FERC Affirms Approval of Spire Project

In Dissent, Glick Criticizes Majority’s Reliance on Precedent Agreement Between Affiliates
Mark Reishus
November 26, 2019 at 14:38:56 ET
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On Nov. 21, 2019, FERC affirmed an Aug. 3, 2018 order authorizing Spire STL Pipeline LLC (Spire STL) to construct and operate the Spire STL Pipeline Project (Spire Project) extending from an interconnection with Rockies Express Pipeline LLC (REX) in Scott County, Illinois, to interconnections with both Spire Missouri Inc. and Enable Mississippi River Transmission LLC (MRT), in St. Louis, Missouri. As he did with the underlying order, Commissioner Richard Glick attached a separate, dissenting statement. According to Glick, this order on rehearing turns the requirement in section 7(c) of the Natural Gas Act (NGA) that a pipeline developer demonstrate a need for its project “into a meaningless check-the-box exercise.”

Certificate Order

In Spire STL Pipeline LLC, Order Issuing Certificates, 164 FERC ¶61,085 (2018) [Docket Nos. CP17-40-000 and CP17-40-001] (Certificate Order), FERC concluded that “the benefits that the Spire … Project will provide to the market, including enhanced access to diverse supply sources and the fostering of competitive alternatives, outweigh the potential adverse effects on existing shippers, other pipelines and their captive customers, and landowners or surrounding communities. Consistent with the criteria discussed in [Certification of New Interstate Natural Gas Pipeline Facilities, 88 FERC ¶61,227 (1999) (Certificate Policy Statement)] and NGA section 7(e), and subject to the environmental discussion [in the Certificate Order], we find that the public convenience and necessity requires approval of Spire’s proposal, as conditioned in [the Certificate Order].”

In reaching this conclusion, FERC addressed the question of whether or not Spire STL demonstrated a sufficient need for the Spire Project. Protestors argued that Spire STL failed to meet this requirement for the following reasons: (1) a single precedent agreement with an affiliated local distribution company (LDC), i.e., Spire Missouri, is inadequate to demonstrate project need; (2) the project does not serve an increase in demand for natural gas in the St. Louis market; (3) existing infrastructure can meet the project purposes; (4) similar, previously proposed projects were rejected by Spire Missouri; (5) the precedent agreement entered into by Spire Missouri will not be reviewed by the Missouri Public Service Commission (Missouri PSC) until after the project is in service; and (6) Spire Missouri’s decision to contract for capacity to increase system reliability is insufficient to support project need.

In response to these arguments, FERC found that, by filing a long-term precedent agreement with Spire Missouri for 350,000 Dth per day of firm transportation service, approximately 87.5 percent of the proposed project’s capacity, Spire STL “has sufficiently demonstrated that the project is needed in the market that the Spire … Project intends to serve.”

According to FERC, the “fact that Spire Missouri is affiliated with the project’s sponsor does not require the Commission to look behind the precedent agreements to evaluate project need. As the court affirmed in Minisink [Residents for Envtl. Pres. & Safety v. FERC, 762 F.3d 97 (D.C. Cir. 2014) (Minisink)], the Commission may reasonably accept the market need reflected by the applicant’s existing contracts with shippers and not look behind those contracts to establish need. An affiliated shipper’s need for capacity and its obligation to pay for such service under a binding contract are not lessened just because it is affiliated with the project sponsor.” FERC said there was no evidence that Spire STL discriminated against a non-affiliated shipper. “That the precedent agreement was not the direct result of the open season, but stemmed from prior discussions between Spire [STL], Spire Missouri, and their corporate parents is not indicative of abuse or self-dealing. … Moreover, Spire [STL]’s tariff … ensures that any future shipper will not be unduly discriminated against.”

FERC reminded the protestors that its policy “is to not second guess the business decisions of pipeline shippers, LDCs, or end users (unless there is evidence of affiliate abuse), and this is supported by a long line of orders in which we have stated that we are reluctant to do so.” In addition, FERC observed that state regulators have jurisdiction to oversee the prudence and reasonableness of the considerations underlying Spire Missouri’s decision to enter into the precedent agreement. “Further, the Missouri PSC will examine Spire Missouri’s gas supply planning decisions and determine whether Spire Missouri will be permitted to pass through to its retail customers the costs associated with its contract with Spire [STL]. State utility regulators must approve any expenditures by state-regulated utilities, and this includes a prudence review.”

