Appeals court ruling seen adding pressure for FERC scrutiny of gas project need

Read on S&P Platts


A US appeals court decision vacating the federal certificate order for the Spire STL natural gas pipeline is likely to increase pressure for the Federal Energy Regulatory Commission to scrutinize more fully pipeline companies' assertions about the need for new projects, several policy analysts and environmental advocates said.

Environmental Defense Fund Senior Director and Lead Counsel Natalie Karas said the decision makes clear that FERC may not rely exclusively on a single utility affiliate precedent agreement to establish market need and that FERC must also adequately balance public benefits and adverse impacts of any new infrastructure.

"It has to provide concrete evidence in support of its assertions and cannot rely on vague and illusory benefits – and an updated review framework could help ensure rigorous review of new infrastructure," said Karas.

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, siding with EDF to find that FERC refused to seriously engage arguments challenging the weight of an affiliate precedent agreement in establishing the need for the project (Environmental Defense Fund v. FERC, 20-1016).

In addition, the court found 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."

"What this case stands for more than anything is that FERC has to actually do an analysis," said Gillian Giannetti, an attorney with the Natural Resources Defense Council, in an interview June 23, arguing FERC has used boilerplate language citing previous cases in which courts have allowed it to rely on affiliate precedent agreements.

"For a long time, if you had a precedent agreement, FERC was processing, not analyzing. I'm hoping that in every case now, there will be a greater analysis, particularly in the case of affiliate agreements." Giannetti pointed to FERC's certificate order for Jordan Cove LNG and the Pacific Connector Pipeline as another case pending in court that would "require a right-sizing of FERC's analysis to more align it with the law."

Years of cases

Maya van Rossum of Delaware Riverkeeper Network said she saw Spire decision as growing out the appeals courts seeing years of legal challenges that have raised allegations of "self-dealing" by pipeline companies. Just as with previous issues upon which environmental groups eventually gained ground in court, "the judges have that evolution of thinking because of all these cases brought before them," she said. "Then, finally, they get the case where it's just too far, and it's the culmination of the queue that helps the court to start to set a different precedent, "she said. Challenges to PennEast Pipeline's certificate order, currently held in abeyance by the court, also put the question of FERC's scrutiny of project need and reliance on affiliate contracts before the appeals court, she noted.

Some pipeline attorneys and policy analysts read the Spire decision as more narrowly applying to the facts of the Spire case, which entailed one pipeline affiliate precedent agreement backing the bulk of project capacity. Gary Kruse of ArboIQ noted the court drew distinctions from its prior rulings upholding orders backed by affiliate precedent agreements.

Marc Spitzer, a partner at Steptoe & Johnson and former FERC commissioner, said the decision "makes a great deal of sense. I'm not sure you extrapolate beyond that case."

"You have warring parties -- people who want all pipelines, people who want no pipelines -- and [Judge Harry] Edwards just wrote an order based on the facts and applied the law to the facts of that particular case," Spitzer said.

Implications for FERC policy

ClearView Energy Partners, in a research note, found the court ruling particularly well-timed to inform FERC's future policy development, since the commission is reconsidering its 1999 certificate policy statement for gas pipelines this year. But ClearView pointed out the court found FERC failed to follow its existing policies regarding the determination of need, not that its existing policies are flawed and require change. Of note, ClearView offered its view that a shutdown of the pipeline asset "may be more a question of when than if," in light of the ruling.

And Rob Rains of Washington Analysis said the ruling "arms FERC with precedent for broadening the criterion for granting gas certificates to new pipelines once it finishes its review of FERC certificate policy sometime in 2022."

FERC Chairman Richard Glick, in a June 22 statement, reiterated his desire to revisit the commission's approach to assessing the need for gas pipeline projects in its pending notice of inquiry on the pipeline certificate policy.

Recent Articles

February 3, 2021

Supreme Court to take up PennEast Pipeline case on land-use rights

January 20, 2022

FERC cuts oil pipeline index for 2022-26 as inflation soars

May 5, 2021

FERC attempts to add timeline certainty to order on gas pipeline construction starts