Commissioner Richard Glick Dissent on Spire STL Pipeline LLC

Commissioner Richard Glick

August 3, 2018

Docket Nos. CP17-40-000, CP17-40-001

In today’s order, the Commission grants Spire STL Pipeline LLC’s (Spire) request for authorization to construct and operate the Spire STL Pipeline Project (Spire Project).1 Before issuing a certificate of public convenience and necessity under section 7 of the Natural Gas Act (NGA), the Commission must find both that the pipeline is needed, and that, on balance, the pipeline’s potential benefits outweigh its potential adverse impacts.2 The record in this proceeding is patently insufficient to make these determinations, as there is neither evidence that the Spire Project is needed nor that its limited benefits outweigh its harms. Congress’ directive that the Commission determine whether a proposed pipeline is in the public interest surely requires more than the anemic review provided by today’s order.3 I am particularly disappointed with the order because it lends credence to the critique that the Commission does not meaningfully review section 7 applications.

I. The Record Does Not Demonstrate that the Project Is Needed

Today’s order concludes that the Spire Project is needed based on a single precedent agreement between Spire and its local distribution company (LDC) affiliate4 —Spire Missouri—while turning a blind eye to the many concerns raised in the record. Critically, as relevant parties acknowledge,5 the precedent agreement does not correspond to any incremental demand or market growth. Rather, the precedent agreement merely documents Spire Missouri’s intent to shift its firm transportation capacity from an existing pipeline owned and operated by Mississippi River Transmission (MRT) to the Spire Project.6

Precedent agreements are one of several types of evidence that can be valuable in assessing the market demand for a pipeline. However, contracts among affiliates, such as the one at issue in this proceeding, are less probative of need because they are not necessarily the result of an arms-length negotiation.7 There are several potential business reasons why Spire’s corporate parent might prefer to own a pipeline rather than simply take service on it, such as the prospect of earning a 14 percent return on equity rather than paying rates to MRT or another pipeline company.

In addition, the Missouri Public Service Commission (Missouri PSC) points to ample record evidence that casts doubt on whether the precedent agreement actually reflects a need for the Spire Project, such as the fact that demand for natural gas in the St. Louis market is flat and, partly as a result, the several other new pipeline projects that have been proposed to serve the St. Louis area have all failed.8 It is especially noteworthy that Spire Missouri rejected offers to purchase new pipeline capacity from other proposed projects before turning around and entering into an agreement to purchase that capacity from its affiliate.9 To conclude that a precedent agreement between affiliates will always represent accurate, impartial, and complete evidence of need, as the Commission appears to suggest today,10 is to abdicate our responsibility under the NGA.

Under these circumstances, the Commission must consider additional evidence regarding the need for the pipeline. The Commission’s Certificate Policy Statement contemplates a range of additional indicia of need including, but not limited to, “demand projections, potential cost savings to consumers, or comparison of projected demand with the amount of capacity currently serving the market.”11 This evidence would permit the Commission to make an independent assessment of the need for the project, rather than relying entirely on a single precedent agreement between affiliated parties.12

The Commission rejects protestors’ argument that a market study is necessary in order to adequately evaluate the need for a project by observing that “when precedent agreements for a substantial amount of capacity were presented, the Commission has relied on those agreements alone, even between affiliates in the absence of anticompetitive or discriminatory behavior.”13 But it is unclear how the Commission could identify “anticompetitive or discriminatory behavior” so long as it refuses to make any effort to look behind the precedent agreement. The Commission’s uncritical acceptance of the precedent agreement in this proceeding is particularly concerning because the agreement was not the result of an open season, but rather the product of internal discussions between Spire, Spire Missouri, and their corporate parent, which provide no transparent measure of the need for the Spire Project.14

My point is not that precedent agreements are completely irrelevant to the determination of need. But where the parties have raised considerable, credible concerns about whether a precedent agreement is, in fact, a reliable indicator of need, reasoned decisionmaking requires the Commission do more than simply reiterate its policy of accepting precedent agreements at face value. Under these circumstances, the Commission should, consistent with its own Certificate Policy Statement, also consider other evidence to rigorously evaluate whether the project is really needed. Anything less is arbitrary and capricious.

