN Wattenberg for construction and operation of a lateral pipeline from the CIG pipeline outside of Fort Morgan to their premises inside of Fort Morgan. Because it operated an interstate pipeline, KN Wattenberg applied to the Federal Energy Regulatory Commission ("FERC") for authority to construct and operate the lateral pipeline under FERC's interstate jurisdiction. Over Fort Morgan's objection, FERC granted approval.
Fort Morgan appealed FERC's decision to the United States Court of Appeals for the Tenth Circuit. In the meantime, KN Wattenberg completed construction of the lateral pipeline and began providing firm natural gas transportation service to Leprino and Excel.
The Tenth Circuit reversed FERC's assertion of exclusive federal authority over KN Wattenberg's lateral pipeline, holding that the Hinshaw Amendment allowed for PUC jurisdiction. City of Fort Morgan v. Fed. Energy Regulatory Comm'n, 181 F.3d 1155, 1159-61 (10th Cir.1999). The Hinshaw Amendment relieves utilities operating an intrastate pipeline from dual state and federal regulation.3
In response to the Tenth Circuit's decision, FERC deferred to the PUC's possible assertion of jurisdiction. But FERC also said that it would reassume jurisdiction if the PUC declined it, because KN Wattenberg had reasonably relied on FERC's initial authorization for the construction and operation of the lateral pipeline.
KN Wattenberg applied to the PUC for a CPCN to operate its lateral pipeline and provide firm natural gas transportation service to Leprino and Excel. The PUC assumed jurisdiction and required KN Wattenberg to prove that Fort Morgan's service to Leprino and Excel was substantially inadequate and Fort Morgan was unwilling or unable to provide adequate service to them.
In subsequent proceedings, the PUC determined that Fort Morgan's service was substantially inadequate because Excel and Leprino required firm natural gas transportation service, but Fort Morgan would provide only interruptible service. Firm service is that for which the delivery provider guarantees that nothing short of a force majeure will disturb the service. Fort Morgan reserved the right to interrupt transportation service to Excel and Leprino in favor of its residential customers and did not restrict such interruptions to force majeure circumstances.
The administrative law judge for the PUC made the following findings about the two companies' dependency on firm natural gas transportation service, which the PUC Commissioners adopted in their decision to issue the CPCN to KN Wattenberg:
Leprino is a large food manufacturer. At its Fort Morgan plant it manufactures dairy and whey products. Leprino uses natural gas at Fort Morgan for process heat and fuel for whey drying. The primary raw material used in this manufacture is raw milk. Leprino has contractual commitments to take milk 365 days per year. There is limited product storage available at Leprino's Fort Morgan facility. Leprino essentially has a take or pay situation in that it must accept the milk. The milk must be processed quickly or else it can be lost. Leprino has no alternate fuel capability.
Excel is [a] meat processor with a large meat packing plant in Fort Morgan. Excel consumes large quantities of natural gas, with 80 percent for meat processing, 15 percent for water heating, and 5 percent for building heating. Excel has no alternate fuel capability. Excel operates 24 hours a day 365 days a year, receiving up to 150 semi-trailer loads of cattle per day. If the natural gas is not available to Excel, it can divert cattle to other operations, but this is an expensive proposition requiring additional transportation costs. Also, Excel would not be able to move product in process out without natural gas. The meat packing industry operates on a very small margin, typically in the range of 5/10 of 1 percent.
The PUC decided that "the regulated monopoly principle, which generally prohibits the duplication of public utility facilities in a service territory, applies in this proceeding even though the City, as a municipal public utility, is exempt from Commission regulation." The PUC said that Leprino and Excel could not simply abandon Fort Morgan's service because they felt the rates were too high. It also said that the Fort Morgan public utility is exempt from PUC regulation within the City's boundaries. However, it ruled that the PUC is "empowered to grant a CPCN to KNW to serve Leprino and Excel if we determine that the City was unwilling or unable to provide adequate service to the Customers."
Thus, the PUC declined to regulate Fort Morgan's municipal public utility within its boundaries, but determined that it had authority to permit another utility to fill a substantial void in service the City had chosen not to fill. After analyzing the Fort Morgan and KN Wattenberg tariffs, the administrative law judge found that Leprino and Excel required firm natural gas transportation service, which KN Wattenberg agreed to provide, while Fort Morgan had determined to provide only interruptible transportation service and was unable or unwilling to provide firm transportation service. The PUC adopted these findings in...
To continue reading
Request your trial
-
Colorado Office of Consumer Counsel v. Colorado Pub. Utilities Comm'n
... ... 1 Qwest Corporation and the Colorado Public Utilities Commission (PUC) appeal the district court's judgment in favor of the Colorado Office of ... City of Fort Morgan v. PUC, 159 P.3d 87, 92 (Colo.2007); TrigenNations, 982 P.2d at ... ...