Oral Argument Has Not Yet Been Scheduled
Nos. 15-1139 and 15-1141 (consolidated)

UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT
____________
Emera Maine, formerly known as Bangor Hydro-Electric Company, et al., Petitioners in 15-1139
New England States Committee on Electricity, Inc., et al., Petitioners in 15-1141

v.

Federal Energy Regulatory Commission, Respondent
LS Power Transmission, LLC, et al., Intervenors
____________

On Petition for Review of Orders of the Federal Energy Regulatory Commission
____________

JOINT BRIEF FOR PETITIONERS IN NO. 15-1141

Certificate as to
parties, rulings and related cases

1. Parties and Amici
2. Case No. 15-1141 Petitioners:^[1]

Commissioner of the Connecticut Department of Energy and

Environmental Protection

Connecticut Public Utilities Regulatory Authority

Department of Public Utilities of the Commonwealth of Massachusetts

New England States Committee on Electricity, Inc.

Rhode Island Public Utilities Commission

State of New Hampshire Public Utilities Commission

Vermont Public Service Department

2. Respondent and Intervenors in Case No. 15-1141

Federal Energy Regulatory Commission (Respondent)

Central Maine Power Company

Emera Maine, formerly known as Bangor Hydro-Electric Company

Maine Electric Power Company, Inc.

New England Power Company, doing business as National Grid

Eversource Energy Service Company, dba Eversource Energy Service

Company, on behalf of its electric utility company affiliates The

Connecticut Light and Power Company, Western Massachusetts

Electric Company, Public Service Company of New Hampshire, and

NSTAR Electric Company, doing business as Eversource Energy

Service Company, on behalf of its electric utility company affiliates The

Connecticut Light and Power Company, Western Massachusetts

Electric Company, Public Service Company of New Hampshire, and

NSTAR Electric Company

United Illuminating Company

Vermont Electric Power Company, Inc.

Vermont Transco LLC.

3. Case No. 15-1139 Petitioners:

Central Maine Power Company

Emera Maine, formerly known as Bangor Hydro-Electric Company

Maine Electric Power Company, Inc.

New England Power Company, doing business as National Grid

Eversource Energy Service Company

United Illuminating Company

Vermont Electric Power Company, Inc.

Vermont Transco LLC

4. Respondent and Intervenors in Case No. 15-1139

Federal Energy Regulatory Commission (Respondent)

LS Power Transmission, LLC

LSP Transmission Holdings, LLC.

New England States Committee on Electricity, Inc.

New Hampshire Transmission LLC

5. Parties Below

The following listed parties and intervenors appeared in the proceedings below before the Federal Energy Regulatory Commission:

American Wind Energy Association

Belmont Municipal Light Department

Central Maine Power Company

Connecticut Department of Energy and Environmental Protection

Connecticut Office of Consumer Counsel

Connecticut Public Utilities Regulatory Authority

Conservation Law Foundation

Department of Public Utilities of the Commonwealth of Massachusetts

Eastern Massachusetts Consumer-Owned Systems

ENE (Environment Northeast)

Energy New England, Inc.

Exelon Corporation

Iberdrola Renewables, LLC

ISO New England Inc.

Long Island Power Authority

LS Power Transmission, LLC

LSP Transmission Holdings, LLC

Maine Public Advocate Office

Maine Public Utilities Commission

Massachusetts Municipal Wholesale Electric Company

Massachusetts Office of the Attorney General

National Grid Generation LLC

National Rural Electric Cooperative Association

Natural Resources Defense Council

New England Power Pool Participants Committee

New England States Committee on Electricity

New Hampshire Consumer Advocate

New Hampshire Electric Cooperative, Inc.

New Hampshire Public Utilities Commission

New Hampshire Transmission, LLC

NRG Companies

Participating Municipal Systems (Braintree Electric Lt Dpt, Concord

Muni Lt Plt, Groveland Elec Lt, Hingham Muni Ltg Plt, Littleton Elec

Lt & Wtr, Merrimac Muni Lt Dpt, Middleton Elec Lt Dpt, Rowley

Muni Ltg, Taunton Muni Ltg Plt Wellesley Muni Ltg)

Poweroptions Inc.

