Transmission Line-Siting Under EPACT: Shortcut or Short Circuit?

Deck: 

The 2005 Act, designed to streamline projects, may fall short of that goal.

Fortnightly Magazine - August 2007

The Energy Policy Act of 2005 (EPACT)1 established a new regulatory framework for the siting of electric transmission projects. Under EPACT, the Federal Energy Regulatory Commission (FERC), in certain circumstances, has the authority to site transmission projects in National Interest Electric Transmission Corridors designated by the Department of Energy (DOE). The political debate continues as to whether federal or state regulators should have the final authority to site electric transmission, but for now, EPACT is the law of the land.

However, the scope and application of this statute are unresolved, leaving many unanswered questions and potential pitfalls for those who must site new transmission projects.

The goals of EPACT were to streamline the siting process and to provide a federal “trump card” for projects delayed at the local level. The statute clearly is a compromise solution, however, and it is far from clear whether these goals have been achieved.

The Oversimplification Problem

The principal problem presented by EPACT is its failure to provide a clear delineation of federal and state authority. The standard “sound bite” summary of EPACT is that FERC now has “backstop” siting authority for transmission projects when the state regulatory authority does not act within one year to approve a project. Like most sound bites, this is a gross oversimplification.

Under EPACT, FERC will have siting authority over transmission projects located in national corridors if:

• The state does not have the authority to approve the siting of the facility or to consider the facility’s interstate benefits;
• The applicant does not serve end-use customers in the state; or
• A state has siting authority and it withholds approval for more than one year, or conditions approval in such a manner that does not significantly reduce transmission congestion or is not economically feasible.2

Where these criteria are met, EPACT shifts the jurisdiction over permitting and siting of electric transmission projects from state and local authorities to FERC. Pursuant to EPACT, FERC issued Order 689, implementing regulations for filing permit applications to site transmission facilities. FERC’s authority, however, is limited and dependent on: (1) the DOE national-corridor designations; (2) who will be served by the proposed transmission facility; (3) the entity proposing the transmission project and the state’s ability to regulate such entities; (4) the authority of the specific state public utility commission (PUC) to consider the interstate benefits of a project; and (5) the timing of state regulatory review. Only the right combination of these elements will vest FERC with transmission-siting authority.

Siting Pre-EPACT

Prior to EPACT, the siting of electric transmission projects was a local process involving approvals from the state or local government. State PUCs reviewed the permit applications pursuant to their statutory authority. For example, the Pennsylvania PUC has jurisdiction to approve siting of all high-voltage transmission lines in the commonwealth with a design capacity of more than 100 kV.3 FERC lacked the authority to permit or site an electric- transmission project. The process focused on coordinating with local entities and receiving approvals from the relevant state PUCs. EPACT, however, significantly changed this process for certain projects under certain conditions.

Local governments and other interest groups with a keen interest in transmission-line siting have increased their activity in recent years. For example, concern about a proposed transmission line in New York resulted in a statutory change limiting an electric corporation’s ability to use eminent domain to obtain a right-of-way.4 Conversely, the press has reported that the DOE wants FERC to have more power to ensure that the states do not delay needed projects in the national corridors.5 Moreover, certain industry participants believe that if the states relinquish their transmission-siting authority to FERC, more electric transmission facilities will be constructed.6

The DOE National Corridors

The fundamental prerequisite for FERC jurisdiction over a transmission project is that the proposed transmission facility must be located within the geographic bounds of a national corridor designated by DOE. EPACT requires DOE to identify transmission constraints and study transmission congestion, and it authorizes DOE to designate certain constrained areas as national corridors. Not surprisingly, this has become the first battleground over EPACT implementation.

