Sparks Fly as Agencies, Courts, States, and Congress Battle Over Who Is In Charge of Transmission Lines

The Federal Energy Regulatory Commission (“FERC”), various utilities, and several members of Congress all have announced plans for regulating thousands of miles of new transmission lines. Recent court decisions have supported giving states more authority over transmission siting, but that may change as Congress ramps ups its debate over the new energy and climate legislation proposed throughout the last several weeks.

Recent FERC Developments

Traditionally, FERC has regulated the interstate transmission and wholesale cost of electricity, but left the approval for the physical construction of in-state electric generation, transmission, or distribution facilities to State Public Utility Commissions.[1] However, in light of the infusion of funds from the federal stimulus package, the increasing focus of U.S. energy policy on installing a “smart grid” and developing new renewable energy sources, and growing interest in electrifying segments of our transportation sector, FERC has been considering options to increase its siting authority.

The American Recovery and Reinvestment Act of 2009 (H.R. 1), better known as the Federal Stimulus Bill, calls for nearly $15 billion in capital investments and loan guarantees for renewable energy projects and new electric transmission lines. The Department of Energy and the Treasury will be handing out the funds, but regulators still must approve the siting of these projects. FERC is trying to make the case for it to have a leading role in those siting decisions.

In its Proposed Policy Statement and Action Plan, FERC explains that its responsibilities regarding smart grid development stem from (1) its authority over the rates, terms, and conditions of transmission and wholesale sales in interstate commerce under Section 205 of the Federal Power Act (“FPA”), (2) its responsibility for approving and enforcing mandatory reliability standards for the bulk-power system in the United States under Section 219 of the FPA, and (3) its responsibilities under Section 1305 of the Energy Independence and Security Act of 2007 (“EISA”) to adopt smart-grid interoperability standards and protocols.[2] Under Section 1305(a), FERC is to work with the National Institute of Standards and Technology (“NIST”) to develop and adopt standards and protocols regarding smart grid functionality. FERC has signaled that it will accelerate certain aspects of the interoperability standards in light of the substantial funding for smart grid technologies in the Federal Stimulus Bill.

The agency is also looking to its own Order No. 890, issued in 2007, to increase access to or authority over regional transmission planning processes.[3] Order No. 890, along with preceding Order Nos. 888 and 889, was an effort to foster competition in wholesale power markets by requiring public utility transmission providers to be consistent in calculating available transfer capability, and “increase transparency in the rules applicable to planning and use of the transmission system.”[4] The reform also increased FERC’s access to public utilities’ transmission planning processes, including regional coordination, economic planning studies, and cost allocation. Arguably, FERC could use this increased access to oversee or increase its participation in the regional transmission planning processes.

To move forward with its agenda, FERC recently created an Office of Energy Policy and Innovation, which opened for business on May 4, 2009. The office, established by Chairman Jon Wellinghoff and led by Jaime Simler, Deputy Director of the Office of Energy Market Regulation, is tasked with incorporating demand response and other demand resources into wholesale electric markets, enhancing transmission planning and market rules and operations to integrate renewable energy sources, and improving operational and technical efficiency across FERC’s regulated industries.[5]

The States, FERC, and The Courts

The National Association of Regulatory Utility Commissioners (“NARUC”), which represents State Public Utility Commissions, has asserted that any expansion of FERC siting authority should be as limited in scope as possible. According to NARUC president Frederick Butler, “siting and transmission is one of the most difficult yet essential jobs of a state regulator, and no federal agency will have the resources or local knowledge on its own to balance all the considerations that must be taken into account.”[6] NARUC has emphasized that any legislation should not allow FERC to pre-empt state authority over environmental mitigation concerns in transmission siting.

NARUC’s position was bolstered by a recent 2-1 decision from the 4th Circuit, which held that FERC overstepped its congressional mandate in asserting federal authority over transmission line siting. Piedmont Environmental Council v. FERC, No. 07-1651, 2009 U.S. App. LEXIS 2944 at *19-20 (4th Cir. Feb. 18, 2009). FERC had argued that the 2005 Energy Policy Act permitted it to order “national interest” transmission projects to go forward, and that Congress’ mandate included implicit authority to overrule state decisions to the contrary. The Fourth Circuit disagreed, finding that if states turn down transmission projects on reasonable grounds, they cannot be overruled by FERC.

The agency’s petition for rehearing was rejected by the 4th Circuit on April 20, 2009. Whether or not the issue will be taken up by the United States Supreme Court remains to be seen.

