In three separate rehearing orders issued last Thursday, May 15, 2014, the Federal Energy Regulatory Commission reversed course on its decision in Order No. 1000 to prohibit references in transmission tariffs to state laws such as rights of first refusal (ROFR) to build transmission expansions.  The Commission determined on further consideration that excluding such state and local laws from transmission tariffs could lead to inefficiencies and delays in the regional transmission planning process because regions would have to spend time and resources evaluating potential transmission developers that would ultimately be prohibited by state or local law from developing a transmission project.  Commissioner Norris issued a statement opposing the Commission’s orders on the basis that they will exclude non-incumbents from participating in the regional transmission planning process, choking innovation and insulating incumbents from competition.

Order No. 1000 requires public utilities to participate in regional transmission planning and cost allocation planning for new transmission facilities.  In order to allow competitive bidding of projects and developers, Order No. 1000 requires public utility transmission providers to remove provisions in Commission-jurisdictional tariffs that establish a federal ROFR for an incumbent transmission provider with respect to building transmission facilities selected in a regional transmission plan.  Order No. 1000-A stated that it was not “intended to preempt or otherwise conflict with state authority over sitting, permitting, and construction of transmission facilities.”  However, the order also stated that it “would be an impermissible barrier to entry to require, as part of the qualification criteria, that a transmission developer demonstrate that it either has, or can obtain, state approvals necessary . . . to be eligible to propose a transmission facility.”

On rehearing of compliance orders for the PJM Interconnection, Midcontinent Independent System Operator and South Carolina Electric & Gas Company, the Commission held that while it will continue to require the elimination of federal ROFRs, regional operators and utilities could recognize exclusionary state and local laws and regulations as a threshold issue in the regional transmission planning process.  Specifically, the rehearing orders provided that tariffs could include state and local laws, giving incumbent utilities ROFRs and provisions excluding projects that alter the transmission providers’ use or control of rights-of-way.  The Commission reasoned that ignoring these state or local laws or regulations at the outset of the regional transmission planning process would be counterproductive and inefficient, and could delay needed transmission facilities.  In a dissenting statement, Commissioner Norris argued that this approach was irreconcilable with Order No. 1000 and condemns consumers to bear the burden of incumbents’ lack of innovation in developing transmission solutions and interest in preserving the status quo.