PSEG Energy Resources & Trade LLC

PSEG Power LLC

Public Service Electric and Gas Company

Rhode Island Public Utilities Commission

The Sustainable FERC Project

The United Illuminating Company

Transource Energy, LLC

Vermont Department of Public Service

Vermont Public Service Board

Vermont Transco, LLC

              Rule 26.1 Corporate Disclosure Statement:  The New England States Committee on Electricity, Inc. (“NESCOE”) is a non-profit entity governed by a board of managers appointed by the Governors of Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont.  Its general purpose is to represent the collective perspective of the six New England states in regional electricity matters.  NESCOE has no parent company, is not a publicly held corporation, and there is no publicly held company that has any ownership interest in NESCOE.

All of the other Petitioners in Case No. 15-1141 are governmental entities.

1. Rulings Under Review

Petitioners seek review of the following orders issued by the Federal Energy Regulatory Commission:

1. ISO New England Inc., Order on Compliance Filings, 143 FERC ¶ 61,150 (May 17, 2013) (FERC Docket Nos. ER13-193-000 and ER13-196-000); and
2. ISO New England Inc., Order on Rehearing and Compliance, 150 FERC ¶ 61,209 (Mar. 19, 2015) (FERC Docket Nos. ER13-193-001, ER13-193-003, ER13-196-001 and ER13-196-002).
3. Related Cases

This case has not previously been before this Court or any other court.  There are no other cases related to Case No. 15-1141 currently pending in this Court or any other court.[2]

The above information is certified to be correct to the best of our

knowledge, information, and belief.

Respectfully submitted,

                                             New England States Committee on                                                                Electricity, Inc.:

                                             /s/ Phyllis G. Kimmel                       

John Michael Adragna

Phyllis G. Kimmel

Jeffrey K. Janicke

McCarter & English, LLP

1015 Fifteenth Street, N.W.

Twelfth Floor                                                                                                 Washington, DC 20005

(202) 753-3400

pkimmel@mccarter.com

                                             /s/ Jason Marshall                  

Jason Marshall

General Counsel

New England States Committee

on Electricity, Inc.

655 Longmeadow Street

Longmeadow, MA 01106

(617) 913-0342

jasonmarshall@nescoe.com

Attorneys for the New England States

Committee on Electricity, Inc.

Connecticut Department of Energy and Environmental Protection:

/s/ Robert Snook                     

Robert Snook, AAG

Office of the Attorney General

Ten Franklin Square

New Britain, CT 06051

(860) 827-2657

Robert.Snook@ct.gov

Attorney for the Connecticut Department of Energy and Environmental Protection

                                             Connecticut Public Utilities                                                                           Regulatory Authority:

/s/ Clare Kindall                     

Clare Kindall, AAG

Department Head – Energy

Office of the Attorney General

Ten Franklin Square

New Britain, CT 06051

(860) 827-2683

Clare.kindall@ct.gov

Attorney for the Connecticut Public Utilities                                                      Regulatory Authority

Massachusetts Department of Public                                                              Utilities:

/s/ Jeffrey M. Leupold                      

Maura Healey, Massachusetts Attorney General

Cecile M. Fraser, Counsel

Special Assistant Attorney General

Jeffrey M. Leupold, Senior Counsel

Massachusetts Department of Public Utilities

One South Station, Fifth Floor

Boston, MA 02110

(617) 305-3621

Cecile.Fraser@state.ma.us

Jeffrey.Leupold@state.ma.us

Attorneys for the Massachusetts Department of Public Utilities

New Hampshire Public Utilities      Commission:

/s/ F. Anne Ross                     

1. Anne Ross

General Counsel

New Hampshire Public Utilities Commission

21 South Fruit Street, Suite 10

Concord, New Hampshire 03301-2429

(603) 271-2431

f.anne.ross@puc.nh.gov

Attorney for the New Hampshire Public      Utilities Commission

Rhode Island Public Utilities Commission:

/s/ Leo J. Wold                       

Leo J. Wold

Assistant Attorney General

150 South Main Street

Providence, RI 02903

(401) 274-4400, ext. 2218

lwold@riag.ri.gov

Attorney for the Rhode Island Public Utilities

Commission

Vermont Department of Public Service:

