As readers are likely well aware of, this month the Supreme Court heard oral argument in FERC v. Electric Power Supply Association. The ultimate result could decide the fate of the nascent wholesale demand response sector, but at a deeper level, the case raises important questions about how well equipped the Federal Power Act is to facilitate innovation, integrate new technologies, and allow for cross-jurisdictional electric system planning.
Category Archives: Court Cases
“What Is The True Nature Of A Sale That Was Never Made?”
An Existential Dilemma Arrives at the Supreme Court
On Wednesday, October 14, the Supremes will hear oral argument in Electricity Power Supply Association v. Federal Energy Regulatory Commission. The ultimate result could decide the fate of a nascent cleantech industry aimed at promoting efficiency, lowering prices, and reducing greenhouse gas emissions. More fundamentally, though, this case raises important questions about the federalism underpinnings of the U.S. electricity sector, and how well they can adapt to the new energy evolution underway today.
Oregon Natural Desert Association v. Jewell, No. 3:12-CV-00596, __ F. Supp. 2d __, 2013 WL 5101338 (D. Or. Sep. 11, 2013).
Reprinted with permission from the October 2013 Case Notes edition of the Oregon State Bar’s Environmental & Natural Resources Section.
These case summaries are prepared for the benefit for the full bar, and therefore provide more of an overview of the case and underlying laws than might otherwise be necessary for environmental law practitioners.
Oregon Natural Desert Association v. Jewell, No. 3:12-CV-00596, __ F. Supp. 2d __, 2013 WL 5101338 (D. Or. Sep. 11, 2013).
Adrienne Thompson, Judicial Clerk to the Hon. Jack L. Landau
Plaintiffs, the Oregon Natural Desert Association and the Audubon Society of Portland (collectively, “ONDA”) sued the U.S. Bureau of Land Management and Secretary of the Interior (collectively, “BLM”) alleging that BLM did not adequately comply with the National Environmental Policy Act (NEPA), 42 U.S.C. §§ 4321 et seq. when the agency granted a right-of-way for the North Steens 230-kv Transmission Line associated with the Echanis Wind Energy Project in eastern Oregon. ONDA argues that the agency’s Final Environmental Impact Statement (“FEIS”) and Record of Decision (“ROD”) should be overturned on account of, among other things, BLM’s failure to consider and mitigate the project’s impact on sage-grouse and golden eagle populations.
The Echanis Wind Energy Project is a 104MW wind farm being developed on the north side of Steens Mountain in southeastern Oregon. The project developer, Columbia Energy Partners, LLC, (“CEP”) signed a longer-term power purchase agreement to deliver the project’s power output to Southern California Edison customers. To bring this power to market, however, will require a 44-mile, 230-kV transmission line, 12 miles of which would run through BLM-administered land. CEP applied for this 12-mile right-of-way back in 2008, initiating a multi-year NEPA analysis that concluded with the agency’s FEIS and ROD that granted CEP’s application, and ultimately prompted ONDA to bring the present litigation in the U.S. District Court of Oregon.
NEPA is a procedural statute that requires federal agencies to prepare an Environmental Impact Statement (EIS) whenever they undertake any “major federal action[] significantly affecting the quality of the human environment,” 42 U.S.C. § 4332(C). So long as an agency takes a “hard look” at the environmental effects of its actions, Marsh v. Or. Natural Res. Council, 490 U.S. 360, 374 (1989), no particular substantive result is required by the statute.
ONDA’s concerns revolve around the important and high-quality sage-grouse and golden eagle habitats in and around Steens Mountain that could be threatened by the Echanis Project and the associated new transmission line. ONDA challenged BLM’s FEIS and ROD under the Administrative Procedure Act, 5 U.S.C. 701-708. CEP and Harney County intervened in support of BLM. All parties moved for summary judgment. In support of its motion and its overarching argument that BLM failed to comply with NEPA, ONDA claimed in particular that:
- BLM failed to consider the impact of the project on fragmentation and connectivity of sage-grouse habitat.
- BLM failed to follow its own policies relating to sage-grouse and golden eagles.
- The FEIS contained inadequate information about the impacts of the project on sage-grouse and golden eagles.
- BLM failed to consider and respond to other agencies’ critical comments.
- BLM failed to specify required mitigation measures and relied on the assumption that Harney County would require mitigation for the impacts to private land.
- BLM failed to analyze the effectiveness of the proposed mitigation measures.
- BLM failed to allow public comment on the wholesale changes it made between the Draft and Final EIS.
The court denied ONDA’s motion for summary judgment, rejecting the organization’s arguments on each of the seven issues raised in its motion. On the first issue, the court found that BLM adequately considered the project’s impacts on fragmentation and connectivity. On the second issue, the court found that BLM did not act arbitrarily and capriciously in following its own policies. On the third and fourth issues, the court found that BLM’s surveys and data were adequate, and that the agency sufficiently considered and responded to other agency comments. The court also found that BLM was not required to specify mitigation obligations for the project developer, but instead, was permitted to rely on Harney County’s imposed mitigation measures–measures that the court additionally found BLM to have sufficiently assessed. Lastly, the court found that BLM was not required to solicit public comment on its FEIS.
