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Fuzzy Bright Line

State laws challenge FERC Order 1000.

Since the 1990s, the Federal Energy Regulatory Commission (FERC) has undertaken several major efforts to restructure the electric industry to encourage development of competitive wholesale markets. Beginning with Order 888 (open-access transmission), and most recently with Order 1000 (regional transmission planning, regional cost allocation, and competitive processes for grid build-outs), FERC has continually pushed the policy envelope, presuming that markets will foster consumer benefits. Achievement of FERC’s ends, however, has come at the cost of significant effects on areas previously considered to lie within the exclusive jurisdiction of the states. Creating competitive wholesale electricity markets has somewhat expanded FERC’s role in electricity regulation, shifting – to FERC’s benefit – the “bright line” that heretofore has separated state from federal authority.

For the most part, FERC’s actions have been upheld by the federal courts when challenged by entities concerned with FERC’s encroachment on state jurisdiction. The Supreme Court’s last pronouncement on states’ rights regarding interstate transmission was in New York v. FERC , where the Court upheld FERC’s Order 888 actions in the open access transmission context as a necessary shifting of the line in light of the changing use of electricity in this country from local to regional. Indeed, some members of the Court did not think FERC went far enough with Order 888.

With Order 1000, which is currently subject to appeal, the question will be whether FERC’s latest efforts have gone too far – in this case imposing on the rights of the states to site transmission – or whether the courts will again view FERC’s efforts as a necessary next step in the evolution of markets. Several states already have enacted retaliatory legislation or have such efforts underway in an attempt to block Order 1000’s mandate to remove from FERC-jurisdictional tariffs and agreements an incumbent utility’s right of first refusal (ROFR) to build new transmission. These new state ROFR laws, which grant a right to construct new transmission lines to the incumbent utility, could be viewed as contradicting FERC’s goals in Order 1000 to create a competitive process for new transmission development.

If Order 1000 is upheld on appeal, it may be difficult for any state ROFR legislation to survive scrutiny under a Supremacy or the Commerce Clause analysis. Nevertheless, the states have a long history of determining who builds transmission within their boundaries. The role of the states in siting and permitting of new lines has always been carved out of federal legislation and has been a fiercely protected police power of the states. Thus, the outcome of the Order 1000 appeal will either lead to a new shifting of the jurisdictional line in favor of FERC or a key turning point for FERC’s future policy decisions in the other direction.

[Editor’s note: What follows is an excerpt from “Walking the Fuzzy Bright Line,” the authors’ feature story in Fortnightly’s September 2013 issue. See that article for full analysis and citations .]

A Mission of Sweeping Reform

In Order 1000, FERC aimed to improve transmission planning processes and cost allocation mechanisms that were “necessary at this time

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