/s/ Edward McNamara                                       

Edward McNamara

Regional Policy Director

Vermont Department of Public Service

112 State Street

Montpelier, VT 05620

(802) 828-4007

ed.mcnamara@state.vt.us

Attorney for the Vermont Department of Public

Service

• TABLE OF CONTENTS

Certificate as to parties, rulings and related cases……….. i

TABLE OF AUTHORITIES……………………………………………………………… xi

GLOSSARY…………………………………………………………………………………. xv

JURISDICTIONAL STATEMENT………………………………………………………. 1

STANDING…………………………………………………………………………………… 2

STATEMENT REGARDING ADDENDUM………………………………………….. 3

ISSUES PRESENTED FOR REVIEW………………………………………………….. 3

STATEMENT OF THE CASE……………………………………………………………. 4

1. Overview……………………………………………………………………………….. 4
2. ISO-NE and the Regional System Plan………………………………………….. 7

III.         Order No. 1000……………………………………………………………………….. 9

1. Rulemaking……………………………………………………………………. 9
2. Order No. 1000……………………………………………………………… 10
3. Order 1000-A………………………………………………………………… 13
4. Orders on Review…………………………………………………………………… 15
5. 2012 Compliance Filing…………………………………………………… 15
6. Compliance Order…………………………………………………………… 18
7. Rehearing Request and Rehearing Order……………………………….. 21

SUMMARY OF ARGUMENT…………………………………………………………… 22

ARGUMENT………………………………………………………………………………… 25

1000. FERC Unlawfully Expanded the Scope of Order No. 1000………………… 25
1001. FERC Exceeded the Bounds of Its Limited Authority and Infringed Upon State Sovereignty. 34

CONCLUSION……………………………………………………………………………… 43

TABLE OF AUTHORITIES

Cases

American Mining Congress v. EPA,
907 F.2d 1179 (D.C. Cir. 1990)……………………………………………………… 33

Atlantic City Electric Co. v. FERC,
295 F.3d 1 (D.C. Cir. 2002)………………………………………………………….. 34

Cal. State Bd. of Optometry v. FTC,
910 F.2d 976 (D.C. Cir. 1990)………………………………………………………. 39

City of Arlington, Tex. v. FCC,
133 S. Ct. 1863 (2013)………………………………………………………………… 34

* City of Idaho Falls, Id. v. FERC,
629 F.3d 222 (D.C. Cir. 2011)………………………………………… 26, 29, 31, 32

Conn. Light & Power Co. v. Fed. Power Comm’n,
324 U.S. 515 (1945)……………………………………………………………………. 35

Dominion Resources, Inc. v. FERC,
286 F.3d 586 (D.C. Cir. 2002)………………………………………………………. 32

Gonzales v. Oregon,
546 U.S. 243 (2006)……………………………………………………………………. 42

Gregory v. Ashcroft,
501 U.S. 452 (1991)……………………………………………………………………. 39

K N Energy, Inc. v. FERC,
968 F.2d 1295 (D. C. Cir. 1992)…………………………………………………….. 33

Lujan v. Defenders of Wildlife,
504 U.S. 555 (1992)…………………………………………………………………….. 2

Michigan v. EPA,
268 F.3d 1075 (D.C. Cir. 2001)……………………………………………………… 34

Authorities upon which we chiefly rely are marked with asterisks (*).

Motor Vehicle Mfrs. Ass’n. v. State Farm Mutual Auto. Ins. Co.,
463 U.S. 29 (1983)…………………………………………………………………….. 34

Neighborhood TV Co. v. FCC,
742 F.2d 629 (D.C. Cir. 1984)………………………………………………………. 33

New York v. FERC,
535 U.S. 1 (2002)………………………………………………………………………. 40

New York v. United States,
505 U.S. 144 (1992)……………………………………………………………………. 41

Oneok, Inc. v. Learjet, Inc.,
135 S. Ct. 1591 (2015)………………………………………………………………… 40

Panhandle Eastern Pipe Line Co. v. Pub. Serv. Comm’n. of Ind.,
332 U.S. 507 (1947)……………………………………………………………………. 40

