FERC's rationale for pipeline cert weak, says D.C. Circuit

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Signage is seen at the entrance of the United States Court of Appeals for the District of Columbia Circuit in Washington, D.C., U.S., August 30, 2020. REUTERS/Andrew Kelly

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(Reuters) - A federal appeals court on Tuesday threw out 2018 authorizations by the Federal Energy Regulatory Commission (FERC) allowing Spire STL to build a roughly $285 million natural gas pipeline near St. Louis, Missouri that is now operational, in a rare victory against the regulator by environmentalists who sued.

A unanimous panel of the U.S. Circuit Court of Appeals for the D.C. Circuit vacated a critical permits order for the 65-mile Spire STL Pipeline after ruling that FERC adopted an "ostrich-like approach" when it found a market need for the line despite only one gas supplier, an affiliate of the line's operator, committing to use it.

FERC's Chairman Richard Glick, who had dissented when the commission voted to allow the project, said in a statement that the decision "shows that when FERC cuts corners with its analysis, it puts its decisions ... at substantial risk."

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Jason Merrill, a spokesperson for Spire Inc, said that the decision "would be detrimental" to communities that rely on the pipeline for energy.

Spire Inc is the parent company of the line's operator Spire STL and of gas supplier Spire Missouri Inc, the affiliate that entered into a pre-construction deal committing it to use the line.

Natalie Karas, an in-house attorney with plaintiff Environmental Defense Fund (EDF) said: "This decision makes clear that FERC's role... demands more than greenlighting a project based on the thin pretext of a single contract with the developer's own affiliate."

FERC authorized the interstate pipeline in 2018. Construction began in 2019 after the commission held up EDF's challenge of the certification.

The line is designed to deliver up to 0.4 billion cubic feet per day of natural gas. It began operating in November 2019.

That same month, FERC denied EDF's bid for a rehearing of its certification order. The authorization spurred EDF's lawsuit.

Under the Natural Gas Act and FERC's regulations, FERC may issue a certificate of public convenience when the market need for a proposed pipeline outweighs its adverse effects, such as increased rates to customers.

Writing for the panel, Senior U.S. Circuit Judge Harry Edwards faulted FERC for conducting an analysis of public convenience that "seemed to count" the single agreement between the corporate affiliates "as conclusive proof of need." Evidence of market need is "too easy to manipulate" when affiliates enter precedent agreements, he said.

Flat demand for natural gas in the St. Louis area, the absence of a finding that the pipeline would offer benefits such as reduced costs, and the agreement between the affiliates also persuaded the panel to conclude "that the FERC's decision was unreasonable," Edwards said.

Edwards was joined by U.S. Circuit Judges David Tatel and Patricia Millett.

Analysts at ClearView Energy Partners said in a note to clients that FERC's defeat was "unusual." "What will follow is unclear," the research firm said, given the court said its vacatur results in the "de-issuance" of the line's certificate.

Christopher Barr of Post & Schell represented Spire Missouri while Norton Rose Fulbright lawyers worked for Spire STL. Both companies are intervenor-defendants.

The case is Environmental Defense Fund v. FERC, U.S. Circuit Court of Appeals for the D.C. Circuit, No. 20-1016.

For Environmental Defense Fund: Natalie Karas with Environmental Defense Fund and Jason Gray of Duncan & Allen

For FERC: Anand Viswanathan with the Federal Energy Regulatory Commission

For Spire Missouri Inc: Christopher Barr of Post & Schell.

For Spire STL Pipeline, LLC: Jonathan Franklin of Norton Rose Fulbright

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