Court decision could shut Spire STL line, change FERC pipeline reviews

In the wake of a federal appeals court's decision to vacate the Natural Gas Act certificate for Spire Inc.'s Spire STL Pipeline LLC gas transportation project, industry experts disagreed over whether the Federal Energy Regulatory Commission would ultimately close down the pipeline.

Siding with the Environmental Defense Fund, a panel of the U.S. Court of Appeals for the District of Columbia Circuit on June 22 found that FERC had not adequately responded to arguments challenging the weight of an affiliate precedent agreement in establishing the need for the Spire STL pipeline near St. Louis.

The ruling did not immediately affect Spire pipeline operations, but FERC planned to review it and consider "what action might be appropriate."

"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," FERC Chairman Richard Glick said in a June 22 statement. As a commissioner, Glick dissented from the approval of the Spire STL project over the need for the pipeline.

For some analysts, the FERC chairman's comments signaled that the commission might incline toward shuttering Spire STL. Clearview Energy Partners wrote in a June 22 note that a "shut down currently looks to be more a question of when than if," given the court's conclusion that FERC's "ability to [rehabilitate its rationale] is not at all clear to us at this juncture." (Environmental Defense Fund v. FERC, 20-1016)

On the other hand, FERC has generally avoided closing operational pipelines and received strong blowback from the pipeline industry for reopening a docket for an in-service gas compressor station in Massachusetts. The commission approved the 65-mile Spire STL project, designed to move 400,000 Dth/d of gas from the Rockies Express Pipeline LLC system into the St. Louis area, in a split vote in August 2018. The pipeline began service in November 2019.

"Despite the intuitive reaction that we're hearing from a lot of folks ... I have not seen the agency lean to make market-disrupting decisions," FiscalNote Markets Managing Director Katie Bays said in an interview.

A local rival to Spire STL, Enable Mississippi River Transmission LLC, or MRT, and the Missouri Public Service Commission raised objections during the FERC review that the Spire project was unneeded and would negatively impact St. Louis gas market competition. Clearview noted that MRT "lost a substantial customer when [Spire gas utility] Spire Missouri Inc. moved its service to Spire STL, injuring that existing pipeline financially."

Analysts at Mizuho Securities USA LLC, however, agreed with Bays that the commission will likely allow the pipeline to continue to operate. "We do not believe the court's ruling indicates a wider objection to LDCs contracting volumes on affiliated pipelines," they told clients June 22. "Rather, we view this as an isolated incident related to the FERC's decision-making processes."

In Spire STL's case, Mizuho noted that FERC could use the asset's "critical role in securing less-expensive natural gas supply from the Appalachia region during February's Winter Storm Uri" to justify the fundamental need for the pipeline.

According to S&P Global Platts Analytics, deliveries on Spire STL to local distribution companies averaged 95 MMcf/d this year. The deliveries reached as high as 312 MMcf/d on Feb. 21 during the record cold snap across the Midwest.

FiscalNote's Bays said the court's decision was not necessarily a one-time defeat for precedent agreements as proof of the need for a pipeline. "FERC is becoming more suspicious of its own position toward precedent agreements, and this decision underwrites that."

"I'm getting the sense from investors that this decision feels like it kind of comes out of left field and ... the conclusion is that this is a very Spire-focused issue," Bays continued. "I don't think that's right because the use of precedent agreements is a broad FERC issue, and I think ... FERC will revisit how it evaluates need."

S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Market Intelligence.