Federal Court Preserves FERC's Controversial Transmission Planning and Cost Allocation Rule

The Federal Regulatory Energy Commission (FERC) can mandate transmission provider participation in a regional planning process, a federal court has held.

In a 97-page decision, a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit on Aug. 15 rejected challenges to FERC Order No. 1000 and related orders.

FERC’s landmark final transmission-planning rule issued in August 2011 (and clarified in subsequent Order Nos. 1000-A and 1000-B) put into effect a number of reforms related to regional and interregional planning and development of electric transmission facilities. It essentially requires public utility transmission providers to participate in regional transmission planning processes, mandates cost allocation to beneficiaries of new transmission projects, and eliminates rights of first refusal (ROFRs) from FERC-jurisdictional tariffs and agreements.

FERC has posited that the rule will remove barriers to develop transmission facilities. But since the rule was proposed in June 2010 to amend and build on the reforms of the 1996-finalized Order. No. 888 and the 2007-finalized Order No. 890, it has faced stiff pushback from state regulatory agencies, electric transmission providers, regional transmission organizations, and electric industry trade associations. Those groups have raised a variety of issues related to the rule.

“Unpersuasive” Contentions

At least 45 petitioners and 16 intervenors had petitioned the D.C. Circuit to review Order No. 1000. They mostly challenged FERC’s authority to adopt reforms and contended that the final rule is “arbitrary and capricious and unsupported by substantial evidence.”

On Friday, however, the court unanimously concluded that the petitioner’s “contentions are unpersuasive.”

In its multi-part ruling, it stated that FERC has the authority under Section 206 of the Federal Power Act (FPA) to require transmission providers to participate in a regional planning process, holding that FERC reasonably concluded that transmission planning affects rates for transmission service. It also upheld FERC’s authority to require the “up front” allocation of costs for new transmission facilities among beneficiaries.

As significantly, the court deemed as “reasonable” FERC’s requirement that regions should consider public policy goals. Public policies have a direct impact on transmission usage, it noted. FERC’s decision to rely on the reciprocity condition to encourage non-public utility transmission providers to participate in a regional planning process is also sound, it concluded.

It also held that FERC’s conclusions as they relate to the inadequacy of regional planning were not speculative because they were backed by record in proceedings for Order No. 890, and in other records, including from FERC technical conferences.

FERC also reasonably concluded that ROFR provisions constitute a barrier of entry, the court held, ruling that FERC has the authority under Section 206 to mandate the removal of ROFR provisions from FERC-filed tariffs and rate schedules if the federal body determines they are unjust and unreasonable practices that affect rates.

More Legal Wrangling to Come?

The case decided on Aug. 15 is South Carolina Public Service Authority v. FERC (No. 12-1232).

According to some experts, the court’s decision on the sweeping rule isn’t the end. “The [c]ourt’s decision sets the stage for possible future appeals to the Supreme Court and additional contested proceedings at FERC as the regions continue to implement Order No. 1000’s controversial regional planning and cost allocation reforms,” project attorneys at law firm Van Ness Feldman.

For entities like the American Public Power Association (APPA), which had contended the rule’s “public power provision,” the court’s opinion rejecting all challenges to Order 1000 is disappointing. But it “comes as no real surprise” to the association, said APPA Regulatory Counsel Randy Elliott, who argued APPA’s case before the appeals court in March 2014. “Issues of transmission planning and cost allocation are technical by their nature, and courts are generally reluctant to second-guess the expert agency,” he said.

Elliot noted that the D.C. Circuit’s ruling is nonetheless significant because it holds that FPA Section 217(b)(4) “requires the [c]ommission to facilitate the planning of a reliable grid.” That will require FERC to “honor this statutory obligation as it implements Order No. 1000, and in all future cases involving transmission planning and expansion,” he said.

Sonal Patel, associate editor (@POWERmagazine, @sonalcpatel)








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