Federal Court Ponders Legality of DOE Use of Section 1222

This week, a federal judge in Arkansas heard arguments on a complaint and request from landowners in the state that it halt the DOE's use of Section 1222 of the Energy Policy Act of 2005 to permit, site, and use federal eminent domain for the Clean Line Plains & Eastern transmission project.

Unfortunately, Talk Business & Politics was the only media outlet to attend the oral arguments and report.  I know law is hard for reporters, and especially hard when the issue is as confused as DOE's illegal mangling of a federal statute.  But this article is a bit out of focus and makes a lot of incorrect assumptions (sort of like DOE itself) and also provides some "facts" that just can't be true.

The complaint filed by Golden Bridge and Downwind contained many points that I don't see mentioned in this article.  Perhaps they were never discussed?  But I find that hard to believe.  It's more likely that the reporter didn't understand their importance and thus eliminated them from his story.  Maybe the reporter should have read the complaint before attending the hearing?  It's a great read!  Important points I gleaned from my own read of the complaint:

1. DOE's determination to independently approve the construction and operation of a private, merchant transmission line exceeds Section 1222 authority.
   
2. Arkansas's siting law for electric energy transmission facilities is not preempted or precluded by Section 1222 or the Federal Defendants' participation in the Project.
3. DOE's determination to exercise the federal power of eminent domain exceeds the authority and limits of Section 1222.
   
4. The Federal Defendants' determination is arbitrary, capricious, an abuse of discretion and otherwise not in accordance with law.
   
5. Federal Defendants' deprived the Plaintiffs' members of their fundamental right to due process.

Instead, the Talk Business & Politics report focused only on arguments that presumed Section 1222 granted some authority to DOE to condemn property and "greenlight" the project.  I'm not sure what "greenlight" is supposed to mean.  I'll assume that's reporter-speak for permitting and siting, which is another authority 1222 does not grant to the DOE.

TBP printed a quote from the argument of the landowners' attorney, Jordan Wimpy.

“(This) otherwise is not a federal project. It is a Clean Line project,” Wimpy argued. “Clean Line owns all the assets, all the benefits, and the federal government is simply participating in the project. It may sound bad, but the plaintiffs believe Clean Line is just buying the DOE’s power of eminent domain. That’s what it looks like on the ground.”

I think he may have been referring to the payment of 2% of Clean Line's quarterly profits from the project to the DOE.  It sure does look like a buy off.  Section 1222 never contemplated nor allowed the DOE to profit from its authority under the statute.  But yet the "negotiation" between Clean Line and DOE settled on this payment in exchange for DOE's attempt to use 1222 to permit, site, and condemn land for the project, even though Section 1222 does not grant this authority to the DOE in the first place.

TBP also reported that the four hour hearing was at times a comedy.  I'm not sure what's so funny here.  I guess you had to be there to appreciate it.

In one humorous exchange with DuBois, Marshall asked the DOJ attorney if Clean Line was a “quasi-agent” for the federal government.
“Yes. A quasi-agent with a checkbook. That’s the best kind,” DuBois said, adding that Congress intended for Section 1222 to allow the federal government to improve the nation’s energy grid by attracting private investment.
Marshall also asked DuBois if the DOE’s request for proposal to participate in the three-state energy project was the Obama administration’s way of circumventing the will of the state of Arkansas after the plan was reviewed and rejected by the Arkansas Public Service Commission (PSC).
“Was that a workaround based on what happened before at the PSC?” Marshall asked the DOE counsel.
DuBois replied that Clean Line participation in the project was in response to the DOE RFP, adding that states such as Arkansas have no authority over federal energy infrastructure projects unless it is “specifically given” by Congress.
“The statute does not give states veto power over national grid infrastructure projects,” DuBois told Judge Marshall. “The federal government has successfully shifted care of the national grid to private partners by encouraging private investment. That is what the statute is designed to do — using OPM – ‘other people’s  money.’”

So many things wrong with the DOE's statements here.  Let's take them one-by-one.

Clean Line is a "quasi-agent" of the government?  Where's the authority for that in Section 1222?  Checkbook or not, that's quite revealing about how DOE perceives its role in all this.  DOE is simply a follower, passively allowing a private company to assume DOE's perceived authority to condemn real property.

There's also an unrecognized time gap here.  DOE issued its RFP and Clean Line bid its project before the Arkansas PSC even ruled on the project in the first place.  DOE's RFP was not the result of a denial by the APSC, it was already well underway before the PSC ruled.

