Federal Overreach on Transmission

Cupcakes:  delicious little pieces of heaven!  You probably don't think you need a cupcake until someone puts one in front of you.  All of a sudden, you want a cupcake.  You need a cupcake.  You must have a cupcake!  But you would have gone happily along without that particular cupcake because you really don't need a cupcake, and there will be more cupcakes offered down the road.

The National Association of Regulatory Utility Commissioners (NARUC) baked a cupcake for landowners last week, but snatched it away at the last minute.  Does this mean that NARUC will stop baking cupcakes?  Nope.  It means that NARUC will get back in the kitchen to perfect its recipe before offering a new and improved cupcake in the future.

At its recent winter meeting, NARUC's Electricity Committee proposed a Resolution opposing the U.S. DOE's misuse of Section 1222 of the Energy Policy Act of 2005 to preempt state authority to site electric transmission lines.

But the resolution was tabled at the last minute.  E&E News did a whole bunch of speculating about why the Resolution was tabled, however it appears that E&E wasn't in the room and created its story from comments and opinion.

The move Tuesday at the winter policy meetings of the National Association of Regulatory Utility Commissioners in Washington was "unusual" said Elizabeth Jacobs, a member of the Iowa Utilities Board and vice chairwoman of NARUC's Electricity Committee.

"It wasn't supposed to be directed at any one project," said Jacobs. Rather, she said the resolution "was supposed to be about defending state jurisdiction [over transmission siting] going forward."

But there was some confusion "that made people really nervous," in particular its specific mention of the Plains and Eastern Clean Line proposed by Clean Line Energy Partners LLC, she said.

"I think some people had concerns with language about NARUC taking all necessary actions" to challenge the line, Jacobs said, and thought "Let's think this one through a little more."

The resolution was proposed by Sam Britton, a member of the Mississippi Public Service Commission. He did not return a call seeking comment.

Britton had explained to the NARUC committee that the resolution was "resource neutral" and not anti-wind or anti-renewables, said one attendee.

Well, gosh, I wonder where that "confusion" came from?  Could it have come from Clean Line Energy personnel lobbying at the conference?

The Resolution doesn't mention any particular project.  But it uses an example of DOE's misapplication of Section 1222 on the only project it has decided to "participate" in.  That project just happens to be Clean Line's Plains and Eastern Clean Line.  The Resolution explains Section 1222.  It states:

WHEREAS, Provision “(d) Relationship to Other Laws” of Section 1222 states that “Nothing in this section affects any requirement of ... (2) any Federal or State law relating to the siting of energy facilities; or (3) any existing authorizing statutes,” and
 
WHEREAS, On March 25, 2016, the DOE announced its plan to own the portion of a proposed power line that would traverse the State of Arkansas and rely on Section 1222 to exercise a Federal right of eminent domain in that state; and
 
WHEREAS, DOE has stated that it does not plan to request a site permit from the State of Arkansas but will instead rely on the federal Condemnation Act, which it says authorizes DOE to exercise eminent domain authority over any property so long as DOE has the legal authority to acquire the property, and so long as the project will constitute a public use; and
 
WHEREAS, NARUC has a long-standing position that the siting of electric transmission facilities should be subject to the exclusive jurisdiction of the States, notwithstanding the limited “backstop” siting provision in Section 1221 of the Energy Policy Act of 2005 (which NARUC opposed); and
 
WHEREAS, Without taking any position whatsoever on the wisdom of constructing any transmission project in which DOE wishes to participate or the type of power envisioned to be transmitted over such project, NARUC wishes to state its position on the proper interpretation of Sections 1221 and 1222;

NARUC recognized that Sec. 1222 does not authorize DOE to site the line, but reserves siting decisions to the states.  However, DOE has misinterpreted the statute to grant itself siting authority for a transmission project.  And if this interpretation stands, other states in the WAPA and SWPA federal power marketing territories (AR, KS, LA, MO, OK, TX, MT, ND, SD, NE, MN, IA, WY, CO, NV, AZ, CA, UT and NM) will be wrongly subjected to federal preemption of their state siting laws for any future transmission projects under Sec. 1222.  It's not a matter of "if," it's a matter of when.  NARUC has fiercely defended state authority to site and permit transmission projects.  Section 1221 of the same Energy Policy Act authorized the Federal Energy Regulatory Commission to act as a "backstop" to site and permit transmission lines in a DOE-designated National Interest Electric Transmission Corridor in the event that a state failed to act, or could not act, on an application for said transmission.  FERC conflated a failure to permit with a failure to act.  After a prolonged and hugely expensive court battle, the 4th Circuit determined that a denial of an application is an action of the state, and "backstop" authority was not triggered by a state denial.