According to FERC, “any attempt by the Commission to look behind the precedent agreements in this proceeding might, in fact, interfere with state regulators’ role in determining the prudence of expenditures by the utilities that they regulate. The Commission’s policy of not looking beyond precedent agreements includes not limiting our reliance on such agreements to those which have been previously approved by a state public service commission. Issues related to Spire Missouri’s ability to recover costs associated with its decision to subscribe for service on the Spire … Project involve matters to be determined by the relevant state utility commissions; those concerns are beyond the Commission’s jurisdiction. Should Spire [STL] elect to construct the project before affirmative action by state regulators, Spire [STL] will be at risk of not being able to recover some, or any, of their costs.”

In his dissent to the Certificate Order, Glick asserted that the record does not demonstrate a sufficient need for the project. The precedent agreement with Spire Missouri “does not reflect any incremental demand or market growth …. Rather, [it] reflects a desire to shift Spire Missouri’s firm transportation capacity from an existing pipeline with [MRT] to the Spire Project.” Although the parties dispute whether the project will result in cost savings to Spire Missouri, “the majority declines to require a market study which could have helped answer this question. The majority should either reach a determination regarding these economic claims or find that there are material issues of fact in dispute and send the case to hearing.”

Glick also pointed out that, “despite the majority’s expressed confidence that Spire Missouri’s precedent agreement will be reviewed by state regulators, the Missouri PSC itself asserts an inability to conduct a prudence review prior to the Commission’s certificate authorization.”

In addition, Glick expressed concern about adverse financial effects on existing pipelines and their captive customers. “The majority acknowledges that existing pipelines will likely see a drop in utilization once supplies begin to flow on the Spire Project. … With no growth in market demand in the St. Louis region, there is real concern that existing pipelines would not be able to develop new business and make up for the loss of Spire Missouri. While the Commission does not and should not protect incumbent pipelines from a risk of loss of market share, adverse impacts on the incumbent pipeline in this case are relevant to whether the project need established by the precedent agreement outweighs the overall project’s adverse effects. In this case, where need has not been demonstrated, I believe that adverse effects on incumbent pipelines and their captive customers outweigh benefits.”

Glick warned of the danger of overbuilding into a region that cannot support additional pipeline infrastructure. “Pipelines are long-lived assets and we should be careful not to authorize infrastructure that is not needed. The Commission has not established need, and has not shown the pipeline’s benefits outweigh its harms. I do not find the proposed project is required by the public convenience and necessity.”

Finally, Glick asserted that FERC’s obligation to balance a project’s public benefits against residual adverse effects “is not simply a mantra to recite, but a standard that must be met to find a project in the public convenience and necessity. In light of the lack of demonstrated need, potential adverse economic and operational impacts, unnecessary use of eminent domain, and avoidable environmental impacts, I cannot make that finding in this case. For these reasons, I respectfully dissent.”

Requests for Rehearing

The Environmental Defense Fund, Missouri PSC and Juli Viel filed timely requests for rehearing of the Certificate Order. (So did MRT, but then withdrew its request.)

The Environmental Defense Fund argued that FERC: (1) inappropriately relied on the precedent agreement to establish need; (2) failed to find sufficient need for the project in order to prevent overbuilding; (3) failed to explain how approval of the project will not impact Missouri PSC’s review of utility costs; (4) did not balance the impacts of the project on existing pipelines and their customers; and (5) did not balance the impacts of the project on landowners and the environment.

Missouri PSC argued that the 14 percent return on equity FERC approved for service on the project is unsupported by substantial evidence and will result in excessive rates.

Viel argued that FERC’s environmental review of the project was inadequate.

Reliance on Precedent Agreement

In response to the Environmental Defense Fund’s first argument, FERC affirmed the Certificate Order’s finding that the Commission is not required to look behind precedent agreements to evaluate project need, regardless of the affiliate status of project shippers.

