The Supreme Court last week refused to review a February 2009 ruling by a federal court that blocked the Federal Energy Regulatory Commission (FERC) from asserting its power to override transmission decisions made by states.

The court let the decision by the U.S. Fourth Circuit Court of Appeals in Richmond, Va., stand without comment. The case had been brought to that court 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 federal court rejected FERC’s interpretation, ruling that FERC s interpretation was contrary to the plain meaning of the statute. “Simply put, the statute does not give FERC permitting authority when a state has affirmatively denied a permit application within a one-year deadline,” Judge Blane Michael had written for the majority last year.

The petition for review by the Supreme Court was filed by a broad coalition of the energy industry, including the Edison Electric Institute, the American Public Power Association, and the National Rural Electric Cooperative Association. The petition was also supported by amicus briefs by the four previous chairmen of FERC and the U.S. Chamber of Commerce.

It is unclear if and how allowing the 4th Circuit’s decision to stand could affect specific projects currently under consideration.

Industry analysts suggest that the decision could force transmission developers to reconsider proposing costly projects, even in national interest corridors, if they believe the state will reject the project and FERC has no backstop authority in that situation. Attempts to overcome the federal court’s decision in the event a project is rejected by a state commission could be costly and take several years, with uncertain outcomes.

The Supreme Court’s refusal to review the case is the latest development in a long-standing dispute between opponents of broadening federal powers and industry. The latter has voiced the need to upgrade and expand the nation’s aging grid, while arguing that a greater role by the federal government in power line siting could enhance energy security and promote efforts to expand renewable generation.

Last week, a nine-month survey (PDF) of 11 state regulatory commissions and major national organizations unveiled by the University of Texas Center for Energy Economics and the Terra Group found that both groups believed that power line siting authority granted to FERC could result in costly lines that were not necessarily needed.

According to the survey, state regulators were adamantly opposed to greater federal authority because they were concerned about “cost, unmanageable procedures and the enormous gap between local customers and federal bureaucrats.”

But, it adds that “virtually all” state regulators agreed that FERC should have strong backstop authority with eminent domain to site lines when states cannot, which may make the states’ siting job easier, “although they do not want FERC to use it.”

The report also offers several observations. “Opposition will never disappear,” it says. “We are a litigious society, and ‘delay is often victory,’ as a community organizing manual from the 1990s pointed out. But a siting process that forges consensus around realistic alternatives can overcome much potential opposition. Properly designed, it will help to close the yawning gap between society’s broader environmental goals (such as carbon reduction) and local land use decisions that will be needed to attain them.”

Sources: Supreme Court, POWERnews, EEI, Davis Wright Tremaine LLP, Terra Energy