The transmission industry may have to wait even longer for a final decision on challenges to Order 2000 if FERC gets its way.

Industry shouldn't hold its breath while waiting for the D.C. Circuit Court of Appeals to resolve the challenges to Order 2000. Aside from the generally slow pace of judicial deliberations, there's another wrinkle: the Federal Energy Regulatory Commission (FERC) is pushing hard to have the court put off any decision on the merits, claiming the complaints of the challengers are not yet specific enough for judicial review. Not surprisingly, the challengers feel differently. Questions from the court at the Oct. 17 oral argument indicate that a decision may be deferred. If so, transmission restructuring could be left gasping for air.

What infuriates challengers about the FERC's position is that the commission has already held in some individual regional transmission organization (RTO) proceedings that the very same challenges were impermissible collateral attacks on Order 2000. For FERC to argue the complaints are premature in the Order 2000 appeal, but label them impermissibly late attacks when raised in the individual proceedings, begs the question of when, exactly, FERC believes those issues can be raised.

Though the D.C. Circuit Court could very well add to the delay in resolving some thorny issues of Order 2000, it appears that the court has essentially given the challengers a partial victory, even before a decision is rendered: The court extracted a concession from FERC counsel that challengers could raise their issues in individual RTO proceedings if the court deferred its decision on the merits of the pending appeal.

Four distinct groups within the industry-the Edison Electric Institute (EEI), transmission owners, transmission-dependent utilities, and non-public utilities-have gone to the D.C. Circuit to challenge various aspects of Order 2000. Transmission owners (TOs) claim that their Section 205 filing rights are being taken away by FERC's insistence that the RTOs alone be the ones to file rates for transmission. The transmission-dependent utilities (TDUs) argue that the passive ownership rules will not ensure that RTOs are independent enough from the TOs to prevent discrimination. Utilities in the Pacific Northwest maintain that requiring the current Bonneville Power Administration system to become an RTO as envisioned by Order 2000 will cost much, much more than any possible benefit that might accrue to the region's customers.

Both in its brief and at the argument before the court, Oct. 17, FERC essentially argued that the complaints of various challengers are "far too nebulous at this juncture to warrant judicial review." . Instead, according to the FERC, challengers should use the individual RTO proceedings in which they are directly involved to advance their arguments against Order 2000.

To hear FERC tell it, all the "various challenges to Order No. 2000 are based entirely on potential concerns that they may suffer an injury as a result of future developments. As Petitioners merely anticipate that they may be injured, and do not claim, much less demonstrate, that they have been injured in a concrete, non-speculative, manner by Order No. 2000, their petitions must be dismissed." FERC Brief.

The challengers, though, see things a bit differently. As the Snohomish Co. (Washington) PUD charges in its court filing, "FERC's contention that petitioners could seek judicial review after raising cost issues in individual RTO proceedings places Snohomish in a Catch-22. If Snohomish cannot proceed now, but must seek review after a specific proceeding, the challenges raised here would be vulnerable to attack as time-barred by Section 313 of the Federal Power Act, which requires that challenges to FERC decisions be brought within 60 days, and as an impermissible collateral attack on Order No. 2000." .

Case Not Yet Ripe for the Picking?

The controversy centers on the legal doctrine of ripeness. Federal courts often refuse to decide the merits of cases that they perceive to be more theoretical than actual conflicts. In the Order 2000 appeal, FERC's argument is that the rules it has set forth are too generic for individual parties to challenge just yet. Since FERC did not act in Order 2000 against any particular company or entity, it claims, there is no specific injury that the courts can remedy. "Self-evidently, the transmission owner's aggrievement, if any, would not arise until [an individual RTO] proceeding is completed, rather than in this rulemaking before any RTO original agreement has even been established, much less fundamentally changed," FERC said in its brief. It continued by saying that non-public utility owners South Carolina Public Service Authority (Santee Cooper) and Snohomish PUD "cannot point to an immediate, concrete, non-speculative injury [that] either has suffered as a result of the sole substantive requirement under Order No. 2000: that public utilities file a proposal to participate in an RTO or describe efforts and plans to participate in one. As neither of these petitioners is a public utility, they are not obligated to satisfy Order No. 2000's filing requirements."

Before the oral argument, however, Snohomish PUD and Santee Cooper, along with the rest of the industry, seemed trapped between the proverbial rock and hard place when it came to challenging any of the ground rules of Order 2000. For example, in the RTO West proceeding, Snohomish PUD challenged the commission's determination that implementing RTOs will be universally beneficial. In the Pacific Northwest, Snohomish PUD argued that creating an RTO to replace the existing transmission scheme is likely to cost hundreds of million of dollars more than any potential benefits to customers, due to the unique circumstances of the region. The commission flatly rejected that challenge. "In Order No. 2000, the commission found that the benefits of RTO formation overall outweigh the costs, but it did not require individual cost benefit analysis in compliance filings. We will not reverse that determination here," it said. .

Similarly, in the GridSouth RTO proceeding, the commission turned away a challenge to the passive ownership rules outlined in Order 2000. Santee Cooper sought a generic ruling that the passive ownership proposals contemplated by Order 2000 were generally unacceptable, because they did not ensure sufficient independence of the RTO. But FERC dismissed that argument. "Santee Cooper's arguments are an impermissible collateral attack on the conclusion of Order No. 2000 that a properly structured proposal for passive ownership is acceptable if properly designed." .

