A federal appeals court last week slapped the Federal Energy Regulatory Commission (FERC) on the hand for overreaching the authority granted to the agency by the Energy Policy Act of 2005 when it took an “expansive interpretation” of the law in asserting its power to override state decisions.

The U.S. Fourth Circuit Court of Appeals in Richmond, Va., issued its decision (PDF) in a case brought against the regulatory commission by the Piedmont Environmental Council and multiple states and parties—including the New York Public Service Commission (PSC) and the Minnesota Public Utilities Commission (PUC).

At the heart of the matter was the authority granted by the Energy Policy Act of 2005, which allowed the commission to approve interstate power lines after the affected state had “withheld approval for more than a year.” But in an issuance of a final November 2006 rule, FERC substantively interpreted the phrase, “withheld approval for more than 1 year” to include a state’s denial of a permit within the one-year statutory timeframe.

The petitioners had filed requests for rehearing on FERC’s final rule, arguing that the agency had erred in its interpretation. The parties also asked the court to review several rulemaking decisions FERC had made with the application of that interpretation.

“FERC’s interpretation is contrary to the plain meaning of the statute,” wrote Judge Blane Michael on Thursday for the majority. “Simply put, the statute does not give FERC permitting authority when a state has affirmatively denied a permit application within a one-year deadline.”

Michael said that FERC’s standing interpretation would mean that state commissions would lose jurisdiction unless they approved every permit application in a national interest corridor. “Under such a reading it would be futile for a state commission to deny a permit based on traditional considerations like cost and benefit, land use and environmental impacts, and health and safety. It would be futile, in other words, for a commission to do its normal work,” he wrote.

Judge William Traxler dissented, saying FERC’s interpretation was correct and that Congress clearly intended the commission to have that level of authority to help expand and modernize the nation’s power grid.

The court’s decision now sets hurdles for FERC-approved projects whose public commissions have issued denials. One example is that the decision to build the New York Regional Interconnection (NYRI), a controversial power line project across the Mohawk Valley, must now be made by New York State.

U.S. Sen. Charles Schumer (D-N.Y.) last week hailed the court’s decision as it applied to the NYRI project. “This decision puts the kibosh on NYRI’s effort to do an end-around local law and correctly determines that New York State should have the preeminent role in siting projects like NYRI,” he told the Mid-Hudson News. “NYRI’s proposed path remains unduly intrusive and would have damaging impacts on parks, vista and communities from Utica to Chenango to the Catskills to Orange County.”

But, Schumer’s sentiments may not be shared by other democratic congressional leaders or the Obama administration. On Monday, at a webcast summit titled “National Clean Energy Project: Building the New Economy,“ speakers from Sen. Harry Reid (D-Nev.) to former President Bill Clinton and former Vice President Al Gore indicated that they would push for greater federal authority to locate transmission lines.

Participants in the forum also included several major leaders from government, business, labor, and nongovernmental organizations, including Energy Secretary Steven Chu, Secretary of the Interior Ken Salazar, energy executive T. Boone Pickens, and American Electric Power CEO Michael Morris. The forum focused on two major issues: modernizing the electric grid and reducing U.S. reliance on foreign oil.

At the summit, Reid said that he would soon push legislation that gave federal regulators authority to override states on electric grid placements. “We cannot let 231 state regulators hold up progress,” Reid said. “There may come a time when the federal government will have to step in.”

Senate Energy and Natural Resources Committee Chair Sen. Jeff Bingaman (D-N.M.) agreed with the Senate majority leader that FERC should have more authority for planning and siting transmission lines. Bingaman’s committee is currently working on drafting legislation that could establish a federal renewable portfolio standard.

In contrast, New Jersey Board of Public Utilities Commissioner Fred Butler, representing the National Association of Regulatory Utility Commissioners, said that states were against a federal takeover of siting authority but were willing to consider shared responsibility of the process.

Sources: U.S. Fourth Circuit Court of Appeals, Center for American Progress Action Fund, FERC, Mid-Hudson News