FERC cited Minisink, where the court held the Commission may reasonably accept the market need reflected by the applicant’s existing contracts with shippers. The fact that Minisink did not involve precedent agreements with affiliates “is a distinction without a difference. The D.C. Circuit has subsequently upheld the Commission’s reliance on precedent agreements to support a finding of market need in a case that did involve affiliates, stating that ‘the fact that the agreements are with corporate affiliates does not render [the Commission’s] decision to rely on these agreements arbitrary and capricious.’ … Appalachian Voices v. FERC, No. 17-1271, at 3 (D.C. Cir. Feb. 19, 2019); see City of Oberlin, Ohio v. FERC, 937 F.3d 599, 605 (D.C. Cir. 2019) (finding petitioners’ argument that precedent agreements with affiliates are not the product of arms-length negotiations without merit, because the Commission explained that there was no evidence of self-dealing and stated that the pipeline would bear the risk of unsubscribed capacity).”

Moreover, FERC said, “it is current Commission policy not to look behind precedent or service agreements to make judgments about the needs of individual shippers. Likewise, Minisink … confirms that nothing in the Certificate Policy Statement, nor any precedent construing it, indicates that the Commission must look beyond the market need reflected by the applicant’s contracts with shippers.”

According to the Commission, “[a]ffiliation with a project sponsor does not lessen a shipper’s need for capacity and its contractual obligation to pay for its subscribed service.” As long as precedent agreements are long term and binding, FERC will not distinguish between those with affiliates and those with independent marketers when establishing market need for a proposed project. “The Commission evaluated the record and did not find evidence of impropriety or self-dealing to indicate anti-competitive behavior or affiliate abuse. The Commission is not in the position to evaluate Spire Missouri’s business decision to enter a contract with Spire STL for natural gas transportation, which … will be evaluated by the state commission.” If FERC looks behind precedent agreements entered into by state-regulated utilities, “it would infringe upon the role of state regulators in determining the prudence of expenditures by the utilities that they regulate.”

FERC also noted that the majority of the Environmental Defense Fund’s arguments concerning anticompetitive behavior and discrimination involve allegations against the affiliated shipper, Spire Missouri, rather than the applicant, Spire STL. “We affirm the Certificate Order’s finding that Spire Missouri is not regulated by this Commission and thus we have no authority to dictate its practices for procuring services. Our jurisdiction does not extend to costs incurred by LDCs or the rates they charge to their retail customers. State regulatory commissions are responsible for approving any expenditures by state-regulated utilities.”

Prevention of Overbuilding

In response to the argument raised by the Environmental Defense Fund and Glick that the Certificate Order failed to address the issue of potential overbuilding, FERC said long-term precedent agreements are better evidence of demand than uncertain projections regarding future demand.

“We recognize that the current load forecasts for the St. Louis market area are flat and that the capacity created by the Spire Project will enable a diversification of supply alternatives, rather than necessarily supply additional volumes of gas to serve new demand. However, where, as here, it is demonstrated that a specific shipper has entered into precedent agreements for project service, the Commission places substantial reliance on those agreements to find that the capacity to be provided by the project is needed.”

Spire Missouri offered several reasons other than load growth for entering into the precedent agreement with Spire STL, “including: the ability to access supplies flowing on REX with direct access to a liquid supply point in close proximity to its distribution system and away from a seismic zone; enhancing the reliability of its system; the inability of current pipelines to provide an additional 350,000 Dth/day of firm transportation service; and the planned retirement of its propane peaking facilities and replacement with pipeline capacity.” FERC found these benefits “sufficient to overcome any concerns of overbuilding.”

Certification's Impact on Missouri PSC

FERC asserted that the Environmental Defense Fund “misunderstands the Commission’s and Missouri PSC’s responsibilities. First … the Commission found that the Spire Project is required by the public convenience and necessity. The Commission did not delegate or attempt to delegate its NGA section 7 authority to any other entity. Second, the Commission evaluates whether there is any inappropriate self-dealing between a pipeline and its affiliate. As explained above, the Commission finds that Spire STL did not engage in anticompetitive behavior or affiliate abuse. The Certificate Order delegated none of these responsibilities to the Missouri PSC.”

