Beginning with its landmark Order No. 888 in 1996, the Federal Energy Regulatory Commission (FERC) has aggressively pursued policies designed to foster planning and construction of new transmission facilities, in order to support expansion of competitive wholesale electricity markets. However, as FERC has acknowledged, “there is longstanding state authority over certain matters that are relevant to transmission planning and expansion, such as matters relevant to siting, permitting and construction.” FERC can best achieve its goal of enhancing competition through construction of new facilities if plans for construction of such facilities are developed with due regard for applicable state requirements.

Transmission Planning and FERC Order No. 1000

Each transmission provider is required to include in its Open Access Transmission Tariff (OATT) provisions for engaging in a coordinated, open, and transparent transmission planning process with affected stakeholders. FERC Order No. 1000, which was issued in July 2011, also obligates each transmission provider to participate with its neighbors in coordinated regional transmission planning. This process is intended to evaluate “transmission solutions that might meet the needs of the transmission planning region more efficiently or cost-effectively than solutions identified by individual public utility transmission providers in their local transmission planning process.”

FERC policy assumes that the regional transmission planning process will be enhanced if new, non-utility affiliated transmission developers are encouraged to submit proposals for meeting regional transmission needs. There is little incentive for such developers to incur the costs of participation unless they can reasonably expect that they will be designated to construct the facilities should their proposal be adopted. Order No. 1000 therefore required each transmission provider to remove from its OATT any provision giving the incumbent transmission provider a right-of-first-refusal to construct transmission facilities in a regional transmission plan, subject to certain limitations.

FERC has recently interpreted this provision to require deletion of references in OATTs to the need for compliance with state laws. For example, FERC ordered PJM Interconnection to remove language giving the incumbent transmission owner a preference to build a transmission project in any instance “required by state law, regulation or administrative order with regard to [transmission] enhancements or expansions … located within that state.” In FERC’s view, this provision contravened the ban in Order No. 1000 on rights-of-first-refusal. In another case, FERC ruled that the transmission provider could not condition its acceptance of a proposed transmission project in a regional transmission plan on approval of the project by all of the relevant state regulatory authorities by a specified date.

State Laws Cannot Be Ignored

State laws may establish minimum qualifications that must be met by transmission line developers before they may build transmission facilities within a state. FERC Commissioner Tony Clark has therefore questioned the wisdom of rulings that may cause state laws to be ignored. He has said that the failure of a transmission provider to consider state laws when selecting a project for inclusion in the regional transmission plan “would require transmission providers to select a project … when it is unclear whether [that project] will be able to secure the necessary governmental approvals within the desired development schedule,” or where the project “may have no legal possibility of ever being built.”

FERC’s rulings have alienated the National Association of Regulatory Utility Commissioners (NARUC). NARUC has interpreted FERC’s decisions as preempting state law over transmission siting and integrated resource planning, as well as reducing the role of states in the transmission planning process from that of a regulator with decision-making responsibilities to that of mere stakeholders providing input. The NARUC Board of Directors recently adopted a resolution concluding that “Order No. 1000, as implemented, inappropriately infringes on State authority reserved by Congress over integrated resource plans, generation and transmission decisions, assurance of resource adequacy and reliability, and authorization and construction of new facilities.”

State Concurrence with Transmission Plans Is Preferred

Regardless of whether an OATT explicitly provides for consideration of applicable state laws governing transmission siting and construction during the transmission planning process, such state laws cannot be simply ignored. Logically, if state laws or regulations may cause certain entities to be disqualified from building new transmission facilities, it would be more efficient for transmission providers to consider such laws when developing a regional transmission expansion plan.

The likely consequence of a failure to do so may be delay or rejection of desirable transmission projects. FERC’s ability to achieve its goals will be enhanced if it allows transmission providers to consider state policies when evaluating proposals for inclusion in a regional transmission plan and selecting transmission developers to construct each transmission project. ■

James K. Mitchell ([email protected]) is a partner in Davis Wright Tremaine LLP’s energy practice group in the firm’s Washington, D.C., office.