After more than a year of preliminary proceedings, parties filed their first briefs Aug. 30 in Appalachian Voices v. FERC, in which the 4th U.S. Circuit Court of Appeals is reviewing the commission’s Order 1920 (24-1650).
Parties from all sides of the argument weighed in. Environmentalists and developers argued the transmission order did not go far enough. States and utilities argued FERC exceeded its authority. And one brief seeks to avoid the reimposition of a federal right of first refusal (ROFR). A response from FERC is not due until early 2026. The court will take other briefs later in February.
A group of more than 30 utilities that includes American Electric Power, Dominion Energy, Duke Energy, Exelon and Xcel Energy Services argued FERC exceeded its authority by forcing them to file cost-allocation proposals they might disagree with.
“FERC compels public utilities to include and promote state-designed utility tariff provisions, including those with which utilities disagree, which FERC would then be free to adopt even though the utility’s proposal was just and reasonable (the ‘inclusion requirement’),” the utilities said. “FERC also requires public utilities to consult with states before exercising their statutory right to amend their long-term transmission cost-allocation, and to explain why they reject contrary state proposals (the ‘consultation requirement’). This violates both the FPA [Federal Power Act] and the First Amendment.”
In the initial version of Order 1920, FERC declined to make utilities file state agreement approaches against utilities’ wishes, but in Order 1920-A, it reversed course and allowed “state entities to infringe on transmission providers’ filing rights.”
The filings come under Section 205 of the FPA, which is supposed to be reserved for utilities that cannot be forced to include proposals from states or other third parties. FERC said it would consider state agreement approaches on par with utilities’ own cost-allocation proposals, even though it is supposed to accept utilities’ Section 205 filings if they are in a broad zone of just and reasonable rates.
“FERC cannot circumvent statutory limitations by creating a rule that trumps the FPA’s plain meaning and confers on state entities filing rights that Congress withheld,” the utilities said.
Even when FERC sets a rate under Section 206 of the FPA, the utility keeps its right to respond and propose its own preferred rate under Section 205, the utilities said.
“Section 206 does not authorize FERC to override utilities’ Section 205 rights,” they added. “When remedying a rate that it finds no longer just and reasonable under Section 206, FERC must stay within the statutory limits of its power, just as in any other remedial context.”
Another brief arguing for rehearing was filed by the American Forest and Paper Association, Industrial Energy Consumers of America, National Rural Electric Cooperative Association, New England States Committee on Electricity, Ohio Consumer’s Counsel and others that faulted FERC for failing to adopt cost-management and customer-protection proposals.
“Order 1920 arbitrarily and capriciously facilitates an escalation in transmission rates without implementing any cost controls and cost-containment mechanisms to ensure rates remain just and reasonable,” the groups said. “FERC’s rejection of its initial proposal to eliminate certain transmission rate incentives for long-term regional projects violated FPA Section 206’s requirement that FERC must remedy unjust and unreasonable rates and practices.”
That includes a financial incentive that allows utilities to charge consumers 100% of prudently incurred costs before projects go into service, or even if they never go into service. FERC also failed to address ideas of an independent transmission monitor to ensure fair plans, leaving that for another docket where it has no requirement to act.
Order 1920 also shifts the costs of interconnecting generators from developers themselves to consumers, who will pay for those lines under the regional transmission planning process, the organizations said.
Their brief also urged the court to find that electric cooperatives can participate in the cost-allocation process with states. In much of the country, cooperative boards establish their consumers’ rates independently of any state regulator.
States including the attorneys general of Texas and Utah, the Arizona Corporation Commission, the Louisiana PSC, the Mississippi PSC, the Ohio PUC’s Federal Energy Advocate and others argued FERC goes too far and is trying to encourage a shift to renewable energy with Order 1920.
“It effectively transforms the transmission planning process into a tool to subsidize transmission facilities that support a specific set of favored generation resources,” they said.
Order 1920 requires transmission providers to use seven categories of factors to develop planning scenarios that lead to the construction of favored technologies. The factors include state or local policy, including decarbonization and renewable energy targets.
“The effect of this process is to socialize costs of transmission,” the state opponents said. “If a city passes an ordinance requiring that all its energy must be solar (without regard to the cost), the transmission provider for the entire region must now account for that policy in its planning and thus build the infrastructure necessary to support the city’s power generation goals. The transmission providers cannot disregard the policy as unreasonable.”
States that favor traditional methods of power generation are required to subsidize the development of the infrastructure required to support states and localities that favor other methods of generation, they added.
Appalachian Voices, Invenergy, Environmental Defense Fund, Natural Resources Defense Council, Sierra Club and others filed a brief that FERC did not go far enough and that Order 1920 will not fix the “broken” transmission grid that has been neglected by is owners and operators for decades.
“The existing regional grid has experienced catastrophic and deadly failures during extreme weather events,” the environmentalists and Invenergy said. “It lacks the infrastructure necessary to adapt to acute changes to electricity supply and demand. And cheaper, cleaner resources wait years to connect to the grid while aging, uneconomic plants are unable to retire, costing consumers billions of dollars every year.”
FERC has passed other transmission reforms over the decades where it was clear what the industry had to do, they argued. But when it paired “a choose-your-own-compliance adventure” with a general set of planning principles then nothing changed.
“This is unsurprising; incumbent transmission owners tasked with transmission planning and development have financial incentives to avoid the most cost-effective projects, since truly efficient regional transmission introduces competition and reduces profits for them and their affiliated generating resources,” the environmentalists and Invenergy said.
They argued that FERC was wrong to let transmission owners ignore benefits like access to cheaper generation, deferred generation investments and increased competition from the planning process. It also failed to consider alternatives such as new transmission technologies and storage, or merchant transmission lines, in the planning process.
The final brief came from industry competition proponents such as Advanced Energy United, Electricity Transmission Competition Coalition, LS Power and others. They argued FERC should not have reimposed a federal ROFR for “right-sized” projects.
Order 1000 had eliminated federal ROFRs, but Order 1920 would reimpose them for projects that come out of local planning processes but would produce more benefits if the need addressed a larger, regionally planned project.
The rule is the first time FERC has imposed a ROFR on its own. The old federal ROFRs were put in place by incumbent transmission owners themselves and filed with FERC under Section 205 of the FPA. It proposed the new one because in earlier rounds of reforms, many incumbent transmission owners were replacing aging infrastructure on their own, avoiding regional planning processes.
FERC reasoned that allowing a ROFR for right-sized projects would subject more transmission to regional planning. Competition proponents argued the lack of planning for such lines was a calculated effort from utilities to counteract Order 1000’s attempt to use competitive market forces.
“Order 1920 takes a drastic step in the opposite direction — creating a ROFR from whole cloth and mandating its use in FERC-jurisdictional tariffs — on the flawed theory that the power to find a practice unlawful under the FPA necessarily entails the power to mandate that practice,” AEU, ETCC and LS Power said.
“Although FERC’s motivation to incentivize regional transmission investment may be well-intentioned, its chosen method is both misguided and unlawful. Giving incumbent transmission owners a monopoly right to build tomorrow’s regional grid free from competition is a Faustian bargain. For the incumbent utilities, that deal is too good to be true. For consumers, it is a financial nightmare.”