Spire Missouri’s ability to recover from its customers costs associated with its decision to subscribe for service on the Spire Project is the concern of Missouri PSC, not FERC. In the Certificate Order, FERC found that Missouri PSC’s processes protect Spire Missouri’s customers from imprudently incurred costs. “It is for this reason that the Certificate Order concluded that any attempt by the Commission to look behind the precedent agreements in this proceeding might infringe upon the role of state regulators in determining the prudency of expenditures by the utilities that they regulate. Our finding in no way diminishes Missouri PSC’s processes for protecting customers from excessive rates or imprudently incurred costs. … We reiterate that matters relating to Spire Missouri’s retail rates are matters for the Missouri PSC and are beyond the scope of an NGA section 7 proceeding.”

Adverse Impacts on Existing Pipelines

When FERC authorized the Spire Project, it acknowledged that the new pipeline was not meant to serve new demand and that existing pipelines in the area, particularly MRT, will likely see a drop in utilization once natural gas supplies begin to flow on the Spire Project.

However, FERC noted that Spire Missouri’s contracts with MRT reached or are approaching the end of their terms. “The Certificate Order evaluated cost differences of gas delivered to Spire Missouri from both the Spire Project and MRT’s existing system and found that the differences in costs were not materially significant. The extent to which the Spire Project will provide economic and rate benefits to Spire Missouri’s customers, all go to the reasonableness and prudence of Spire Missouri’s decision to switch transportation providers. All of those issues fall within the scope of the business decision of a shipper. Thus, we find Spire Missouri’s evaluation of its contracts appropriate and will not second guess the business decisions of an end user.”

FERC asserted that there is no evidence demonstrating that unsubscribed capacity on MRT’s system is the result of unfair competition. “The Commission has an obligation to ensure fair competition and we have done so here. The Certificate Policy Statement holds that the Commission must recognize a new project’s impact on existing pipelines serving the market, but this recognition ‘is not synonymous with protecting incumbent pipelines from the risk of loss of market share to a new entrant.’ [Certificate Policy Statement, 88 FERC ¶61,277 at 61,748] Therefore, we affirm the Certificate Order’s finding that unless a petitioner provides evidence of anticompetitive behavior, and here petitioners have not, it is not the role of the Commission to protect pipelines from new entrants when they offer a new opportunity for a shipper.”

FERC said it refrains “from second guessing the business decisions of LDCs to achieve what they deem to be more desirable service from new suppliers, and relie[s] on the fact that state public service commissions will assure that any cost shifting effects that do occur at the state level will be allocated reasonably and in accord with state goals and policies.”

Harm to Landowners and Communities

FERC insisted that the Certificate Order properly balanced the project’s benefits against the adverse impacts on landowners, including the use of eminent domain.The Commission concluded that Spire [STL] had taken sufficient steps to minimize adverse economic impacts on landowners and surrounding communities.”

According to FERC, “Spire STL worked to minimize impacts on landowners by: locating the pipeline on less-developed areas to reduce the overall impact to residential areas; reduc[ing] the pipeline construction right of way width to avoid or minimize impacts on residences; compensat[ing] landowners for crop production losses in accordance with terms of individual landowner agreements, due to the loss of one growing season as a result of pipeline construction; and working to address new and ongoing landowner and community concerns and input.” In addition, Spire STL committed “to make good faith efforts to negotiate with landowners for any needed rights, and to resort only when necessary to the use of the eminent domain.”

FERC observed that Spire STL has been unable to reach easement agreements with many landowners. “[H]owever, for purposes of our consideration under the Certificate Policy Statement, we affirm the Certificate Order’s finding that Spire STL has taken sufficient steps to minimize adverse impacts on landowners and surrounding communities.”

Return on Equity

Missouri PSC argued that FERC abdicated its responsibility to carefully scrutinize Spire STL’s initial rates and protect consumers when it set a 14 percent ROE.

FERC disagreed. “We find that setting a 14 percent ROE in no way abdicates the Commission’s responsibilities described in [Atlantic Refining Co. v. Public Service Commission of New York, 360 U.S. 378 (1959) (CATCO)]. In CATCO, the Court contrasted the Commission’s authority under NGA sections 4 and 5 to approve changes to existing rates using existing facilities with its authority under section 7 to approve initial rates for new services and services using new facilities. The Court recognized ‘the inordinate delay’ that can be associated with a full-evidentiary rate proceeding and concluded that was the reason why, unlike sections 4 and 5, NGA section 7 does not require the Commission to make a determination that an applicant’s proposed initial rates are or will be just and reasonable before the Commission certificates new facilities, expansion capacity, and/or services.”

