A group of utilities have filed for rehearing of a show cause order FERC issued last month that could change the practice of who pays for interconnection lines at four ISO/RTOs. (See FERC Issues Show-cause Order on TO Self-Funding in 4 RTOs.) 

The commission asked ISO-NE, MISO, PJM and SPP to explain why their tariffs that give utilities the first shot at paying for the transmission upgrades required by interconnecting generators are just and reasonable, or to submit changes. 

Ameren Services, American Transmission Co., Duke Energy, Exelon, Northern Indiana Public Service Co. and Xcel Energy Services filed for rehearing of the show cause order this week. Ameren won a lawsuit involving MISO that started the practice back in 2018, but the District of Columbia Circuit Court of Appeals directed the commission to better explain its reasoning in 2022 after it had spread to the three other markets. (See FERC Must Clarify MISO Transmission Funding Decision, DC Circuit Finds.) 

The 2018 decision from the same circuit court found that revoking transmission owners’ right to self-fund network upgrades for interconnection and earn a right of return raised serious “statutory and constitutional concerns” due to compelling generator-funded upgrades on utility business models. 

“The commission has now decided to take on those serious constitutional and statutory questions — and potentially take the historic step of compelling the construction, ownership and operation of interstate transmission facilities by private entities with no opportunity to earn a return — all on the unproven premise that doing so will actually save consumers money,” the rehearing request said. “The show cause order is short-sighted and unwarranted. Investor-owned utilities investing private capital in exchange for a reasonable return is one of the most basic tenets of the century-old regulatory compact between government and the utility industry.” 

The constitutional issues come from the Fifth Amendment, which bars the government from taking private property for public use without compensation. Under the Federal Power Act, that has been interpreted to mean FERC cannot impose “confiscatory rates,” which means utilities need to be able to earn a reasonable return on the value of property at the time it is being used to render service. 

“It cannot be lawful to compel the construction, ownership and operation of utility-owned assets with no opportunity to earn any return,” the rehearing request said. “On this basis, the proposal in the show cause order is per se unconstitutional.” 

FERC suggested the interconnection upgrades can be treated as “nonprofit appendages without jeopardizing total return,” but the utilities argued it lacks the authority to eliminate equity returns from an entire class of rates represented by a major driver of new transmission investment. The utilities argued the decision could discourage much-needed investment in transmission expansion. 

The commission has run multiple proceedings that led to the rules at issue, while the D.C. Circuit’s 2022 ruling only required a better explanation as to why “generators’ concerns about potential discrimination did not outweigh the transmission owners’ enterprise-risk concerns.” 

The show cause order goes further and reopens the potential for discrimination in what appears to be an effort to “backfill the record that never materialized” in the proceedings leading to the currently effective rules across the four markets, the request said. 

The dispute started in MISO with FERC proceedings stretching back to 2011 with multiple proceedings that wound up before the D.C. Circuit with the court vacating decisions empowering generators to override a transmission owner’s self-funding choice. 

The court concluded the commission had “distorted and dismissed” the transmission owners’ fundamental argument that FERC’s orders would require transmission owners “to act, at least in part, as a nonprofit business,” and constituted an “attack on their very business model,” creating a risk of deterring “new capital investment,” the rehearing request said. 

That 2018 decision found it was “at least uncertain” FERC would reach the same conclusion on remand after addressing the deficiencies identified by the court. FERC sided with the transmission owners on the remand order. American Clean Power Association then filed a lawsuit that led to the 2022 decision, which FERC did not deal with until the show cause orders issued in June.