Seventh Circuit Approves Regional Allocation of Transmission Costs for Delivering Remote Wind Energy

The U.S. Court of Appeals for the Seventh Circuit recently issued a landmark decision upholding a Federal Energy Regulatory Commission (FERC) order approving a plan by the Midwest Independent System Operator (MISO) to allocate the costs of certain high voltage transmission facilities on a region-wide basis.1 The court rejected an argument that the proposed new transmission facilities would provide no benefits to Michigan, which relies on in-state renewable energy to meet its Renewable Portfolio Standard (RPS) requirements. The court concluded that such in-state requirements discriminate against out-of-state renewable energy, in violation of the commerce clause of Article I of the U.S. Constitution.

In July 2010, MISO, the independent administrator of the transmission system in the Midwest, filed a proposal with FERC to establish a new category of transmission projects referred to as Multi-Value Projects (MVPs). To qualify as an MVP, a transmission project must have an expected cost of at least $20 million and must help MISO members meet their state RPS requirements, address system reliability issues or provide economic benefits in multiple MISO zones. MISO proposed to allocate the costs of MVPs across the entire MISO region based on electricity usage. MISO’s proposal was primarily intended to finance the costs of transmission facilities used to integrate remote Western wind energy into Midwest urban load centers by “socializing” those costs among all customers in the region.  

In December 2012, FERC issued an order approving the proposed MVP methodology as “an important step in facilitating investment in new transmission facilities to integrate large amounts of location-constrained resources, including renewable generation resources, to further support documented energy policy mandates or laws, reduce congestion and accommodate new or growing loads.”2 In upholding FERC’s approval of the MVP methodology, the court rejected arguments that FERC failed to identify objective benefits of the MVPs with sufficient specificity. The court noted the inherent difficulties in identifying benefits with precision, and did not require a specific quantification of those benefits before allocating the associated costs across the region.

MVPs are high-voltage projects that transmit energy over long distances. The court concluded that, unlike low-voltage lines that benefit only local areas, MVPs increase reliability for the entire regional grid, facilitate the flow of power to underserved areas and decrease reserve margin losses, thereby benefitting the entire region. The court also emphasized that MVPs would promote increased wind power, providing additional regional benefits in the form of increased energy independence and decreased carbon emissions.  

Of particular importance, the court rejected an argument by the Michigan utilities and the Michigan Public Service Commission that the MISO approach was at odds with the Michigan RPS, which credits only renewable energy that is generated in state. The court held that “Michigan cannot, without violating the commerce clause of Article I of the Constitution, discriminate against out-of-state renewable energy.” The constitutionality of the Michigan RPS was not at issue in the appeal, and the court’s statement does not directly impact the validity of the Michigan RPS or any other state renewable mandate or target. However, given that almost every RPS in the country favors the in-state generation of renewable energy, the court’s statement will likely encourage legal challenges to the in-state requirements by the renewable industry.

Contact Information

If you have questions concerning this alert, please contact:

George D. Cannon
ccannon@akingump.com
202.887.4527
Washington, D.C.
Julia E. Sullivan
jsullivan@akingump.com
202.887.4537
Washington, D.C.
Suedeen G. Kelly
skelly@akingump.com
202.887.4526
Washington, D.C.
 

1 Ill. Commerce Comm’n v. FERC, Nos. 11-3421, et al. (7th Cir. June 7, 2013).

2 Midwest Indep. Transmission Sys. Operator, Inc., 133 FERC ¶ 61,221 at P 3 (2010), order on reh’g, 137 FERC ¶ 61,074 (2011).