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Commissioner Cheryl A. LaFleur
August 3, 2018
Docket Nos.
CP17-40-000, CP17-40-001
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Dissent on Spire STL Pipeline LLC

Today’s order grants Spire STL Pipeline LLC’s (Spire) request for authorization to construct and operate the Spire STL Pipeline Project (Spire Project).1 Under the Certificate Policy Statement, which sets forth the Commission’s approach to evaluating proposed projects under the Natural Gas Act (NGA), the Commission must find that a pipeline is needed and in the public interest before concluding that it is required by the public convenience and necessity.2 The Certificate Policy Statement further explains that the Commission must balance benefits against potential adverse consequences before authorizing the construction of major new pipeline facilities.3

After determining the applicant can financially support the project without subsidization from existing customers, the Commission must determine whether the economic benefits outweigh the adverse effects that the project will likely have on other existing pipelines in the market and their captive customers, as well as the landowners and communities affected by new pipeline infrastructure.4 In so doing, it is the Commission’s responsibility to give appropriate consideration to the enhancement of competitive transportation alternatives, the possibility of overbuilding, the applicant’s responsibility for unsubscribed capacity, the avoidance of unnecessary disruptions of the environment, and the unneeded exercise of eminent domain.5 For the reasons set forth herein, I cannot conclude this project is required by the public convenience and necessity.6 Thus, I respectfully dissent.

The Spire Project is the unusual case of a pipeline application that squarely fails the threshold economic test. The record does not demonstrate a sufficient need for the project. The Spire Project has a single precedent agreement with Spire Missouri, its local distribution company (LDC) affiliate,7 and will force duplicative gas transportation capacity into a regional market of flat demand, shifting gas supply away from an existing pipeline and adversely impacting rates for the existing pipeline captive customers. While the Commission does not typically look beyond signed precedent agreements to make a finding of economic need, it can certainly do so under the Certificate Policy Statement. As the majority itself notes, the Certificate Policy Statement indicates that besides precedent agreements, the Commission can consider other indicators 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.”8 The majority, however, did not consider any such evidence, which I believe we should in this case.

Spire Missouri’s precedent agreement for 350,000 Dth/day from the Spire Project does not reflect any incremental demand or market growth, as acknowledged by both the applicant and protestors.9 Rather, the precedent agreement reflects a desire to shift Spire Missouri’s firm transportation capacity from an existing pipeline with Mississippi River Transmission (MRT) to the Spire Project.10 Spire asserts that the project will enhance reliability and diversity of gas supply resulting in “access to lower priced gas supplies.”11 But parties dispute the potential cost savings of the new pipeline.12 The second largest shipper13 on both the MRT and MoGas pipelines contends that a market study, another indicia of need, would evaluate whether gas supplies from Appalachia and the Rocky Mountains are actually more competitively priced on a delivered basis than the supplies to which existing pipelines have access.14 But the majority declines to require a market study which could have helped answer this question.15 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.16

Further, because the Commission’s need determination relies solely on Spire’s precedent agreement with its affiliate Spire Missouri, it is particularly troubling that Spire Missouri’s regulator, the Missouri Public Service Commission (Missouri PSC), raises serious concerns regarding the need for the pipeline17 and the terms of Spire’s precedent agreement.18 The Missouri PSC’s protest also questions Spire’s “revenue requirement components for capital structure, debt, and return on equity, and whether $43 million revenue can be supported by customers.”19 Notably, despite the majority’s expressed confidence that Spire Missouri’s precedent agreement will be reviewed by state regulators,20 the Missouri PSC itself asserts an inability to conduct a prudence review prior to the Commission’s certificate authorization.21

In addition to demonstrating project need, the Commission must “determine whether the applicant has made efforts to eliminate or minimize any adverse effects the project might have on the existing customers of the pipeline proposing the project, existing pipelines in the market and their captive customers, or landowners and communities affected by the route of the new pipeline” in order to ultimately balance the public benefits against the potential adverse consequences of an application.22 In cases where adverse effects are present, as is the case here, the amount of evidence necessary to establish need increases.23

The Commission must consider the probable consequences of Spire’s entry of new capacity into the market. The record demonstrates that there will be adverse financial effects on incumbent pipelines and their captive customers, as well as potential adverse operational impacts on the existing pipelines. As noted by the protestors, the Spire Project presents a case that involves no demand growth in the regional market served by the proposed project, demonstrated adverse impacts on an existing pipeline and their captive customers, and a protest by the state regulatory authority, which together appear to clearly outweigh the only benefit articulated, a precedent agreement.

