Federal Power Lines

In President Obama’s recent Inaugural Address, he renewed the call for Federal action on climate change, a political and technical challenge that has stymied policymakers for decades. The national discourse on climate change has centered around energy policy and the need for increasing renewable energy sources. Advocates argue that the use of renewable energy will not only slow the causes of climate change, it will also reduce reliance on foreign sources. But before renewable resources can reach a scale that accomplishes any of those goals, they face a major challenge in electricity transmission.

Traditionally, electricity utilities were vertically integrated entities – meaning that one company owned and operated the electricity production, transmission (long-distance transport to converters), and distribution (local transport to homes and businesses). Throughout the early twentieth century, energy production was thought to be a natural monopoly requiring too much capital input up front for any actor to enter the market without a guaranteed customer base. To encourage investment, state governments would permit a company to control the market on the condition of government oversight and regulation. Starting in the 1970s, as technology progressed and infrastructure spread across state lines, the industry recognized that it was actually transmission that was a natural monopoly: if investors could rely on already-existing transmission lines, they were willing to invest in diverse sources of energy and create competition.

To encourage competition in the generation sector, Congress passed Energy Policy Act (EPAct) of 1992[1] giving the Federal Energy Regulatory Commission (FERC) jurisdiction over interstate transmission and authority to require utilities to allow other generators to use their transmission lines. Since all states (with the exception of Texas) are part of an interstate transmission system, the EPAct of 1992 basically gave FERC nationwide jurisdiction over transmission. However, siting of new transmission lines remained within state control, which posed a barrier to new renewable energy sources because states are not required to approve new transmission lines. Many renewable energy sources, such as wind and solar, are best suited for locations far from populations centers (e.g. wind in North Dakota or solar in Arizona). In order to transport that energy to major metropolitan centers, transmission lines have to cross through multiple states that do not have a financial interest in permitting them. The cost of building such high-voltage lines oftentimes far exceeds the benefits for states that have small populations that could use the power.

In 2005, Congress attempted to give FERC some leverage over siting by allowing FERC to declare certain geographic areas as National Interest Electric Transmission Corridors.[2] These NIETCs, as they would be called, are areas where there are severe constraints on transmission capacity that have or will adversely affect consumers. A request for a state permit to construct transmission facilities in a NIETC is subject to FERC “backstop authority” – FERC has authority to step in when a state has “withheld approval” on the permit for more than a year or has placed economically infeasible conditions on approval.[3]

However, a recent Fourth Circuit Court of Appeals decision has limited the scope of this “backstop authority”. The court held that the phrase “withholding approval” of a permit did not include an outright denial of a permit in a NIETC (Piedmont Environ. Council v. F.E.R.C., 558 F.3d 304 (4th Cir. 2009)). FERC argued that the language should be read to include a denial, effectively ensuring that any transmission lines in these areas would be approved, either by the state or by FERC through the “backstop authority.” The court disagreed.[4] As a result, FERC can only preempt a state on requests for new transmission lines when the state fails to act for more than a year, or puts unreasonable conditions on an approval. But there will likely be further litigation in the future, since the issue has yet not been heard by the Supreme Court.

A recent report issued by the Bipartisan Policy Center has opened up the newest chapter in the debate on federal control of energy transmission. The report, titled Capitalizing on the Evolving Power Sector: Policies for a Modern and Reliable U.S. Electric Grid, urges further amendments to current energy laws that would empower FERC to control transmission siting decisions, create more efficient review processes under environmental laws, and prioritize long-term regional strategies for developing a national power grid.[5] The report notes that the increase in investments in renewable sources of energy make it imperative to build high-capacity transmission to transport this energy, usually in rural areas, to population centers. It also calls for guidance from the Department of Energy on how local distribution systems can also be updated to increase reliability.[6]

While these recommendations have found some support in Congress, the utility industry is more skeptical. The National Association of Regulatory Utility Commissioners (NARUC), which is a non-profit that represents state public utility commissions, has expressed concern that these measures would infringe on local control of electricity.[7] The group argues that giving authority to FERC to effectively overrule a state’s decision against a proposed transmission line will disrupt the balance between state and federal power. Although the preservation of state power can often be a fatal bullet to proposals for increasing agency authority, there is growing concern over the country’s energy supply and security, which may change the tone of many Congressmen when they consider this proposal in the upcoming session.

Despite President Obama’s strong rhetorical commitment to taking executive action on climate change,[8] the legislative and regulatory web that controls the electricity sector may force a different approach. With the prospect of a national cap-and-trade bill long dead and pressure mounting from environmentalists for large-scale action, a revamp of our approach to transmission may just offer the Obama administration the chance it’s been looking for to regain its credibility on the environment.

— Sarah Duffy is a General Member on MJEAL.

The views and opinions expressed in this blog post are those of the authors and do not necessarily reflect the official policy or position of the Michigan Journal of Environmental and Administrative Law or the University of Michigan.

[1] Energy Policy Act of 1992. https://www.ferc.gov/legal/maj-ord-reg/epa.pdf. Accessed March 3, 2013.

[2] Federal Energy Regulatory Commission, Order No. 689. http://www.ferc.gov/whats-new/comm-meet/111606/C-2.pdf. Issued Nov. 16, 2006. Accessed March 3, 2013.

[3] Id.

[4] Piedmont Environ. Council v. F.E.R.C., 558 F.3d 304 (4th Cir. 2009).

[5] Hannah Northey, “Utility regulators balk at recommendation that Congress have more say over power lines,” Greenwire.com. Published February 7, 2013. Accessed March 3, 2013.

[6] Id.

[7] Id.

[8] Richard W. Stevenson & John M. Broder, “Speech gives climate goals center stage.” The New York Times. Published Jan. 21, 2013. Accessed March 18, 2013. http://www.nytimes.com/2013/01/22/us/politics/climate-change-prominent-in-obamas-inaugural-address.html?ref=globalwarming