June 6, 2013
Utilities, state regulators sue over multiple issues in FERC transmission order
By Jeff Beattie
Laying out their case against key provisions of FERC’s landmark Order 1000, a broad coalition
of public and private utilities, joined by a handful of state regulators and grid operators, told a
federal court last week that the commission vastly over-reached its authority in issuing the rules
by requiring utilities to develop new transmission planning and cost allocation systems.
The May 28 filings, at the U.S. Court of Appeals for the District of Columbia Circuit, attack
several different features of Order 1000, which the commission passed last year with a goal of
encouraging upgrade and expansion of the U.S. power grid.
Although the complaint alleges that Order 1000 contains a broad range of legal infirmities, the
head of one utility industry group said the flaws share one common theme:
“FERC’s regulatory grasp exceeds its statutory reach,” said Sue Sheridan, president and chief
counsel of the Coalition for Fair Transmission Policy (CFTP), a group of utilities that opposes
policies that allow the costs of big regional transmission projects to be broadly spread across
many states and ratepayer groups.
The filings from CFTP and its co-petitioners represent only a small fraction of the flood of
complaints against Order 1000, which FERC observers say is the most far-reaching policy
decision the commission has undertaken in years.
One controversial provision directs utilities and grid operators in each region of the country
except Texas—where FERC does not have jurisdiction—to develop new cost allocation systems
under which costs could be broadly spread for large transmission projects deemed to provide
wide regional benefits or meet public policy goals such as delivering more green power to the
grid.
Merchant power line developers, in particular, say they need such broad cost-spreading to help
underwrite the type of long-haul, interstate transmission projects that the country needs but have
been difficult to build in the past. But the CFTP and other utilities say such cost-spreading may
burden ratepayers with unjustified costs for projects that provide them with few if any benefits.
In crafting its cost allocation policy, FERC was careful to include language from a 2009 court
decision stipulating that customers could only be assigned costs “roughly commensurate” with
benefits they received from a transmission project. That language has helped calm concerns of
some utilities and lawmakers who worried that FERC’s rule could socialize project costs to a
degree that ratepayers could pay for transmission lines that are too far way to provide them with
meaningful savings or other benefits.
But in last week’s filing, the CFTP and its utility and state regulator allies said FERC’s Order
1000 cost allocation provisions are still illegal under the Federal Power Act (FPA). The
complaint said Order 1000 breaks the law “by providing transmission developers with a
mechanism to secure funding for their projects on a socialized basis, from entities with whom
they have no business relationship and to whom they do not provide service.”
“Whatever FERC’s policy objectives, the FPA does not permit it to establish a tax socializing the
cost of transmission development without respect to commercial relationships the commission is
not permitted to forge, but upon which its regulatory authority is premised,” says the complaint,
which was filed by the CFTP; the Alabama Public Service Commission; FirstEnergy Corp.’s
utilities; a handful of major public power utilities and the major public power trade
organizations; Public Service Enterprise Group’s (PSEG) utilities; Southern Co. Services Co.
and the New York Independent System Operator (NYISO), which runs that state’s grid.
Intervening on behalf of the petitioners were numerous transmission owners in NYISO. Many of
the same parties, though not all, are also on a separate May 28 filing challenging transmission
planning provisions of Order 1000, which requires regional transmission organizations (RTO) or
transmission-owning utilities in a given region to develop and submit for FERC approval new
procedures for planning and prioritizing grid expansion projects.
In requiring new transmission planning processes, FERC is largely trying to craft regional buy-in
for key transmission projects seen as particularly valuable in solving grid congestion, delivering
renewable power or providing other broad benefits. Projects of that size in the past have often
been blocked by states, which have sole authority over power line siting, because state utility
regulators felt their ratepayers did not stand to benefit sufficiently.
But the May 28 complaint says Order 1000 violates the FPA because FERC has no authority to
compel planning, and has not shown how the planning would benefit customers. Portions of the
FPA “empower FERC to ensure that transactions involving voluntary planning arrangement are
just, reasonable and non-discriminatory, but not to mandate transmission planning in the first
instance,” the complaint said. Moreover, the groups said FERC has enacted Order 1000 planning
requirements despite ample evidence that utilities in several regions of the country are already
working together efficiently on new projects, and that investment is pouring into transmission
projects across the country.
Petitioners filing the transmission planning complaint are Southern Co. Services Co Inc.; several
large municipal utilities and the Large Public Power Council; the CFTP, the Alabama Public
Service Commission; First Energy Corp.’s utilities; Oklahoma Gas & Electric Co.; PSEG’s
utilities; and dozens of transmission owners belonging to the Midcontinent Independent System
Operator (MISO), operator of the Midwest grid. Intervening on behalf of the petitioners were
MISO; the Florida Public Service Commission and the Connecticut Public Utilities Regulatory
Commission, among others.
Other parties have filed complaints on another controversial feature of Order 1000 in which
FERC removed most federal rights of first refusal (ROFR) that incumbent utilities currently have
to undertake new transmission projects in their service territories. FERC’s thinking was that
greater competition for new transmission, and greater opportunities for merchant power line
developers, will accelerate expansion of the U.S. grid and potentially lowers costs.
But lawmakers in a handful of states have objected, and have passed or proposed legislation that
would retain ROFR afforded incumbent utilities to build at least certain types of new
transmission. The ROFR question has also created the most evident split among FERC’s
commissioners, who at times have not agreed on the degree to which Order 1000 should supplant
regional or state requirements that support certain ROFR for incumbent utilities for new
transmission projects.