The U.S. Court of Appeals for the D.C. Circuit on June 22 vacated and remanded to the Commission its August 2018 approval of the Spire STL LLC natural gas pipeline in the St. Louis area, saying the Commission ignored the issue of whether there was a market need for the pipeline (Environmental Defense Fund v. FERC, No. 20-1016).
As an initial matter, the D.C. Circuit dismissed petitioner Juli Steck’s claim against FERC’s approval, saying she lacked standing, but sided with petitioner Environmental Defense Fund (EDF), which had challenged Spire’s certificate application at FERC, along with other parties.
In November 2019, the Commission also rejected requests for rehearing filed by Steck and EDF in Docket No. CP17-040.
“On the merits, we agree with EDF that the Commission’s refusal to seriously engage with nonfrivolous arguments challenging the probative weight of the affiliated precedent agreement under the circumstances of this case did not evince reasoned and principled decision making,” Judge Harry T. Edwards wrote.
“In addition, we find that the Commission ignored record evidence of self-dealing and failed to seriously and thoroughly conduct the interest-balancing required by its own Certificate Policy Statement,” Judge Edwards determined.
The appellate court also found the Commission ignored evidence of self-dealing and failed to adequately balance interests in the case as required by its own certificate policy statement. The Commission can only issue certificates for pipelines if their construction is required by public convenience or necessity. Public benefits can generally include meeting unserved demand, eliminating bottlenecks, accessing new supplies, providing lower costs to consumers, improving interconnects on the grid, increasing electric reliability or helping to meet clean air goals.
FERC Chairman Richard Glick, who had dissented in the November 2019 rehearing decision, in a June 22 statement said the remand highlights the need for the Commission to revisit its framework for determining whether an interstate natural gas pipeline is needed.
“As I noted in my 2019 dissent regarding the Spire project, the Commission must consider all relevant factors when determining the need for a project and balance the evidence of need against adverse impacts.” Glick said.
“Today’s decision shows that when FERC cuts corners with its analysis, it puts its decisions–and the investments made in reliance on those decisions–at substantial risk,” Glick said, also noting he wants to revisit the Commission’s approach to assessing the need for pipelines in a pending notice of inquiry (Docket No. PL18-1).
When approving the pipeline, which is now in operation, the Commission acknowledged that it was not being built to serve new load, but rejected argument that a market study should be done to assess the need for the project.
The Commission relied on a precedent agreement between Spire STL and Spire Missouri in finding there is a need for the project, the court said. The Commission said it would not question the business decision that the pipeline was needed, even though the shipper and pipeline are affiliates.
Natural gas demand in the St. Louis area has been almost flat for the past two decades, the court said, and there is no disagreement that no significant demand growth is expected. As of 2016, five gas pipelines served the St. Louis area and at the time a majority of Spire Missouri’s gas supply was provided by Enable Mississippi Transportation LLC.
Spire in 2016 announced its intent to construct the new line to serve homes and business in the area, proposing a 65-mile pipeline. Spire STL held an open season in August 2016, which was unsuccessful, so Spire entered into an agreement with its affiliate, Spire Missouri for 87.5 percent of the pipeline’s 400,000 Dth/d of capacity. Other shippers expressed interest, but Spire STL did not enter into any agreements with them, the court said.
Among the parties initially protesting Spire STL’s application was the Missouri Public Service Commission and Enable MRT. The state commission expressed skepticism about the project’s need and urged FERC to conduct a detailed analysis because of that limited need.
In September 2017, Commission staff published an environmental assessment (EA) for the proposed pipeline, saying there would be no significant impact from its construction or its operation. The EA noted the project was not needed to meet new demand.
The Commission granted the certificate and said it had no reason to address anticompetitive behavior by Spire Missouri because the company was under the jurisdiction of the state commission.
EDF argued that the commission’s decision to award the certificate was arbitrary and capricious because the Commission uncritically and exclusively relied on the affiliated precedent agreement to find need.
The environmental group also argued FERC failed to justify its conclusion that the new pipeline’s benefits would outweigh its adverse effects.
The appellate court added that there was evidence of self-dealing in the certificate application, since it was not built to meet new demand or to lower costs.
FERC employed an “ostrich-like” approach in the face of guidelines set forth in its policy statement, the court said, and the arguments by EDF and others were more than enough to look beyond the precedent agreement to see if there was market need.
“If it was not necessary for the Commission to do so under these circumstances, it is hard to imagine a set of facts for which it would ever be required. Because the Commission declined to engage with EDF’s arguments and the underlying evidence regarding self-dealing, its decision making was arbitrary and capricious,” the court said.
By Jason Fordney