UNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION Before Commissioners: Martha O. Hesse, Chairman; Charles G. Stalon, Charles A. Trabandt, Elizabeth Anne Moler and Jerry J. Langdon. The Kansas Power and Light ) Docket No. CP89-485-000 Company ) ORDER DETERMINING SERVICE AREA (Issued June 7, 1989) On December 23, 1988, The Kansas Power and Light Company (KPL) filed in Docket No. CP89-485-000 an application pursuant to section 7(f)(1) of the Natural Gas Act (NGA) for the determination of two non-contiguous service areas, encompassing metropolitan Kansas City, Kansas and its environs and certain counties in the adjoining states of Missouri and Oklahoma, within which it may be permitted, without further Commission authorization, to enlarge or extend its facilities for the purpose of supplying increased market demands in such areas, all as more fully set forth in the application. KPL also requests that it be considered a local distribution company (LDC) for section 311 and other regulatory purposes. We shall determine the service areas as proposed and grant KPL's request for LDC status for purposes of section 311 of the NGPA. Background KPL is engaged in the distribution of natural gas to approximately one million retail customers for residential, commercial and industrial use in the states of Kansas, Missouri, Oklahoma and Nebraska. The vast majority of these customers are located in central and eastern Kansas and western Missouri. KPL's largest gas market is the Kansas City metropolitan area which straddles the Kansas and Missouri state line. As noted, KPL proposes two distinct areas for service area determination (hereinafter referred to as "service area") under section 7(f)(1) of the NGA (see map in Appendix A). Service area 1 encompasses the Kansas City, Kansas metropolitan area and surrounding communities in Atchison, Doniphan, Leavenworth, Wyandotte, Johnson and Miami Counties in Kansas, and in Buchanan, Platte, Clay, Jackson, Cass and northern Bates Counties in Missouri. These localities are divided by the Missouri River and the Kansas/Missouri state line. Service area 2, located south of area 1, consists of Cherokee County in Kansas, Ottawa and Delaware Counties in Oklahoma, and Jasper, Newton and McDonald Counties in Missouri. Page 1
Docket No. CP89-485-000-2 - In service area 1, KPL is currently served by Williams Natural Gas Company (WNG), Panhandle Eastern Pipe Line Company (Panhandle) and Kansas Pipeline Company L.P. (Kansas Pipeline), a Kansas intrastate pipeline unrelated to KPL. In service area 2, KPL is served exclusively by WNG. Within these two regions comprising the proposed service area, KPL is primarily engaged in the local distribution of natural gas to retail customers. KPL's rates and operations are regulated by state agencies. KPL's rates in Kansas, Missouri and Oklahoma are regulated by the Kansas Corporation Commission, Missouri Public Service Commission and Oklahoma Corporation Commission, respectively. KPL makes no sales for resale in these areas for which it seeks a section 7(f)(1) determination. 1/ Its distribution system, while covering a large geographic area of 9,600 square miles, consists of numerous yet relatively short distribution laterals which tap into the interstate pipeline supplying gas to KPL. Finally, there are other local distribution companies which presently serve areas located within the boundaries of KPL's proposed service area. However, KPL disclaims any intention of serving these areas. KPL states that it intends to offer service only in those portions of the proposed service area where another local distributor is not presently authorized by the respective state or local regulatory agency to render such service. As indicated above, KPL obtains its system supply for its distribution facilities mainly from interstate pipelines. On September 8, 1982, in Docket No. CP82-269-000, the Commission declared KPL exempt from Commission jurisdiction pursuant to section 1(c) of the NGA (a "Hinshaw" exemption) with respect to its Kansas activities. Concurrently, in Docket No. CP82-268-000, the Commission granted KPL a blanket certificate, pursuant to section 7(c) of the NGA and section 284.222 of the Commission's regulations, authorizing KPL to sell, transport and assign gas in interstate commerce in the same manner as intrastate pipelines under section 311 of the Natural Gas Policy Act (NGPA). 2/ KPL indicates that its intrastate transmission system in Kansas, from which it makes sales for resale, is not physically connected to the service area proposed herein. 1/ KPL makes sales for resale from its Hinshaw intrastate "main" system in Kansas and also pursuant to its Order No. 63 certificate. The main system is not physically connected to the proposed service areas and cannot be used to provide service to either area without intervening transportation by WNG or another pipeline. 2/ Kansas Power and Light Company, 20 FERC 62,546 (1982). Page 2
