A three-judge panel at the U.S. Court of Appeals for the D.C. Circuit on April 14 ruled, or in truth really didn’t rule, in a case brought by 14 transmission companies over a series of orders issued by the Federal Energy Regulatory Commission.
The petitioners are 14 electrical transmission companies operating as members of PJM Interconnection. As incumbent members of the organization, they contend that PJM’s governing agreements afford them a right of first refusal for proposed transmission facility expansions or upgrades within their zones. FERC held that no such right of first refusal exists and that PJM may designate third-party developers to construct transmission facilities within incumbent members’ zones. The incumbent transmission owners argued that the commission lacks jurisdiction over transmission facility development and that the commission’s interpretation of PJM’s governing agreements is arbitrary, capricious, or otherwise not in accordance with law under the Administrative Procedure Act.
This appeals court had held this case in abeyance pending the decision in South Carolina Public Service Authority v. FERC, which came in 2014. “After reviewing the original and supplemental briefing, and with the benefit of oral argument, we dismiss the petition for review because Article III of the Constitution does not permit us to issue an advisory opinion,” said the appeals court decision.
Petitioners had sought review of four FERC orders from two proceedings. In both proceedings, non-incumbent developers argued that no right of first refusal existed within PJM’s governing agreements for incumbent transmission owners.
- The first proceeding arose on a petition to the commission by Primary Power LLC, a non-incumbent developer hoping to build the Grid Plus project, a proposed expansion project comprised of four installations within the PJM system. FERC in that case acknowledged that merchant transmission facilities are not eligible for cost-based rates under the PJM Tariff. But if PJM includes the Grid Plus project in its expansion plan, FERC said that Primary Power “would be eligible to seek cost-based rate recovery as would any other transmission owner.” FERC also noted that the “PJM’s Tariff contains no prohibition on a nonincumbent party becoming a transmission owner to receive cost-based rates.” Incumbent transmission owners sought rehearing. Among other things, they argued that FERC ignored their exclusive right to build and operate all non-merchant projects in their own zones, and FERC misinterpreted the “other entity” language from Section 1.5.6(f) of the PJM Operating Agreement. FERC in 2012 denied the rehearing request and affirmed its previous order.
- In the second proceeding, non-incumbent developer Central Transmission LLC filed a complaint under Section 206 of the Federal Power Act (FPA) alleging that the PJM Tariff is unjust and unreasonable because it prevents Central Transmission from constructing a transmission project and receiving cost-based rate recovery for it. Incumbent transmission owners protested, arguing that the complaint should be dismissed because Central Transmission did not satisfy the burden of proof under Section 206. FERC dismissed the complaint, concluding that the Section 206 proceeding was unnecessary. Applying its decision in the Primary Power case, FERC said that PJM’s governing agreements allowed non-incumbent parties like Central Transmission to become transmission owners eligible for cost-based rates. Consequently, FERC saw no need to revise the PJM Tariff or Operating Agreement. Public Service Electric and Gas (PSEG) sought rehearing. Taking no issue with the ultimate result (dismissal of the complaint), PSEG instead objected to the commission’s reliance on the Primary Power order. Both orders, PSEG argued, ignored incumbent transmission owners’ exclusive right to build projects in their own zones. According to PSEG, the commission’s reading of PJM’s governing agreements was simply wrong. The commission denied PSEG’s rehearing request on the same day that it denied rehearing in the Primary Power case.
In South Carolina Public Service Authority v. FERC, petitioners challenged the commission’s authority to adopt Order No. 1000, which required transmission providers to remove from their “jurisdictional tariffs and agreements any provisions that establish a federal right of first refusal for an incumbent transmission developer to construct new regional transmission facilities included in a regional transmission plan.” While this petition was pending at the appeals court, FERC directed PJM to comply with Order No. 1000 and remove or revise “any provision that could be read as supplying a federal right of first refusal for any type of transmission project that is selected in the regional transmission plan for purposes of cost allocation.” PJM complied, and, as of the Jan. 1, 2014 effective date, PJM’s governing agreements no longer contain language that could be read to create a right of first refusal for incumbent transmission owners.
The April 14 appeals court decision noted on this FERC change of policy: “Because we are now left interpreting superseded language from PJM’s governing agreements, FERC contends that this case no longer presents a live controversy and any decision at this time would constitute an impermissible advisory opinion. For the reasons explained below, we agree.”