The Energy Policy Act of 2005 and FERC Order 890

The Energy Policy Act of 2005 and FERC Order 890

Notwithstanding the formation of several ISOs and RTOs throughout many regions in the United States in the early 2000s, the transmission system suffered from declining investments overall.[1] Growing concerns over grid reliability and “bottlenecks,” prompted Congress to pass the Energy Policy Act of 2005 (EPAct 2005).[2] The Act gave FERC significant new authority to promote more transmission system investments, which the Commission relied on in part for its subsequent Order 890, but more recently, with Order 1000.

1. EPAct 2005

EPAct 2005 continued to promote Congress’s goal of restructuring and market competition,[3] and resulted in “the largest grant of regulatory power to FERC in the past seventy years.”[4] This subsection briefly notes some of the major reforms in EPAct 2005, and then goes on to describe one reform in particular—section 211A—which FERC has threatened to apply against non-jurisdictional entities to ensure their compliance with Order 1000.

EPAct 2005 introduced several important reforms to the U.S. electric industry,[5] among them being tighter constraints on market manipulation,[6] expanded electricity market transparency rules,[7] and requirements for FERC to establish and enforce mandatory reliability standards for the entire transmission system (including the non-jurisdictional entities).[8] To expedite urgently needed transmission upgrades, EPAct 2005 also authorized the Department of Energy (DOE) to designate National Interest Energy Transmission Corridors (NIETCs) along heavily congested portions of the grid.[9] In tandem with this grant to DOE, the Act also allowed FERC to exercise “backstop” siting authority within these corridors under certain conditions.[10] Unfortunately for DOE and FERC, the Ninth Circuit put the brakes on DOE’s NIETC-designation ability,[11] and the Fourth circuit gutted a portion of FERC’s “backstop” siting authority.[12] It remains unclear how DOE and FERC will implement these two provisions going forward,[13] but FERC has since turned to another EPAct 2005 reform to promote transmission investments: Section 211A of the Federal Power Act.[14]

a. Federal Power Act Section 211A

Among its many reforms, EPAct 2005 added Section 211A to the Federal Power Act, giving FERC the authority to order unregulated transmission utilities to increase their transmission access.[15] This new FPA provision specifically applies to “unregulated transmitting utilities,” which are defined to explicitly include Section 201(f) entities—i.e. non-jurisdictional entities such as the Bonneville Power Administration. In relevant part, under FPA Section 211A:

[T]he Commission may, by rule or order, require an unregulated transmitting utility to provide transmission services-

(1)  at rates that are comparable to those that the unregulated transmitting utility charges itself; and(2)  on terms and conditions (not relating to rates) that are comparable to those under which the unregulated transmitting utility provides transmission services to itself and that are not unduly discriminatory or preferential.[16]

FERC’s authority under this new FPA Section is relatively untested. Although FERC threatened to invoke Section 211A to ensure unilateral compliance with Orders 890,[17] and 1000,[18] the Commission has actually used its authority under this section only once before.[19]

b. Iberdrola Renewables, PacifiCorp, et al. v. Bonneville Power Administration

In Iberdrola Renewables, PacifiCorp, et al. v. Bonneville Power Administration, the Commission invoked Section 211A to strike down Bonneville’s “Environmental Redispatch Protocol,” as unduly discriminatory against certain wind energy developers.[20] Bonneville issued this Protocol to direct the agency’s compliance with the Clean Water Act[21] and Endangered Species Act[22] during high water periods (i.e., spring run-off leading to increased water volume through the dam).[23]

According to Bonneville, high water periods presented only two options for the dam managers: (1) release the excess water through the dam spillways, which can increase the water’s total dissolved gas beyond acceptable levels under Washington state’s Clean Water Act standards,[24] and thereby harm aquatic species listed under the Endangered Species Act; [25] or (2) run the excess water through the dam’s hydroelectricity facilities, and curtailing other additional generation—such as wind energy—to maintain grid reliability.[26] For the wind energy developers that petitioned FERC to strike down Bonneville’s Protocol, these energy curtailments resulted in millions of dollars in lost revenue.[27] Bonneville argued that its Redispatch Protocol constituted “final agency action,” and was therefore subject to review by the Ninth Circuit, instead of FERC.[28]

