Dive Brief:

• The Federal Energy Regulatory Commission must better explain its decision to give transmission owners in the Midcontinent grid operator’s footprint the unilateral right to fund interconnection upgrades to bring generators online, according to a Friday federal appeals court ruling.
• FERC gave “short shrift” to the American Clean Power Association’s concern that transmission owners might discriminate in favor of their own generating plants, the U.S. Court of Appeals for the District of Columbia Circuit said.
• The court’s finding that FERC must consider the risk that utilities would discriminate against generation competitors could affect the agency’s pending decisions on proposals giving transmission owners in the PJM Interconnection and Southwest Power Pool footprints unilateral rights to pay for and profit on interconnection-related upgrades, according to Ari Peskoe, director of Harvard Law School’s Electricity Law Initiative.

Dive Insight:

With a major renewable energy build-out looming, transmission owners are using FERC proceedings to seek the right to fund interconnection upgrades needed across the United States.

In the Midcontinent Independent System Operator region, which spans from Louisiana to Manitoba, Canada, generators pay for most of the cost of the upgrades. Historically, MISO transmission owners have funded the upgrades and recovered their costs from generators over time, earning a return on the spending, the court said in its ruling.

However, in response to a complaint by Otter Tail Power FERC in 2015 took away the transmission owners’ unilateral right to fund the upgrades. Three years later, the appeals court vacated the Otter Tail decision, in part saying there was no evidence in the appeals case of potential discrimination by transmission owners.

In August 2018, FERC, without holding hearings to flesh out the record, reversed course and said all MISO transmission owners should have the unilateral authority to choose to fund upgrades, the court said in its decision. That led to several FERC orders that were appealed by the American Clean Power Association.

In a dissent to one of FERC’s decisions related to the case, then-commissioner Richard Glick argued that the agency failed to adequately explain itself.

“I remain concerned with the commission’s failure to wrestle with the record evidence that the commission’s determination on remand will provide an opportunity for transmission owners to favor their own generation and create an environment where similarly-situated interconnection customers pay higher network upgrade costs,” Glick, now FERC chairman, said.

In the court’s latest decision, it agreed with ACP that FERC’s decision to grant unilateral funding authority to all transmission owners violated the Administrative Procedure Act’s arbitrary-and-capricious standard. ACP showed that many MISO transmission owners have an incentive to discriminate between their own generators and would-be competitor generators, the court said.

“FERC was obligated to respond to that evidence,” the court said. “Instead, FERC simply said that the evidence of generation ownership was inadequate to demonstrate discrimination, without explaining why this was so.”

Under Friday’s court order, FERC in future decisions cannot ignore concerns about potential discrimination by transmission owners, as it did in the MISO proceeding, Peskoe said Friday in an email.

ACP is looking forward to working on “a durable solution” on how interconnection upgrades should be funded, Gabe Tabak, senior counsel for the renewable energy trade group, said Friday in an email.

“This case highlights the need for FERC to engage in broader interconnection and transmission reform in a way that will help alleviate this issue,” Tabak said.