The U.S. Court of Appeals for the District of Columbia made a precedent-setting ruling on Monday, in a pivotal case challenging the Federal Energy Regulatory Commission (FERC) approval of the Spire STL pipeline that would transport gas from Illinois to Missouri.
Several major pipeline projects approved by FERC have been later abandoned.
The ruling is important for two reasons. First, it rejected FERC’s decision to base its finding of necessity for a new pipeline solely on a contract between the pipeline sponsor and its own affiliate company as customer for the gas.
Second, and perhaps most importantly, it chastised FERC for deferring completely to the pipeline sponsor’s judgment regarding pipeline need and failing to conduct any analysis of its own.
IEEFA has documented FERC’s repeated failure to analyze the actual market conditions for interstate gas pipeline projects and its ill-advised reliance on the assertions of pipeline applicants. Several major pipeline projects approved by FERC have been later abandoned. The court’s ruling is consonant with the position that FERC has a regulatory duty to undertake its own analysis of the purported benefits of a project and weigh those benefits against the impacts.
In the Spire STL Pipeline case, the commission had granted a “certificate of public convenience and necessity” for the project in 2018, even though an “open-season” invitation for natural gas shippers to enter into preconstruction contracts, known as “precedent agreements,” had resulted in no takers. After the closing of the unsuccessful invitation for bidders, Spire STL had entered into a precedent agreement with one of its own affiliated companies, now known as Spire Missouri Inc., for 87.5 percent of the pipeline’s projected capacity. The Environmental Defense Fund, buttressed by an amicus brief filed by pipeline decision-making policy expert Susan Tierney, challenged the FERC decision.
The reliance on precedent agreements with affiliated companies has been the subject of much criticism. Indeed, Tierney has noted that FERC has only rejected two pipeline projects, and only because they lacked precedent agreements. Many eyes have been on this case as it worked its way through the judicial system.
The appeals court found that FERC “ignored record evidence of self-dealing” and “failed to seriously and thoroughly conduct the interest-balancing required by its own Certificate Policy Statement.”
The court highlighted the critical difference between asserting that precedent agreements are always important evidence of demand for a project and asserting that such agreements are always “sufficient” to show that the project “is or will be required by the present or future public convenience and necessity,” which is the standard to be met under the Natural Gas Act, 15 U.S.C. §717f(e).
The court further noted that there was “no Commission finding that a new pipeline would reduce costs,” and that FERC had failed to point to any concrete evidence to support its statement that the benefits of the project would outweigh the potential adverse effects on existing shippers, other pipelines and their captive customers, landowners or surrounding communities.
It particularly took issue with FERC’s position that it would “not second guess the business decisions” of the pipeline shipper, determining that the commission failed to seriously engage with the question of whether the pipeline sponsor’s assertion of project benefits were “real or illusory.”
The court overturned FERC’s orders and sent the case back to FERC for further action consistent with the court’s ruling. The court chose to vacate the certificate even though the pipeline is operational, stating that remanding without vacating the order would have given FERC an incentive to allow construction to occur before comprehensive reviews. The parties to the case are considering their legal options, and the fate of the pipeline is not yet known. In the meantime, the ruling is likely to have substantial repercussions for future pipeline decision-making by FERC.
FERC recently held a public comment period for input on its guidance document for decision-making on granting certificates of public convenience and necessity to pipelines. IEEFA has raised concerns about the need for FERC to carry out its statutory duty to analyze pipeline projects. The appeals court decision, which addresses many of the concerns that IEEFA has raised in comments, is likely to have a substantial impact on FERC’s review.
Suzanne Mattei ([email protected]) is an IEEFA energy policy analyst.
IEEFA U.S.: FERC neglects energy needs in pipeline decisions, May 2021
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IEEFA U.S.: FERC gives blank check approval to pipeline builders, while investors and consumers pick up costs, December 2020