We have analyzed the phrase "withheld approval for more than 1 year." Read by itself, the phrase does not include the outright denial of a permit application within the one-year deadline. We have also considered the phrase in the context of the entire statutory provision in which it appears. A reading of the entire provision reveals that Congress intended to act in a measured way and conferred authority on FERC only when a state commission is unable to act on a permit application in a national interest corridor, fails to act in a timely manner, or acts inappropriately by granting a permit with project-killing conditions. The broader context of § 216(b) thus confirms that the meaning of "withheld approval for more than 1 year" is plain: it means that action on a permit application has been held back continuously for more than one year. The continuous act of withholding approval does not include the final administrative act of denying a permit. Because Congress's intent is clear, our review under Chevron proceeds no further. For these reasons, we reverse FERC's interpretation of the phrase "withheld approval for more than 1 year."

NARUC has continued its opposition to federal preemption of state jurisdiction to site and permit transmission projects.

And then DOE inappropriately attempted to utilize Section 1222 to usurp state authority to site transmission projects.  It's Groundhog Day all over again!  And finally NARUC proposed a resolution to "...take all necessary actions to confirm NARUC’s position regarding Sections 1221 and 1222 and/or challenge, if necessary, DOE’s circumvention of State siting laws in the pursuit of projects pursuant to Section 1222 of the Energy Policy Act of 2005."

And then "confusion" happened.  E&E News inaccurately reports:

A group of state electric utility regulators tabled a resolution critical of the Department of Energy's plan to take an ownership stake in a 720-mile interstate transmission project from the Oklahoma Panhandle to Tennessee.

The galvanizing issue for some NARUC members is DOE's unprecedented use of its authority to take an ownership stake in a line under Section 1222 of the Energy Policy Act of 2005.

That's not the issue at all.  Section 1222 plainly allows DOE to "own" a transmission project.  What it does not allow is DOE preemption of state siting authority.  That was clearly the galvanizing issue for NARUC as expressed in the proposed Resolution.

What else did E&E get wrong in their opinionated "news" story?

The Plains and Eastern line is ranked No. 9 in a list of 50 high-priority infrastructure projects circulating among governors, lawmakers and the business lobby. And the line could become a topic of debate if Congress and the White House develop economic stimulus legislation aimed at infrastructure development.

The 50-project document touted the line as a "national security project that can add resiliency to our electric grid," citing its ability to "move cheap, clean, wind power energy" that could power more than 1 million homes in the mid-South.