The cost of de-contracted capacity on the existing pipelines will be reallocated to and borne by the existing pipelines and their captive customers.24 The record demonstrates that the existing pipeline currently serving Spire Missouri, MRT’s East Line, and its captive customers could potentially see a 194 percent increase in rates if Spire Missouri executes turnback capacity and shifts the capacity to the Spire Project.25 The majority acknowledges that existing pipelines will likely see a drop in utilization once supplies begin to flow on the Spire Project, with the largest impact on MRTs East Line.26 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.27 In this case, where need has not been demonstrated, I believe that adverse effects on incumbent pipelines and their captive customers outweigh benefits.

Besides adverse financial effects on existing pipeline and their captive customers, there may also be adverse operational impacts. Commission staff asked MRT to provide additional evidence to show that significant modification to its system to accommodate the future potential for bi-directional flows and also the compete removal or a decrease in gas delivered would disrupt services elsewhere on the system.28 It seems that MRT did not provide sufficient data and information and thus Commission staff could not verify MRT’s claims.29 Rather than seek to clarify this material issue of fact, the majority disposes of the operational concerns by implying the argument is immaterial because Spire does not currently say it will make deliveries into MRT.30 However, because Spire proposes to install a bi-directional interconnection, it would appear that it is doing so to allow for future deliveries onto the MRT system, supporting MRT’s claims.

The majority relies on Eastern Shore31 as a guidepost for approval of the Spire Project, stating there is a similar fact pattern including no additional natural gas demand, precedent agreements solely with affiliates, and adverse impacts to existing pipelines. However, Eastern Shore is distinguishable from the Spire Project because the Commission’s conclusion in Eastern Shore relies on the findings that the proposed pipeline would not affect the incumbent pipeline’s market for firm transportation, there would be no adverse effects on other pipelines and their captive customers, and the incumbent pipeline did not oppose the project.32 As discussed above, the Spire Project runs counter to all of these findings.

The Commission must also consider the adverse impacts on landowners and communities.33 Here, the disruption to landowners and communities, unnecessary right-of-way, and the potential eminent domain action further tip the scale against any potential benefits the Spire Pipeline could have.34 I believe the adverse impacts on landowners have not been appropriately balanced in the Commission’s economic test.

Ultimately, because need has not been demonstrated, there is a significant risk of overbuilding into a region that cannot support additional pipeline infrastructure.35 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, I do not believe the Commission has met it obligations and responsibilities under National Environmental Policy Act (NEPA) to consider alternatives to the proposed project. The majority fails to adequately consider the “no action alternative,” as required during the NEPA environmental review. The no action alternative would by definition cause no environmental damage and no additional eminent domain authority, while still achieving the Spire Project’s stated objective of delivering supply of 400,000 Dth/day to the St. Louis market area.36 Given the lack of demonstrated need for the project, this environmental harm can be avoided altogether.

In virtually every pipeline order, the Commission explains its obligation to balance the public benefits against residual adverse effects. This 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, unnecessity use of eminent domain, and avoidable environmental impacts, I cannot make that finding in this case.

For these reasons, I respectfully dissent.





                                               

