Monday, January 31, 2022

The Pipeline Trap

 https://www.dailyposter.com/the-pipeline-trap/

Federal officials are approving fossil fuel projects that enrich shareholders, fleece customers, and exacerbate the climate crisis.

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(illustration by Scott Shields)

Scientists and international governing bodies have been very clear: In order to have a shot at limiting the worst impacts of global warming, investment in new fossil fuel projects must stop.

Yet the federal body that regulates America’s pipelines has created a perverse incentive for companies to keep building methane-leaking fossil fuel infrastructure that doesn’t serve anybody except shareholders.

In St. Louis, Missouri, a legal battle over a new pipeline called Spire STL is a glaring example of a nationwide problem: “self-dealing” between energy and pipeline companies fleeces customers and exacerbates the climate crisis, all with the government’s blessing.

In 2018, the 65-mile natural gas pipeline — connecting the St. Louis area to the massive Rockies Express Pipeline, which delivers fracked gas from Appalachia — was approved by federal regulators who conceded that the pipeline was not necessary to deliver gas to local customers, because demand was stagnant. However, regulators accepted Spire’s claims that the new pipeline would make natural gas service cheaper and more reliable.

Last June, a federal court ruled that the Federal Energy Regulatory Commission (FERC), the agency which regulates interstate natural gas pipelines, had ignored “evidence of self-dealing” in the Spire case, and vacated the original federal permit.

But by that point, Spire had already constructed its pipeline, taking well over 200 acres of land by eminent domain in the process, and retired other infrastructure so that hundreds of thousands of utility customers now receive gas via the new pipeline. By doing so, the company tied “captive customers” to the pipeline and has threatened to cut off their heat this winter if the pipeline is shut down.

The Spire STL pipeline is now operating on a temporary permit, as FERC conducts a new review of the project.

“The Spire STL Pipeline went through a rigorous regulatory review process and followed long-standing policies established by the FERC,” Spire spokesperson Jason Merrill told The Daily Poster.

Amid a fracking boom over the past decade, Spire was far from the only company that built an unnecessary natural gas pipeline to tap into the large profit margins allowed by federal rate-setting formulas. Now energy customers are bearing the costs, and even if courts rule that some of these pipelines should not have been approved, the infrastructure could be here to stay.

In the next few months, FERC is set to issue new guidelines for how it will assess proposed natural gas pipelines for the first time since 1999. Environmental watchdogs hope the guidelines will make changes to how FERC addresses whether a project is needed, as well as take into account the impacts of natural gas on climate change and environmental justice when considering proposed pipelines.

Extracting and transporting natural gas results in huge amounts of methane emissions through leaks, so much so that by some estimates it contributes to global warming as much in the short term as burning coal. President Joe Biden committed to massively slashing methane emissions at the COP26 international climate talks in Glasgow last fall.

“FERC has historically been a rubber stamp for projects, regardless of the actual commercial viability of the project or its impacts on climate change, environmental justice, or other issues,” Gillian Giannetti, an attorney with the Natural Resources Defense Council, told The Daily Poster. “Nonetheless, I think that 2022 has the potential to be the most transformative year that FERC has ever seen.”

“Private Desire Does Not Equal Public Need”

The Spire case is exceptional in a number of ways, and yet experts say the project’s problems exemplify everything that is wrong with the natural gas pipeline approval process.

In January 2017, a newly-formed limited liability corporation filed an application with FERC requesting authorization to build a new natural gas pipeline in Missouri and Illinois to connect the St. Louis area to “competitively-priced and productive supply basins,” otherwise known as the fracking region of Appalachia, which had begun to boom during the Obama years.

According to the application, that new corporation — Spire STL Pipeline LLC — had held an “open season” for the project, a process by which the pipeline operator notifies natural gas companies of the proposed project and allows them to bid for capacity on the pipeline.

At the end of that open season, only a single company had stepped forward and made a commitment to use the pipeline: Spire Missouri, a subsidiary of the same parent company that set up Spire STL Pipeline LLC — Spire Inc.

Spire Inc. is a publicly traded natural gas company which delivers natural gas to 1.7 million customers in Missouri, Alabama, and Mississippi, in addition to operating natural gas storage facilities. Spire Missouri, a subsidiary of Spire Inc. that delivers gas to energy customers in Missouri, had committed during the open season to use nearly 90 percent of the Spire STL pipeline’s capacity for at least 20 years.

This so-called “precedent agreement” is what FERC relies upon to assess whether a project is needed.

“Historically, FERC has taken the position that if there is an actor out there in the market who wants to buy space on a proposed pipeline, as opposed to an existing pipeline, that is highly probative that the pipeline is needed,” said Giannetti, the NRDC attorney. “The problem is that increasingly, the parties contracting between one another are subsidiaries of the same company.”

