Doe Transmission Corridor Designations & Ferc Backstop Siting Authority: Has the Energy Policy Act of 2005 Succeeded in Stimulating the Development of New Transmission Facilities?

Article excerpt

Synopsis: Historically, the Federal Energy Regulatory Commission (FERC) lacked authority over the siting of electric transmission lines. The FERC's siting role was limited to issuing certificates of public convenience and necessity for the construction of interstate natural gas transportation facilities. State agencies, in contrast, authorized the construction of electric transmission facilities. This regulatory landscape shifted, however, when the Energy Policy Act of 2005 (EP Act 2005) was enacted.

Recognizing the need for new transmission infrastructure in many areas of the country, the U.S. Congress established a four-part approach to the siting of new transmission facilities in congested areas. First, Congress directed the Secretary of the U.S. Department of Energy (DOE) to study transmission congestion. Second, based on the results of such study, Congress vested the Secretary of the DOE with authority to designate National Interest Electric Transmission Corridors (NIETCs). NIETCs are geographic areas experiencing transmission congestion that adversely affects consumers and wherein the relief of congestion would promote this country's energy independence, national security, and economic growth. Third, Congress allowed the states the opportunity to act first on applications for authority to site new transmission facilities within NIETCs. Fourth, Congress empowered the FERC with new backstop authority to site transmission lines within NIETCs under certain circumstances where, for example, a state fails to act quickly enough or imposes onerous conditions which effectively destroy the economic viability or benefits of a project.

Exercising its new authority, the DOE designated two, large NIETCs spanning several Southwestern and Mid-Atlantic States, which are now being challenged in Federal Court. The FERCs backstop siting regulations also were challenged, resulting in a Federal Court decision vacating those regulations in significant part. Moreover, the only utility to commence the process of seeking FERC backstop siting approval for a new transmission project has since announced that it no longer intends to pursue a FERC permit.

While the mere threat of potential federal preemption may have some influence on the siting behavior of states, by inducing them to approve more certificate applications at a faster pace or engage in greater regional cooperation, the provisions granting FERC siting authority in NIETCs do not appear to be a driving force for new transmission investments. Instead, other factors such as transmission rate incentives, authorized under Section 1241 of EP Act 2005, appear to have a much greater impact on the development of new transmission facilities. Since the adoption of the FERC's Final Rule on transmission rate incentives, the FERC has approved some form of rate incentives for over thirty transmission projects.

This article addresses recent legislative, regulatory, and litigation developments affecting the siting of transmission projects across the country, including remaining barriers to infrastructure development and actions being taken to overcome those barriers. We examine factors affecting the development of new transmission projects post-EPAct 2005, including the downturn in the U.S. economy, access to and the cost of capital, transmission rate incentives, the availability of federal grants or loans, the siting process, cost allocation disputes, renewable energy standards, reliability standards, and regional transmission planning.

Our research found that, despite the recent downturn in the U.S. economy, the number of applications filed with state commissions and the amount of investments made in transmission projects appear to have increased post-EPAct 2005. We also found that: (1) more applications appear to have been filed with state commissions for projects outside of NIETCs than for projects inside NIETCs; and (2) many state commissions acted on applications in approximately one year, both pre-and post-EPAct 2005. …