Congress Steps In

In the House, Energy and Commerce Committee Chairman Waxman (D-CA) and Representative Markey (D-MA) released their 932-page climate change bill late last week.[7] The legislation addresses transmission planning by tasking FERC to develop, within one year after the enactment of the bill, federal policy on electric grid planning that encourages transmission expansion to accommodate new renewable energy and increase the efficiency of the current grid via demand-side management and storage capacity. The Waxman-Markey bill requires FERC to incorporate any ongoing planning efforts, as well as consult with the Secretary of Energy, in developing its policy.[8] It also allows states, public utilities transmission providers, regional organizations, and electric utilities “that are willing to incorporate the national electricity grid planning principles adopted by FERC” to “identify themselves and the regions for which they propose to develop plans” to the Commission within three months of FERC’s final policy release.[9] Eighteen months after FERC releases its grid policy, regional planning entities will be required to submit regional electric grid plans to FERC. FERC is charged with reviewing these plans for consistency with its national grid planning principles, and “may return a plan to one or more planning entities for further consideration,” along with its recommendations.[10] In addition to expanding FERC’s authority over the transmission grid, the Waxman-Markey bill puts FERC, rather than the Energy Department, in charge of implementing the Renewable Electricity Standard and its tradeable credits and “alternative compliance” payments.[11]

The Senate Energy Committee may pass transmission siting legislation in the next few weeks, setting up consideration of the issue by the full Senate later this summer. We previously reported on the differences between the draft Congressional bills proposed by Senate Majority Leader Harry Reid (D-Nev) and Senator Jeff Bingaman (D-N.M.), which would expand FERC’s authority over siting interstate transmission lines. See Battle Over Transmission Siting: Congress Considers Federalizing Permit Process, While Fourth Circuit Upholds States’ Right to Control It, Marten Law Group Environmental News, March 10, 2009.

In early May, the Senate Energy and Natural Resources Committee released the third iteration of the bill. Significantly, this draft tags the Interior Department, rather than FERC, as the lead agency for permitting new “high priority” transmission lines on federal lands.[12] It encourages Interior Secretary Salazar to use “energy corridors” created in the 2005 Energy Policy Act, but also allows him to create additional energy corridors on federal lands if necessary. The change was made, in part, in response to Secretary Salazar’s call to streamline the bureaucracy of siting transmission lines on these lands in efforts to develop more renewable energy.

FERC still retains backstop authority to certify construction of the high-priority lines. Under the newest draft, a “high-priority national transmission project”[13] developer must first apply to a state to route transmission facilities.[14] But if the state fails to approve the construction and routing within one year of application, rejects the application, or imposes “unreasonable” conditions on the project, FERC can step in and authorize the transmission line routing.[15] The explicit authority to override a state’s rejection of a project is a direct response to the 4th Circuit decision.

The draft bill does not go so far as to allow FERC to act without any input from states. FERC would still be required to incorporate state-recommended mitigation measures based on habitat protection, environmental considerations, and cultural site protection as conditions on the project’s authorization, or publish findings explaining why it chose not to adopt such measures.[16]

The component of the draft bill that allocates the costs of building transmission projects has raised concerns among committee members. FERC would be required to ensure that costs allocated to regions and sub-regions are not “substantially disproportionate to reasonably anticipated benefits,” and would have to “provide for due deference to cost allocation proposals supported by broad agreement among affected States.”[17] However, committee members expressed concern about defining the above “vague” language.[18]

Yet another Senate proposal was released on April 3, 2009 by Senators Dorgan (D-ND) and Voinovich (R-OH), which they have titled, the “National Energy Security Act of 2009” (“NESA”). It also would increase FERC’s transmission siting authority. Like Senator Bingaman’s bill but unlike Senator Reid’s bill, NESA does not limit FERC’s expanded siting authority to renewable energy related projects. This is a key issue for Senator Reid, Senator Cantwell (D-WA), and others that are concerned that the expansion of the grid will only make way for “dirty” electrons rather than the “green electrons” generated by renewable energy sources.

Utilities and Regional Planning Interests

In response to Congressional action, major utility and grid operators recently met to launch an initiative to stall congressional proposals for federal grid planning. They agreed to build an interconnection-wide analysis based on regional plans already being developed for the Eastern interconnection grid’s anticipated increase in renewable power. Advocates for regional planning argue that federal authorities such as FERC or DOE do not currently have the capacity to analyze the details necessary in determining whether new networks could be run reliably or economically. Because those abilities remain at the regional level, they agree that the most efficient way to get new and developing renewable energy online and improve the interconnectivity of the entire grid is to work at the regional level. “If you don't get the regions right, you can’t get the interconnection right,” said Peter Fox-Penner, a principal of the Brattle Group, which has analyzed the integration of renewable power into the grid in several regions. “Realistically, even if you told a federal planning entity to do an interconnection plan, you’d have to break it up into regional computer runs and then harmonize them.”[19] While proponents of regional planning acknowledge that FERC will likely have final planning oversight, they conclude that a grassroots planning approach will be more effective than a top-down planning process under tight federal control.

Conclusion

The outcome of the battle to determine governance of transmission line siting will have profound effects on the development of a national smart grid. Meanwhile, the old rules still apply, and developers currently engaged in transmission line development will need to seek authorization from State Public Utility Commissions and work in tandem with regional power administrations.

For more information about in transmission line siting, contact Alyssa Moir, or any other member of Marten Law Group’s Permitting and Environmental Review practice group.