United States: D.C. Circuit Ruling Upholds New Ground Rules In Development Of Electric Transmission Infrastructure

The Federal Energy Regulatory Commission's (FERC or "Commission") landmark regional electric transmission planning rulemaking, a multi-year effort by the Commission that has been met with vigorous opposition from some participants of the electric energy industry, has survived what could be the first of several rounds of judicial scrutiny. In South Carolina Public Service Authority v. FERC¹, the Court of Appeals for the District of Columbia Circuit upheld Order No. 1000, the noteworthy rulemaking on Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities². At its core, Order No. 1000 requires public utility transmission providers to institute and conduct a formal regional transmission planning process and to implement a regional cost allocation method(s) for new transmission facilities that are selected in a regional transmission plan for purposes of cost allocation. Order No. 1000 also requires the removal from Commission-approved tariffs of any federal right of first refusal for access to certain new transmission facilities. Compliance proceedings for Order No. 1000 have been and continue to be underway at the Commission.

Petitioners opposing the rulemaking, who included many state regulatory commissions, argued that Order No. 1000 represented an action that exceeded the Commission's statutory authority, that the Commission relied on facts that were not supported by the evidence and that the Commission acted in a manner contrary to law. The Court rejected the petitioners' principal objection by finding that the transmission planning mandate does not stray outside the bounds of the Federal Power Act by usurping traditional state authority or by requiring regional coordination of transmission facilities that is outside its statutory purview. Nor was the Court convinced that the Commission's stated reasons for promulgating Order No. 1000 — that the absence of a tariff-driven transmission planning process constituted a significant problem — was, as the petitioners' asserted, mere speculation and theoretical. The court found that the Commission had identified the "conduct that led it to conclude the [Commission's existing regulations] were inadequate to meet current and future challenges in the electric transmission industry."³ Further, the court found no merit in the petitioners' argument that the Commission did not adequately support its finding that rights of first refusal are not just and reasonable, noting that the Commission "is free to act based upon reasonable predictions rooted in basic economic principles."⁴ For these and other reasons the court upheld the rulemaking.

From a business standpoint, the actual impact of the affirmation of Order No. 1000 cut a wide swath and requires serious attention. First, public utility transmission owners and transmission developers will be required to adhere to the policies and processes set forth therein, which exist to encourage competition in the selection and construction of transmission facilities (and could be viewed as a boon to non-incumbent developers).

Second, the cost allocation methodologies required by Order No. 1000 will continue to develop during the foreseeable future, as these methodologies have the potential to impact several classes of industry participants, such as transmission owners, transmission developers, transmission customers and the states.

Third, while each of the aforementioned entities has its own motivations to take part in the transmission planning process, each will be required to develop a keen understanding of these various protocols in order to achieve their goals. Likewise, meaningful communication with the transmission provider will be no less crucial.

Fourth, while Order No. 1000 is a creature of federal law, one cannot overlook the interaction between FERC and applicable state regulatory regimes, which may include topics such as transmission siting, facility construction and renewable portfolio standards.

Lastly, businesses should not overlook another aspect of Order No. 1000, the relationship between regional transmission planning and initiatives by the U.S. Environmental Protection Agency to regulate greenhouse gases. In Order No. 1000, the Commission required that a regional transmission planning process consider transmission needs driven by Public Policy Requirements, in the same way as transmission needs driven by economic or reliability concerns are considered. The Commission purposefully left "Public Policy Requirements" undefined; however, it did provide some general examples for guidance, explaining:

Upon review, the Court of Appeals upheld the obligation to consider transmission needs driven by Public Policy Requirements, noting that "[t]he mandate simply recognizes that state and federal policies might affect the transmission market and directs transmission providers to consider that impact in their planning decisions."⁶ Two such federal policies that could have significant tangible impacts on transmission planning are the EPA's greenhouse gas regulations over new power plants as well as its development of regulations over existing power generation facilities, i.e., the "Clean Power Plan", which were the topic of a prior Duane Morris Alert.⁷ The possibility that existing power plants might be retired sooner than expected or that new generation might be constructed in locations away from existing transmission facilities (e.g., solar, wind or geothermal facilities), could pave the way for transmission needs not otherwise anticipated.

Enterprises that are able to leverage these impacts and actively engage in the process will have the greatest chance for business success.

Footnotes

1 South Carolina Public Service Authority v. FERC, No. 12-1232 (D.C. Cir. Aug. 15, 2014) ("South Carolina PSA").

2 Transmission Planning and Cost Allocation by Transmission Owing and Operating Public Utilities, Order No. 1000, FERC Stats. & Regs. ¶ 31,323 (2011), order on reh'g, Order No. 1000-A, 139 FERC ¶ 61,132, order on reh'g, Order No. 1000-B, 141 FERC ¶ 61,044 (2012).

3 South Carolina PSA at 45.

4South Carolina PSA at 58.

5 Order No. 1000 P 215 (emphasis in original).

6 South Carolina PSA at 83.

7 Duane Morris Alert, "EPA Appears to Have Green Light to Develop Regulations on Utility Power Plant Greenhouse Gas Emissions," June 30, 2014.

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