How significant and radical is the Federal Energy Regulatory Commission’s latest, newest attempt to foster long-failing interstate electric transmission? A recent analysis from Keith Goldberg of the Washinton law firm of Morgan, Lewis & Bockius takes a deep look at the impact of FERC’s May Order 1920, including its roots, its reach, and its future.
“The Federal Energy Regulatory Commission’s sweeping revision of its regional transmission planning policies will completely transform how U.S. grid projects are planned and paid for,” writes Goldberg, noting that “the agency is embracing a top-down approach to building and expanding interstate transmission, rather than the bottom-up, project-by-project approach that’s been the norm for decades.”
The analysis quotes former Democratic FERC Commissioner Suedeen Kelly on the historic nature of the order “because it looks at the bottom-up transmission process and recognizes that it’s more participatory but less efficient than a top-down transmission process.”
Neil Chatterjee, Republican former commissioner and chairman, observed that the new order recognizes FERC’s previous failures to cut the Gordian knot of interregional electric transmission. “Somebody needed to step up and rip the Band-Aid off,” he said noting that the commission “stepped in and made a bold decision. Is it going to be perfect? No, but somebody had to do something.”
The action was controversial, prompting an angry dissent from Commissioner Mark Christie, a former, long-time Virginia state regulator, who dissented in the 2-1 commission vote. He slammed the order, charging that “The final rule is a pretext for enacting a sweeping policy agenda never passed by Congress, denies the states the authority promised by the [Notice of Proposed Rulemaking], and fails the commission’s consumer protection duty under the Federal Power Act.” Christie labeled the order a “shell game” and a “charade.”
The order is likely headed to court.
Goldberg laid out five “key takeaways” from the order.
- FERC is fully in control of a “muscular” order that while it “gives states a place at the cost allocation discussion table, including the option for companies to accept state-negotiated plans, it also makes clear that FERC and transmission owners can move ahead without state input if necessary….” Kelly commented, “It would hopefully incentivize states to get together.”
- Compliance will be thorny as “making 20-year projections of future grid needs while considering a broad scope of factors will be challenging for transmission owners and regulators used to making shorter-term electric generation and transmission plans.” Morgan, Lewis colleague Dan Skees observed that reevaluation provisions of Order 1920 will be especially critical, since transmission developers could be assigned projects that are eventually determined to be unneeded. “To the extent the final rule is not prescriptive, this will be an essential, if underappreciated, focus of the compliance filings,” Skees said.
- FERC ducked the controversial topic of the “right of first refusal” for existing transmission providers, with the inevitable acronym of ROFR. “FERC had originally proposed the restoration of a federal right of first refusal for incumbent transmission companies before new companies can build regionally planned projects, as long as the incumbent companies establish joint ownership of those projects. The agency removed that in the final rule, but didn’t slam the door on the idea either, saying it could be revisited in a future proceeding. FERC also said a right of first refusal could be used in other instances, such as transmission owners who are replacing their own aging facilities as part of a long-term plan.”
- FERC’s approach is “holistic” as opposed to incremental. “Order 1920 is the single biggest policy change in a series of transmission policy overhauls FERC has pursued in recent years, and it isn’t hard to see what its influence will be on both rules already enacted and future rules.” Goldberg notes that Order 1920 came about a year after another noteworthy action, Order 2023, aimed at breaking the traffic jam in attempts to get new, most often renewable, projects a grid connection. He said, “FERC watchers say Order 1920 is what’s going to help maximize the effectiveness of Order 2023.”
- Legal challenges are inevitable. “Christie’s dissent telegraphed several potential legal challenges to the rule. Attorneys say the legal argument to watch might be that FERC’s interpretation of its Federal Power Act authority isn’t entitled to deference, especially given that the U.S. Supreme Court appears poised to alter or overturn so-called Chevron deference in Loper Bright Enterprises et al. v. Gina Raimondo.” In his dissent, Christie also mentioned the newest, Chevron-challenging “major questions doctrine.”
Goldberg gives the final word to attorney Steven Shparber of Mintz Levin Cohn Ferris Glovsky and Popeo, who previously worked at both FERC and PJM: “The combination of orders shows that FERC is very serious about trying to get transmission built and updating the grid.”
–Kennedy Maize
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