State AGs, environmentalists press FERC to alter pipe policy after Spire decision

A recent appeals court ruling means the US Federal Energy Regulatory Commission must update its certificate policy to ensure rigorous review of whether proposed interstate natural gas pipelines are needed, state attorney generals, environmental groups, consumer advocates and others told the commission July 23.

In an uncommon blow to FERC, the DC Circuit Court of Appeals on June 22 decided to vacate the certificate for Spire STL Pipeline on the ground that commission failed to seriously engage arguments challenging the weight of affiliate precedent agreement in establishing need for the 95-mile, 400,000 Dt/d project. The court also found FERC ignored evidence of self-dealing and failed to thoroughly conduct the interest-balancing required by its own certificate policy statement (Environmental Defense Fund v. FERC, 20-1016).

Now the group of parties, including the state AGs, is asking FERC to consider the court's ruling as part of its broad, ongoing review of whether updates are needed to its 1999 natural gas pipeline certificate policy (PL18-1).

"Going forward, the commission must learn from and improve on its prior deficient reviews by adopting a new framework to rigorously assess need and appropriately balance public benefits against adverse impacts, as demanded by the Natural Gas Act," they wrote.

Environmental groups and industry lawyers have offered competing views on whether the Spire ruling represents a narrow finding in a case with unusual facts – i.e., a pipeline that had a contract with a single affiliate without evidence of growing demand – or a ruling that presents a broader challenge to FERC's established approach.

The coalition filing June 22 took the latter view, arguing the ruling directly counters FERC's prior finding that precedent agreements are substantial and sufficient evidence of need.

"The court specifically rejected the commission's broad interpretation of its prior case law, disagreeing with FERC's assertion that: (1) it generally need not look behind precedent agreements in determining whether there is market demand; and (2) affiliated precedent agreements should almost always be treated the same as unaffiliated precedent agreements," they wrote.

The parties that jointly filed the motion included Environmental Defense Fund, attorneys general of Massachusetts, Minnesota, Illinois, Rhode Island, and Oregon, Delaware Division of the Public Advocate, Consumers Council of Missouri, Office of the People's Counsel for the District of Columbia, New Jersey Conservation Foundation, Sabin Center for Climate Change, American Antitrust Institute, Pipeline Safety Trust, Natural Resources Defense Council, and Susan Tierney, an energy policy consultant and former Department of Energy official.

Eying gas utility agreements

In particular, they asserted FERC must take a harder look at pipeline projects in which the main shipper is an affiliated gas utility.

"The court's finding that FERC 'ignored record evidence of self-dealing' obligates FERC to correct the current regulatory gap, which in certain circumstances allows retail gas utilities to enter into affiliate precedent agreements with pipeline developers with minimal to no regulatory oversight," they wrote. The decision no longer allows FERC to "simply defer to the business judgment of local distribution companies without conducting the rigorous analysis demanded by the Natural Gas Act," they added.

Addressing FERCs balancing analysis of public benefits and adverse impacts of projects, the groups said the ruling also calls into question FERC's entire prior approach "which has often been nothing more than a paragraph naming - but not weighing - public benefits versus adverse effects."

Instead, they said FERC needs new tools to conduct the balancing assessment and must consider how existing, nearby infrastructure is being used and whether the new infrastructure presents a more economical choice.

FERC's pipeline policy review, first launched April 2018, became bogged down amid divisions among commissioners on a host of issues, ranging from greenhouse gas considerations to whether FERC should engage in deeper review of project need. FERC Chairman Richard Glick in February sought additional comments on that review, seeking to further build the record.

In light of the DC Circuit decision, Enbridge Gas Pipelines June 25 cautioned FERC against adopting a blanket approach. It said the Spire ruling was a "narrow, fact-specific holding" and that the court expressly distinguished other prior cases, for instance where there was more than one precedent agreement or where there was evidence of market demand beyond the precedent agreements. In all but "the most extreme circumstances," precedent agreements remain the best evidence of need, the pipeline company said.