The Third U.S. Circuit Court of Appeals has ruled that the Pennsylvania Public Utility Commission violated the Constitution in denying Transource Energy permits necessary to construct the Independence Energy Connection (IEC) transmission project.
The court reaffirmed the ruling of a lower court, finding the PUC contravened the supremacy clause by deviating from PJM’s approach to determining the benefit-cost ratio of two transmission lines designed to reduce congestion by increasing access to generation in Pennsylvania.
The PUC argued PJM’s method was flawed because it weighed the reduced congestion against only the project development costs, while not factoring the increased rates for Pennsylvania consumers. The commission denied Transource siting and eminent domain permits to proceed with construction in May 2021.
The appeal followed a Dec. 6 ruling by the U.S. District Court for the Middle District of Pennsylvania finding that the PUC’s approach violated the commerce clause of the Constitution as an instance of economic protectionism.
The Third Circuit focused instead on the supremacy clause to arrive at its conclusion the commission would undermine federal objectives by supplanting the approach for mitigating congestion developed by PJM and approved by FERC. (See Federal Court Rules in Favor of Transource Congestion Project in PJM.)
The Third Circuit wrote that its ruling does not strip states of their jurisdiction over siting but instead determines that the rationale for rejecting a permit application cannot conflict with federal objectives.
“What matters for preemption purposes is that the PUC’s reasons for denying the siting applications amounted to ‘second-guessing the reasonableness’ of PJM’s FERC-approved approach to determining which projects should be built,” the court said. “The question before us is not whether the PUC was acting within the ordinary scope of state authority, but whether its action poses an obstacle to the accomplishment of federal objectives. As we explained above, it clearly does.”
The IEC project was designed to resolve congestion on the AP South Reactive Interface, which is composed of four 500-kV lines between West Virginia and Maryland skirting the Pennsylvania border. The congestion cost consumers in the eastern PJM region about $800 million between 2012 and 2016 by limiting the transfer of cheaper energy generated in the west. Development costs were estimated between $509 million to $528 million, with an initial benefit-cost ratio of 2.48 calculated by PJM.
In recommending the PUC deny permits for the project, a Pennsylvania administrative law judge wrote that congestion on the interface had fallen from $486.8 million in 2014 to between $14.5 million and $21.6 million in the following years. The ALJ argued that an estimated $812 million in increased rates for Pennsylvania consumers should be accounted for in the benefit-cost analysis, resulting in a cost-saving of $32.5 million over 15 years.
The appeals court acknowledged that Pennsylvania rates would increase as a result of low-cost generation being made more widely available, but said the federal government holds the objectives of ensuring reliable, economic and non-discriminatory access to transmission, as well as counteracting the monopolistic nature of state utilities.
“The regional planning process developed as a counterweight to state interests, and precisely because FERC determined that it could not depend on the states to address regional concerns such as congestion and grid reliability,” the court wrote.
Past Criticism from Christie
The PUC had also argued the issue preclusion precedent should prohibit Transource from presenting its claims around the commerce and supremacy clause in federal court when they had not been part of its case before the Commonwealth Court of Pennsylvania, which ruled in favor of the PUC.
The Third Circuit noted that Transource had reserved the right to make those arguments in the federal courts within a footnote in its summary judgment briefing and stated they were not integral to the case before the Commonwealth Court, which centered on whether the PUC decision involved errors of law and was an abuse of discretion. (See Transource Challenges Pa. PUC Decision in Court.)
PJM said it would recommend that its Board of Managers revise the scope of the IEC project to eliminate the eastern segment, which would construct a 230-kV line between the Conastone substation in Harford County, Md., and the Furnace Run substation in York County, Pa. The western leg of the project would construct a 230-kV line from the Ringgold substation in Washington County, Md., to the Rice substation in Franklin County, Pa.
PJM’s Tim Horger told the Transmission Expansion Advisory Committee that regulatory and constructability challenges with the eastern portion led staff to determine it no longer is worth pursuing, though both components continue to exceed the 1.25 benefit-cost threshold. (See “PJM Recommending Changes to Independence Energy Connection,” PJM PC/TEAC Briefs: May 6, 2025.)
FERC’s then-Chair Mark Christie criticized PJM for continuing to proceed with the project despite the opposition from state regulators in his comments on a waiver request the RTO filed to delay the deadline for completing its 2024 evaluation of the project. The commission dismissed the waiver as moot when PJM opted to proceed with the same system modeling used in the 2023 evaluation. (See Christie Blasts PJM Pursuit of Transource Market Efficiency Project.)