States do have "authority" over federal energy infrastructure projects when specifically granted by Congress, such as in Sec. 1222, where state laws pertaining to the siting of energy projects were preserved.  It's not about "veto power" on whether to build the project at all, but about where it is sited.  That authority was specifically reserved for the state.  However, DOE ignored the statute and anointed itself with the non-existent authority to site a transmission line in Arkansas.

And that brings us to DOE's statement that the federal government has shifted care of the national grid to private partners.  What?  That's just not true.  The "care" and operation of the electric grid (note it's not a "national" grid, it's a connection of disparate regional grids) is subject to certain standards promulgated and enforced by NERC and FERC.  As well, planning and operation of the grid is handled by numerous federally supervised regional transmission organizations and balancing authorities.  It's not some private industry free-for-all.  Perish the thought!  We'd all be sitting in the dark!  Private partners may put up the captial to build and maintain the grid, but electric ratepayers pay them back every penny, plus interest.  And that crack about using "OPM?"  Those "OP" pony up their money because Congress decided they would be paid very well for the use of their money and tasked FERC with coming up with the regulations to enable it.  Federal energy policy does not allow private interests to plan their own grid using "OPM."  Instead, federally supervised, profit-neutral entities plan a grid funded by "OPM."  Clean Line is the polar opposite of this, it's a grid made from "OPI" (Other People's Ideas), funded by "OPM," and then adopted by and enabled by the federal government without the participation of the entities who have the responsibility to plan & operate the grid.

What DOE and Clean Line are doing here is attempting to use "OPP", Other People's Property, to enable their own profits.  I really don't think that's cute or worthy of attempts to be humorous using acronyms.  At its most basic level, the Plains & Eastern Project is a speculative venture because it has no customers.  It's a simple, wishful "build it and they will come" gamble.  If they build it and no one comes, Clean Line and the DOE are simply out some profits.  However, if they build it and no one comes, landowners would still be harmed by land condemnations.  Just the threat of this project is harming landowners right now, many of whom cannot sell or develop their properties while the threat of this project looms over their land.

In contrast to DOE's surety of its authority, the attorney for the U.S. DOJ seemed unable to commit to condemnation.

But Wilson, part of the DOJ’s Washington, D.C.-based Environmental Defense Section, went back-and-forth with Judge Marshall for several minutes arguing that until property was actually condemned by Clean Line, she couldn’t say for certain what steps the DOJ would take to enforce the DOE’s right of acquisition for the three-state project.

Perhaps she was confused about how DOJ would apply and enforce necessary due process protections for landowners subject to condemnation, when the DOE did not allow due process for affected landowners during its consideration of the project?  Or maybe she suspects that DOE's interpretation of its authority under Section 1222 is overblown and illegal and she doesn't want to be left defending it in condemnation suits?

I'm not sure whether to blame this glaring error on the reporter or on Clean Line, but let's pay attention to dates here, shall we?

The Arkansas landowners have asked Judge Marshall for a summary judgment to halt the project. If the court rules in the DOE’s favor, Clean Line officials have said they plan to begin construction on the project in the second half of 2017 and complete it sometime in 2020.

Today is November 17, 2017.  There's approximately 6 weeks left in "the second half of 2017."  Even if the Judge issues a ruling by the end of the year, there's no way Clean Line can begin construction until it has financing, which means money to build the project.  In order to get financed, Clean Line would need to demonstrate that it has a revenue stream sufficient to repay the loan.  Clean Line has no customers to produce a revenue stream.  No customers, no financing, no construction.

So, what was relevant at the end?

After the four hours of oral arguments were completed, Judge Marshall said he had planned to rule from the bench, but decided he needed more time to consider complexities of the case.
“This onion has many layers, and the federal layer onion may be the most important,” he said, adding that he would file an order as soon as possible.

Sounds like DOE, DOJ, and Clean Line didn't succeed in making their arguments clear to the judge.  Maybe they only confused him further?  Because DOE's argument that it has authority to permit, site, and condemn land for Clean Line's project is nowhere to be found in Section 1222.  The law is supposed to be clear.  The law is supposed to make sense.  When it doesn't, something is wrong.  I'm glad this judge is willing to peel back the layers until he gets to one that makes sense and will allow him to make a clear, concise and just ruling.

Let's hope the judge starts at the center of the onion and peels outward.  It would make the law and an administration's efforts to frustrate it crystal clear.  Let's go back... wayyyy back, to the Energy Policy Act of 2005, which created the law in question.

