Seventh Circuit Upholds Method to Fund Transmission Expansions to Carry Renewable Energy

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A recent Seventh Circuit opinion, Illinois Commerce Commission v. FERC, represents a significant victory for the future of renewable energy. The decision, authored by Judge Richard Posner, upholds the method Midcontinent Independent System Operator (MISO)uses to fund the construction of transmission lines that bring electricity from remote wind farms to urban centers. FERC approved MISO's rate design which allocates the costs of certain projects (called multi-value projects) among utilities in proportion to each utility's share in the region's total wholesale consumption of electricity. FERC approved the MISO rate design, leading to challenges on a number of grounds, primarily focused on the proportionality of benefits to costs and on the departure from financing mechanisms that previously allocated expansion and upgrade costs to the utilities closest to a proposed transmission line.

Challenges to the method MISO uses to qualify a project as a multi-value project were rejected. To qualify, the project cost must be at least $20 million and the high-voltage transmission lines must help MISO members meet state renewable energy requirements, fix reliability problems, or provide economic benefits in multiple pricing zones. A general complaint that the costs of multi-value projects exceed their benefits also failed, with the court citing estimates of significant cost savings expected to be spread "almost evenly across all [MISO] Planning Regions." The opinion also noted that it would be "impossible" to allocate certain other costs savings "with any precision across MISO members." In further answer to proportionality objections, the opinion noted that MISO members who believe they are disadvantaged by the tariff rate design are members of a voluntary association and "can vote with their feet."

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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