Perez v. Mortgage Bankers Ass’n,
135 S. Ct. 1199 (2015)………………………………………………………………… 32

Printz v. United States,
521 U.S. 898 (1997)……………………………………………………………………. 41

* S.C. Pub. Serv. Auth. v. FERC,
762 F.3d 41 (D.C. Cir. 2014)………………………………. 5, 6, 14, 23, 28, 35, 41

Sierra Club v. EPA,
292 F.3d 895 (D.C. Cir. 2002)…………………………………………………….. 2, 3

Solid Waste Agency of N. Cook Cty. v. Army Corps of Engineers,
531 U.S. 159 (2001)……………………………………………………………………. 39

Statutes

Administrative Procedure Act
5 U.S.C. § 551(5)………………………………………………………………….. 25, 31
5 U.S.C. § 553…………………………………………………………………. 23, 25, 31
5 U.S.C. § 706(2)(A)………………………………………………………………….. 33
5 U.S.C. § 706(2)(C)…………………………………………………………………… 34

Federal Power Act, 16 U.S.C. § 791a et seq.…………………………………………. 4
Section 201(a), 16 U.S.C. § 824(a)…………………………………………….. 34, 35
Section 205, 16 U.S.C. § 824d………………………………………………….. 15, 35
Section 217, 16 U.S.C. § 824q(b)(4)……………………………………………….. 35
Section 313(a), 16 U.S.C. § 825l(a)………………………………………………….. 1
Section 313(b), 16 U.S.C. § 825l(b)………………………………………………. 1, 2

Conn. Gen. Stat. § 22a-200a……………………………………………………………. 39

Mass. Gen. Laws ch. 21N, § 6…………………………………………………………. 39

Mass. Gen. Laws ch. 25A, § 11F………………………………………………………. 35

N.H. Stat. § 362-F:3……………………………………………………………………… 35

R.I. Gen. Laws § 39-26-4……………………………………………………………….. 35

Regulations

Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities, Notice of Proposed Rulemaking, 75 Fed. Reg. 37,883 (June 30, 2010)………………. 9, 10

* Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities, Order No. 1000, 76 Fed. Reg. 49,841 (Aug. 11, 2011), order on reh’g, Order No. 1000-A, 77 Fed. Reg. 32,184 (May 31, 2012), order on reh’g and clarification, Order No. 1000-B, 77 Fed. Reg. 64,890 (Oct. 24, 2012), aff’d sub nom. S.C. Pub. Serv. Auth. v. FERC, 762 F.3d 41 (D.C. Cir. 2014)…………….. 4, 5,
6, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 31, 32, 34, 41

* Transmission Planning and Cost Allocation by Tranmission Owning and Operating Public Utilities, Order No. 1000-A, 77 Fed. Reg. 32,184 (May 31, 2012), order on reh’g and clarification, Order No. 1000-B, 77 Fed. Reg. 64,890 (Oct 24, 2012), aff’d sub nom., S.C. Pub. Serv. Auth. v. FERC, 762 F.3d 41 (D.C. Cir. 2014)     11, 13, 14, 26, 27, 28, 29, 31

Administrative Decisions

High Point Gas Transmission, LLC,
140 FERC ¶ 61,259 (2012), reh’g denied, 143 FERC ¶ 61,207 (2013)……… 28

ISO New England Inc.,
143 FERC ¶ 61,150 (2013)…………………………… 1, 18, 19, 20, 21, 22, 27, 29

ISO New England Inc.,
150 FERC ¶ 61,209 (2015)……………………………….. 1, 22, 24, 25, 29, 33, 37

NorthWestern Corp.,
143 FERC ¶ 61,056 (2013)…………………………………………………………… 29

GLOSSARY

JURISDICTIONAL STATEMENT

         The Court has jurisdiction to review the orders of the Federal Energy Regulatory Commission (“FERC” or “Commission”) under section 313(b) of the Federal Power Act (“FPA”), 16 U.S.C. § 825l(b).