Oh, the lobbyist list?  That has nothing to do with actual need for projects and is nothing more than a business lobbyist wet dream.  Being on the list means nothing in the grand scheme of things.  Especially because this "high-priority infrastructure list" seems to be purposed to score government funding for projects.  News flash!  We don't use taxpayer funds to build electric transmission.  Electric transmission has always been "user pays."  That's because electric transmission has distinct beneficiaries -- a project benefits only a subset of consumers.  How could the government justify using the collective pot of taxpayer money funded by all citizens to provide a "benefit" to just one state or region?  What about the other regions?  Will they be getting government-funded transmission projects that benefit them as well?  And how about those profits?  Transmission lines produce revenue for their owners.  Who would receive the revenue from a government-funded transmission project?  In the case of other infrastructure, the government owns the not-for-profit infrastructure and any profits belong to the people.  Why would the federal government use taxpayer money to fund a privately-owned infrastructure project that pays huge dividends to its owners?  The government isn't going to buy me a small business and let me keep all the profits from its operation.  But that's just what the DOE has done with its proposed "ownership" of the Clean Line project.  Clean Line funds it, the government "owns" it, and Clean Line keeps all the profits from its operation (well, except for that 2% DOE squeaked out of the project in its Participation Agreement).  Quid pro quo?  Section 1222 doesn't even contemplate, much less allow, the DOE to profit from "ownership" of a third-party transmission project.  And then let's talk about how Clean Line's rates would be affected by a sudden government investment in its project.  Clean Line has negotiated rate authority from FERC.  In essence, it allows Clean Line to negotiate rates with voluntary customers.  It requires that Clean Line accept all financial risk of its market-based project.  But if Clean Line's project is funded by taxpayers under the guise of "infrastructure development" then the risk clearly shifts to taxpayers and Clean Line no longer qualifies for negotiated rate authority.  If the government is going to "own" the project and fund its construction, then what's the purpose of Clean Line?  It would be acting in the capacity of government contractor, with its payday being 98% of the revenue generated by the project... forever.  I'm pretty sure the government could find a much more capable contractor, since Clean Line has never built or owned any transmission before.  Shoot... I'm pretty sure the experienced incumbent transmission owners would be lining up for an opportunity like that!  And even when transmission is owned by the government, such as transmission owned by federal power marketers WAPA and SWPA, the users of the transmission pay for it in their electric bills.  WAPA and SWPA do not take any operating funds from the U.S. Treasury.  They are supposed to be self-supporting governmental entities.

So, listen, any governmental "infrastructure" funds would change Clean Line's projects so significantly that they would never happen.  Clean Line needs to quit posturing about the lobbyist list and governmental financial support.

But, hey hey, the lobbyist list called Clean Line's project "a national security project."  Who determined that?  The lobbyist who created the list?  No official entity tasked with national security has determined that Clean Line's project is needed for national security.  In fact, Clean Line's project is a national security risk.  It could provide just one more vulnerable target in our complicated transmission system.  Adding more transmission doesn't make the system safer, since it's generally known that the transmission system has a handful of "critical" assets that could collapse the grid if destroyed.   New additions simply provide another entry point for our enemies.  Just ask the U.S. military, who has been islanding itself from the larger grid through development of distributed generation assets.  Local assets it can protect and control are safer than depending on some huge, unprotected system for the energy the military needs to protect the country.

And what did Clean Line have to say about NARUC's resolution?

Mario Hurtado, executive vice president at Clean Line who leads the Plains and Eastern Clean Line project, welcomed the NARUC decision.

"Resolutions in a collegial body like this are supposed to be noncontroversial," he said.

"It's not really the role of NARUC to decide on projects. I think a lot of the commissioners were not comfortable passing judgement on single project in this informal association that's supposed be about broad policy," Hurtado said.

"To now to try to relitigate things is sort of like you're trying to start the clock again, and that's not really fair for investors," he said.

What?  NARUC can never take a position that the industry disagrees with?  Surely you jest, Mario.  NARUC derives its strength from taking positions on important issues.  Mario is not a member of NARUC because he's not a regulatory utility commissioner, therefore he has no authority to determine the veracity of NARUC issues.  As has been explained here, NARUC wasn't attempting to decide on a single project.  NARUC was taking a position in a policy issue - DOE's misinterpretation of Section 1222.  Mario seems to think it's all about him.  Maybe Mario needs to see a psychologist about that?

Relitigate?  What?  Was NARUC litigating this issue at its conference?  NARUC doesn't litigate issues.  It is not a court.  And how can one "relitigate" something that has never been "litigated" in the first place?  Section 1222 has only recently come under court scrutiny in litigation initiated by Golden Bridge LLC, a landowners group in Arkansas.  The litigation of Sec. 1222 has only just begun and is certainly no where near being settled.  That's "litigation," Mario -- the process of taking legal action.  Legal actions only happen in courts.  The Court will interpret the plain language in Section 1222 to determine if it reserves siting to the states.