According to FERC, it is required under CATGO “to ‘evaluate all factors bearing on the public interest,’ and an applicant’s proposed initial rates are not ‘the only factor bearing on the public convenience and necessity.’ Thus, as explained by the Court, ‘Congress, in [section] 7(e), has authorized the Commission to condition certificates in such manner as the public convenience and necessity may require when the Commission exercises authority under section 7,’ and the Commission therefore has the discretion in section 7 certificate proceedings to approve initial rates that will ‘hold the line’ and ‘ensure that the consuming public may be protected’ while awaiting adjudication of just and reasonable rates under the more time-consuming ratemaking sections of the NGA.”

When establishing initial recourse rates, FERC accepts the pipeline’s cost components if they are reasonable and consistent with Commission policy. “For new pipelines, the Commission has determined that equity returns of up to 14 percent are acceptable as long as the equity component of the capitalization is no more than 50 percent. The Certificate Order applied the Commission’s established policy, which balances both consumer and investor interests, in establishing Spire STL’s initial rates.”

FERC also disagreed with Missouri PSC’s argument that it must reevaluate the ROE because Spire STL only contracted with an affiliate. “As stated above, the Commission has determined that, for new pipelines, equity returns of up to 14 percent are reasonable until such time as the ROE may be further evaluated in an NGA section 4 or 5 proceeding.”

Missouri PSC argued that the Commission’s policy of granting a 14 percent ROE to new entrants incentivizes unnecessary new pipeline construction. In response, FERC said there is no evidence for this assertion. “As discussed, the Commission conducts a separate public needs determination and is satisfied that there is demand for the Spire Project. Moreover, the Commission requires that initial rates be designed on 100 percent of the design capacity of the project, thereby placing the risk of underutilization on the pipeline.”

Environmental Review

In response to Viel’s assertion that FERC’s environmental review of the proposed project was inadequate, FERC declared that the environmental assessment (EA) prepared for the proposal properly assessed the Spire Project’s purpose and reasonable alternatives. “The EA did not narrowly interpret the project purpose so as to preclude consideration of other alternatives.”

FERC disagreed with Viel’s claim that it accepted without questioning Spire STL’s assertion that there is a need for the project. “Ms. Viel appears to conflate the Commission’s acceptance of Spire STL’s description of the purpose of and need for the project for the purposes of the required [National Environmental Policy Act (NEPA)] review with the Commission’s determination of ‘public need’ under the public convenience and necessity standard of section 7(c) of the NGA.”

When determining public need, FERC said it “balances public benefits, including market need, against project impacts to captive retail customers, existing pipelines and their customers, and landowners and communities. The EA appropriately explained that some issues presented by commenters about the project purpose were beyond the scope of the environmental document (i.e., harm to existing pipelines and their customers); under NGA section 7(c), the final determination of the need for the projects lies with the Commission (whereas the EA is a staff document). Neither NEPA nor the NGA requires the Commission to make its determination of whether the project is required by the public convenience and necessity before its final order.”

FERC also asserted that it appropriately evaluated a no-action alternative for the project. “The EA found that taking no action would avoid adverse environmental impacts, but would fail to fulfill the objective of the proposed project. The EA recognized that the project was not developed to serve new demand; rather, the purpose of the project is to increase diversity of supply sources and transportation paths to lower delivered gas costs, improve security and reliability of supply, and achieve an operationally superior peak-shaving strategy. Accordingly, we affirm the EA’s recommendation that adoption of the no-action alternative is not appropriate.”

Viel argued that FERC failed to account for the indirect impacts of upstream natural gas production, downstream greenhouse gas (GHG) emissions, and the resulting climate change impacts from these emissions. “The Certificate Order discussed why NEPA does not require the Commission to analyze the environmental impacts from upstream natural gas development as indirect impacts. On rehearing, Ms. Viel raises no new arguments disputing the Commission’s reasoning; therefore, we need not address them in detail here. Further, Ms. Viel fails to acknowledge, much less identify error with, the Commission’s analysis of either the estimated upstream or downstream impact analyses.” FERC affirmed the Certification Order’s determination “that the potential increase of [GHG] emissions associated with the production, processing, distribution, or consumption of gas are not indirect impacts of the Spire Project.”

