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DC Circuit moves to vacate Spire STL certificate; finds FERC scrutiny lacking

Highlights

Case centered on FERC reliance on single affiliate contract

Faults FERC for 'ostrich-like approach' to evidence

Agreeing with the Environmental Defense Fund, a panel of the US Court of Appeals for the District of Columbia Circuit June 22 decided to vacate the certificate for the Spire STL Pipeline, finding FERC refused to seriously engage arguments challenging the weight of an affiliate precedent agreement in establishing the need for the project.

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At issue is the 65-mile Spire STL project, designed to move 400,000 Dt/d of gas from the Rockies Express Pipeline system into the St. Louis Area. FERC approved the project in a split vote August 2018 and placed it into service in November 2019.

The decision comes as the debate has been ongoing for several years over the degree to which FERC must look beyond precedent agreements in assessing the market need for projects, but the ruling distinguishes the facts in this case from others in which the court found in FERC's favor.

The ruling does not immediately affect the Spire pipeline operations because the court withheld issuance of the mandate in the case for seven days after disposition of a petition for hearing or rehearing en banc, should Spire seek rehearing. But the ruling could ultimately force a shutdown, once the court's mandate issues, said Gary Kruse of ArboIQ, with timing potentially contingent on efforts, stay the court's mandate and further appeals.

Spire STL in an emailed statement June 22 said it was disappointed, calling the ruling "a decision that would be detrimental to communities throughout eastern Missouri," while adding that Spire was "currently reviewing the order and considering next steps."

"We have trusted and relied upon the established FERC process and precedent to build and operate the STL Pipeline, but three years after approval was granted by the FERC, it appears that reliable and critical energy access to 650,000 homes and businesses throughout the St. Louis region now could be in jeopardy," Spire said.

According to S&P Global Platts Analytics, deliveries on Spire STL to local distribution companies have averaged 95 MMcf/d this year and reached as high as 312 MMcf/d only once so far in 2021, February 21, during the record cold snap across the Midwest.

EDF petitioned for a review of FERC's August 2018 certificate authorization of the project and its November 2019 decision to deny rehearing. The group contended FERC relied on information presented by Spire, about a contract between the company and its affiliate covering 87.5% of the output, as sufficient evidence of project need when FERC should have rigorously assessed whether market conditions warranted approving the project. Enable Mississippi River Transmission 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.

Panel ruling

The DC Circuit panel agreed with EDF that FERC refused to seriously engage with non-frivolous arguments challenging the probative weight of Spire's evidence.

"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," said the decision, written by Senior Court Judge Harry Edwards (Environmental Defense Fund v. FERC, 20-1016).

In deciding on the remedy, the court acknowledged that vacating the certificate may be disruptive, but said it "identified serious deficiencies" in FERC's orders in the case and that the commission's ability to "rehabilitate its rationale" was "not at all clear to us at this juncture." The court added it did not wish to give FERC incentive to allow building first and conducting comprehensive reviews later.

Considering debate over establishing market need, the court said the law does not go so far, as FERC and the pipeline suggested, as to stand for the broad proposition that FERC need not generally look behind precedent agreements and that affiliate contracts should be treated the same as unaffiliated contracts.

The court sought to distinguish its prior rulings. In the City of Oberlin case involving the Nexus Gas Transmission project, the pipeline applicant had entered into four precedent agreements with affiliate shippers but had entered eight precedent agreements in total, the court noted, saying the facts are easily distinguishable and evidence of market demand was much stronger than in the Spire case which had a single precedent agreement.

Debate over self-dealing

In this case, the court said EDF and others "identified plausible evidence of self-dealing," and FERC's failure to engage with the evidence did not satisfy requirements of reasoned decisionmaking.

"FERC's ostrich-like approach flies in the face of the guidelines set forth in the certificate policy statement," the ruling said.

The court also found FERC failed to adequately balance public benefits and adverse impacts, describing that as a serious problem in a case in which there was no new load demand and only one affiliated shipper. FERC pointed to no concrete evidence to support certain assertions about the benefits of the project as part of its balancing test, the court said.

Upon rehearing, "instead of evaluating the legitimate claims that had been raised, the commission simply stated that it had 'no reason to second guess the business decision of' Spire Missouri as reflected in the precedent agreement," the court said.

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