By Michael Brooks
The court heard oral arguments Friday in a dispute over provisions in SPP’s Tariff that recognize state and local right-of-first-refusal laws (15-1157).
LSP Transmission, a subsidiary of independent transmission developer LS Power, sued FERC in June 2015 over three Order 1000 compliance filings submitted by SPP (ER13-366). LSP argued that the commission’s acceptance of the state ROFR provisions illegally excludes certain projects from the competitive process that SPP established in response to Order 1000.
Lack of Standing?
While LSP attorney Michael Engleman of Squire Patton Boggs and FERC attorney Holly Cafer were given the chance to argue the merits of LSP’s complaints, much of the hour-plus hearing was taken up by Judges David Tatel and Nina Pillard’s questions over FERC’s argument that the company lacked standing in the case. (Judge Robert Wilkins, who was not present in the courtroom because of a death in his family, listened in by phone.)
Tatel and Pillard seemed sympathetic to FERC’s argument that, because LSP had not suffered direct harm as a result of the commission’s orders on the compliance filings, it lacked standing to challenge them. Before Engleman could get into the details of his argument during his opening remarks, Tatel interrupted him, asking him to address the standing argument.
Tatel said FERC’s orders may be illegal, but they have to cause injury in order for LSP to have standing. He repeatedly asked what sort of relief the court could provide to LSP. Pillard said that LSP might not like the regulatory regime set up under Order 1000, but that that was a separate argument.
Engleman argued that LSP is harmed because it is excluded from bidding on certain competitive projects that SPP determines are subject to an incumbent developer’s ROFR under state and local laws. He said the court could provide relief by remanding the orders on compliance back to FERC for review or vacating the commission’s acceptance of the provisions in the RTO’s Tariff.
Engleman admitted, however, that LSP had not been denied being selected for a project under SPP’s competitive process. Cafer agreed with the judges when they asked her if LSP would have standing had it been denied a project, as it then would have suffered direct injury. But she also said the company wouldn’t be harmed if SPP determined that a project would not be competitively bid because of a local ROFR law.
“This court has held, in circumstances also involving compliance with a commission rulemaking that reformed transmission planning processes, that the petitioner must ‘have an active application for a transmission project’ to demonstrate an injury-in-fact for the purpose of constitutional standing,” Cafer said in a brief to the court. “LS Power has not made this showing.”
Engleman also stopped short of arguing that state ROFR laws are unconstitutional under the dormant Commerce Clause, something that former Chairman Norman Bay alluded to in a concurrence with the commission’s acceptance of SPP’s second compliance filing.
“State laws that discriminate against interstate commerce — that protect or favor in-state enterprise at the expense of out-of-state competition — may run afoul of the dormant Commerce Clause,” Bay said. “The commission’s order today does not determine the constitutionality of any particular state right-of-first-refusal law. That determination, if it is made, lies with a different forum, whether state or federal court.”
State vs. Federal
The judges were skeptical that they could vacate FERC’s acceptance of SPP’s Tariff provisions. They seemed sympathetic to Cafer’s argument that “Order 1000 wasn’t as expansive as LS Power hoped it would be.”
Engleman, in fact, had argued on behalf of FERC before the court in March 2014, with LS Power supporting Order 1000’s elimination of federal ROFR policies. (See Appellate Court Skeptical of Order 1000 Challengers.)
A three-judge panel including Pillard upheld the order, including against challengers who said that it did not mandate that load-serving entities’ input on transmission projects be heeded — an argument to which Pillard had seemed sympathetic.
Cafer said Order 1000 only eliminated federal ROFRs and does not pre-empt state law. Here, however, there seemed to be some skepticism from the judges, especially Pillard, who said if the order did pre-empt state law, it would be redressable by the court.
While federal law pre-empts state law when the two conflict under the Constitution’s Supremacy Clause, there are limited circumstances when rulemaking by federal agencies can do so.
Pillard asked Cafer if Order 1000 “effectively” pre-empts state laws — even if FERC didn’t intend to — by making the competitive process, with its regional cost sharing, the only choice for utilities. She wondered under what circumstances an incumbent developer would choose recovery through ratepayers over cost allocation to the beneficiaries of the project.
Cafer responded that state laws vary. Some states simply allow a ROFR to projects within a utility’s service area; others confine it to existing rights of way.
Engleman, however, argued that FERC has been inconsistent over whether RTOs can exclude projects subject to state ROFRs from the competitive process. He pointed out that FERC had denied SPP’s first compliance filing in 2013 but later reversed its position — without Commissioner John Norris — in October 2014 with SPP’s second filing. Norris had dissented in a similar, earlier order regarding PJM, saying the commission’s recognition of state ROFRs undercut Order 1000’s purpose. (See Order 1000 Reversal: Reality Check or Surrender to Incumbents.)
If the D.C. Circuit rules in favor of FERC, it is unclear whether LSP would appeal to the Supreme Court: The company lost a similar case regarding state ROFR provisions in MISO’s Tariff before the 7th U.S. Circuit Court of Appeals — a case the Supreme Court declined to hear on appeal in March. (See Supreme Court Refuses to Hear ROFR Challenge.)
The Supreme Court, however, would be much more likely to hear an appeal if the D.C. Circuit ruled in LSP’s favor.