Will FERC’s transmission siting rule create more jurisdictional conflict?

Federal Energy Regulatory Commission (FERC) Order No. 689, issued on Nov. 16, 2006, established requirements and procedures for granting permits to build transmission facilities within "national interest electric transmission corridors" designated by the U.S. Department of Energy (DOE). After summarizing the statutory and regulatory background, this opinion piece addresses jurisdictional conflict between FERC and states, and among states.

Statutory background

With Section 216 of the Federal Power Act (added by Section 1221 of the Energy Policy Act of 2005), Congress changed a century of state-centered transmission practice. Attributing transmission shortages in part to a history of state-by-state decision-making that did not sufficiently serve the national interest, Congress authorized FERC to grant transmission siting permits that preempt contrary state decisions.

The new federal role involves two agencies. First, Congress authorized the DOE to designate a transmission corridor as a "national interest" corridor for either of two reasons: transmission constraints within it adversely affect economic vitality or economic growth; or to improve supply diversification, U.S. energy independence, national defense, or homeland security.

Second, FERC is authorized to issue permits to construct or modify transmission in the corridors, but only if:

  • A state has withheld approval of a transmission project for more than one year or has conditioned its approval in a manner which "will not significantly reduce transmission congestion in interstate commerce or is not economically feasible";
  • The applicant does not qualify under state law for siting approval; or
  • The state lacks authority to approve the construction or modification or to consider interstate benefits.

After establishing its jurisdiction, FERC may permit the project if it satisfies five criteria in Sections 216(b)(2) through (6) of the Federal Power Act (FPA). The FERC permittee then may acquire the necessary right-of-way by the exercise of the right of eminent domain. Under FERC’s regulations, the permit overrides any contrary state finding.

Jurisdictional conflict

In Order No. 689, FERC states that it "may, where appropriate [emphasis mine], require applicants to comply with State and local permitting." FERC warns that "any State or local permits . . . must be consistent with the conditions of the Commission’s permit," and that it will not tolerate state or local actions that "prohibit or unreasonably delay the construction of facilities approved by the Commission."

By using the qualifier "appropriate," FERC preserves its discretion but injects uncertainty. I ask: When would it be "appropriate" for FERC to declare a conflict? When there is:

  • Any difference between FERC conditions and state or local conditions?
  • Any additional cost imposed by the state or local condition?
  • An additional cost imposed by the state or local condition that is large enough to render the project uneconomic? (And uneconomic according to whose criteria: the project’s? FERC’s? the customer’s?)
  • A state or local condition with which the applicant cannot comply without violating the FERC condition?

Order No. 689 provides no substantive guidance.

A separate problem is procedural. When two agencies have different interests—one national and the other state-level—disputes are inevitable. Under FERC’s rule, these disputes arise one project at a time, each in isolation. Better to promote evaluation of multiple projects at once, across a multistate region. That approach produces a larger universe of benefits and costs and, thus, more opportunities for compromise and horse-trading across projects and time periods.

State-state conflicts

What about a "facility that span[s] multiple States where one State may have approved the facilities and another does not"? FERC states that "to make its determination under FPA sections 216(b)(2) through (6), the Commission would have to review the operation of the facility as a whole." The language of Section 216(b)(1) supports FERC’s jurisdiction over the entire facility. The opening sentence of Section 216(b) gives FERC jurisdiction over "facilities" where "a State" has met at least one of the three conditions bullet-pointed earlier (the state lacks authority, the transmitting utility is not eligible for approval, or approval has been withheld for at least one year). Even if some other state has granted approval, "a State" has not.

Does this reasoning mean that FERC can impose conditions on the facility that conflict with the decision of the approving state? It appears so, because once FERC has jurisdiction over the entire facility, it is obligated to test the facility against all five criteria in Sections 216(b)(2) through (6). A single physical asset cannot be segmented by political boundaries to determine its consistency with the public interest. With multiple chefs in the transmission kitchen, FERC must do more than declare that its conditions will preempt when "appropriate." Case-by-case procedures allow for experience and coalition-building with the states. I say that, within a year, FERC ought to eliminate the jurisdictional uncertainties, by making the hard decisions not anticipated by the 1780s designers of our dual-government system.

Scott Hempling is director of the National Regulatory Research Institute (www.nrri.osu.edu); he can be reached at 614-247-2461 or hempling@nrri.osu.edu. The National Association of Regulatory Utility Commissioners established the NRRI in 1976 at Ohio State University to serve as NARUC’s research resource.