Glick's Criticism of Finding of Need

According to Glick, the Certificate Policy Statement obligates FERC to consider all relevant factors reflecting on the need for the project and balance the evidence of need against the project’s adverse impacts. “Today’s order, however, falls well short of that standard, failing utterly to provide the type of meaningful assessment of need that Commission precedent and the basic principles of reasoned decisionmaking require.”

Glick said the evidence suggests that the Spire Project “is more likely an effort to enrich the shared corporate parent of [Spire STL] and its only customer, Spire Missouri … than a response to a genuine need for new energy infrastructure. Yet today’s order refuses to engage with that evidence or seriously consider the arguments against giving the Spire [Project] the Commission’s stamp of approval. As a result, the Commission’s conclusion that the Spire [Project] is required by the public convenience and necessity is arbitrary and capricious.”

Whatever probative weight that the precedent agreement between Spire STL and its affiliate has, “the Commission cannot simply point to the agreement’s existence and then ignore the evidence that undermines the agreement’s probative value. In so doing, the Commission ignores arguably the most import aspect of the problem in this case: Whether the precedent agreement on which it rests its entire determination of need actually tells us anything about the need for this pipeline.”

Neither Spire Missouri nor Spire STL “has explained why the capacity available on the pre-existing pipeline, owned by [MRT], is not sufficient to meet Spire Missouri’s needs. In short, the record does not contain any evidence — let alone substantial evidence — suggesting a need for additional interstate natural gas pipeline capacity in the St. Louis region.”

Glick pointed out that the majority does not even claim that the project will reduce the cost of natural gas delivered to the region. In fact, it concluded that the natural gas transported on the project would not be any cheaper than that transported through existing infrastructure. “Nor does the record show that the Spire [Project] would meaningfully diversify Spire Missouri’s access to different sources of natural gas. Although Spire STL claimed that the project might access new supplies, MRT convincingly explained how its existing pipeline could provide access to the same natural gas basins — an explanation that today’s order does not rebut.”

Instead of carefully scrutinizing the record to determine whether the project is actually needed or just financially advantageous to the Spire companies, the majority finds the existence of the precedent agreement sufficient, in and of itself, to demonstrate that the project is needed, no matter the contrary evidence. FERC’s “failure to consider that contrary evidence renders today’s order arbitrary and capricious and not the product of reasoned decisionmaking.”

Glick conceded that a precedent agreement can serve as an important indicator of need. However, “an agreement between two affiliates carries less weight because that agreement will not necessarily be the result of the two parties’ independent business decisions or reached through arms-length negotiations. When viewed in light of the considerable record evidence casting doubt on the need for the Spire [Project], I do not believe that the precedent agreement between Spire Missouri and Spire STL is sufficient — on its own — to satisfy Spire STL’s burden to show that the project is in the public interest and required by the public convenience and necessity. Accordingly, I would deny its application for an NGA section 7 certificate.”

Glick suggested that it is not necessary to agree to his interpretation of the record to see why the majority’s reasoning is arbitrary and capricious. “By focusing only on the presence of a precedent agreement between Spire Missouri and Spire STL and refusing to consider the evidence suggesting that the Spire [Project] is primarily an effort to benefit the Spire corporate family, today’s order fails to consider ‘an important aspect of the problem’ and is arbitrary and capricious.”

In addition, the majority unreasonably applied the Certificate Policy Statement, Glick said. “Contrary to the suggestion in today’s order, the 1999 Certificate Policy Statement never adopted the position that the Commission would not look behind precedent agreements, at least in some circumstances. And it certainly never suggested that a single precedent agreement between affiliated entities could excuse a full review of the record, particularly where that record raised doubts about whether unaffiliated parties would have entered the same agreement.”

Glick argued that, if the Commission had believed that precedent agreements were always sufficient to establish the need for a project, there would have been no need for it to list in the Certificate Policy Statement the other types of evidence it considers alongside precedent agreements. “To the extent that the Commission relies on its 1999 Certificate Policy Statement as support for its refusal to look behind the single precedent agreement in this proceeding, its explanation is arbitrary and capricious.”

