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In Win for FERC, Appeals Court Upholds Regional Grid-planning Rule by Jeremy P. Jacobs and Hannah Northey E & E, August 15, 2014

A federal appeals court today upheld a landmark ruling that overhauls the process for upgrading the country's aging electric grid.

The U.S. Court of Appeals for the District of Columbia Circuit handed the Federal Energy Regulatory Commission a sweeping win, rejecting the arguments from more than 40 state regulators, utilities, regional transmission organizations and industry groups that challenged the commission's Order 1000.

"We conclude that their contentions are unpersuasive," the three-judge panel wrote in a 97-page opinion.

Order 1000, issued in August 2011, is one of the most complex and controversial rules ever issued by the commission. To reform how transmission infrastructure projects are planned and paid for across the country, it requires regional planning instead of the current state- and utility-centric model.

FERC claims the existing methods lead to a lack of coordination and unnecessary costs that will eventually translate into unjust and unreasonable electricity rates for consumers.

Virtually every aspect of the rule was challenged at the D.C. Circuit. In addition to regional planning, Order 1000 removes an incumbent utility's "right of first refusal" to construct a new project because, FERC says, that policy discourages new entrants from proposing markets.

FERC also required grid planning to take state policies, such as renewable energy requirements, into account. The package was widely supported by former FERC Chairman Jon Wellinghoff as well as environmentalists.

The challengers made several arguments in the large, consolidated case that warranted unusually long oral arguments in March lasting nearly three hours. They claimed FERC was overstepping its authority under the Federal Power Act and argued the current state of the electric grid doesn't justify the expansive rules (E&ENews PM, March 20).

In the ruling today, the judges -- Democratic appointees Judith Rogers and Cornelia Pillard and Republican appointee Thomas Griffith -- picked apart their arguments point by point. The panel repeatedly said many of the challengers' arguments "misunderstood" FERC's mandate under the law and "miss the mark."

With many of the challengers' claims, the panel held that it must defer to FERC's interpretation of the Federal Power Act as long as it acted reasonably. That is particularly true for decisions that affect electricity rates under court precedent, they said.

"The court's review of the commission's determinations is particularly deferential because such matters are either fairly technical or 'involve policy judgments that lie at the core of the regulatory mission,'" they wrote, citing precedent.

The rule's challengers had also sought to undermine FERC's reasons for issuing the order in the first place, contending that the commission's justification was based on a "theoretical threat" and lacked substantial evidence.

The panel, however, rejected those claims, pointing to studies conducted by multiple agencies and think tanks.

"Prior to Order No. 1000, the deficiencies in transmission planning and cost allocation practices were well-understood and not based on guesswork, as petitioners claim," they wrote.

Similarly, the arguments against FERC's removal of the right of first refusal failed to convince the court. The judges wrote that FERC's rule was a "legitimate exercise of the commission's authority."

"Petitioners contend that the relationship between rights of first refusal and rates is just as attenuated," they wrote. "We disagree."

Another major complaint was that the regional planning requirements would force utilities to foot the bill for integrating renewable projects like wind and solar farms into their network, even though their customers would have no relationship with those sources and may not benefit from the electricity they generate.

But again, the panel held that FERC acted within its authority to make such a requirement, and, therefore, the court must defer.

Reactions

The rule's challengers said the ruling missed one of their most important contentions: Congress intended coordination to be voluntary, not mandatory.

"I'm disappointed," said attorney Harvey Reiter of Stinson Leonard Street LLP, who represented the South Carolina Public Service Authority and other challengers. "I think there will be a lot of petitioners who will be disappointed."

Reiter, who was still reading through the decision, said parties have 45 days to seek rehearing or rehearing en banc, meaning before all of the D.C. Circuit's 11 judges. If they decide to skip that step, they have 90 days to file a petition asking the Supreme Court to take up the case.

"Nobody's even gotten through the decision, but those are the options open," he said.

The Coalition for Fair Transmission Policy, a group of utilities from across the country opposed to Order 1000, said it was disappointed with the court's ruling, considering legal action and hoping lawmakers would intervene.

Today's ruling "seemingly conflicts with the D.C. Circuit's recent decision overturning the Federal Energy Regulatory Commission's order on demand response and holdings by the U.S. Court of Appeals for the Seventh Circuit," the group said in a statement. "This decision provides added impetus for Congress to assist energy consumers by addressing national transmission policy and the future of the nation's electricity grid."

Environmental groups applauded the decision, noting that Order 1000 should make it easier to integrate clean electricity sources into the grid.

"The unanimous court decision affirms that grid operators must consider carbon standards and other clean energy policies in planning the electric grid," John Moore, senior attorney for the Sustainable FERC Project housed within the Natural Resources Defense Council, wrote in an email. "The decision affirms FERC's common-sense finding that regional transmission planning can be better for consumers and the environment."

Bill Gaines, chairman of the Large Public Power Council, warned in a statement that the court's decision and support of Order 1000 will "force public power customers to foot the bill for transmission projects they do not use" and raise electricity prices.