On August 19, 2022, the U.S. Court of Appeals for the D.C. Circuit (“D.C. Circuit”) denied a Petition for Review from LS Power and two other organizations (“Petitioners”) challenging FERC’s rejection of an earlier-submitted complaint against the Midcontinent Independent System Operator, Inc.’s (“MISO”) method of allocating costs for certain transmission construction projects identified as Baseline Reliability Projects in MISO’s transmission planning process. As the D.C. Circuit determined, FERC’s rejection of the Petitioners’ complaint was not arbitrary and capricious, as the Petitioners had failed to demonstrate that MISO’s cost-allocation method was unjust and unreasonable.

In 2013, FERC accepted a MISO proposal to change its cost-allocation methods for Baseline Reliability Projects. Petitioners opposed MISO’s proposal at the time, arguing that it was “an attempt by MISO to exclude the majority of reliability projects from the requirements of Order No. 1000[,]” including the requirement that projects with regional benefits and subject to regional cost-sharing be subject to competitive bidding. FERC rejected the Petitioners’ challenge, as well as their follow-up request for rehearing. The U.S. Court of Appeals for the Seventh Circuit similarly rejected Petitioners’ subsequent petition for review.

In January 2020, the Petitioners filed a complaint under Federal Power Act (“FPA”) Section 206 challenging MISO’s use of location-based cost allocation for Baseline Reliability Projects and requested that the Commission reinstate MISO’s earlier allocation method. The Petitioners presented new evidence to argue that the last seven years of experience with the Baseline Reliability Projects demonstrated that the method was unjust and unreasonable and impermissibly favored incumbent transmission owners over would-be competitors. In particular, Petitioners argued that the evidence undermined a key premise and prediction in the Commission’s 2013 Order accepting MISO’s allocation process: that certain larger projects subject to more competitive bidding, called “Market Efficiency” and “Multi-Value” Projects, would eventually displace Baseline Reliability Projects. FERC denied the Petitioners’ challenges, including their subsequent Request for Rehearing, holding that they had failed their evidentiary burden under FPA Section 206 and that various factors influenced the relative lack of Market Efficiency and Multi-Value Projects over the years. FERC’s rejection prompted Petitioners to submit a Petition for Review to the D.C. Circuit Court.

In its August 19, 2022 opinion, the D.C. Circuit denied the Petitioners’ Petition for Review. Among other things, the D.C. Circuit held that, although the Petitioners had standing to bring this petition (after supplemental briefing was allowed) and that they had demonstrated a disparity between costs and benefits for some of the projects, their new evidence was nonetheless insufficient to demonstrate that FERC arbitrarily and capriciously denied their complaint against MISO. As the Court explained, Petitioners’ evidence was limited in scope and exposed a potential problem for only twelve out of approximately 400 projects. In addition, the D.C. Circuit determined that FERC had adequately justified its conclusion that unique conditions in the region and industry accounted for the recent dearth of Market Efficiency and Multi-Value Projects, and that such conditions would not necessarily persist going forward.

In a separate opinion, Judge Rogers concurred in part and dissented in part, focusing primarily on the issue of whether LS Power carried its burden to demonstrate sufficient standing to bring its Petition for Review. In his separate opinion, Judge Rogers argued that there was no basis for the Court to exercise its discretion to allow LS Power to supplement its arguments for standing. Notwithstanding that LS Power initially failed to carry its burden, and that the Court should not have permitted supplemental briefing to correct that error, Judge Rogers agreed with the Majority that LS Power’s supplemental briefing ultimately supported its standing claim, notwithstanding that the petition failed on the merits.

The D.C. Circuit opinion and Judge Rogers’ separate opinion can be found here.