DOE recently issued draft national-corridor designations for areas in the Mid-Atlantic and the Southwest. The proposed Mid-Atlantic Area National Corridor includes counties in Ohio, West Virginia, Pennsylvania, New York, Maryland, Virginia, and all of New Jersey, Delaware, and the District of Columbia. The proposed Southwest Area National Corridor includes seven counties in Southern California, three counties in western Arizona, and one county in southern Nevada. However, in its press release announcing the issuance of the draft national corridors, DOE downplayed the transmission-siting impact of the designations. DOE explained that it was issuing draft national corridors to “encourage a full consideration of all options available to meet local, regional, and national demand, which includes more local generation, transmission capacity, demand response, and energy-efficiency measures.”7 DOE added that it was not directing the construction of new transmission lines, proposing a route, or asserting that additional transmission capacity is the only solution to resolve congestion.8

This sentiment also was expressed by DOE staff at the recent public meetings on the national corridors. Most of the participants at the recent public meetings, however, did not seem to agree with this characterization.9 They viewed the national-corridor designation process as the first step toward federalizing the transmission line-siting process and as an improper usurpation of local authority, particularly with regard to eminent domain issues. Local government representatives also voiced concerns over DOE’s designation of these corridors without consulting state or local entities.10

The size of DOE’s draft Mid-Atlantic National Corridor has exacerbated the controversy over the national-corridor designation. The governor of Pennsylvania, for example, issued a statement urging DOE to reconsider its proposal to include 50 of the state’s 67 counties in the Mid-Atlantic National Corridor.11 The size of the corridor also has raised concerns in New York where it encompasses large sections of upstate New York and the Hudson River Valley. Similarly, the size of the Southwest Area National Corridor has concerned local environmental officials, some of whom questioned whether the corridor threatens the area’s open spaces, such as the Mojave National Preserve.

Despite the steps taken toward federalizing transmission siting, legislative efforts already are underway to strip or limit the authority granted to DOE to designate the national corridors and thus limit FERC’s siting authority under EPACT. For example, a group of congressmen that represent districts affected by the draft national corridors requested that language be inserted in a congressional spending bill that prohibited DOE from using any money to make final national corridor designations. While this effort did not succeed, it effectively would have eliminated DOE’s ability to move forward with implementing the national corridors and halted any FERC jurisdiction over transmission projects.12 In addition, some of the same congressmen have introduced separate legislation that would repeal the DOE national-corridor designation authority,13 repeal FERC’s permit authority for projects in national corridors,14 remove the eminent domain provisions of the EPACT,15 and ensure that local authorities have control over transmission projects.16 Such legislation is far from enactment, but reflects the potential for backlash against federal siting.

FERC’s Authority

Once the national corridors are finalized by the DOE, FERC is authorized to issue permits to construct transmission facilities in the national corridors pursuant to the conditions set forth in EPACT. The construction permits issued by FERC would allow the recipient to acquire the necessary rights-of-way through eminent domain.17 However, applicants must still first go through the state filing process, except where a state does not have siting authority over a project, a state cannot consider the facility’s interstate benefits, or where an applicant does not serve end-use customers in the state. Absent these statutory conditions, the approval process must first go through the affected states.

For those projects that are only partially within a national corridor, FERC would have jurisdiction only over the parts of the project in a national corridor; however, it would review the entire project so that it could make the required statutory findings.18 For projects within a national corridor, however, an applicant can go directly to FERC, bypassing a state PUC, if the EPACT prerequisites are met.

If the state PUC has jurisdiction and an applicant cannot go directly to FERC, the one-year clock for state action starts the day the application is filed. The state PUC will have one year to consider the application, but after that, an applicant can start the FERC pre-filing process, which itself will take more than a year to complete.19 If a state does not issue a final approval prior to the expiration of the one-year state review period and the applicant seeks FERC siting approval, FERC Chairman Joseph T. Kelliher believes that EPACT authorizes FERC, under certain circumstances, to pre-empt and effectively moot ongoing state proceedings.20 Such preemption, according to Kelliher, would occur only in limited circumstances, and when it does, FERC would coordinate closely with local entities in exercising this authority.21 Because FERC and the states have not participated jointly in the electric-transmission siting process, it is unclear as to what will constitute coordination. FERC, however, already has set the tone for this relationship by determining that if it has jurisdiction over a project, the states cannot interfere with, or act in a manner inconsistent with, FERC’s permitting determinations.

