ST. LOUIS — A recent court ruling has revoked the approval of a 2-year-old gas pipeline touted as critical to the St. Louis region, and, in doing so, thrown the future of U.S. pipeline development into doubt.
The U.S. Court of Appeals for the District of Columbia Circuit ruled June 22 that the St. Louis-based gas utility Spire didn’t prove that the region needed a 65-mile pipeline that extends north from St. Louis County through parts of Illinois.
Insiders now expect that the ruling could reshape policies at the Federal Energy Regulatory Commission — which oversees things ranging from pipelines to electric transmission lines — and force the agency to apply far more careful scrutiny to future pipeline projects seeking approval.
“I don’t think the importance of this case can be overstated,” said Gillian Giannetti, an attorney focused on FERC issues for the Natural Resources Defense Council. She believes the Spire case represents a “monumental” tipping point that “will fundamentally change how FERC has to explain whether a pipeline project is needed or not.”
Spire maintains that the pipeline is a valuable asset for the region, and that it has helped demonstrate its necessity during February’s deep freeze event — when its access to gas from different places was credited with helping the St. Louis area avoid the crippling price shocks and supply shortages seen elsewhere, including on the western side of the state. The company says that, during that nine-day cold snap, alone, the project saved the region up to $300 million in additional costs, compared with the gas costs seen on other pipelines.
Spire said Friday that the company has no immediate plans to stop the line’s operation and is working to have the court reconsider its decision. The company claims that if it is upheld, the ruling could potentially confront the region with supply problems that threaten winter gas reliability for a majority of its customers.
“There’s a lot more to this. We’re not at the end of the road,” said Scott Carter, the president of Spire Missouri. “We’re in position now where that pipeline is critical to our ability to serve our customers. ... We’ve got to find a way for it to stay in service, especially heading into winter.”
In its 37-page opinion, a three-judge panel from the court said that the need for the pipeline was never sufficiently demonstrated or justified, citing factors including the roughly flat natural gas consumption in the St. Louis area over the last two decades. That stance echoed long-standing concerns and skepticism from regulators at the Missouri Public Service Commission, and even from the top of FERC’s own ranks — the commissioner who now serves as the agency’s chairman issued a dissenting opinion when Spire first applied for federal approval.
Moreover, the project’s initial proposal failed to attract interest from independent gas shippers, who didn’t commit to buy fuel from the new line — another marker of lack of demand, critics said. As the court noted in its opinion, pipeline proposals must first prove market needs, so that they’re not subsidized by existing customers.
But with no industry partners entering such an agreement, Spire used its own affiliates to serve as both the pipeline developer and the entity that committed to buying gas from the project. That set up Spire to collect the 14% return allowed by regulators for building the pipeline, but also opened up the company to lines of attack about alleged “self-dealing” because opponents argued that there was still no demonstrated need for the line.
The Environmental Defense Fund, which spearheaded the legal challenge against the pipeline, said the entirely in-house arrangement raised concerns about both the project’s necessity and impacts on the company’s captive customers, creating a situation where “ratepayer costs which may not be justified by ratepayer demand are being converted into shareholder return.”
FERC’s approval relied on the agreement between Spire affiliates as proof of a need for the pipeline. But the new court ruling accused FERC’s decision-making of taking an “ostrich-like approach” — rejecting calls for market studies and ignoring arguments about anti-competitive behavior, for instance — conduct that “flies in the face” of its policy guidelines, the court said.
The decision also described how matters were further complicated by a convoluted procedural tactic used by FERC, which has since been ruled unlawful, that effectively stalled formal challenges to the pipeline’s approval until the project had already been built. FERC granted approval to the project in August 2018, by a 3-2 vote. Opponents filed rehearing requests within weeks, and in October 2018, FERC issued what is called a tolling order “to afford additional time” to consider the matters raised. But between its issuance and September 2019, Spire completed “virtually all construction of the pipeline,” the court said. During that time, the company also gave FERC a revised cost estimate $67 million higher than originally stated.
Giannetti said that, until now, FERC has shirked its legal requirements and improperly served as “a processing agency, not a reviewing agency.” Pipeline companies, she said, saw approval from FERC as an inevitability.
“The conversation is not ‘Are we going to get approved?,’ it’s ‘When?’ I think Spire could tip that,” she said. “It is not the first case that FERC has approved on extremely flimsy evidence.”
Giannetti doesn’t think the ruling will affect many, if any, other existing pipelines, but she expects more stringent reviews to face future pipeline proposals.
Spire said that reviews of natural gas projects before FERC are not easy.
“FERC does not automatically approve anything,” said Sean Jamieson, general counsel for the arm of Spire that developed the pipeline. “The process is rigorous.”
Outsiders following the issue said there may not be many options for FERC or Spire to challenge the decision, or arrange a legal fix. They point to factors such as the forcefulness of the opinion, as well as internal dissent about Spire’s project from top FERC officials.
FERC Chairman Richard Glick said the court decision “shows that when FERC cuts corners with its analysis, it puts its decisions — and the investments made in reliance on those decisions — at substantial risk,” according to a statement issued the day of the ruling. The agency said in the same statement that it “is still reviewing the decision and considering what action may be appropriate.”
Carter, the Spire executive, said enabling a more resilient and diverse fuel supply was the company’s original goal for the project — a plan first put into motion as the geographic “landscape was shifting” for U.S. gas production, thanks to fracking booms in both Western and Eastern parts of the country.
If the line were now forced to cease operation, Spire says there’s no easy path back to the way things were, as other pipeline capacity that could serve the region has since been absorbed by other gas shippers.
“That world doesn’t exist anymore,” said Carter.
It’s unclear what will come next for the pipeline. “This is new ground for everyone,” said Giannetti, describing the novelty of the ruling against an approved, in-service pipeline.
Beyond the courtroom, farmers and landowners along the pipeline’s path have complained of damage to their properties. “There’s problems and issues on every one,” said Nate Laps, president of Central Land Consulting, an Ohio-based company that monitored pipeline construction for landowners. “Drainage on a large majority of the farms doesn’t work anymore.”
Spire said it is working to fix landowners’ problems.
Still, there’s an expectation that the 2-foot-wide pipeline, itself, will stay in the ground, whether transporting gas or not. Even if the line must cease operation, many agree that keeping the pipe underground, or perhaps filling it with sand to thwart erosion, would ultimately be the least disruptive option.