    1 Spire STL Pipeline LLC, 164 FERC ¶ 61,085 (2018) (Certificate Order).
    2 Certification of New Interstate Natural Gas Pipeline Facilities, 88 FERC ¶ 61,227 (1999), clarified, 90 FERC ¶ 61,128, further clarified, 92 FERC ¶ 61,094 (2000) (Certificate Policy Statement).
    3 Certificate Policy Statement at 18.
    4 Certificate Policy Statement at 18.
    5 Certificate Policy Statement at 2.
    6 15 U.S.C. § 717f(c) (2012).
    7 Spire Missouri was formerly known as Laclede Gas Company.
    8 Certificate Order at P 72 quoting the Certificate Policy Statement at 23. The Commission can consider other indicators of benefits, including “meeting unserved demand, eliminating bottlenecks, access to new supplies, lower costs to consumers, providing new interconnects that improve the interstate grid, providing competitive alternatives, increasing electric reliability, or advancing clean air objectives.” Certificate Policy Statement at 25.
    9 Certificate Order at P 49.
    10 MRT contends 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.” Certificate Order at P 50.
    11 Certificate Order at P 11.
    12 Certificate Order at PP 55-56. Spire Missouri estimated cost savings of $20 million over 20 years, versus the MRT data which suggests the unit cost used by Spire Missouri in their calculations significantly overstates the unit cost of gas delivered on the MRT system.
    13 Ameren is the second largest shipper on both MRT and MoGas. Ameren also asserts that Spire’s application is deficient in failing to include a market study. Ameren February 27, 2017 Protest at 8.
    14 Certificate Order at PP 80-81. Multiple protestors argue that a market study either must or should be undertaken in this case to establish need for the project. The protestors rely on Certificate Policy Statement which says the “evidence necessary to establish the need for the project will usually include a market study” Certificate Policy Statement at 25.
    15 In fact, the majority declines all requests for market studies, stating, “when precedent agreements for a substantial amount of capacity were presented, the Commission has relied on those agreements alone […].” Certificate Order at P 80.
    16 MRT and Environmental Defense Fund (EDF) request an evidentiary hearing to examine and resolve several issues of material fact. The majority declines the requests and states that the “written record provides a sufficient basis for resolving the relevant issues” which is the normal practice. Certificate Order at P 22.
    17 The Missouri PSC asserts that there is no clear need for the Spire Project given no new demand for gas capacity, a mature St. Louis market, and a track record of failed projects proposing to bring gas from an interconnect with REX to the St. Louis market. Missouri PSC February 27, 2017 Protest at 10-11.
    18 Missouri PSC February 27, 2017 Protest at 8 (“Accordingly, the MoPSC urges the Commission to require modification of the Precedent Agreement to properly allocate risk to Spire.”).
    19 Missouri PSC February 27, 2017 Protest at 3.
    20 Certificate Order at P 87.
    21 I agree with Commissioner Glick that given the lack of authority to review and approve a LDC’s supply decisions or contracts with affiliates prior to construction, “state review cannot be an effective backstop in this circumstance.”
    22 Certificate Policy Statement at 18.
    23 Certificate Policy Statement at 25 (“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. Thus, projects to serve new demand might be approved on a lesser showing of need and public benefits than those to serve markets already served by another pipeline.”).
    24 See Missouri PSC February 27, 2017 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. Laclede (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 Laclede.”).
    25 Enable Mississippi River Transmission, LLC, 164 FERC ¶ 61,075 (2018). MRT is a wholly owned subsidiary of Enable Mississippi River Transmission. The Commission set Enable MRT’s general Section 4 rate case for hearing due to issues of material fact regarding the impact of the Spire STL Pipeline on MRT rates. MRT estimates in the rate case that rates would increase 194 percent in order to recover the cost of Spire Missouri’s turnback capacity.
    26 Certificate Order at P 107.
    27 Giving further credence to these concerns, the Missouri PSC says “Spire minimized the Commission’s obligation to consider the impact on captive customers of incumbent pipelines” and “Spire provides insufficient analysis of the impacts on captive customers.” Missouri PSC February 27, 2017 Protest at 9.
    28 Certificate Order at P 110.
    29 Certificate Order at P 110.
    30 Certificate Order at P 110.
    31 Eastern Shore Natural Gas Co., 132 FERC ¶ 61,204 (2010) (Eastern Shore).
    32 Certificate Order at P 79 and n.145.
    33 Certificate Policy Statement at 24.
    34 I note that Spire must still negotiate easement agreements with affected landowners for most of the land required for the project. Certificate Order at P 119.
    35 As I mentioned, the Commission must give consideration to overbuilding. Certificate Policy Statement at 2.
    36 Spire STL Pipeline Project Environmental Assessment at 146 (“With regard to the first criteria and for the purposes of NEPA, Spire’s stated objectives for the Project are to provide about 400,000 Dth/d 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.”).
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