II. The Commission Does Not Adequately Consider the Adverse Impacts of the Spire Project

Even where an applicant has demonstrated that a proposed pipeline is needed—which, again, is not the case here—the Commission may grant a section 7 certificate only where the pipeline’s benefits outweigh its harms.15 When the evidence of project need is limited, the Commission must engage in an especially searching review of the project’s potential harms to ensure that the project is, in fact, in the public interest.16 The relevant harms include adverse effects on existing pipelines and their captive customers as well as on landowners, communities, and the environment. The Commission has failed to adequately weigh those harms in this proceeding.

First, the Commission gives little weight to the Spire Project’s potential effect on MRT and its captive customers, who will be forced to bear additional costs as a result of Spire Missouri’s decision to move its business to the Spire Project.17 The record demonstrates that the captive customers of the existing pipeline system currently serving Spire Missouri could be stuck with a 23 percent increase in cost-of-service, as a result of the Spire Project.18 With demand in the St. Louis region remaining flat, the protestors are right to be concerned that it is unrealistic to expect MRT to make up for Spire Missouri’s exit by attracting new customers and that MRT’s customers will be left with the bill for Spire Missouri’s decision to facilitate an affiliate’s effort to build a new pipeline.

The Commission summarily concludes that it is simply a “logical time” for Spire Missouri to re-evaluate its transportation needs since its contract with MRT was approaching the end of its term.19 But that statement does not relieve the Commission from the NGA’s requirements. Although the Commission is under no obligation to protect incumbent pipelines from a loss of market share, the increased rates that MRT will likely need to charge its captive customers is a concern that goes to the core of the Commission’s statutory responsibilities to evaluate adverse impacts and that, unfortunately, receives far too little weight in today’s order. Given the potential for abuse of an affiliate relationship, the Commission must undertake an especially searching review of the project’s potential harms to ensure that the project is in fact in the public interest, especially when the affiliate precedent agreement is not the product of an open season process, as it was not here.

The Commission suggests that no further review is necessary because state regulatory bodies have the opportunity to conduct a prudence review of affiliated contracts. But no matter how much the Commission may want to limit the scope of the Commission’s inquiry into a proposed pipeline, it cannot escape the NGA’s requirement that the Commission must find that a project is in the public interest. If we 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.

Further, as the Missouri PSC and other protestors point out, state review cannot be an effective backstop in this circumstance.20 The Missouri PSC explains that it has no authority to review and approve an LDC’s gas supply decisions or gas transportation contracts with affiliates prior to construction, meaning that it can evaluate the prudence of Spire Missouri’s decisions only after the new pipeline is in service. That review is no substitute for the Commission’s examination, before the pipeline is constructed, of whether it is in the public interest to proceed with the pipeline in the first place. The risks associated with the Spire Project’s affiliate agreement extend beyond its impact on the retail customer base. For example, despite allegations of possible improper self-dealing among the Spire affiliates, the Commission concludes that Spire did not engage in anticompetitive behavior since it held a binding open season following the negotiation of the affiliate precedent agreement,21 and Spire’s tariff “ensures that any future shipper will not be unduly discriminated against.”22 This approach, in which the Commission abdicates its responsibility by relying on a state review that even the state reviewer itself claims cannot be effective, permits Spire and Spire Missouri to escape meaningful regulatory review. That is not what Congress had in mind when it gave the Commission siting responsibilities under section 7 of the NGA.

None of the Commission’s citations to precedent directly support today’s order. The Commission points to Ruby Pipeline, LLC as an example of where it approved a proposed pipeline whose capacity was subscribed by entities that were shifting their business from another pipeline.23 In Ruby, however, the Commission concluded that any adverse impacts on existing pipelines and their captive customers were the result of “fair competition”24 —a result that, as explained above, we cannot reach here without looking behind the single precedent agreement underpinning the Spire Project. In addition, the record in Ruby indicated that the gas supplies transported by the existing pipeline were declining and that, by bringing new gas supplies to the relevant market, the proposed pipeline could create new business opportunities for the existing pipelines. Here, however, there is no evidence that MRT is facing declining gas supplies or that the Spire Project will create new business opportunities for MRT. Indeed, the absence of any growth in natural gas demand suggests that the opposite is true.

