By Amanda Durish Cook

Federal courts last week rejected two challenges from MISO stakeholders involving FERC Order 1000.

Court Upholds Minn. ROFR

The U.S. District Court for Minnesota on June 21 dismissed competitive developer LS Power’s challenge to the state’s right of first refusal law (17-4490).

The ruling allows Minnesota to continue to grant in-state transmission owners a ROFR to build new high-voltage transmission lines that connect to their facilities. LS Power had claimed that state ROFRs essentially invalidate Order 1000’s elimination of the federal ROFR and undermine FERC’s goal of competition. The U.S. Justice Department had joined the company’s challenge, claiming Minnesota’s law unconstitutionally regulates interstate commerce, in violation of the Constitution’s dormant Commerce Clause. (See Justice Department Joins Challenge to Minn. ROFR Law.)

But the court said the law neither overtly discriminates nor imposes a burden on interstate commerce.

The ROFR “is part of Minnesota’s broader regulation of the provision of electricity to the consumer market,” the court said.

It cited 1997’s General Motors Corp. v. Tracy, in which the U.S. Supreme Court allowed Ohio to continue to tax natural gas sales differently depending on whether they were made to in-state regulated public utilities or out-of-state marketers. The Supreme Court determined that when evaluating a challenged state statute, controlling weight must be given to the possibility of negative consequences on the ability of regulated utilities to serve their captive consumers in a monopoly market.

In last week’s decision, the district court said many of the entities that own existing transmission facilities in Minnesota are regulated public utilities that serve captive markets and operate as monopolies.

“The reasons cited in support of giving greater weight to the monopoly market in Tracy apply here; namely, to avoid any jeopardy or disruption to the service of electricity to the state electricity consumers and to allow for the provision of a reliable supply of electricity,” the court concluded.

As in Tracy, the court said it could not predict the economic consequences of upending the ROFR.

“Minnesota not only gives existing owners a right of first refusal to build new transmission lines that will connect to their existing facilities, but in return Minnesota also places extensive regulatory burdens on those owners. Any intervention by the court could upset the balance between those burdens and regulation.”

The court’s ruling recognized that both Congress and FERC have said Minnesota has a right to adopt a ROFR for new transmission lines. It also said the state’s statute does not discriminate against out-of-state entities because it “draws a neutral distinction” between existing TOs whose facilities will connect to a new line and all other entities, “regardless of whether they are in-state or out-of-state.”

Were it not for the state’s ROFR, the Huntley-Wilmarth line — ITC Midwest and Xcel Energy’s planned 50-mile, 345-kV transmission line in southern Minnesota — would have been opened for MISO’s competitive bidding process in 2016 under Order 1000.

Review of MISO-SERTP Allocation Denied

In a separate case, the D.C. Circuit Court of Appeals on June 22 denied Ameren’s petition for review of a cost allocation proposal under Order 1000 because the appeal introduced an argument that was not first raised in a FERC proceeding (16-1150).

The case dates to 2013, when MISO filed a cost allocation methodology under Order 1000 for interregional projects developed with seams neighbor Southeastern Regional Transmission Planning (SERTP). The RTO had proposed to allocate its costs for those projects based on a cost-avoidance method that would include the estimated costs of displaced regional transmission projects rendered unnecessary by the interregional project.

However, MISO proposed that its calculation would include only those costs for avoided projects that had been identified in its annual Transmission Expansion Plan but not yet approved, while excluding costs for approved projects.

FERC rejected the proposal, saying that excluding approved regional projects from the analysis would undervalue potential benefits of an interregional project, especially because approved projects tend to be the most cost-effective. Order 1000 requires the costs of an interregional project to “be allocated in a manner roughly commensurate with the project’s benefits.”

In appealing FERC’s decision, Ameren argued that the commission’s mandated change in cost allocation could harm developers — and by extension, their customers — that had already invested in MTEP-approved projects that were later displaced.

The company also raised a new concern in the appeals case: that FERC’s decision did not comport with its obligation to ensure just and reasonable rates.

The D.C. Circuit seized on the new argument and said that petitioners must first raise arguments in front of FERC before approaching an appeals court.

Ameren contended that the argument of just and reasonable rates lies at the heart of every FERC rate order and should not be considered a new argument in a petition for review, but the court countered that the company misunderstood the Federal Power Act’s requirement that arguments be exhausted at FERC before an appeal.

“If we were to accept petitioners’ rationale, parties would never need to raise specific legal arguments before the commission as long as they broadly challenge the justness and reasonableness of rates,” the court said.

At any rate, the court said, FERC had already adequately explained its decision requiring MISO to account for approved MTEP projects in its SERTP cost allocation methodology.

“In the end, we conclude that the commission adequately responded to petitioners’ concerns about the possible effects of including approved regional projects in the cost allocation calculation. Petitioners ultimately disagree with the commission’s policy judgment about whether the importance of properly calculating an interregional project’s benefits outweighs the effects of potentially displacing approved regional projects. Petitioners’ disagreement with the commission’s resolution of that issue does not render the commission’s explanation any less thorough or reasoned,” the court concluded.