EPAct 2005: A Game Changer for Transmission? Part One

Historically, the siting of electric transmission facilities was the exclusive province of state public utility commissions. In the Energy Policy Act of 2005 (EPAct 2005 or Act), Congress gave the Federal Energy Regulatory Commission (FERC or Commission) a “backstop” siting role in the event of lack of action by a state commission. In 2009, the U.S. Court of Appeals for the Fourth Circuit effectively gutted FERC’s rules implementing its backstop authority. The decision was thought to have knocked the federal government out of the transmission siting arena.    

However, a little-known section of the EPAct 2005 could bring about a so-far quiet revolution in the development of electric transmission.

EPAct 2005 Section 1222 Provides Broad Authority for Public-private Transmission Capacity Development

Section 1222, entitled “Third-Party Finance,” of EPAct 2005 is modeled on the successful example of the public-private partnership that enabled California’s Path 15 Upgrade in the early 2000s, as described below. Specifically, Section 1222 gives the Department of Energy (DOE or Department), acting through Western Area Power Administration (WAPA or Western) or Southwestern Power Administration (SWPA or Southwestern), or both, the authority to “design, develop, construct, operate, maintain, or own, or participate with other entities in designing, developing, constructing, operating, maintaining, or owning, an electric power transmission facility and related facilities” in order to upgrade existing transmission facilities owned by SWPA or WAPA or develop new transmission facilities within any state in which WAPA or SWPA operate.

Together, the two power administrations operate in 18 states through the Midwest, Plains, and West:

As prerequisites to DOE participation, proposed projects must reduce transmission congestion or be necessary to accommodate actual or projected transmission capacity demand. The statute permits DOE to “accept and use funds contributed by another entity for the purpose of carrying out” a project.

DOE’s Section 1222 Interpretation Opens Door to a Significant Federal Role in Transmission Siting and Development

Section 1222 represents a broad expansion of federal involvement in electric transmission siting and development through DOE’s authority to participate in transmission facilities with funding from and in partnership with “third” parties—likely private and/or for-profit entities—in a huge swath of the country. Further, as discussed below and in part two, consistent with the Ninth Circuit’s interpretation of Congress’ authorizations with regard to the Path 15 Upgrade, DOE has interpreted Section 1222 to authorize it to engage in federal condemnation proceedings as necessary to develop an approved project.

In addition, DOE has interpreted the statute as not including any intention by Congress to subject DOE actions pursuant to Section 1222 to local law or control. In other words, in Section 1222, as in the statutes authorizing the Path 15 Upgrade, Congress has maintained DOE’s sovereign immunity from any state or local regulatory authority in transmission siting and development.

In March 2016, DOE approved the first public-private partnership for transmission facility development under Section 1222. The project’s development will likely create conflict between DOE and state regulatory bodies and landowners, as DOE’s participation and authority will almost certainly be challenged in the courts—at least when DOE begins condemning land for the approved project. If DOE’s interpretation of Section 1222 is correct and its authority survives legal challenges, Section 1222 could represent a sea change in the development of transmission facilities in the U.S.

Ninth Circuit Upheld Public-private Partnership for Path 15 Upgrade

Path 15 is an 84-mile, 500-kV north-to-south transmission line in California’s San Joaquin Valley. During the 2000-2001 West-wide energy crisis, Path 15 gained notoriety as a chokepoint that prevented movement of energy between northern and southern California. In 2001, DOE, with Congress’ authorization, directed WAPA to pursue the upgrade of Path 15. WAPA would own the transmission facilities and associated land, while for-profit entities would finance, construct, and co-own the additions.

WAPA’s 2003 condemnation proceedings to obtain the land necessary for the Upgrade were challenged in court. The Ninth Circuit upheld WAPA’s authority to engage in the project:

First, because Congress had explicitly authorized the Path 15 Upgrade development and appropriated the funds, the court held that Congress had implicitly authorized the exercise of federal eminent domain as necessary.

Second, the court held that the Path 15 Upgrade satisfied the “public use” requirement of the Takings Clause of the Fifth Amendment because, among other reasons, Congress had deemed the “mutually beneficial power sales between the Pacific Northwest and California” a “public use.”

Finally, the court addressed the argument that WAPA was required under California law to obtain the approval of the California Public Utilities Commission for the Path 15 Upgrade. Though the plaintiff had previously waived this objection, the court concluded that WAPA was “wholly immune” from local control because Congress’ authorization for the Upgrade had not “expressly required” compliance with state regulatory processes.

In its decision upholding WAPA’s authority to engage in a public-private partnership to develop transmission facilities in a congested transmission area, the Ninth Circuit provided a blueprint for future similar development and possible protection from legal challenges.

Section 1222 generalizes the Path 15 Upgrade model for additional transmission projects. And because that model withstood legal challenges, perhaps DOE’s interpretation of Section 1222 as giving it broad authority will also be affirmed.

Case Study: Recent Section 1222 Project Approved by DOE

As detailed in the DOE Summary of Findings, Clean Line Energy Partners LLC began seeking state regulatory approval for its Plains & Eastern Clean Line Project (Plains & Eastern or project) in May 2010. The Project is a 705-mile, 600-kV high-voltage direct current (HVDC) transmission line capable of delivering up to 4,000 MW of renewable—primarily wind—energy from the panhandle of Oklahoma (where it will be interconnected to the SPP system) to the Arkansas-Tennessee border (and interconnect with the Tennessee Valley Authority system).

But, operating as a merchant transmission service provider, and without traditional public utility status, Clean Line ran up against states’ reluctance to approve the project. While Clean Line ultimately obtained public utility status from the Oklahoma Corporation Commission, the Arkansas Public Service Commission denied regulatory approval for Clean Line’s application.

Check out part two, in which we discuss Clean Line Energy’s Plains & Eastern Project and the DOE’s approval of the project under Section 1222.

Lead image credit: Katy Warner | Flickr

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David Perlman (left) is a partner in the energy practice in Bracewell LLP's Washington, D.C. office. Jessica Miller (Right) is a member of Bracewell's energy and litigation sections. David Perlman represents and counsels clients in regulatory and compliance matters concerning the Federal Energy Regulatory Commission, Commodity Futures Trading Commission and state public utility commissions, energy-related transactions and financings, and in the establishment of compliance programs and training. His clients include utilities, commodities merchants, oil and gas pipeline companies, electric generators, energy marketers, industrial customers, generators, lenders and financial institutions, and oil & gas producers. He can be reached at david.perlman@bracewelllaw.com.   Jessica Miller counsels U.S. and international energy-industry clients involved in regulatory, compliance, and litigation proceedings before the Federal Energy Regulatory Commission and state public utility commissions, as well as related appellate litigation in federal and state courts. She can be reached at jessica.miller@bracewelllaw.com.

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