FERC Not Empowered to Overrule a State Denial of an Application to Site and Construct Electric Transmission

Congress did not in the Energy Policy Act (EPAct) of 2005 confer on FERC federal "backstop" authority to overrule timely state decisions denying applications to site and construct proposed interstate transmission lines, a divided (2-1) panel of a U.S. appeals court ruled February 18 in the much-anticipated case of Piedmont Environmental Council v. FERC. The issue of FERC's authority to override state denials will likely be further appealed.

The majority decision by Judge Blane Michael of the Richmond-based U.S. Court of Appeals for the Fourth Circuit overturned a 2006 FERC rulemaking interpreting new section 216 that Congress in EPAct 2005 added to the Federal Power Act. That section created two new federal powers. First it empowered the Secretary of Energy to designate as a national interested electric transmission (NIET) corridor any area where the transmission grid is determined to be capacity constrained or congested. Second, for the first time in the history of federal regulation of the power industry, it conferred on FERC "backstop" federal authority to permit within a designated NIET corridor the siting and construction of new or modified interstate electric transmission lines, but only in circumstances detailed in the new section 216. One such circumstance arises when FERC finds that a state commission or other state permitting authority "has withheld approval for more than 1 year after the filing of an application seeking approval" for a proposed transmission line. Contrary to a majority of FERC commissioners, the court majority concluded that "withheld for more than one year" does not comprise scenarios where a state denies a construction and siting application consistent with state law within one year from the filing of the application. Agreeing with FERC Commissioner Suedeen Kelly, who dissented from the agency's 2006 rulemaking, interpreting the statutory phrase "withheld for more than one year" to encompass a timely denial is a "nonsensical" and therefore impermissible reading.

Not surprisingly a number of state regulators and state attorneys general participated in the appeal in support of petitioner Piedmont Environmental Council, while owners and developers of the transmission system and their trade associations, including the Edison Electric Institute, participated in support of FERC. If the ruling of the Fourth Circuit majority withstands further appeals, then FERC's "backstop" permitting authority will be confined going forward to situations in which a state:  (1) lacks authority to act on an application, (2) fails to act within 1 year, or (3) conditions its approval in ways that will prevent a proposed transmission line from reducing congestion or make the transmission line uneconomical. It remains to be seen whether these limited new federal authorities in tandem with traditional state authority will be sufficient to permit, site and bring on line sufficient transmission lines to meet growing demand, particularly demand for often remotely situated renewable energy resources, such as wind and solar, that are mandated in the resource portfolio standards of a growing number of states and localities. Regardless, industry likely will press for expanded and possibly exclusive federal authority to site transmission to access these and possibly other sources of power generation.

In its Piedmont decision the panel unanimously made two additional rulings. First, it upheld FERC's conclusion that the National Environmental Policy Act (NEPA) did not require it to prepare an environmental impact statement or assessment in connection with issuance of procedural regulations prescribing the content of an application under the new section 216. But the panel also ruled that FERC unlawfully failed to consult with the federal Council on Environmental Quality (CEQ) when it revised its regulations for implementing NEPA in connection with acting on transmission siting applications under the new section 216. Accordingly, the panel remanded the section 216 rulemaking back to FERC for consultations with CEQ.