Once FERC has jurisdiction over a project, state and local entities may participate in the FERC-siting proceeding by intervening. It remains to be seen, however, how much weight FERC will give to local issues. FERC has noted that any state or local permits issued with respect to FERC-jurisdictional facilities must be consistent with FERC approval, and that a state or local agency cannot prevent the construction of the facility through the local permitting process, which is pre-empted by federal law.22

Even if a state does act within one year, FERC will step in if the state PUC denies an application or unreasonably conditions an approved project. Specifically, in Order 689, FERC determined that the denial of an application by a state PUC equates to withholding approval under EPACT.23 Hence, according to FERC, if a state regulator denies an application to construct a transmission line after a full review of all the issues, that applicant still can apply to FERC for a construction permit for the previously denied project.

Notably, FERC Commissioner Suedeen Kelly dissented on this issue, and explained that the majority’s interpretation flies in the face of the plain language of EPACT and the purpose of the statute. Certain state agencies sought rehearing of this determination, but FERC reiterated its conclusion that to deny an application would be construed as being tantamount to withholding approval.24

The FERC Filing Process

Order 689 established FERC’s procedures and regulations for entities seeking to construct electric transmission facilities. It also issued a separate guide to its permit process.25

Although FERC has not sited electric transmission previously, it does have experience siting large-scale interstate projects for the natural-gas industry. As a result, the electric transmission permit filing process is based on the current natural-gas certificate process.26 FERC’s guide to the transmission-permit process recommends that the applicant meet with FERC staff and other stakeholders before filing an application.27 When a project is defined sufficiently, the applicant will meet with FERC’s director of energy projects to request initiation of the pre-filing process.28 FERC will issue a notice regarding the initiation of the pre-filing process.29 Applicants will be required to implement a public-participation plan that identifies specific tools and actions to facilitate stakeholder communication. FERC staff then will review the proposal and assist the applicant in the preparation of a completed application.30 The final application can be filed only after the director of energy projects determines that all necessary information gathering is complete.31 The application’s filing date is important because FERC must act on the permit within one year of that date.32 Following the issuance of a final environmental document, FERC will act on the construction permit.33

FERC is not the only federal agency that would need to approve a proposed transmission project. FERC, however, is the lead federal agency for transmission siting and is required to coordinate all applicable federal authorizations, such as cultural and historic preservation reviews, and any related environmental reviews.34 Moreover, EPACT provides that once an application has been filed, all permit decisions and environmental reviews shall be completed within one year.35

One of the implied goals of the new transmission-siting procedures and FERC’s “backstop” authority was to speed up the siting process. Because FERC previously has not sited electric-transmission facilities, the question remains as to whether or not the siting process will stick to its projected timeline. In certain circumstances, assuming no major jurisdictional problems or environmental issues, a permit application could spend a year before the state PUC, followed by a year of “pre-filing” at FERC. Then FERC has a year to make its determination. This potential three-year timeline does not take into account any of the right-of-way and eminent-domain issues that will need to be sorted out prior to construction. Because it may not be possible to construct any proposed transmission facility without condemnation, this process must be taken into account because it can extend a project’s timeline. Property owners on the right-of-way will need to be identified and notified about the proposed facility. The more property owners involved, the longer this process and any condemnation process could take.

State Siting Authority, Interstate Benefits, And End-Use Customers

A vast majority of the states have some type of regulatory body with the authority to issue construction or siting permits for electric transmission facilities.36 States differ, however, as to the type of entity that is subject to state jurisdiction and as to the elements that can be considered when evaluating a permit application. It is these regulatory fundamentals that will determine whether and when FERC may step into the siting process.

The type of entity that is proposing to build the transmission facility may be dispositive when determining whether FERC or a state has jurisdiction over a transmission project. Historically, states approved the siting of transmission facilities being constructed by public utilities that were subject to state jurisdiction because they served retail customers in the state. Public utilities, however, are not the only potential builders of transmission facilities. For example, an independent transmission company (ITC) providing only interstate transmission service or a generating company (genco) connecting new generation to the grid also might want to build transmission lines to deliver power to congested areas.

ITCs and gencos, however, are not necessarily “public utilities” under state law, and their transmission property may or may not be subject to state PUC review. The answer is highly state-specific. One example illustrates the complexity of this issue. In Pennsylvania, the PUC transmission-line siting regulations apply only to “public utilities” as defined under the state public utility code.37 ITCs and gencos do not fit within that definition.38 However, eminent-domain power is conferred under the Pennsylvania Business Corporation Law, which applies to “public utility corporations” that may well include ITCs and gencos. To exercise the power of eminent domain, however, these entities must first go to the Pennsylvania PUC for approval. As long as condemnation is required, the PUC would have initial siting authority. This situation is reflected in the recent Trans-Allegheny Interstate Line Co. application for a certificate of public convenience for transmission facilities at the PUC.39 Trans-Allegheny requested to be deemed a public utility in furtherance of its intention to engage in the interstate transmission of electricity. As it explains in the application, Trans-Allegheny needs the certificate to exercise eminent-domain authority.