Was Mario referring to legislation, not litigation?  There's a world of difference.  Legislation is the making or enacting of laws.  It is undertaken by elected legislators, and in the case of Section 1222, the legislators who made and enacted it are Congress.  So, let's apply Mario's whining to the word "legislation."  Mario thinks that Congress can never revisit legislation it enacts because that wouldn't be fair to filthy rich investors who are counting on the enacted legislation to make even more money.  How does that square with Clean Line's negotiated rate authority where its investors accepted all market risk for Clean Line's projects?  Risk involves the acceptance that situations can change at any time, such as laws being amended.  Clean Line accepted that risk when it chose to proceed as a merchant transmission owner, so it needs to shut its pie hole.  Risky business propositions can provide huge rewards, oftentimes the higher the risk, the greater the potential reward.  But risk means things can change.

And let's back up a bit here... E&E suggested:

...the line could become a topic of debate if Congress and the White House develop economic stimulus legislation aimed at infrastructure development.

So while Clean Line whines about changing the rules in  the middle of the game as support for maintaining existing laws, it also wants to write new laws to support its project.  Government funding isn't the half of it.  Clean Line also wants Congress to enact new legislation to preempt state siting and permitting for transmission projects.  It wants Congress to strengthen feeble "backstop" siting provisions that currently exist in Sections 1221 and 1222.  It wants federal eminent domain authority to preempt any state role in the permitting and siting of transmission.  That sort of sounds like changing the rules in the middle of the game to me.  If Clean Line was so confident in Sec. 1222's ability to preempt state siting laws, then it would have no need to attempt to strengthen it. 

Who's a hypocrite, Clean Line?

And let's take a moment here to reflect on Clean Line's use of Section 1222 in the first place.  Clean Line says that it explored the use of Sec. 1222 because Arkansas denied them a permit for their project.  Except that's not what really happened.  Arkansas said it did not have authority to grant utility status to an entity that did not intend to serve customers in Arkansas.  When Clean Line applied for utility status in Arkansas, it proposed to simply "fly over" the state without making any capacity available to Arkansans.  Clean Line applied for Sec. 1222 BEFORE the Arkansas PSC had even made a ruling on its state application.  Clean Line was clearly proceeding with federal preemption before Arkansas even had a chance to make a ruling.  And then Clean Line added an Arkansas converter station after the Arkansas PSC ruling and said it intended to serve customers in Arkansas.  But did Clean Line ever go back before the APSC with its changed plan to serve customers in Arkansas?  No.  It simply proceeded on a long and expensive path to preempt Arkansas authority altogether.  Arkansas was never given the opportunity to site and permit Clean Line's project.  It was simply preempted from acting.

And, let's cut to the chase (finally, they say!):

For Iowa's Jacobs, the siting issue is getting greater attention by regulators as "the citizens and the consumers are getting more and more involved in major infrastructure projects that deal with energy."

"Consumers would not feel comfortable that the federal government is making a decision that could impact them within miles of their home," she said. "We're hearing it more and more."

The trend in opposition "gives play to the old adage that all politics is local. That's really where we are right now. That whole populist sentiment is really strong out there," Jacobs said.

That's you, Americans.  You've been standing up and getting involved in energy projects that affect your community.  You don't want decisions about energy projects in your community made in a Washington political swamp that has turned a deaf ear to the needs of average Americans.  Business as usual is over.

No matter how much political posturing Clean Line does (first they were great Democrats, and now they're trying to be great Republicans), decisions about individual projects at the state level aren't supposed to be political.  They're only political at a federal level.  And how would a Republican Congress think about an energy project owned by Democratic party funders?  Would a Republican Congress steamroll a path for a project that would provide staunch Democrats with even more money to spend opposing Republican candidates?  If Clean Line wants this to be political, let's get political!

But meanwhile, your cupcake isn't ready for consumption yet, America.

Jennifer Murphy, NARUC's assistant general counsel, emphasized that the tabled resolution does not negate the organization's opposition to even limited "backstop" siting authority granted to the Federal Energy Regulatory Commission, also in the Energy Policy Act of 2005.

"We have a resolution from 2009 that states our position on backstop siting. And until we have another resolution about backstop siting, that's our position on backstop siting," Murphy said.

It's back to the bakery for NARUC.  And while NARUC's actions are on behalf of the Association, they do not prevent any individual state from litigating this important issue.  Strong feelings will foment strong actions.  The best is yet to come!