In addition, the Commission suggests that its decision in Eastern Shore Natural Gas Co. supports issuing a certificate to the Spire Project because that proceeding also involved only affiliated precedent agreements, no evidence of increasing market demand, and evidence that the proposed pipeline would reduce receipts of natural gas at one delivery point on an existing pipeline.25 But, as Commissioner LaFleur explains,26 Eastern Shore relied on the Commission’s findings that the proposed pipeline would not affect the existing pipeline’s market for firm transportation, that there would be no adverse effects on other pipelines or their captive customers, and the fact that the incumbent pipeline did not oppose the proposed project.27 However, as described above and in Commissioner LaFleur’s dissent, the Commission cannot make equivalent findings here given the record evidence indicating that developing the Spire Project will impair MRT’s market for firm transportation, significantly increase rates for its captive customers, and has been vigorously opposed by MRT.

Finally, the Commission must also consider the adverse impacts on landowners and communities. As we all agree, these impacts are important and cannot be an afterthought in the Commission’s assessment of a pipeline’s adverse impacts.28 Here, the disruption to landowners and communities, unnecessary rights-of-way, and potential eminent domain action further tip the scale against finding the Spire Project to be in the public interest. For example, Spire must still negotiate easements with most of the landowners whose property lies in its proposed path29 — potentially resulting in harm, but a harm that receives only passing consideration in the Commission’s analysis. Collectively, these harms outweigh the Spire Project’s limited benefits and, especially in light of the absence of a demonstrated need for the project, should have resulted in a denial of Spire’s application.

III. The Commission Does Not Adequately Consider the No-Action Alternative

The Commission also has failed to meet its obligation under the National Environmental Policy Act (NEPA) to consider the no-action alternative to the proposed project, which is required as part of the environmental review’s alternatives analysis. The Commission’s criteria to evaluate alternatives include the ability to meet a project’s stated objective, technical and economic feasibility, and significant environmental advantage over the proposed action.30 In this case, the Environmental Assessment (EA) rejects the no-action alternative, concluding that it “would not satisfy the stated Project objectives.”31

That conclusion is directly at odds with the EA’s definition of the Spire Project’s objective, which is to “provide about 400,000 Dth per day of year-round transportation service of natural gas to markets in the St. Louis metropolitan area, eastern Missouri, and southwest Illinois; and to enhance reliability.”32 The no-action alternative of continued shipment on MRT’s existing pipeline system currently provides Spire Missouri transportation capacity of 437,240 Dth per day into the target market areas, achieving the stated objective.33 Furthermore, the no-action alternative is technically and economically feasible and offers a “significant environmental advantage over the proposed action.”34 In this case, where there is no demonstrated need for the project, where the adverse effects have not been seriously considered, and the no-action alternative has been prematurely dismissed, approving the Spire Project is flatly inconsistent with the Certificate Policy Statement’s goal of “avoid[ing] unnecessary environmental and community impacts while serving increasing demands for natural gas.”35

Spire has not demonstrated that the Spire Project is needed or that the benefits of the Project outweigh its harms. Either failure should have been enough for the Commission to reject Spire’s application for a section 7 certificate. At the very least, the Commission should have further examined the numerous issues of material fact raised by the parties to the proceeding rather than brushing them blithely aside in its rush to issue today’s decision. Under section 7 of the NGA, the pipeline bears the burden of proof to show that the proposed project is in the public interest.36 The Commission’s unwillingness to take the parties’ protests seriously has the effect of flipping that burden on its head. I do not believe that is what Congress had in mind when it vested the Commission with sitting authority over interstate natural gas pipelines.

For all of these reasons, I respectfully dissent.

