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Judges press FERC on its level of scrutiny into demand for Spire gas pipeline project


Question whether 'red flags' should prompt more review

Case centers on contract with project affiliate

Washington — The US Federal Energy Regulatory Commission faced stiff questioning from appeals court justices over whether it too readily accepted a pipeline company's assurances about the need for a natural gas pipeline project backed only by an affiliate.

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A decision in the case could have implications for the level of scrutiny the commission must use to assess the market need for future gas projects.

At issue is the 65-mile Spire STL project, approved by FERC in August 2018 and entered into service in November 2019, moving 400,000 Dt/d of gas from the Rockies Express Pipeline system into the St. Louis Area.

The project faced objections from the Environmental Defense Fund, which argued FERC should have looked beyond the project's contract for 88% of capacity with affiliate Spire Missouri to assess the need. Enable Mississippi River Transmission (MRT) and the Missouri Public Service Commission also raised objections during the FERC review that the project was unneeded and would negatively impact St. Louis gas market competition.

Of note, then-Commissioner Richard Glick, who now chairs the commission, dissented on FERC's November 21, 2019, rehearing order (CP17-040), contending neither Spire STL not Spire Missouri had explained why capacity on the preexisting pipeline owned by MRT was not sufficient to meet Spire Missouri's needs. He said the order turned the needs demonstration requirement into "a meaningless check-the-box exercise."

Questions from the bench

During oral argument March 8, all three judges on a panel of the DC Circuit Court of Appeals pressed FERC on whether under the circumstances of the Spire case there wasn't a greater burden on the regulator to examine whether there was self-dealing between the pipeline company and its affiliate (Environmental Defense Fund v. FERC, 20-1016).

"What more do you need than constructing a pipeline for an affiliate where it's not serving new market and [is] providing no price benefit to customers? That just leaves the obvious red flag that it's for the benefit of the shareholders, not the customer," Judge David Tatel said. "What else do you need that would be more dramatic than this?"

And Judge Harry Edwards continued to press the point.

"Judge Tatel is asking you very pointedly in this situation where there are no new needs and no cost savings, is it enough for us to accept your argument that in this situation [Spire] offered what they claimed were business reasons and, 'we had no reason to go behind it'. That's strange argument," he said.

Accepting business judgments

Defending the decisions, FERC attorney Anand Viswanathan said the commission on rehearing pointed to rationales offered by Spire as being sufficient to overcome concerns raised about overbuilding. Those included enhancing reliability and supply security, reducing reliance on older pipelines and mature basins, and eliminating reliance on propane peak-shaving infrastructure.

"Based on that record, FERC found no reason to second-guess the business judgments of the pipeline, Viswanathan said. "Based on that record, I don't think it's fair to say that the commission relied exclusively on the affiliate agreements here."

But the judges appeared skeptical of FERC's decision to accept the business judgments.

If FERC commissioners are "saying nothing more than there's no reason to second-guess what has been offered, that's really not an agency doing its own independent analysis of the factors that would justify this proposal, if they have to go further than the precedent agreement," Edwards said.

Jonathan Saul Franklin, representing Spire, made an argument that the existing pipeline systems could not meet demand needed to retire existing propane peaking facilities.

"FERC is not in a position to tell the company it can't do that, 'you have to keep this stuff in place, when you're telling us that it has operational difficulties," he said. He also highlighted Spire's reliability concerns related to a major freeze-off or storm or cold weather.

"No market study FERC could have done would have predicted that there would have been record cold and a gas crisis in Texas in the year 2021, three or four years later. That's the business judgment of the company," he said.

Franklin also said that all of the alternatives to the Spire pipeline FERC considered involved building additional facilities.