FERC did not feel obliged to suspend the case pending the outcome of other review petitions in the Ninth Circuit. Rather, the Commission found that it has “exclusive authority to order an unregulated transmission provider to comply with the provisions of section 211A.”[29] After resolving this procedural matter, the Commission ultimately found that although Bonneville was required to operate under many, oftentimes conflicting, statutory obligations, the agency’s Redispatch Protocol was unduly discriminatory toward wind energy developers.[30] Specifically, FERC found that the Protocol “significantly diminish[ed] open access to transmission, and result[ed] in Bonneville providing transmission service to others on terms and conditions that are not comparable to those it provid[ed] itself.”[31] The Commission affirmed its interpretation of Section 211A authority in its subsequent denial of Bonneville’s request for rehearing,[32] and Bonneville has since revised its tariff to comply with the Order. As of this writing, FERC has not yet issued an Order approving these revisions.

c. Congressional Intent Behind Section 211A

FERC’s ability to reject the transmission-access policy of a traditionally non-jurisdictional entity indicates how significantly EPAct 2005 reformed the FPA and how seriously Congress took grid-access and transmission issues when it created Section 211A. However, it may be more debatable the extent to which Congress wanted FERC to have authority outside the context of “open access.” As a legislative history review of Section 211A reveals, and the Commission’s Iberdrola decision indicates, Congress’s intent behind Section 211A was primarily about transmission access, not necessarily about transmission costs.

In its decision to strike down Bonneville’s Redispatch Protocol, the Commission characterized its use of Section 211A as consistent with Congressional intent to provide open access to the transmission system. “FPA section 211A is one statutory tool that Congress provided to ensure open access to transmission service at comparable and not unduly discriminatory or preferential rates, terms, and conditions.”[33] Indeed, FERC recognized that this new grant of authority should be used sparingly, and explicitly invoked Section 211A for the limited purpose of securing open access for the wind developers on existing lines, as opposed to ordering Bonneville to construct new lines.[34]

As the previous Sections note, the EPActs 1992 and 2005 gave FERC incrementally more authority to address transmission system constraints.[35] In addition, ten years after their implementation, the cracks and problems were beginning to show in Orders 888 and 889. Order 890 was FERC’s next step to promoting transmission investments and restructuring, and also to redress the shortcomings of past regulations. FERC thought that specific planning principles and criteria would be sufficient to spur more transmission investment. Although the Order did not ultimately have its full, intended effects, it is nonetheless important for paving the way for the more stringent requirements in Order 1000.

2. Order 890

Shortly after the passage of EPAct 2005, FERC published a Notice of Inquiry, soliciting comments from regulated parties about how best to reform Order 888 to avoid undue discrimination or preferential treatment in transmission service.[36] The Commission discovered that the current regulatory scheme did not set out the planning criteria necessary to counterbalance discriminatory incentives in the transmission system.[37] For instance, transmission providers were not typically inclined to relieve local transmission congestion, if it would make a competitor’s power generation more competitive. Likewise, a transmission owner would have little incentive to make room for low-cost generation, if it could otherwise schedule higher-cost energy transfers, and thereby make a larger profit.[38]

In Order 890, FERC sought to ameliorate this discriminatory treatment by requiring public utility transmission owners to create a new attachment to their OATT (Attachment K) that sets out a transmission planning process in accordance with nine principles. These principles are: (1) coordination; (2) openness; (3) transparency; (4) information exchange; (5) comparability; (6) dispute resolution; (7) regional participation; (8) economic planning studies; and (9) cost allocation for new projects.[39]

FERC watched the implementation of Order 890 carefully. Initially, the results were positive: RTOs and ISOs were enhancing their existing cooperative transmission plans, “making them more open, transparent, and inclusive.”[40] Likewise, transmission owners outside RTO/ISO regions were also banding together to form groups to better coordinate transmission planning efforts.[41] After more investigations and inquiries, however, FERC concluded that public utilities were still either the victims or instigators of unjust or unreasonable or unduly discriminatory or preferential transmission service conditions.[42]

Additional grid capacity and reliability problems also loomed as a result of rising renewable energy generation and investment. As FERC noted,“[s]ignificant expansion of the transmission grid will be required under any future electric industry scenario.”[43] Renewable energy generation is growing thanks in large part to state renewable portfolio standards. As these standards continue to heighten, additional transmission facilities will be needed to accommodate the resulting generation increases.[44]

After reviewing the successes and failures of Order 890, FERC decided to step in with another rulemaking to focus on “discrete aspects of [the] transmission planning and cost allocation processes.”[45] The result was FERC’s Order 1000.

