FERC Reverses Course on State Laws in Transmission Planning

by Akin Gump Strauss Hauer & Feld LLP

The Federal Energy Regulatory Commission (the “Commission” or “FERC”) granted partial rehearing in three separate orders last week involving Order No. 1000 compliance filings.1  Most notably, the Commission reversed course on a prior holding that Commission-jurisdictional tariffs and agreements may not contain references to state laws favoring incumbent transmission developers.  Commissioner Norris issued a partial dissent.

FERC issued Order No. 1000 in 2011 with the aim of reforming certain aspects of the electric transmission planning process and the associated cost allocation methods.  Among other things, Order No. 1000 required transmission providers to eliminate from all Commission-jurisdictional tariffs and agreements any federal right of first refusal (ROFR) for incumbent transmission providers for transmission facilities selected in a regional transmission plan for purposes of cost allocation.2  The Commission determined that federal ROFRs create a barrier to entry for non-incumbent transmission developers.

Consistent with this principle, the Commission required PJM Interconnection, L.L.C. (PJM), Midcontinent Independent System Operator (MISO), and South Carolina Electric & Gas Co. (SCE&G) to remove language in their Commission-jurisdictional tariffs and agreements requiring an incumbent transmission owner to build a transmission project when required by state law to do so.  Some parties argued on rehearing that, rather than creating a prohibited federal ROFR, these provisions instead merely acknowledged state law.  These parties noted that Order No. 1000 does not “limit, preempt, or otherwise affect state or local laws or regulations with respect to construction of transmission facilities.”3   

After reconsidering the issue, the Commission decided that it would not prohibit these entities from recognizing state and local laws in FERC-jurisdictional tariffs and agreements when selecting the developer for a transmission project.  Regardless of what the Commission-jurisdictional tariffs and agreements provide, the Commission reasoned that some state or local laws may independently prohibit non-incumbent developers from developing a transmission project.  The Commission stated that failure to recognize these state preferences in the FERC tariff could delay the completion of needed transmission infrastructure.  The orders did not alter the existing prohibition on federal ROFRs.    

Commissioner Norris issued a partial dissent, arguing that the majority’s holding undermines the policy goals of Order No. 1000 by tilting the playing field in favor of incumbent transmission providers.  Commissioner Norris argued that by favoring incumbents, the majority was impeding the innovation in transmission solutions that Order No. 1000 was intended to foster.  Commissioner Norris also asserted that the majority’s holding contradicts the plain language of Order No. 1000, which states that requiring a developer to demonstrate that it has or can obtain state approvals necessary to be eligible to propose a transmission facility would be an “impermissible barrier to entry.”4

1 For a copy of the Commission orders, click here, here, and here.

2 Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities, Order No. 1000, FERC Stats. & Regs. ¶ 31,323 at P 313 (2011).

3 Order No. 1000-A, 139 FERC ¶ 61,132, at p. 381 (2012).

4 Id. at p. 441.


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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