Even if a state PUC has general siting authority, FERC can still step in if the state PUC does not have the ability to consider the transmission facility’s interstate benefits or if the project does not serve end-use customers within the state. Regarding the consideration of interstate benefits, state PUCs have jurisdiction only over intrastate utility service. Hence, the notion of these regulatory entities considering interstate benefits is problematic and a difficult legal issue. The state PUC may wish to consider these benefits, but the question remains whether it really has any jurisdiction to do so. The EPACT provision giving FERC jurisdiction when the entity will not serve end-use customers within a state also raises questions. Gencos and ITCs almost by definition will never serve end-use customers directly. Does this mean they can simply bypass the state process altogether? The answer is simply not clear.

The nature of the service provided by the transmission facility still may require sending the permitting applications directly to FERC if the proposed project would not serve end-use customers within the effected state, or if the state regulator cannot consider the interstate benefits of a proposed facility. An example of these jurisdictional complexities again can be found in Pennsylvania. Arguments concerning the interstate benefits of transmission projects, absent the issue of service to end-use costumers, have been raised in recent Pennsylvania cases, but these matters were settled without specifically resolving the role of interstate benefits. More generally, however, the Pennsylvania PUC requires a showing that there is a present and future need for a proposed line.40 Whether the PUC can make a finding as to need based solely on interstate factors is unclear. In the 1960s, the Pennsylvania courts did consider the need to integrate the transmission system when weighing the applicability of eminent domain to proposed transmission projects, but that precedent may not apply if the local jurisdictions do not receive any benefits.41 Elsewhere, prospects for state consideration of interstate benefits are mixed. Some states have considered interstate factors when approving transmission projects, while others require that a project benefit their citizens.42 The best approach may be to argue that local customers indirectly benefit from interstate projects that reinforce the overall reliability of the transmission grid. In the absence of clear state-level authority concerning ITCs or gencos, the consideration of interstate benefits, and how service to end-use customers is defined, an applicant may go directly to FERC to test the new EPACT standard. This could lead to a jurisdictional fight that could take years for the courts to sort out.

Another Option: An Interstate Compact

EPACT contains a potential compromise solution to these federal and state jurisdictional-siting issues. It provides that three or more contiguous states can, subject to Congressional approval, establish regional transmission-siting agencies to site transmission facilities and conduct the siting responsibilities in those states. These regional agencies would have the authority to “review, certify, and permit siting of transmission facilities, including facilities in national interest electric transmission corridors.”43 Moreover, FERC would have no authority to issue permits within a state that is a party to such an interstate compact, unless the members of the compact are in disagreement and DOE makes certain statutory findings. Similar interstate compacts are used for water supply and resource planning. For example, the Delaware River Basin Compact entered into by Delaware, New Jersey, New York, Pennsylvania, and the United States created the Delaware River Basin Commission to manage the watershed. The commission has the authority to plan and construct facilities relating to the water resources of the basin. Similar commissions also were created by the Potomac Valley Compact and the Susquehanna River Basin Compact.

EPACT was designed to streamline projects and prevent states from creating bottlenecks because of parochial interests. Time will tell, but at this point streamlining is not assured. EPACT was in many ways a compromise solution and in seeking to please everyone it may please no one.

 

Endnotes

1. Pub. L. No. 109-58, 119 Stat. 594 (2005).

2. Federal Power Act (FPA) § 216(b) as added by EPACT § 1221.

3. See 52 Pa. Code § 57.71 (2007). The state agencies in Maryland and Virginia have similar jurisdiction for projects over 69 kV and 150 kV, respectively. Md. Public Utility Companies Code Ann. § 7-207 (2007); Va. Code Ann. § 56-46.1 (2007).