Docket No. CP89-485-000-3 - Proposal KPL requests that the Commission determine that the two principal areas described above in which KPL distributes natural gas to its retail customers constitute service areas exempt from further Commission jurisdiction under section 7(f)(1) of the NGA. KPL contends that such a determination will enable it to enlarge or extend its facilities and services across state lines, without unnecessary jurisdictional constraints, for the purpose of supplying increased market demands. Furthermore, by allowing KPL to integrate and extend its distribution facilities across state lines without duplicative regulation, a section 7(f)(1) designation will maximize gas cost benefits and enhance gas supply options for its transportation and system supply customers. KPL also requests that the Commission make a finding that KPL is a local distribution company in the determined service area for purposes of determining the applicability of the Commission's regulations. Interventions After due notice by publication in the Federal Register on January 19, 1989 (54 Fed. Reg. 2209), timely unopposed motions to intervene were filed by WNG, Greeley Gas Company (Greeley), the Missouri Public Service Commission, 1/ and Union Gas System, Inc. (Union Gas). 2/ The Kansas Corporation Commission (KCC) filed a motion to intervene out of time claiming that, as the jurisdictional authority responsible for regulating the rates and operations of KPL in Kansas, its intervention in the proceeding would be in the public interest. Since KCC has alleged an interest in the proceeding, and its participation will not delay or disrupt the proceeding or prejudice the interests of any party, we will grant its unopposed motion. WNG protests KPL's application and requests that it be denied or, alternatively, set for hearing. WNG argues that KPL has not clearly demonstrated that the public convenience and necessity would be served by the proposed service area determination. WNG contends that KPL's "least amorphous" claim that it will give KPL increased flexibility to serve customers across state lines is tenuous at best since KPL is adequately 1/ A state commission becomes a party to a proceeding upon filing a timely notice of intervention by operation of Rule 214 (18 C.F.R. 385.214) of the Commission's Rules of Practice and Procedure. 2/ Timely unopposed motions to intervene are granted by opration of Rule 214. Page 3
Docket No. CP89-485-000-4 - served by interstate pipelines on both sides of the state line, and also has its own intrastate system. WNG maintains that granting the service area as requested could adversely impact the public interest in two respects. First, allowing KPL to construct facilities and otherwise operate in what will be the largest service area in existence unfettered by Commission oversight, while its interstate suppliers continue to be subject to Commission jurisdiction, gives KPL an unfair competitive advantage. Second, granting KPL's application would infringe on the competitive rights of other local distribution companies operating in the same area. WNG further asserts that a finding by the Commission that KPL is a local distribution company for all regulatory purposes presumably exempts it from Order Nos. 436/500 open access provisions and therefore thwarts the Commission's objective to promote open access transportation. WNG requests that KPL's application be denied, without prejudice, or set for full hearing to determine whether the authorizations which have been requested are necessary, in the public interest, and outweigh any competitive harm which may result. Union Gas, a neighboring LDC authorized by the Kansas Corporation Commission to serve portions of three Kansas counties included within the requested service area, does not object to approval of KPL's application provided that it is not be relied upon by KPL in any forum to infringe upon Union Gas' authorize service territory. Discussion The Commission has long held that section 7(f) service area determinations are appropriate where the natural gas company was engaged primarily in the local distribution of natural gas but was subject to the Commission's jurisdictional oversight because its facilities crossed state lines. 1/ The Commission has considered four key factors in arriving at this determination: (1) whether the company makes sales for resale in the proposed area; (2) whether its rates are regulated by state or local 1/ See Washington Gas Light Co., 28 F.P.C. 753 (1962); Blacksville Oil and Gas Co., 37 F.P.C. 502 (1967); National Fuel Gas Distribution Corp., 13 FERC 61,200 (1980); Great River Gas Co., 14 FERC 61,167 (1981); Shenandoah Gas Co., 16 FERC 61,087 (1981); Arkansas Oklahoma Gas Corp., 33 FERC 61,197 (1985); Iowa-Illinois Gas and Electric Company, 29 FERC 61,016 (1987); High Plains Natural Gas Company and Wheeler Gas, Inc., 41 FERC 61,364 (1987); Associated Natural Gas Company, a Division of Arkansas Western Gas Company, et al., 43 FERC 61,304 (1988); and Ken-Gas of Tennessee, Inc., 45 FERC 61,110 (1988). Docket No. CP89-485-000-5 - Page 4
agencies; (3) whether the company has an extensive transmission system; and (4) the concerns of other companies providing gas in the same area. Applying the above criteria to the instant application, we find it appropriate to determine a service area for KPL as proposed herein. Although its distribution facilities straddle state boundaries, KPL will operate, as it has historically, essentially as a local distribution company in the designated areas. KPL will make no sales for resale in the areas 1/ and all gas distributed will be received and ultimately consumed by the retail customers within the boundaries of the requested service territories. Its rates in Kansas, Missouri and Oklahoma have been and will continue to be regulated by the respective state or local agencies. While covering an arguably broad geographic area, KPL's distribution system itself is not an extensive interconnected system but rather a configuration of comparatively short laterals connected to interstate pipelines supplying gas to KPL for the purpose of local distribution to end-users. Furthermore, as indicated, KPL's intrastate transmission system in Kansas, from which sales for resale are made, is not physically connected to the proposed service area and cannot be used to provide service to such areas without intervening transportation by another pipeline. Finally, KPL will be the