Order 1000 Upheld on Appeal: A Closer Look at the Good News for Clean Energy

I co-wrote this blog with my new Sustainable FERC Project colleague, Jennifer Chen.

As our colleague John Moore has already described, the D.C. Circuit Court of Appeals has unanimously upheld the Federal Energy Regulatory Commission’s (FERC’s) landmark Order 1000 rule. We’ve previously blogged about what Order 1000 does and why it’s important; here we focus on some highlights of the court’s decision related to clean energy development and the environment.

But first, a refresher. Order 1000 requires the utilities and others responsible for our high voltage transmission grid to participate in a regional planning process, eliminate certain provisions that give incumbent utilities a competitive edge in transmission planning (known as federal rights of first refusal), establish methods to clarify who will pay for the costs of new transmission projects, and include procedures to consider how public policies like federal carbon pollution standards and state clean energy policies impact the grid.

Now on to the decision.

FERC’s role in our clean energy future

After the court decision came out, FERC Chairman LaFleur expressed her pleasure and noted that Order 1000 is critical to transmission investments necessary to facilitate environmental policies and a changing electric power resource mix. As clean energy advocates, we’re pleased too.

In finding all of the challenges to Order 1000’s public policy-related provisions “without merit,” the court embraced Order 1000’s role in integrating renewable energy like wind and solar power onto the grid. The court affirmed that regional planning is critical to future transmission grid needs arising from state clean energy policies promoting renewable energy and environmental standards facilitating old coal-fired power plant retirement. Perhaps even more important, the court agreed with FERC that without Order 1000’s requirement to determine in advance how regional transmission projects will be paid for, plans likely will not incorporate the incremental grid infrastructure needed to transport wind and solar power from where it is created into our homes and businesses.

Other legal highlights

The Federal Power Act (FPA) grants FERC the power to remedy any practice that affects a rate for interstate electricity transmission if such practice is “unjust, unreasonable, unduly discriminatory or preferential.” In the Order 1000 decision, the court interpreted this legal language to affirm FERC’s development of Order 1000 and all of its obligations, including that transmission providers: participate in a regional planning process, eliminate preferential rights of incumbent utilities to build needed regional transmission lines (known as “rights of first refusal”), establish pre-determined methods to figure out who pays for new transmission projects, and account for needs arising from public policies in transmission planning.

A key question in determining whether FERC has the authority to regulate regional transmission planning is how to interpret what the FPA means by “practice.” The court noted that FERC has broad authority in regulating practices that affect transmission rates, but this authority is not without limits. For example, the court noted that FERC cannot require that a public utility’s board of directors be replaced, because the “practice” of board make-up is too far removed from the costs of FERC-jurisdictional interstate transmission. But, the court made clear that FERC can regulate a utility’s habitual actions in connection with transmission rates. Thus, reforming the practice of habitually failing to engage in regional planning and upfront cost allocation for new regional transmission facilities is well within FERC’s mandate. Also within FERC’s authority is Order 1000’s elimination of federal rights of first refusal because they may increase transmission development costs by presenting barriers to competitive projects, including more sustainable alternatives to transmission.

The other part of determining whether FERC has legal authority to issue Order 1000 is to ask whether the FPA exclusively reserves some aspects of the rule's reforms to state oversight. The court disagreed with Order 1000's challengers that the rule is invalid because it infringes on the states’ traditional regulation of transmission planning, siting, and construction. Without stating that these are matters reserved for state regulation, the court found that because Order 1000 explicitly does not cover these matters, it did not encroach on state authority.

The court also found that FERC’s decision making was sound and supported by substantial evidence. Among other things, the court pointed to FERC’s reliance on studies and projections by industry experts that increasing reliance on large-scale renewable generation will drive new transmission expansion in the next two decades, but that without Order 1000-like reform, a large number of planned transmission projects will not be built due to deficiencies in transmission planning and cost allocation processes.

These are just some of the highlights of the court’s 97-page opinion, and we applaud the court for its thorough and well-reasoned decision. And this well-deserved outcome is due in no small part to the great amount of hard work by those at FERC – congratulations on a job well done.