The reason companies do this is because federal regulators allow pipeline operators to set rates that are highly lucrative — currently, they allow a profit margin of 14 percent. Those profits, of course, come from gas customers, whose rates also cover the cost of building and operating new pipelines.

Merrill, the Spire spokesperson, argued that Spire customers were getting a good deal.

“Spire Missouri disagrees that there was any improper ‘self-dealing’ between it and Spire STL Pipeline,” he said. “Spire Missouri negotiated a rate well below the authorized allowed market rate Spire STL Pipeline can charge its customers.”

While that’s true, it’s not necessarily evidence against claims of self-dealing. The content of rate negotiations between Spire Missouri and Spire STL Pipeline have not been made public, so there is no way of knowing if Spire Missouri even considered alternatives besides its affiliate pipeline or if it could have negotiated a better rate with a non-affiliated company.

FERC’s reliance on precedent agreements as a stand-in for need has allowed companies like Spire to secure federal approval for more pipelines, even when there’s no clear market demand or public support for the projects.

“Private desire does not equal public need,” Giannetti said.

In 2018, FERC rubber-stamped the project. Two of the five commissioners — both appointed by Democrats — dissented from FERC’s approval. One of those dissenters, commissioner Richard Glick, was selected by Biden last year to serve as FERC’s chair.

“The record is replete with evidence suggesting that the Spire Pipeline is a two-hundred-million-dollar effort to enrich Spire’s corporate parent rather than a needed piece of energy infrastructure,” Glick wrote in his dissent.

Last June, the U.S. Court of Appeals for the District of Columbia Circuit issued a scathing rebuke of FERC’s approval of the Spire STL pipeline, as part of a lawsuit brought by the Environmental Defense Fund, a nonprofit environmental advocacy group.

That lawsuit argued that FERC should have rejected the project on the basis of evidence that “the ability to pass costs through to retail customers, including the 14 percent rate-of-return for new entrant pipelines, is a powerful incentive for utilities to contract with their affiliates and generate revenues for the parent corporation,” and that Spire itself conceded that it would be paying for the project using costs recovered from captive customers.

“This case makes clear that, going forward, FERC must do a better job of assessing the benefits and burdens of the infrastructure it approves,” Natalie Karas, the lead attorney for the Environmental Defense Fund on the case, told The Daily Poster. “It can’t simply ignore or minimize project harms, which include significant environmental impacts, massive use of eminent domain to condemn private land for unnecessary projects, and the very substantial adverse economic consequences on families and communities.”

The court vacated FERC’s original permit, and ordered the pipeline shut down within 90 days, although the pipeline’s temporary certificate was later extended through December 13, 2021 — and eventually through the winter.

The ruling was notable, and may signal a shifting view of the federal courts on FERC, explained Ari Peskoe, Director of the Electricity Law Initiative at the Harvard Law School.

“The court found that FERC had failed to justify that the pipeline was needed, which is the core determination that FERC has to make — that the pipeline is needed for the ‘public convenience and necessity,’” said Peskoe. “It’s the sort of squishy legal standard that courts are typically very deferential to regulators on. So for the court to say that FERC didn’t properly implement its own policy — that has resulted in FERC approving nearly 500 projects and disapproving of only two since 1999 — was unusual and noteworthy.”

The pipeline’s construction was allowed to continue while legal challenges were underway, however. When the court revoked the pipeline’s approval last June and ordered a new review of Spire STL’s application, the pipes were already in the ground, with gas flowing through them.

“This is a truly unprecedented situation, where the infrastructure has already been built; the landowners’ property already taken,” said Giannetti. “But there’s been a court finding that the pipeline should never have been built. And so what can you do?”

Spire Threatens Captive Customers

As the legal proceedings transpired, Spire warned customers that if the project was shut down, they might not be able to heat their homes this winter.

Early last November, Spire Missouri sent an email to hundreds of thousands of customers in the St. Louis area, warning that if its temporary FERC certificate for the pipeline was not extended past December 13, mass shutoffs were imminent.

“We’re confident that we’ve done everything we can to demonstrate the critical role the pipeline plays in providing the St. Louis community with energy, but there are no guarantees it will operate beyond Dec. 13,” Spire wrote in the email.

Spire told customers that if the pipeline was shut down for the winter, it would be thanks to “a New York-based environmentalist group,” presumably referring to the Environmental Defense Fund.

But FERC had never suggested that it was going to shut down a natural gas pipeline that hundreds of thousands of people relied upon in the middle of a midwest winter. Moreover, the Environmental Defense Fund and other pipeline opponents had never asked for such a thing to happen. FERC was already set to meet later that month to consider a temporary approval to allow the pipeline to operate through the winter.

The email prompted fear and backlash from local and national politicians, including Rep. Cori Bush (D-Mo.), who demanded an immediate investigation by FERC.