Glick also asserted that the court precedent cited by the majority at best stands for the proposition that basing a finding of need on precedent agreements among affiliates is not inherently unreasonable. “Those cases certainly do not stand for the proposition that relying on a precedent agreement among affiliates is always reasonable or will always be a sufficient basis to find need.” The cited cases “expressly did not address the situation in which the record contained evidence of potential self-dealing or evidence that the affiliated parties may have had ulterior motives for entering the relevant precedent agreement. Here, by contrast, there is considerable evidence indicating that Spire Missouri’s decision to enter into a precedent agreement with Spire STL may have been motivated more by a desire to benefit the Spire corporate family than a response to a genuine need for a new pipeline.”

The principal point of Glick’s dissent “is that the record before us suggests that it is unreasonable to rely on the Spire Missouri-Spire STL precedent agreement because of all the record evidence indicating that it should not be taken at face value. The weight that the Commission places on a series of cases that, by their own measure, do not touch the circumstances before us is some of the best evidence yet that the Commission’s issuance of an NGA section 7 certificate was not the product of reasoned decisionmaking.”

Glick also criticized the majority’s repeated attempts “to pass the buck to the Missouri PSC using the theory that looking behind a precedent agreement would ‘infringe’ on state regulators’ prudence reviews.” He noted that the state agency “expressly argued that a precedent agreement among affiliates will not always be dispositive of need and that the Commission must ‘carefully review’ the need for the Spire [Project]. Moreover, although the Missouri PSC has authority to conduct a prudence review of Spire Missouri’s decision to take service from Spire STL rather than another pipeline, that review takes the Commission-jurisdictional rates as a given and will not necessarily be able to address whether it was prudent to build the pipeline in the first place.” A state agency’s review of the affiliated customer’s contracting decisions “is not a substitute for the Commission’s assessment of need.”

Glick pointed out an internal inconsistency in the majority’s reasoning. Its entire argument for why the project is needed rests on the prudence of Spire Missouri’s decision to enter into a precedent agreement with Spire STL, “a decision that, by its own admission, the Commission lacks authority to evaluate. The practical effect of the approach in today’s order is that no regulatory body would ever be able to conduct a holistic assessment of the need for a proposed pipeline simply by virtue of the fact that Congress divided jurisdiction over the natural gas sector between the federal and state governments. As I explained in my dissent from the Certificate Order, if we are really going to ‘abdicate this responsibility to state commissions, then Congress might as well return responsibility for the entire siting process to the states, as there would be little remaining purpose to Commission review of proposed pipelines.’ ”

The majority’s recitation of non-capacity benefits of the project left Glick somewhat mystified. “For one thing, it does not change the fact the Commission’s position is that the precedent agreement itself is the basis for its determination of need. In any case, the Commission recites the supposed non-capacity benefits of the project and then characterizes those issues as ones that fall within the scope of a shipper’s ‘business decision.’ As best as I can tell, that phrase is intended to suggest that those other purported benefits could potentially have supported Spire Missouri’s decision to enter into an agreement with Spire STL and so the Commission will not question that agreement.”

When disinterested decisionmaking and/or arms-length negotiations between the contracting parties are not present, the majority’s invocation of the phrase “business decision” is problematic. That Spire Missouri will pass its costs to its captive customers “means that there is little risk that the affiliates’ shared corporate parent will not recover its investment in the Spire Pipeline plus a handsome rate of return. As a result, the financial risk that typically disciplines a business’s judgment simply is not present in the same way. Accordingly, although the precedent agreement is technically the result of a business decision, it does not have anywhere near the probative value of an agreement reached through an arms-length transaction with actual money seriously at risk. The Commission, however, never wrestles with those concerns, instead simply repeating its talismanic phrase.”

Inadequate Consideration of Impacts

Glick argued that the majority failed to adequately balance the project’s benefits and adverse impacts. “The Certificate Order included a single conclusory sentence stating that the benefits outweigh the potential impacts and today’s order reaches the same conclusion in a similarly terse fashion.”

