Virginia Commission Enters Order Protecting Natural Gas Franchise Territory

In a case of first impression, the Virginia State Corporation Commission issued a Final Order holding that CNX Corporation’s proposed natural gas service to a large customer in Virginia, and CNX’s current service to a generation plant, is not “non-utility gas service” under Virginia law. Therefore, CNX’s service violates the utility’s exclusive franchise service territory unless it is provided under alternative statutory authority.

In the case, the utility – Appalachian Natural Gas Distribution Company (ANGD) – filed a petition for declaratory judgment against CNX. The basic allegations were that ANGD, as the utility, had the exclusive franchise and was the only entity allowed to serve end-use customers under Virginia’s “public utility” definition. There are 12 exceptions to that definition, and ANGD alleged that CNX did not satisfy any of them. As a result, CNX’s proposed service to the large end user and the generation facility were not authorized.

The Commission agreed with ANGD, rejecting CNX’s argument that it satisfied the “non-utility gas service” exemption to the definition of “public utility.” Under that exemption, for the purpose of this case, the non-utility entity (in this case, CNX) must: (1) sell and distribute natural gas;  (2) to two or more customers; (3) by way of underground or aboveground distribution lines.  See Va. Code § 56-265.4:6.

The evidence demonstrated that CNX’s service to both end users is, and would be, through transmission lines. The Commission held that the General Assembly has explicitly recognized a distinction between distribution and transmission lines – the statute refers at times to “distribution” lines and, other times, to “transmission” lines, but the definition of “non-utility gas service” refers only to distribution. The Commission also noted that the statute incorporates pipeline safety requirements adopted in another Code section, and those requirements distinguish between distribution and transmission. In sum, “transmission lines are distinct from distribution lines.”

CNX filed a petition for reconsideration with respect to its service to the generation plant. On reconsideration, the Commission clarified that:  (1) because CNX’s service to the generation facility or the other end user “is not authorized under Code § 56-265.4:6, such service represents a violation of ANGD’s exclusive franchise service territory unless it is provided under alternative statutory authority; and (2) the question of any such alternative authority is outside the scope of this matter.” ANGD had not requested that the Commission enjoin CNX from continuing to serve the generation facility.

The General Assembly adopted the “non-utility gas service” exemption in 2009. As initially introduced, the legislation focused on the sale of propane. The scope of the exemption was broadened to include “natural or manufactured gas” but at no point does the exemption mention transmission lines. Because CNX was not using distribution lines to serve, its service was not “non-utility gas service,” and CNX must find other statutory authority on which to rely for its service.

GreeneHurlocker represented ANGD in this proceeding, which is Case No. PUR-2022-00049. For more information contact one of our energy lawyers.