only company providing retail gas service in the specific areas requested. While other local distributors may be authorized to operate in portions of areas within the boundaries of applicant's service area, KPL expressly disclaims any intention of offering service in such areas. With respect to KPL's request for a finding that it is a local distribution company for purposes of determining the applicability of Commission regulations, we have previously held that section 7(f) companies should be treated as local distribution companies for purposes of section 311 of the NGPA. 2/ The reasons which lead us to grant a service area determination under section 7(f)(1), namely that for regulatory purposes a company which operates essentially as a local distributor should be treated as such despite its multi-state presence, similarly compel us to conclude that KPL should be declared eligible to be treated as a local distribution company for purposes of section 311 of the NGPA. However, beyond this, KPL remains a natural gas company, as only natural gas companies qualify for section 7(f)(1) service area determinations, for all other regulatory purposes. 1/ See footnote 1, supra. 2/ See Iowa-Illinois Gas and Electric Company, 39 FERC 61,016 at 61,044 (1987). Docket No. CP89-485-000-6 - With regard to WNG's various arguments in opposition to the Page 5
instant application, we find insufficient grounds to merit either denial or an evidentiary hearing. WNG's contentions that KPL's stated reasons for requesting a service area determination are vague and not in the public convenience and necessity, are not supported by the weight of the evidence and run contrary to our criteria for granting section 7(f)(1) determinations. KPL's assertions that a service area determination as proposed will enable it to integrate its distribution systems without duplicative regulation and thereby maximize its flexibility and ability to serve both present and future transportation and system supply customers across state lines at minimal cost are clear and sufficient to warrant approval of its application. While it is true that KPL is presently serving both sides of the Kansas/Missouri state line, it is equally true that operating without duplicative regulatory constraints will enable KPL to serve more efficiently and expansively within its territorial boundaries. KPL fully satisfies our longstanding objective criteria for determining service areas under section 7(f) of the NGA. WNG also alleges that KPL will be able to operate unfettered by Commission section 7 oversight while interstate suppliers, on the other hand, remain fully subject to Commission jurisdiction, thus creating an unfair form of competition. There is nothing unfair about this. KPL will be in essentially the same position as any local distribution company and while it is true that KPL's transmission activities within the defined service area will not be subject to Commission regulation, they will be subject to regulatory oversight at the state level, which is the intent underlying the Uniform Regulatory Jurisdiction Act of 1988. Moreover, KPL is presently the only company serving the market areas proposed for service. It seeks a determination not so much to gain a competitive edge as to enhance its retail service operations. Finally, the fact that the service area will be large is insufficient reason to withold approval so long as the basic character and scope of KPL's operations remain the same. WNG's arguments that KPL would operate in areas where other local distribution companies are presently authorized to render service are not well-founded. KPL has indicated that it does not intend to provide service in areas where it is already provided by another local distribution company. So long as this is the case, neither Union gas nor Greeley, both local distributors and intervenors in this proceeding, has any objections to approval of KPL's application. Regarding WNG's concerns about KPL's request for qualification as an LDC, we have determined that KPL should be treated as an LDC for section 311 and other regulatory purposes necessary to achieve the objectives of section 7(f)(1) service Docket No. CP89-485-000-7 - area determinations. However, we do not declare KPL to be a local distribution company for all regulatory purposes. Finally, we find that WNG has not raised issues of fact in Page 6
its protest that are material to the outcome of this proceeding and we therefore decline to set this case for an evidentiary hearing. Approval of this application does not constitute a major Federal action significantly affecting the quality of the human environment. At a hearing held on May 31, 1989, the Commission on its own motion received and made part of the record in this proceeding all evidence, including the application and exhibits thereto, submitted in support of the authorization sought herein, and upon consideration of the record, The Commission orders: (A) Pursuant to section 7(f)(1) of the NGA, KPL's service area is granted and determined to include two separate areas, all as more fully described above and in the application, as follows: Service area 1 encompasses the Kansas City, Kansas metropolitan area and the surrounding communities in Atchison, Doniphan, Leavenworth, Wyandotte, Johnson and Miami Counties in Kansas, and in Buchanan, Platte, Clay, Jackson, Cass and northern Bates Counties in Missouri. Service area 2 consists of Cherokee County in Kansas, Ottawa and Delaware Counties in Oklahoma, and Jasper, Newton and McDonald Counties in Missouri. (B) WNG's protest and request for an evidentiary hearing are denied. By the Commission. ( S E A L ) Linwood A. Watson, Jr., Acting Secretary. Page 7