Glick noted that Spire STL apparently has prosecuted eminent domain actions against roughly 40 percent of the relevant landowners in Missouri and 30 percent of the relevant landowners in Illinois. “It should go without saying that such extensive use of eminent domain has a considerable effect on landowners and surrounding communities. The Commission, however, made no effort to weigh the harm caused by the then-likely, and now actual, use of extensive eminent domain or explain why the benefits of the Spire [Project] outweighed those potential adverse impacts.” The failure to consider these adverse impacts “is an arbitrary and capricious unexplained departure from the balancing required by the 1999 Certificate Policy Statement.”

Another adverse impact Glick believes the majority inadequately considered is the substantial rate increases to be paid by MRT’s remaining customers. Although FERC “is not in the business of protecting existing pipelines from competition, we are very much in the business of protecting customers — a task that we cannot accomplish if we refuse to consider the impact of a new pipeline on existing customers. When the record indicates that building a new pipeline will harm existing customers, as it does here, the Commission must carefully consider that evidence and weigh it against the purported benefits of the pipeline. Refusing to do so by framing any such inquiry as amounting to the protection of an incumbent pipeline ignores one of the Commission’s fundamental responsibilities under the NGA and is arbitrary and capricious.”

Where the evidence of need is “extremely limited, as it is here, the Commission must carefully scrutinize the adverse impacts to ensure that they do not actually outweigh the need for the project and whatever benefits it might provide. Nothing in today’s order indicates that the Commission conducted that careful assessment or considered the strength of Spire STL’s demonstration of need when assessing whether the Spire [Project]’s benefits outweigh its adverse impacts, as required by the 1999 Certificate Policy Statement. For that reason too, today’s order is arbitrary and capricious.”

Unfairness to Litigants

Glick concluded his dissent by criticizing the Commission for delaying action on the rehearing requests, as well as a motion for stay filed by Viel, for nearly 15 months after they were filed and more than a year after it granted Spire STL’s request to begin construction of its pipeline.

“While rehearing was pending — and before any party had an opportunity to challenge the Commission’s decision in court — Spire [STL] disturbed what … the Certificate Order estimated to be over 1,000 acres of land and brought eminent domain proceedings against over 100 distinct entities. … Those eminent domain proceedings all took place when the Commission’s order was ‘final enough for [the pipeline] to prevail in an eminent domain action,’ but ‘non-final’ for the purposes of judicial review. [Allegheny Def. Project v. FERC, 932 F.3d 940, 949 (2019) (D.C. Cir. 2019) (Millett, J., concurring) (Allegheny Defense Project).]”

Glick argued that this “is fundamentally unfair. Although the rehearing requests in this proceeding were not filed by landowners fighting eminent domain, as they were in Allegheny Defense Project, and therefore do not implicate identical due process concerns to those at issue in that case, good government is about more than meeting the absolute minimum of constitutional due process.”

Several parties “were stuck in limbo, unable to even seek judicial relief, while Spire STL seized land and proceeded to build the pipeline. A regulatory construct that allows a pipeline developer to build its entire project while simultaneously preventing opponents of that pipeline from having their day in court ensures that irreparable harm will occur before any party has access to judicial relief. That ought to keep every member of this Commission up at night.”

The majority dismissed as moot Viel’s request for a stay pending rehearing when it addressed the rehearing requests. Glick found this to be “a level of bureaucratic indifference that I find hard to stomach.”

Glick argued that FERC can and should “do better. After all, there were plenty of options available for the Commission to act before irreparable harm occurred. For example, it could have stayed the project pending its decision on rehearing, either on its motion or by granting Ms. Veil’s request.” Alternatively, FERC could have refrained from issuing its standard tolling order and allowed the rehearing requests to be denied by operation of law. “Either approach would have given the parties an opportunity to pursue their day in court before Spire STL built the project. Instead, by relying on what Judge Millett correctly described as ‘twisted … precedent’ and a ‘Kafkaesque regime,’ the Commission has guaranteed substantial irreparable harm occurs before any party can even set foot in court.”

For More Information

See ¶608-2: Certificate Proceedings for more information on demonstrating need for proposed interstate natural gas pipeline projects.

Spire STL Pipeline LLC, Order on Rehearing, 169 FERC ¶61,134 (2019) [Docket No. CP17-40-002].