“I am gravely concerned that Spire Inc. may be actively weaponizing the fears of our community members, many of whom are low-income individuals, families with small children, and older adults — for their own personal gain and profit,” she wrote in a November 14 letter to the agency. Bush also noted in the letter that Spire had shut off over 60,000 customers for late payments since the beginning of the COVID-19 pandemic.

Weeks later, FERC unanimously decided to extend the pipeline’s temporary certificate through the winter.

Spire’s fearmongering also drew attention to how the company had quietly been making captive customers dependent on the pipeline: Spire had apparently changed its system to make it impossible to order the pipeline shut down without cutting off service to customers.

“If the pipeline had never been built, we would have been fine,” said Giannetti. “But then Spire took actions after the fact to essentially shore up need, such that if something like this happened, it would be very difficult to actually take it out of service.”

One such action, according to an affidavit filed on behalf of the Environmental Defense Fund by energy markets expert Gregory Lander, was that Spire downgraded the capacity of one of its transmission lines so customers would be dependent on getting gas from the new Spire STL pipeline.

Lander noted that Spire had taken these actions while its FERC approval was being challenged — and he argued that during this time, Spire should have instead been ensuring that if the pipeline was shut down, customers would still be able to get gas.

As Lander wrote in the affidavit, “Given Spire Missouri’s obligation to provide safe and adequate natural gas service to its customers, the Spire Affiliates should have maintained the Spire Missouri system and resources to ensure that it would be able to continue to provide safe and adequate service in the event that the Spire STL pipeline certificate was voided.”

David Yonce, director of operations for Spire Missouri, said that Spire had downgraded capacity on the old line because it had been ordered by state regulators to conduct safety tests on that section of pipe, and the company decided to run less gas through the line instead of conducting those tests. According to Yonce, making sure the old pipeline could operate at full capacity if the Spire STL pipeline was shut down would have increased operational costs, which Spire Missouri would have passed on to customers.

Lander wasn’t convinced by these arguments. In his affidavit, he argued that Spire should be required to undo the actions that make its customers dependent “on a pipeline that no longer has a valid certificate, rather than use its statements of self-inflicted risk to lay the problem at the feet of federal regulators and speak generally of the expense and difficulty of remedying its errors.”

FERC has not yet announced whether it will consider a new certificate based on whether the pipeline was needed in 2017, when it was initially approved, or based on current need — now that Spire has made changes to its system to make the pipeline more necessary.

“A Quagmire Of FERC’s Own Making”

In the short term, local officials and lawmakers are working to minimize the harm already caused by Spire’s actions, while federal regulators decide whether to reissue a certificate for the pipeline to continue to operate.

Some of Bush’s demands have already been met, such as FERC agreeing to conduct a new environmental assessment of the project. Bush called this step “a critical victory for our community” in a statement to The Daily Poster.

“In the short term, our focus is to ensure that not one person’s heating is shut off this winter as a result of this pipeline,” she said. “As we move forward, we will continue to work to end our reliance on fossil fuels that endanger the health and safety of communities like St. Louis.”

Spire, meanwhile, has aggressively lobbied to entrench natural gas interests. Last year the company pushed a bill through the Missouri state legislature that prohibited localities from banning natural gas in new buildings and created a “renewable natural gas” program.

In the long term, environmental advocates and lawmakers say that the Spire case shows exactly why FERC’s pipeline approval process needs to be radically reformed.

“The Spire case is a unique situation of several failings of FERC policy collapsing on top of each other, to create a real quagmire of FERC’s own making,” said Giannetti.

One such failing, she said, was that “the landowners and challengers didn’t get their day in court to challenge this pipeline until well after it had already been built.” When FERC approves interstate pipelines like the Spire STL, it grants the pipeline company the right to go to court and seize private land along the route via eminent domain. In this case, while the pipeline was tied up in legal proceedings, FERC allowed construction and land acquisition to continue, so that by the time a court revoked its approval, the pipeline was already in the ground.

Now, landowners in Missouri and Illinois are filing lawsuits to have the pipeline permanently shut down and retrieve their land, even though some of it has been irreparably damaged.

Giannetti is part of a chorus of activists and politicians calling for FERC reform. Rep. Jamie Raskin (D-Md.), who chairs the House Oversight and Reform Committee, has used his position to conduct investigations into the use of eminent domain by natural gas pipeline companies.

Already, FERC chairman Glick has said that he wants the agency to consider the impacts of climate change when assessing new natural gas pipelines.

In the next few months, FERC is expected to publish an updated natural gas policy statement, the first such update since 1999. That policy document isn’t a regulation, but it is the “implementation guide for how FERC interprets its legal responsibilities,” explained Giannetti.

Even if the recent federal court ruling on Spire doesn’t serve as an important legal precedent, given the unique facts of the case, it may have sent a message to FERC on the need for reform.

“I think that decision will be held up by FERC as one of the reasons it needs to change its current approach to reviewing pipeline applications,” said Peskoe, the Harvard law professor.

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