On April 18, 2017, the U.S. Court of Appeals for the D.C. Circuit (“D.C. Circuit”) upheld FERC orders that (1) required ISO New England (“ISO-NE”) and its participating transmission owners (“TOs”) to remove right of first refusal (“ROFR”) provisions from their Transmission Operating Agreement (“TOA”) that granted incumbent transmission facilities the option to construct any new transmission facilities within their footprint; and (2) permitted ISO-NE to consider state policy goals in evaluating transmission needs during the Order No. 1000 transmission process. Of note, the D.C. Circuit affirmed FERC’s finding that the Mobile-Sierra presumption against abrogating negotiated contract provisions was overcome because the TOA’s existing ROFR provisions “severely harm the public interest.”
In Order No. 1000, FERC directed, among other things, utilities to remove from their FERC tariffs and agreements the ROFR provisions that granted incumbent utilities the option to construct any new transmission facilities in their service areas, even if the facilities were proposed by a third party. In doing so, FERC stated that such ROFR provisions deter new entrants from proposing new projects and thus discourage competition. As a result of Order No. 1000, ISO-NE and the TOs made compliance filings at FERC with various revisions to the ISO-NE tariff and the TOA. However, no changes were made to remove the ROFR provisions in the TOA.
In response to the compliance filings, FERC directed the TOs to remove the ROFR provisions from the TOA, holding that (1) the Mobile-Sierra presumption in favor of upholding contract provisions that are negotiated between the parties did not apply as a matter of law to the ROFR provisions and (2) even if the Mobile-Sierra presumption applied, the presumption was overcome because the ROFR provisions “severely harm the public interest” by undermining competition, thereby increasing rates and hampering development. The TOs petitioned the D.C. Circuit for review of FERC’s directive to remove the ROFR provisions from the TOA. Separately, certain State Petitioners also requested review of FERC’s holding that ISO-NE may consider state policies during transmission planning under Order No. 1000.
On review, the D.C. Circuit upheld FERC’s holdings that the Mobile-Sierra presumption did not apply as a matter of law and that, even if the presumption applied, the presumption was overcome because the ROFR provisions “severely harm the public interest.” Furthermore, the D.C. Circuit held that FERC is entitled to rely on economic and competition theory to support its conclusions, and that FERC addressed the TOs’ evidence of transmission development despite the ROFR provision by noting that the ROFR provision may encumber development in the future or may have resulted in less development compared to the counterfactual.
In response to the State Petitioners, the D.C. Circuit rejected arguments that FERC exceeded its authority under the Federal Power Act with regard to permitting ISO-NE to consider state policy goals in evaluating transmission needs during the Order No. 1000 transmission planning process. Rather, the D.C. Circuit held that ISO-NE considers transmission needs that arise from a variety of sources, including the public policy requirements chosen by federal and state officials. The D.C. Circuit concluded that requiring ISO-NE to evaluate transmission needs and potential solutions is a reasonable implementation of Order No. 1000’s regional planning process.
A copy of the D.C. Circuit’s opinion is available here.