4. New York Transportation Corporation Law § 11 as amended by New York Senate Bill 8349 (2006).

5. DOE Will Press Congress to Grant FERC Sole Siting Jurisdiction, Energy Washington Week, Jan. 31, 2007.

6. AEP CEO: States Stymie Transmission Growth, Energy Trader, May 15, 2007.

7. Press Release, DOE Issues Two Draft National Interest Electric Transmission Corridor Designations (April 26, 2007).

8. Id.

9. See the public meeting archives available at http://www.energetics.com/NIETCpublicmeetings/index.shtml.

10. Id.

11. Press Release, Gov. Rendell of Pennsylvania, Rendell Administration Voices Concerns Over Proposed Electric Transmission Corridor (July 14, 2007).

12. See May 3, 2007 Press release from Congressmen M. Hinchey (NY) available at www.house.gov/list/press/ny22_hinchey/morenews/050307NIETCAppropsLetter.html.

13. To Repeal Section 216 of the Federal Power Act, HR 809, 110th U.S. Congress (2007-2008).

14. Id.

15. Id.; see Protecting Communities from Power Line Abuse Act, HR 810, 110th U.S. Congress (2007-2008) (need to acquire land in accordance with state law).

16. National Interest Electric Transmission Corridor Clarification Act, HR 829, 110th U.S. Congress (2007-2008).

17. FPA § 216(e).

18. Regulations for Filing Applications for Permits to Site Interstate Electric Transmission Facilities, Order No. 689, 117 FERC ¶ 61,202 at P 35 (2006), to be codified at 18 CFR Part 50, reh’g denied, Order Denying Rehearing, 119 FERC ¶ 61,154 (2007).

19. Order No. 689 at P 20-23, 31.

20. Letter from FERC Chairman Kelliher to Congressman J. Dingell of Jan. 5, 2007 at 3 (Docket No. 05-110-001).

21. Id.

22. Order No. 689 at P 214, 218.

23. Order No. 689 at P 26.

24. Order Denying Rehearing, 119 FERC ¶ 61,154 at P 11.

25. FERC’s Guide to the FERC Electric Transmission Facilities Permit Process, available at http://www.ferc.gov/for-citizens/citizen-guides/electric/guide-transmission.pdf.

26. See Order No. 689 at P 72.

27. FERC’s Guide to the FERC Electric Transmission Facilities Permit Process at 3.

28. 18 CFR §50.5.

29. 18 CFR §50.9.

30. FERC’s Guide to the FERC Electric Transmission Facilities Permit Process at 3.

31. Id. at 4.

32. FPA § 216(h)(4)(B)(i).

33. FERC’s Guide to the FERC Electric Transmission Facilities Permit Process at 4.

34. Order No. 689 at P 6-9. See Memorandum of Understanding on Early Coordination of Federal Authorization and Related Environmental Reviews Required in Order to Site Electric Transmission Facilities. The other agencies include the Department of Defense, the Department of Agriculture, the Department of the Interior, the Department of Commerce, the Environmental Protection Agency, the Council on Environmental Quality, and the Advisory Council on Historic Preservation.

35. FPA § 216(h)(4)(B)(i).

36. See Edison Electric Institute, Electric Transmission Line Siting Regulations Directory, available at http://www.eei.org/industry_issues/energy_infrastructure/transmission/siting_directory.pdf.

37. See 66 Pa. Cons. Stat. § 102 (2007).

38. See Delmarva Power & Light Co. v. Commonwealth, 870 A.2d 901 (Pa. 2005).

39. Application of Trans-Allegheny Interstate Line Company, Docket Nos. A-110172, et al. (April 13, 2007).

40. 52 Pa. Code §§ 57.75(e) and 57.76 (2007).

41. See e.g. Stone v. Pa. P.U.C., 162 A.2d 18 (Pa. 1960).

42. See Stephen J. Eagle, Securing a Reliable Electricity Grid: A New Era in Transmission Siting Regulation?, 73 Tenn. L. Rev. 1 (2005). Compare In re New England Electric, 48 P.U.R. 4th 477 (N.H. P.U.C. 1982) and In re New England Hydro-Transmission, 71 N.H. P.U.C. 727 (1986) with Miss. Code Ann. § 77-3-14 (2007).

43. FPA § 216(i).