As a result, the court found that BLM’s decision to issue its FEIS and ROD was not arbitrary and capricious, and granted the motions for summary judgment raised by BLM, CEP, and Harney County.
Cost allocation elaboration: Illinois Commerce Commission v. FERC, Case Nos. 11-3421 (7th Cir. 2013)
On June 7, 2013, the Seventh Circuit Court of Appeals upheld the Federal Energy Regulatory Commission’s approval of a Midwest ISO (MISO) tariff revision that allocates transmission costs for certain projects in the ISO’s service area. The court also remanded a separate issue to FERC for further consideration — the following blog posts from Troutman Sanders and Davis Wright Tremaine breakdown this and some of the other questions addressed by the court in Illinois Commerce Commission v. FERC, Case Nos. 11-3421 (7th Cir. 2013), so this post will look more closely at the primary issue: cost allocation.
The case centers around two sets of plaintiffs: regulators and utilities from Illinois and Michigan, referred to simply as “Illinois” and “Michigan,” respectively. Both groups took issue with how MISO calculated and allocated the transmission costs for the 16 “multi-value projects” (MVPs) that are proposed for construction in the ISO. These projects consist of extensive high-voltage transmission lines and are designed to improve overall transmission system reliability, help MISO utilities meet state renewable portfolio standards, and provide other economic benefits to transmission users. Illinois and Michigan argued that they should be exempt from the MVP surcharge because the projects would only benefit a few utilities. Furthermore, they asserted that even if they benefited from a particular project, MISO’s cost allocation scheme (the basis for its MVP surcharge) is too “crude” to fairly calculate these benefits and assign costs accordingly.
Both FERC — and later, the Seventh Circuit — disagreed. First, the court noted that MISO allocated the costs for the MVPs not based on proximity to the transmission project (as was the ISO’s practice prior to 2010), but rather to all utilities on the grid in proportion to their wholesale use. MISO and FERC argue that the MVPs will be primarily transmitting renewable energy from sparsely populated rural areas in amounts that vastly exceed the consumption needs and financial wherewithal of these areas. This renewable energy will be ferried across the entire MISO grid, relieving congestion and stabilizing the system in the process. Second, in recognition of these system-wide benefits, FERC felt justified in allowing MISO to impose the surcharge against each MISO utility according to how much energy they take from the entire grid. Although “crude,” this cost allocation scheme was nonetheless sufficient to warrant approval from FERC and the Seventh Circuit.
This second point requires further discussion because it has wider implications for other entities looking to challenge transmission cost allocation schemes. The Seventh Circuit is no stranger to cost allocation issues. In fact, it was the court’s decision in Illinois Commerce Commission v. FERC, 576 F.3d 470, 476 (7th Cir. 2009) that set out the standard FERC adopted for its landmark Order 1000. In that decision, the court rejected FERC’s approval of a PJM cost allocation scheme for want of a more equitable cost-benefit ratio. Recognizing that precise cost and benefit determinations for transmission projects are difficult to calculate, the court simply required FERC to have “articulable and plausible reasons to believe that the benefits [that a utility receives from a transmission project] are at least roughly commensurate” with the costs allocated to the utility.
By recognizing that MISO and FERC’s “crude” cost-benefit analysis was enough to pass the “roughly commensurate” standard, this case suggests that other courts (certainly the Seventh circuit) will give FERC similar deference. The court also puts the onus on challengers to show proof that cost-benefit analyses do not meet the “roughly commensurate” standard. It is not enough to simply say that the cost allocation mechanism is unfair; rather, the court said that the Illinois and Michigan parties needed to present “evidence of [an] imbalance of costs and benefits.” Parties challenging cost allocation schemes would be wise to heed this warning and come armed with data and other allocation alternatives for FERC and the courts to consider.
Dicta:
In dispatching one of Michigan’s arguments against the MVP, the court alluded to potential constitutional deficiencies with Michigan’s renewable portfolio standard (RPS). Michigan’s RPS requires utilities to acquire ten percent of their energy procurement from renewable sources by 2015. The court noted that by prohibiting in-state utilities from crediting out of state wind energy toward their RPS requirement, Michigan’s RPS law discriminates against interstate commerce in violation of the commerce clause. Although this constitutional aside can be safely relegated as dicta for purposes of the court’s decision, it nonetheless could add fodder to the pending constitutional challenges to RPS’s around the country. For more information on brewing dormant commerce clause challenges to state RPS laws see Daniel K. Lee & Timothy P. Duane, Putting the Dormant Commerce Clause Back to Sleep: Adapting the Doctrine to Support State Renewable Portfolio Standards, 43 Envtl. L. 295 (2013); Steven Ferrey, Threading the Constitutional Needle with Care: The Commerce Clause Threat to the New Infrastructure of Renewable Power, 7 Texas J. Oil, Gas & Energy Law 59 (2012).
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