No, FERC’s Order 1920 Does Not Trigger the Major Questions Doctrine

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Federal Energy Regulatory Commission. (Ryan McKnight/CC BY 2.0 DEED)

Yesterday, the Federal Energy Regulatory Commission issued Order 1920, a landmark rule to reform transmission planning processes to remedy unreasonable rates and ensure grid reliability. While the Inflation Reduction Act established subsidies to build zero-emissions electricity generation, it largely neglected the wires needed to move that power from where it is produced to where it is consumed. FERC’s rule is critical for expanding the transmission network to accommodate new energy sources and higher demand, and ensuring the reliability, environmental, and economic benefits of an expanded grid. But Commissioner Christie has described Order 1920 as “a blatant violation of the major questions doctrine” and “one of the worst examples probably any administrative agency tried to do,” so let’s nip one thing in the bud right away: This order doesn’t raise a major questions flag.

The heart of Order 1920 is a requirement that the utilities and the other entities planning our high-voltage transmission grid think realistically about future transmission needs, given predicted changes to electricity supply and demand. In part, this means modeling transmission needs across multiple plausible 20-year-out scenarios, with different assumptions about the variables affecting the need for new transmission. (Policy Integrity recently released an explainer on the basics of transmission modeling, including best practices.) FERC’s order recognizes that cost-effective transmission planning means that all these scenarios must account for laws affecting the generation mix and electric demand (e.g., renewable portfolio standards and incentives for data centers). Order 1920 also requires planners to establish methods in which costs are allocated commensurate with benefits, requiring robust opportunities for state input.

FERC issued this order under Section 206 of the Federal Power Act, which empowers the Commission to remedy practices that yield unjust, unreasonable, discriminatory, or preferential rates. To exercise this power, FERC has gathered “substantial evidence” — an extensive administrative record — showing that existing practices need fixing. Courts have confirmed that, depending on the circumstances, such evidence may be empirical data or economic theory. Here, FERC found that proactive, regional transmission planning will identify solutions that are cheaper than the smaller, ad hoc projects that are favored today, and that insufficient incentives exist for proactive, regional planning due to utilities’ business interests, free ridership, and disputes over cost allocation. FERC also amassed substantial evidence that an increasing amount of transmission spending has occurred through the generation interconnection process (which identifies the transmission upgrades necessary to reliably connect new generation to the grid) and other non-regional processes. FERC concluded that current inefficient transmission planning results in rates that are unjust and unreasonable for consumers.

On to the major questions doctrine. In his dissent to Order 1920, Commissioner Christie reached for this doctrine to argue that FERC lacked authority to adopt the rule. This doctrine has become a go-to argument thrown at all manner of agency actions since the Supreme Court first expressly invoked it to invalidate EPA’s Clean Power Plan in West Virginia v. EPA. The Clean Power Plan would have established carbon emissions limits for power plants based on generation shifting from more-emitting plants to less-emitting ones. The Court invoked the major questions doctrine in that case for a number of reasons, but none of those exist here.

As described in West Virginia, the major questions doctrine counsels that courts should be skeptical when an agency “‘claim[s] to discover in a long-extant statute [1] an unheralded power’ [2] representing a ‘transformative expansion in [its] regulatory authority.’” Although the Supreme Court often references economic and political significance in its major questions cases, these indicators alone have never sufficed to trigger the doctrine, including in Biden v. Nebraska last year. (For more on the Supreme Court’s application of the major questions doctrine, take a look at some deeper Policy Integrity analysis.)

With that legal background, it becomes clear why, as Policy Integrity and Harvard’s Electricity Law Initiative already explained to FERC (and which Order 1920 makes clear), the major questions argument makes no sense as an attack on Order 1920.

First, Order 1920 does not decree what types of generation resources should make up what percentage of the generation mix; rather, it requires grid planners to account for changes to the supply of and demand for electricity that are already happening. There is a clear difference between (1) establishing standards to govern the planning of wires for a reliable grid that can accommodate a shifting energy system and (2) directing the generation mix.

Regardless, the Clean Power Plan and other agency actions that have implicated the major questions doctrine have done so primarily because they departed from regulatory history and transformed the agency’s role as a regulator. Order 1920 is neither unheralded nor transformative of FERC’s authority.

Almost ten years ago, FERC issued Order 1000 to regulate transmission planning and cost allocation to address analogous concerns to those motivating Order 1920. The U.S. Court of Appeals for the D.C. Circuit upheld that order against a sweeping challenge in South Carolina Public Service Authority v. FERC. The D.C. Circuit concluded that “recogniz[ing] that state and federal policies might affect the transmission market and direct[ing] transmission providers to consider that impact in their planning decisions . . . fits comfortably within the Commission’s authority.” And the relevant regulatory history stretches back way before Order 1000. In 1999, in Order 2000, the Commission encouraged utilities to form regional transmission organizations (RTOs) and concluded that RTOs needed to perform certain functions, including regional transmission planning. Then, in 2007, Order 890 established minimum planning and cost-allocation standards for local and regional transmission planning.

Order 1920 would not represent a transformative expansion in FERC’s authority, either. As explained above, FERC has regulated transmission planning and cost allocation for decades. Order 1920 would incrementally improve the existing requirements to remedy bad practices that persisted after Order 1000. By promoting more efficient planning and more accurate cost allocation in Order 1920, FERC hews to its traditional mandate under the Federal Power Act: remedying rates and practices that are unjust and unreasonable and/or unduly discriminatory or preferential. Additionally, Order 1920 conforms to Section 217(b)(4) of the Federal Power Act, which requires FERC to exercise its authority to “in a manner that facilitates the planning and expansion of transmission facilities to meet the reasonable needs of load-serving entities to satisfy the[ir] service obligations.”

So, the major questions doctrine is a non-issue for Order 1920. This is simply not one of the “extraordinary cases” that the West Virginia Court cautioned might warrant skepticism under the doctrine. Without Order 1920 remedying existing planning and cost allocation practices, FERC would be playing whack-a-mole in adjudicating individual tariffs when it must eradicate systemic failures. And we would all pay the price: unjust rates and a less reliable grid.

By Jennifer Danis and Matthew Lifson

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Policy Integrity at NYU Law
Policy Integrity Insights

The Institute for Policy Integrity is a non-partisan think tank using law and economics to protect the environment, public health, and consumers