Spire's Data Requests Offers Lens into Project Timing and Certificate Policy

On February 21, the Federal Energy Regulatory Commission (FERC) issued two substantive data requests relating to the Spire STL Pipeline Project, a 65-mile pipeline designed to connect with Spire STL's regulated utility affiliate, Laclede Gas Company, to bring gas to the St. Louis, Missouri region. Unlike many other pipeline projects that have experienced delays associated with factors such as environmental group protests and federal and state agency permitting issues, Spire STL has been battling objections from a competitor, Enable Midstream Partners, LP (Enable). Based on LawIQ's data, the issuance of substantive data requests such as these late in the FERC review process is not a positive signal with respect to the timing of the expected certificate order. The information being sought by FERC may also be an early warning sign for the industry signaling how FERC may address the issues of need/benefit -- especially for projects with affiliated shippers -- when it reviews its Certificate Policy Statement.

Overview

FERC issued two data requests, one to Spire STL Pipeline LLC, the applicant, and one to Enable, the owner of a competitive pipeline. Both data requests are focused on aspects of the project that FERC is required to assess under its existing Certificate Policy Statement in two key areas: the need/benefits of the project and the efforts taken to minimize impacts on other pipelines and their captive customers, particularly the captive customers on Enable's Mississippi River Transmission pipeline and the MoGas Pipeline System.

There were at least three unusual characteristics of these data requests. First, issuing a data request to a competitive pipeline is highly unusual, but Enable's opposition to this pipeline project has also been unusual. Second, data requests issued more than 90 days after the issuance of the project's Environmental Assessment is not common. Third, the data requests allow both parties 20 days to respond, a relatively long time period for this phase of FERC's review. Such a long time cannot be considered a positive for the project's schedule. Typically, data requests at this stage of the project are primarily ministerial, with several day response times.

Impact on Spire STL

In LawIQ's data set, there have been only 13 projects that received a data request more than 50 days after the issuance of the project's environmental review document and only six after more than 90 days. One of these data requests is related to project need, and also provided for a 20-day response time. The chart below shows the timing for how long it took FERC to issue the certificate for those projects following the issuance of the data request, when compared to the period FERC gave the applicant to respond. As seen in the chart, in general, the longer the response period, the longer it takes FERC to issue the certificate order. In its application, Spire STL had requested approval by December 1, 2017. Obviously, that date has been missed. With historical data as a guide, albeit with a small sample size, it could be another four months before FERC issues the certificate order, which would push the certificate issuance date to mid to late June, which would put the project's November 1, 2018 in-service date at risk, which is captured in our weekly Spire STL forecasting.

Nonetheless, there may be a silver lining for Spire STL. Because Enable has been opposing the project, FERC's approval of the certificate will likely be appealed to the courts. FERC's efforts to shore up its finding of a public benefit and mitigation of harm to captive shippers on Enable's system may ultimately help FERC's possible approval withstand any judicial appeals. A few month's delay now may ultimately seem like only a bump in the road when compared to a possible vacating of the FERC certificate by a court in the future. Broader Impact on the Industry For the pipeline and LNG value chain, the broader implication of this data request is that it provides some significant tea leaves to read. As we have noted in various customer notes, Chairman McIntyre at his first public meeting stated that FERC would be undertaking a review of its Certificate Policy Statement this year. One of the key issues that others, including Commissioners LaFleur and Glick, and former Commissioner Bay, have expressed concern about is FERC's strict reliance on precedent agreements signed by affiliated shippers to support a finding of need for a project. In this case, 100% of the capacity is subscribed by the regulated utility affiliate of the pipeline. The data requests include questions that would help FERC to substantiate a finding that the project is in the public interest by requesting Spire STL to substantiate facts, such as:

• That the pipeline would lower the delivered cost of gas to the St. Louis area;
• That the pipeline would provide operational benefits to Laclede by allowing it to replace its current propane peaking system; and
• Any additional operational benefits that the pipeline would provide to Laclede.

These data requests present at least three specific concerns for the industry, all of which can only lead to further lengthening of the FERC review process:

1. The questions suggest that FERC is willing to supplant the market decisions made by shippers with its own judgment derived from evidence it reviews to determine if a project is warranted.      
2. Even if FERC would only issue these data requests in affiliated shipper cases, the fact that it is choosing to do so in a case where the affiliate is a state-regulated entity makes it appear that FERC is also ready to supplant the judgment of state public utility commissions. While a state utility commission can review the prudency of the contract throughout its term and make required adjustments in the affiliate's recovery of the contract costs, FERC's review upfront could deny the affiliate the opportunity of having the capacity available.
3. Any such effort to look behind the precedent agreements can only lead to future protracted presentations of evidence about the need for a project, and may even require oral testimony to resolve conflicting evidence.

Spire STL's and Enable's responses are due by March 13. We will continue to monitor this issue closely, with a focus on how it may impact the project, regional competitors, and the industry .