The Grid and its Woes

Statutory and Regulatory Development

Restructuring: The Effects of FERC Orders 888, 889, and 2000

FERC Order 1000 (forthcoming)

 


[1] See Order No. 890, Preventing Undue Discrimination and Preference in Transmission Service, 18 FERC ¶ 31,096 (2007), 72 Fed. Reg. 12,266 (2007) (codified at 18 C.F.R. pts. 35, 37).

[2] Energy Policy Act of 2005, Pub. L. No. 109-58, 119 Stat. 594 (2005).

[3] Jeffery S. Dennis, Twenty-Five Years of Electricity Law, Policy, and Regulation: A Look Back, 25 Nat. Res. & Env. 33, 35 (Summer 2010).

[4] Joseph T. Kelliher & Maria Farinella, The Changing Landscape of Federal Energy Law, 61 Admin L. Rev. 611, 626 (2009)

[5] See Debbie Swanstrom & Meredith M. Jolivert, DOE Transmission Corridor Designations & FERC Backstop Siting Authority: Has the Energy Policy Act of 2005 Succeeded in Stimulating the Development of New Transmission Facilities?, 30 Energy L. J. 415, 422 (2009); Kelliher & Farinella, supra note 4, at 626; Michael S. Dorsi, Comment, Piedmont Environmental Council v. FERC, 34 Harvard Envtl. L. Rev. 593, 593–94 (2010) (noting some of the animating concerns leading up to the passage of the EPAct 2005); 2002 DOE Grid Study, supra note 69, at xi (describing the Department of Energy’s growing concerns over the transmission system, and its many points of congestion, or “bottlenecks”). “Congress designed EPAct 2005 to promote energy efficiency and a diversity of -fuel sources, as well as strengthen the interstate delivery system for energy supplies.” Swanstrom & Jolivert, suprasee also S. Rep. No. 109-78, 6-10 (2005).

[6] 16 U.S.C. § 824v (2012).

[7] Id. § 824t.

[8] Id. § 824o.

[9] Id. § 824p(a) (instructing the Secretary of Energy to conduct a study of the transmission system every three years and to issue a report “which may designate any geographic area experiencing electric energy transmission capacity constraints or congestion that adversely affects consumers as a national interest electric transmission corridor.”).

[10] Id. § 824p(b).

[11] California Wilderness Coalition v. U.S. Dept. of Energy, 631 F.3d 1072, 1079 (9th Cir. 2011). Section 216 of the FPA, as amended by EPAct 2005, requires DOE to conduct periodic transmission congestion studies and to “consult” with any affected states prior to designating an NIETC. 16 U.S.C. § 824p(a)(1). In California Wilderness Coalition, the Ninth Circuit struck a crippling blow to DOE’s NIETC authority when it vacated designations that the Department made in the Mid-Atlantic and Southwest regions. According to the court, DOE failed to consult with affected states when conducting the studies and for failing to conduct any kind of environmental analysis under the National Environmental Policy Act (NEPA). California Wilderness Coalition, 631 F.3d at 1101; see also NEPA, 42 U.S.C. § 4332(C) (2012).

[12] Piedmont Envtl. Council v. FERC, 558 F.3d 304 (4th Cir. 2009), cert. denied, Edison Elec. Inst. v. Piedmont Envtl. Council, 130 S. Ct. 1138, (U.S. 2010) (Piedmont). In Piedmont, several states challenged FERC’s interpretation of its “backstop” siting authority. Essentially, EPAct 2005 sets out five different avenues available to FERC to green light a permit application for transmission siting once the DOE has properly designated a NIETC. See 16 U.S.C. § 824p(b) (2012). As the term “backstop” suggests, FERC may only resort to this authority if the affected states have not effectively handled the permit application themselves. Swanstrom & Jolivert, supra note 122, at 422. The most controversial of these five avenues is Section 216(b)(1)(C)(1), which allows FERC to step in if a state has “withheld approval for more than 1 year after filing the application.” 16 U.S.C. § 824p(b)(1)(C)(i); see also Matthew J. Agen, Tug-Of-War: From EPAct to Order 1000, Siting Authority Continues Evolving, Pub. Util. Fortnightly 46, 47 (Nov. 2011). FERC stated that it interpreted “withheld approval” to include instances when a state denied a transmission siting application. Final Rule, Regulations for Filing Applications for Permits to Site Interstate Electric Transmission Facilities, 71 Fed. Reg. 69,440, 69,444. Several regulated parties challenged this interpretation and when the litigation reached the Fourth Circuit, the court struck down FERC’s interpretation as violative of the plain meaning of “withheld approval.” Piedmont, 558 F.3d at 312.