 

• 11 Spire STL Pipeline LLC, 164 FERC ¶ 61,085 (2018) (Certificate Order).
• 22 15 U.S.C. § 717f (2012).
• 33 Atl. Refining Co. v. Pub. Serv. Comm’n of N.Y., 360 U.S. 378, 391 (1959) (Section 7 of the NGA “requires the Commission to evaluate all factors bearing on the public interest.”).
• 44 Spire Missouri subscribed to 350,000 dekatherms (Dth) per day in its precedent agreement with Spire, which is 87.5 percent of the total capacity on the Spire Project. See Certificate Order, 164 FERC ¶ 61,085 at P 10.
• 55 Id. PP 35, 49, 58.
• 66 And it is far from certain that a facility as significant as the Spire Project is needed to achieve this goal. MRT explains that, to the extent Spire Missouri wants to access the REX pipeline to receive Appalachian gas, “Spire Missouri could access REX by using 170,000 Dth per day of its subscribed capacity on MRT’s East Line from MRT’s points of interconnection with NGPL and Trunkline and its 62,800 Dth per day of subscribed capacity on MoGas.” Id. P 50.
• 77 Certification of New Interstate Natural Gas Pipeline Facilities, 88 FERC ¶ 61,227, at 61,749 (1999) (Certificate Policy Statement), clarified, 90 FERC ¶ 61,128, further clarified, 92 FERC ¶ 61,094 (2000) (“A project that has precedent agreements with multiple new customers may present a greater indication of need than a project with only a precedent agreement with an affiliate.”). Furthermore, the Commission’s “longstanding reliance” on Minisink is inapt. In that proceeding, the court discussed only the Commission’s reliance on precedent agreements generally—not precedent agreements among affiliates—and, therefore, the case provides no response to the unique concerns posed by affiliate precedent agreements. Minisink Residents for Envtl. Pres. & Safety v. FERC, 762 F.3d 97, 111 n.10 (D.C. Cir. 2014).
• 88 Missouri PSC Protest at 9.
• 99 Spire Missouri’s lack of interest in purchasing capacity on an unaffiliated pipeline casts doubt on its assertions that enhanced reliability and diversity of supply are its reasons for purchasing capacity on this project. At the very least, the evidence in the record indicating that Spire Missouri was willing to enter into a precedent agreement with an affiliate, but not any other entity developing a similar project, should lead the Commission to question the probative value of the precedent agreement when assessing the need for the Spire Project.
• 1010 Certificate Order, 164 FERC ¶ 61,085 at P 73 (“Spire has entered into a long-term precedent agreement with Spire Missouri . . . We find that Spire has sufficiently demonstrated that the project is needed in the market that Spire STPL Pipeline Project intends to serve.”).
• 1111 Certificate Policy Statement, 88 FERC at 61,747.
• 1212 Spire also asserts that its pipeline will enhance the reliability and diversity of gas supply in St. Louis and potentially result in “access to lower priced gas.” Certificate Order, 164 FERC ¶ 61,085 at P 11. The Commission acknowledges the lack of initial information about the possibility of cost savings to consumers. In fact, the Commission issued a supplemental data request to the existing pipeline, MRT, and Spire in order to compare the cost of various scenarios. Spire Missouri’s data provides an estimated cost savings over 20 years, suggesting certain “hypothetical alternatives” on the MRT system would result in higher average daily costs when compared to the Spire Project. However, MRT’s data suggests the unit cost used by Spire Missouri in its calculations overstate MRT’s comparable cost. The Commission does not resolve the dispute presented by this record evidence regarding whether the Spire Project would provide savings and, at the very least, this matter requires further investigation. Certificate Order, 164 FERC ¶ 61,085 at PP 54-56.
• 1313 Certificate Order, 164 FERC ¶ 61,085 at P 81 (“Under the circumstances of this proceeding, i.e., lack of evidence of anticompetitive behavior, we find the fact that a customer is willing to sign a binding contract to pay for service on the project shows need or demand for the project.”).
