Over the past several years, the Federal Energy Regulatory Commission has issued a number of rules that have been seen as instrumental to integrating renewable energy, demand response and other clean technologies into the grid. Many of these rules have faced legal challenges -- and while some have been overturned as a result, others have survived.
On Friday, the U.S. Court of Appeals for the District of Columbia Circuit affirmed FERC Order 1000, a 2011 ruling that sets up a complex and mandatory new way for transmission operators and utilities to plan for, and pay for, regional grid investments.
In simple terms, Order 1000 requires mandatory coordinated planning for grid investments that affect multiple states and utility jurisdictions, rather than the voluntary system that left most plans in the hands of individual state regulators and utilities. It also demands that these plans take into account state policies on carbon reduction and renewable energy integration.
The order was challenged by 45 different petitioners, including utility groups and state utility regulators, on the grounds that FERC overstepped its authority and that Order 1000 is “arbitrary and capricious and unsupported by substantial evidence.” But in Friday’s seven-part, 97-page ruling (PDF), a three-judge panel at the D.C. Circuit Court found that these “contentions are unpersuasive.”
Billions of dollars of transmission grid investments and upgrades could be affected by the decision. A 2008 electric industry study estimated that $300 billion in new transmission infrastructure investment could be required between 2010 and 2030 to maintain reliable electricity service across the country.
But so far, despite disasters like the 2003 Northeast U.S. blackout, the grid’s investment needs are still being underfunded, according to experts. The American Society of Civil Engineers gave the nation’s energy infrastructure a “D+” grade in a 2013 report and said that current plans could lead to a $37 billion investment gap in transmission by 2020.
The need to integrate intermittent wind and solar power into the grid is expected to further complicate these future investment needs. As the court noted:
“The Commission expects that many States will require construction of new transmission infrastructure to integrate sources of renewable energy, such as wind farms, into the grid and that new federal environmental regulations will shape utilities’ decisions about when to retire old coal-based generators. Plans that fail to account for such laws and regulations, the Commission reasoned, would not adequately reflect future needs.”
Opponents of FERC’s order had claimed that the agency lacked the evidence to create its new planning regime. But the court found otherwise, stating that "[p]rior to Order No. 1000, the deficiencies in transmission planning and cost allocation practices were well understood and not based on guesswork, as petitioners claim.”
The court also upheld FERC’s authority to set up new ways of splitting the costs of new transmission investments among the different states and utilities that will eventually benefit from them. Friday’s ruling states that FERC’s order “uses a light touch: it does not dictate how costs are to be allocated. Rather, the Rule provides for general cost allocation principles and leaves the details to transmission providers to determine in the planning processes.”
The court also upheld FERC’s decision to remove “right of first refusal” rules that gave incumbent transmission owners first crack at building and owning new projects. “In practice, incumbents were likely to exercise their rights of first refusal once the benefits of a new project were demonstrated,” the court wrote. “In this way, rights of first refusal discouraged non-incumbents from proposing transmission facilities.”
In a prepared statement, FERC Chairman Cheryl LaFleur said that “our nation needs substantial investment in transmission infrastructure to adapt to changes in its resource mix and environmental policies. Order No. 1000 is critical to the Commission’s efforts to support efficient, competitive, and cost-effective transmission.”
Environmental groups also praised the decision. In a Friday blog post, Natural Resources Defense Council attorney John Moore called it “a major win for clean energy and the environment,” in that it requires that carbon standards and other clean energy policies be integrated into transmission plans. “The decision also affirms FERC’s commonsense finding that regional transmission planning is better for consumers and the environment.”
Opponents to Order 1000 expressed a different opinion, of course. The Coalition for Fair Transmission Policy, a group representing utilities including Southern Co., DTE Energy and Public Service Enterprise Group, said in a Friday statement that it was “disappointed in today’s D.C. Circuit Court decision, which is a setback for consumers expecting to pay just and reasonable rates for electricity,” noting that it would be analyzing the court’s decision to decide whether to pursue further legal action.
The coalition also noted that Friday’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 is referring to the court’s May decision to vacate FERC Order 745, which set out rules that would require demand response providers to receive the same payment for reducing electricity consumption as generators do for the energy they produce.
The court’s majority opinion in that decision stated that “FERC went far beyond removing barriers to demand response resources” in Order 745, because it “draws demand response resources into the market and then dictates the compensation providers of such resources must receive.” It’s unclear whether the same logic will apply to FERC Order 1000, which does not create specific compensation rules for different parties in transmission grid upgrades, however.
Opponents still have the option of requesting a rehearing before all eleven D.C. Circuit Court judges, or filing a petition asking the Supreme Court to take up the case. The Coalition for Fair Transmission Policy also noted that Congress could take up its cause in future legislation. But for now, it appears that FERC’s vision for an integrated transmission planning process will survive.