The Energy Policy Act of 2005 contained several sections under Subtitle B, Transmission Infrastructure Modernization, Sections 1221 through 1224.  Section 1221 dealt with the siting of interstate transmission facilities.  Ah ha!  Siting!  Something DOE thinks it has authority to do that is not found in Sec. 1222!  Section 1221 also provided authority to the Federal Energy Regulatory Commission to permit the construction of electric transmission projects.  Ah ha!  Permitting!  Another thing not found in Sec. 1222!  The Commission was authorized to permit transmission, but only after notice and an opportunity for hearing.  Ah ha!  An opportunity for hearing, another thing not found in Sec. 1222!  Section 1221 also granted FERC the authority to use eminent domain to condemn right-of-way for a transmission project sited and permitted under the statute.  Ah ha!  Eminent domain authority, another thing missing from Sec. 1222.  I think we're on to something here....

Section 1221 defined the scenarios whereby the Commission could site and permit new transmission after notice and hearing.  One such scenario is:

‘‘(B) the applicant for a permit is a transmitting utility under this Act but does not qualify to apply for a permit or siting approval for the proposed project in a State because the applicant does not serve end-use customers in the State;

Well, gosh, that's EXACTLY what the Arkansas PSC said about Clean Line!  So, Clean Line's project should have sought federal siting, permitting, and hearing of its proposal under Section 1221 of the Energy Policy Act. 

Except by the time Clean Line found out it had a problem in Arkansas, Section 1221 had already been neutralized in federal court.  The Ninth Circuit vacated DOE's designation of "congestion corridors" because they weren't concocted in accordance with the statute (See California Wilderness Coalition v. US Dept. of Energy, 631 F. 3d 1072 (9th Cir. 2011).  And the Fourth Circuit preserved a state's authority to deny a project (See Piedmont Environmental Council v. FERC, 558 F.3d 304 (4th Cir. 2009).  These decisions made Section 1221 much harder to use to usurp state authority.

Enter Energy Secretary Steven Chu and his transmission "guru," Lauren Azar.  Azar suggested using the Federal Power Marketing Authorities and Section 1222 to advance transmission for renewables.  And was the impetus for a very controversial memo issued by Chu.

Given the short amount of time to make big changes at DOE -- Azar was, after all, picked by Chu, who himself resigned last February -- she said she mapped a timeline for tapping into existing transmission siting authorities and helping critical projects get started.
"I'm much more about where the rubber meets the road than high-level policy debates," Azar said.

She rejected the notion the controversial memo was all her doing or representative of a top-down approach.

As laid out in the memo, she also championed Texas-based Clean Line Energy's application to partner with DOE through its never-before-used authority under Section 1222 of the Energy Policy Act, which would allow a PMA with federal authority to site the line and overcome state opposition.

So Lauren Azar made a mistake.  A hideous mistake.  She conflated the siting, permitting and condemnation authority contained in Sec. 1221 with the otherwise innocuous Sec. 1222 of the Energy Policy act that merely allowed third-party financing of Power Marketing Authority transmission projects.  Azar presumed that third-party financing of a PMA project granted 1221's authority to the DOE.  It does not.

Section 1222 allows the DOE (and its PMAs) to participate in transmission projects financed by third parties.  It does not give DOE siting, permitting or eminent domain authority for third-party financed projects.  Also in the 2005 Energy Policy Act was increased borrowing ability for the PMAs that came from Congressional concern that the PMAs did not have adequate funding.  Instead of giving PMA's a taxpayer financed free-for-all, the Energy Policy Act unlocked additional ways for the PMAs to finance transmission, either through increased borrowing or through third-party finance.  Section 1222 was enacted for this purpose only.  To finance PMA projects. 

Instead, under Azar's misguidance, the DOE issued an RFP to solicit new projects to be "participated in" by the PMAs that were designed and financed by third parties.  And how convenient!  Clean Line's projects fit right into the illegal RFP and were the only projects that applied.  Section 1222 was not intended as a way to ram through projects that were designed by, and paid profits to, third parties unrelated to the PMAs.  It was intended to allow third party financing of projects designed by the PMAs and operated for the benefit of PMA ratepayers.

The RFP the DOE issued for Sec. 1222 projects was illegal and did not comport with the statute.  But instead of someone stepping up to stop this legal disaster, the DOE encouraged it because it fit the administration's agenda to promote renewable energy.  The RFP itself added the extra-statutory factor that proposed projects must be for renewable energy.  Clean Line certainly never looked its gift horse in the mouth but plowed gleefully forward, spending millions in pursuit of an outcome that was not legally possible.  Is it going to take as many years to unwind this hideous miscarriage of justice as it took to create it?

It all comes back to the core of the onion.  DOE's Section 1222 program is in so much trouble right now because it is not in accordance with the law.  Going back to the clear language of the law, DOE has failed.

I hope Judge Marshall's onion peeling brings clarity, not crying.