Foes of FERC’s Order 1000 have their day in court

Source: Jeremy P. Jacobs, E&E reporter • Posted: Friday, March 21, 2014

Federal judges wrestled today with a series of complex challenges to a major Federal Energy Regulatory Commission order aimed at increasing regional coordination in transmission grid planning.
More than 20 state regulators, utilities and industry groups are seeking to undermine aspects of FERC’s 2011 Order 1000, one of the commission’s largest and most controversial rules.The order seeks to change the way transmission line projects are planned across the country. FERC says the current lack of coordination will lead to unnecessary costs that will translate into electricity rates that are unjust and unreasonable.Consequently, the order emphasizes regional planning among utilities over localized state and utility-centric efforts. It also develops new models for cost allocation and seeks to boost market competition for building transmission lines by removing an incumbent’s “right of first refusal” to construct the project. FERC claimed the provision discouraged new entrants from proposing projects.

It also requires regional planners to take policies — such as state renewable energy requirements — into account.

The order, which former FERC Chairman Jon Wellinghoff strongly supported, marked a significant change in how the commission approached interstate transmission planning.

All the order’s facets were taken up by the U.S. Court of Appeals for the District of Columbia Circuit in unusually long arguments that lasted nearly three hours.

A large portion of the discussion centered on FERC’s authority to issue the order and whether the current state of the grid justified it.

The three-judge panel appeared to side with FERC’s argument that the Federal Power Act grants the agency broad authority to take action to ensure electric rates are just and reasonable.

“What is the language,” Judge Thomas Griffith, a Republican appointee, asked a utility lawyer, “that supports your argument that FERC has gone beyond its authority?”

Attorney Harvey Reiter of Stinson Leonard Street LLP, representing the South Carolina Public Service Authority and other challengers, argued that Congress’ intent was for coordination to be voluntary, not mandatory.

But Griffith maintained that the planning — and, therefore, coordination — does have a “pretty direct effect on rates” and therefore falls within the commissioner purview.

Utilities from the South, however, argued that FERC’s initial rationale for the order was “unjustified” and based on a theory that isn’t borne out by reality.

Attorney Andrew Tunnell of Balch & Bingham LLP, representing Southern Co., said FERC issued the rule because of only a “theoretical threat” of rates rising as more transmission projects are needed in the future.

FERC concedes that in the South, coordination is already happening, Tunnell said.

“FERC disavows facts,” he said. FERC “did not give voluntary planning a chance. … We’ve got a system that works now.”

FERC attorney Beth Pacella disagreed, arguing that the agency’s analysis showed the transmission grid needs hundreds of millions of dollars in investment in the near future. It would be “irresponsible to just sit back” and wait for rate problems to arise, she said.

“It didn’t rely on a theoretical threat,” Pacella said. The commission had evidence of why it needed to act now, she added.

Utilities and groups also contend that FERC is infringing on states’ rights because several states already regulate transmission planning. FERC countered that the order would not interfere with state authority, and if the state vetoed a project, it wouldn’t be built.

Another major issue is the order’s cost allocation structure. Utilities say the order will force them to foot the bill for integrating renewable energy projects like wind and solar farms into their network even though their customers have no relationship with those sources and may not benefit from electricity they generate.

Jonathan Schneider, also of Stinson Leonard Street, said this concept was a “brand-new practice” for funding.

“The commission,” he said, “cannot mandate relationships between entities.”

That line of argument seemed to gain some traction with the judges.

Griffith told FERC attorney Robert Kennedy that there is a “significant distinction between inducement and coercion.”

And Judge Cornelia Pillard, a Democratic appointee sitting in one of her first arguments at the D.C. Circuit, seemed to empathize with the utilities, summarizing their argument as “Don’t make us be a venture capitalist” for “wind farms out there not close to the grid.”

Lastly, utilities tried to persuade the court to throw out FERC’s removal of a utility’s right of first refusal.

John Lee Shepherd of Skadden, Arps, Slate, Meagher & Flom LLP said the removal does not introduce competition.

It’s not “competition,” he said, “it’s predation.”

Lona Perry, another FERC attorney, said the lack of competition in proposing and building transmission projects has a direct effect on rates. Consequently, she said, FERC has the authority to remove the right of first refusal.

She added that it allows third parties to “participate on an even basis.”