• 1414 Id. P 77.
• 1515 Certificate Policy Statement, 88 FERC at 61,748 (“To demonstrate that its proposal is in the public convenience and necessity, an applicant must show public benefits that would be achieved by the project that are proportional to the project's adverse impacts.”).
• 1616 Id. (“The amount of evidence necessary to establish the need for a proposed project will depend on the potential adverse effects of the proposed project on the relevant interests.”).
• 1717 See Missouri PSC Protest at 9 (“If the Commission certificates the instant project and it is built, but there is not 400,000 Dth of expanded gas demand in the region, Spire will not be impacted because it has its contract with its affiliate. [Spire Missouri] will not be impacted because it has competitive alternatives and can demand discounted rates. But captive customers of MRT and MoGas lack such a benefit. Those captive customers may be forced to make up revenues formerly sourced from [Spire Missouri].”).
• 1818 Enable Mississippi River Transmission, LLC, 164 FERC ¶ 61,075, at PP 6-7 (2018) (MRT Rate Case) (MRT is a wholly owned subsidiary of Enable Midstream Partners, LP. The Commission set MRT’s general Section 4 rate case for hearing as the proposed tariff adjustments have not been shown to be just and reasonable, which were adjusted “primarily due to the removal of billing determinants associated with Spire Missouri’s termination of contracts.” In the rate case, MRT proposes a cost-of-service increase of 23 percent, resulting in a potential increase of 194 percent in reservation rates, in order to recover the cost of Spire Missouri’s turnback capacity.).
• 1919 However, Spire Missouri has re-contracted for 437,240 Dth/day of capacity on MRT’s system for an additional year. See MRT Rate Case, 164 FERC ¶ 61,075 at P 4.
• 2020 Certificate Order, 164 FERC ¶ 61,085 at PP 61-65.
• 2121 Id. P 77.
• 2222 Id.
• 2323 Id. PP 114-115 (citing Ruby Pipeline, LLC, 128 FERC ¶ 61,224 (2009) (Ruby)).
• 2424 Ruby, 128 FERC ¶ 61,224 at P 37.
• 2525 Certificate Order, 164 FERC ¶ 61,085 at P 79 (citing Eastern Shore Natural Gas Co., 132 FERC ¶ 61,204 (2010) (Eastern Shore)).
• 2626 Id. at 6 (2018) (LaFleur, Comm’r, dissenting).
• 2727 Eastern Shore, 132 FERC ¶ 61,024 at P 23.
• 2828 E.g., PennEast Pipeline Company, LLC, 162 FERC ¶ 61,053, at 1 (2018) (Chatterjee, Comm’r, concurring).
• 2929 Certificate Order, 164 FERC ¶ 61,085 at P 119 (“[W]e are mindful that Spire still must finalize easement agreements with affected landowners for most of the land required for the project.”).
• 3030 Environmental Assessment at 146 (EA). It also is worth noting that the Commission does not include downstream greenhouse gas (GHG) emissions as indirect effects of the Spire Project by finding that “Spire STL Pipeline Project is not intended to meet an incremental demand for natural gas above existing levels” ultimately agreeing with the protesters’ concerns that the Spire Project is not needed to meet market demand. See Certificate Order, 164 FERC ¶ 61,085 at P 253.
• 3131 EA at 148.
• 3232 Id. at 146.
• 3333 See supra note 17.
• 3434 EA at 147 (The EA concludes that “[i]f the Commission were to deny Spire’s application, the Project would not be built and the environmental impacts identified in this EA would not occur.”).
• 3535 Certificate Policy Statement, 88 FERC at 61,743 (emphases added).
• 3636 Atl. Ref. Co. v. FPC, 316 F.2d 677, 678 (D.C. Cir. 1963) (“The burden of proving the public convenience and necessity is, of course, on the natural gas company.”); see Williams Gas Processing—Gulf Coast Co., L.P. v. FERC, 331 F.3d 1011, 1021 (D.C. Cir. 2003) (“In a public interest analysis, the burden of proof is on the applicant for abandonment to show . . . the public convenience and necessity.” (internal quotation marks omitted)).