So when, exactly, are companies permitted to appeal Order 2000? Eric Christensen, associate general counsel for Snohomish PUD, said, "Frankly, FERC counsel backpedaled on what was in Order 2000 to make it not appear ripe." He noted, "We have got to be able to raise these issues somewhere." Otherwise, FERC could effectively insulate the order from review of any kind.

The Court Extracts a Concession from FERC

Although the D.C. Circuit court may ultimately sidestep the challenges made to Order 2000 on the ripeness grounds, the court seems to have handed the challengers one victory already: a concession from FERC that the challengers can raise these types of issues in their individual RTO proceedings, should the same claims be dismissed on ripeness grounds from the pending appeal of Order 2000.

In an exchange with Dennis Lane, FERC solicitor, the court asked, "There's no question about the ripeness with respect to that Section 205, is there?" Lane responded, "Well, I believe that there is." The court pressed, "When could they raise it? If they don't raise it now, when could they raise it?" Lane answered, "They would raise it when they had-they had put in their revenue requirements and there was a case, and then they-and the RTO put in a-its own [Section] 205 filing."

The court also quizzed Lane about whether a TO could decline to join an RTO, and then challenge parts of Order 2000 if the commission declined to grant market-based rates to the TO because it was not part of an RTO. "They would be able to challenge at that point?" the court asked. "Certainly," Lane responded. Later, in a colloquy with Elias Farrah, counsel to New York transmission owners, the court said, "Well, we just got a commitment by [FERC] counsel there's not going to be collateral estoppel. All right? That's what I was trying to clarify. And he said you could raise these things."

The court's statement is not necessarily an iron-clad guarantee that challenges to Order 2000 will be heard in the individual RTO proceedings. FERC could certainly challenge the extent of its concession, or the weight it should be given in other proceedings. Indeed, at argument, Farrah did not seem entirely convinced he had a concession he could take to the bank: "Well, I'm not sure that a statement by counsel here is going to protect us in that regard," he said. The court, however, invited Farrah to come back and remind the court of FERC's concession, should it become a problem down the road in an RTO proceeding.

Christensen says his interpretation of Lane's concession is that FERC must allow challengers to raise their arguments in the individual RTO proceedings, or that FERC will be held to have acted arbitrarily and capriciously by the D.C. Circuit. Even so, Christensen says he is not sure where that leaves Snohomish. "The real question is, what happens if everyone in the Pacific Northwest concludes that an RTO costs more than the benefits, and they don't want it?" There is no indication what FERC's reaction would be if a collaborative process yielded a thanks-but-no-thanks response.

Are the Courts Sidestepping the Issue?

Counsel for utility companies, public utilities, and FERC all agree that no one in the industry is challenging the notion of restructuring the transmission market. On the other hand, there's no doubt that various industry segments would like parts of the order changed to address their specific problems.

There is every chance that the appeals court will decline to rule on the merits of the Order 2000 appeal. Those who attended the argument said the court seemed quite interested in FERC's ripeness argument.

"The D.C. Circuit, in recent years, has been reluctant to consider the substance of an agency decision when it thinks there may be a chance later to hear a case with more details," said Jonathan D. Schneider, the lawyer who argued for Santee Cooper. "I think there's a reasonably good chance the court will decide not to address all the questions, on ripeness grounds."

At the argument, "the court appeared more concerned about the ripeness issue than the substantive issues" raised by Snohomish PUD, says Christensen.

Susan Kelly, who represents the TDUs, was more blunt: "I am afraid the D.C. Circuit will dodge" the substance of the Order 2000 appeals. The GridSouth appeal, in particular, makes Kelly worry. That appeal is pending before the Fourth Circuit Court of Appeals, a court over which the D.C. Circuit has no authority. Yet, the D.C. Circuit court could decide to wait on the Fourth Circuit's court's decision before moving forward on the Order 2000 appeal. "Procedurally, it's a nightmare," Kelly says. "I don't know where it all is going to go."

In the midst of such legal uncertainty, there is a good deal of urgency about RTO formation, Kelly says. Right now, she has clients who are trying to negotiate long-term power supply contracts, but they have no idea what's going to happen to the shape of the industry, or who they will be working with in a few years. She has many clients who are extremely upset, and has at least one client that is completely beside itself, not knowing the terms and conditions for future power sales. "We just need to get to the finish line here," Kelly says. One of the clear consequences of this uncertainty is the virtual standstill for new transmission construction.

Schneider says it is unfortunate that the FERC is pressing to postpone the court's decision. "The industry would benefit from a decision on the generic issues in a generic context." In the absence of a clear-cut decision, he says it is likely the industry will probably begin restructuring around the contours of the existing rulemaking. Should the rulemaking be overturned or modified down the road, unscrambling the industry would be very costly, at a minimum.

In the end, FERC is fairly likely to prevail on Order 2000. For one thing, courts are notoriously deferential to agency rulemaking. For another, even those who are challenging some aspect of Order 2000 readily admit that they are not challenging the underlying notion of restructuring the transmission market. Should the D.C. Circuit court buy FERC's ripeness argument and put off a decision on the merits of the Order 2000 appeal, FERC's vision for the transmission market seems all but guaranteed to become reality. Courts as a rule are even more reluctant to upset a restructured market than they are to overturn an initial agency decision.

The price of the court buying FERC's ripeness argument, though, appears to be a continuing, painful uncertainty for not only the transmission market, but also for every other segment of the electricity industry.

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