[13] Some scholars hold out little hope for the future use of DOE’s NIETC designation authority and FERC’s “backstop” siting authority. Although Piedmont only eliminates one of the five “backstop” avenues available to FERC, California Wilderness Coalition effectively “undercuts this authority by vacating the foundation upon which it was based.” Agen, supra, at 48 (noting that these cases “essentially halted FERC’s ability to issue a construction permit for electric transmission facilities”); see also Jim Rossi, The Trojan Horse of Electric Power: Transmission Line Siting Authority, 39 Envtl. L. 1015, 1037 (2009).

[14] 16 U.S.C. § 824j (2012).

[15] Id.

[16] Id. § 824j(b).

[17] Order 1000 at 815.

[18] Id.

[20] Id. at 14.

[21] Federal Water Pollution Control Act, 33 U.S.C. §§ 1251-1387 (2012).

[22] 16 U.S.C. §§ 1531-1544 (2012).

[23] Order Granting Petition, supra note 19, at 3.

[24] Bonneville Answer, Iberdrola Renewables, PacifiCorp, et al. v. Bonneville Power Administration 28–35 137 FERC ¶ 61,185.

[25] Order Granting Petition, supra note 19, at 4.

[26] Id.

[28] Order Granting Petition, supra note 19, at 10.

[29] Id. at 9; see also id. at 15 (“To the extent Bonneville’s past actions are subject to judicial review by the Ninth Circuit Court of Appeals, such review does not limit the Commission’s prospective exercise of authority in this proceeding under section 211A of the FPA.”).

[30] Id. at 15.

[31] Id. at 16.

[32] Id. at 19 (“[T]he Commission has authority under section 211A to direct Bonneville to provide transmission service prospectively under terms and conditions that are comparable to those under which it provides transmission service to itself, and are not unduly discriminatory or preferential.”).

[33] Id. at 16 (“The Commission does not take the exercise of our authority under FPA section 211A lightly
. . . As Congress has recognized, open access is a fundamental tenet of electricity markets.”). This is not the first time that the Commission has specifically said that Congress’s intent behind Section 211A was to ensure “open access.” In Order 890, the Commission noted that not only is its Section 211A authority permissive in nature, rather than mandatory (the Commission “may by rule or order…”), but also that it is reserved for requiring “open access.” See Order 890, supra note 118, at 109. Thus, it may be difficult for FERC to argue that this Section—must less, the Iberdrola decision—is applicable to mandatory cost allocation requirements of Order 1000.

[34] Order Granting Petition, supra note 19, at 16 (“The Commission does not take the exercise of our authority under FPA section 211A lightly . . . we expect that the need to use this statutory authority would be rare.”); see also id. (“Finally, we note that the instant proceeding presents a clear example of the importance of transmission . . . With additional transmission or comparable alternatives, Bonneville may have the flexibility necessary to meet all of its obligations, including open access, and fully integrate the variable energy resources seeking to access its transmission system.”).

[36] Preventing Undue Discrimination and Preference in Transmission Services, Notice of Inquiry, 112 FERC ¶ 61,299 (2005).

[37] Order 890at 238–40; see also Order 1000 at 19 (noting that at the time, transmission owners did not have clear planning obligations, and that the planning process—and information about the transmission system—were kept from customers, competitors, and state commissions).

[38] Order 890 at 238 (quoting Order 888 at 31,682) (“[i]t is in the economic self-interest of transmission monopolists, particularly those with high-cost generation assets, to deny transmission or to offer transmission on a basis that is inferior to that which they provide themselves.”); see also New York v. FERC, 535 U.S. 1, 8 (2002) (noting that the potential for discriminatory treatment arises when “public utilities retain ownership of the transmission lines that must be used by their competitors to deliver electric energy to wholesale and retail customers”).

[39] Order 890 at 418-601.

[40] Order 1000 at 21.

[41] Id. 21– 22, n. 16 (noting that these groups include: the North Carolina Transmission Planning Collaborative, Southeast Inter-Regional Participation Process, SERC Reliability Corporation, ReliabilityFirst Corporation, Mid-Continent Area Power Pool, Florida Reliability Coordination Council, WestConnect, ColumbiaGrid, and Northern Tier Transmission Group). Bonneville is a member of ColumbiaGrid.

[42] Order 1000 at 28.

[43] Id. at 26 (quoting Department of Energy, 20% Wind Energy by 2030, at 93 (July 2008)).

[44] Id. at 27.

[45] Id. at 36.

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