Petitioners in this Case No. 15-1141 are the New England States Committee on Electricity, Inc. (“NESCOE”), jointly with the Commissioner of the Connecticut Department of Energy and Environmental Protection, the Connecticut Public Utilities Regulatory Authority, the Department of Public Utilities of the Commonwealth of Massachusetts, the Rhode Island Public Utilities Commission, the State of New Hampshire Public Utilities Commission, and the Vermont Public Service Department (collectively referred to as the “State Agencies,” with NESCOE and the State Agencies collectively referred to as “the States”).  The States timely filed a joint request for rehearing within 30 days of FERC’s Order on Compliance Filings issued on May 17, 2013, ISO New England Inc., 143 FERC ¶ 61,150 (2013) (“Compliance Order”), JA 207-296.  See FPA section 313(a), 16 U.S.C. § 825l(a).  FERC denied the request for rehearing in its March 19, 2015 Order on Rehearing and Compliance, ISO New England Inc., 150 FERC ¶ 61,209 (2015) (“Rehearing Order”), JA 373-452, and the States timely filed a joint petition for review within 60 days of FERC’s order denying the request for rehearing.  See FPA section 313(b), 16 U.S.C. § 825l(b).  The States seek review of final rulings in these orders.

STANDING

The petitioners are individual state government agencies, i.e., the State Agencies, and a regional state committee, i.e., NESCOE.  NESCOE is governed by a board of managers appointed by the Governors of Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont.

The States meet the standing requirements.  As this Court has explained, “[t]he ‘irreducible constitutional minimum of standing contains three elements’:  (1) injury-in-fact, (2) causation, and (3) redressability.”  Sierra Club v. EPA, 292 F.3d 895, 898 (D.C. Cir. 2002) (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992)).  The orders on review inflict an injury in fact on the State Agencies by interfering with their authority to execute public policies regarding matters within their jurisdiction.  This harm is concrete and particularized and actual or imminent, as public policy implementation is a core, ongoing function of state government.  The orders on review are the direct cause of the State Agencies’ injury, and the Court can provide redress by vacating the orders in relevant part.

An association has standing on behalf of its members if “(1) at least one of its members would have standing to sue in his own right, (2) the interests the association seeks to protect are germane to its purpose, and (3) neither the claim asserted nor the relief requested requires that an individual member of the association participate in the lawsuit.”  Sierra Club, 292 F.3d at 898.  NESCOE, as a committee of the New England states, meets these criteria.  First, as indicated above, the orders on review inflict an injury in fact on New England state governments by interfering with their functioning.  This injury is directly caused by the orders and may be redressed here.  Hence, any one of the individual states would have standing in its own right.  Second, the interests that NESCOE seeks to protect are germane to its purpose, which includes representing the collective perspective of the six New England states in regional electricity matters.  And third, neither the claim asserted (that FERC departed from its own rule and governing statute, infringing on states’ authority) nor the relief requested (vacating the relevant aspects of the orders) requires the participation of an individual state.

STATEMENT REGARDING ADDENDUM

     The relevant statutes and regulations are attached in an addendum.

ISSUES PRESENTED FOR REVIEW

1. Whether the orders of FERC are arbitrary and capricious, or not otherwise in accordance with law, in that they unlawfully depart from and, without an opportunity for notice and comment, expand the scope of FERC’s Order No. 1000,[3] by requiring ISO New England Inc. (“ISO-NE”) to select public policy-driven projects in the region-wide transmission plan, rather than, as in Order No. 1000, solely to establish procedures for ISO-NE to consider transmission needs driven by federal, state and local public policy requirements, and whether FERC’s orders fail to constitute reasoned decision-making.
2. Whether, in obligating ISO-NE to select policy-driven transmission projects, the orders exceed FERC’s jurisdiction under the Federal Power Act, 16 U.S.C. § 791a et seq., as well as constitutional boundaries that unambiguously reserve authorities to the states, by abrogating the role that the New England states have over the execution of their own public policies that are reflected in state statutes and regulations.

STATEMENT OF THE CASE

I.              Overview

This case arises from FERC orders addressing proposed new rules in the ISO-NE region to meet the requirements of Order No. 1000.  Despite very clear language in the Final Rule assuring states and others that transmission providers were only required to consider in regional planning processes transmission needs driven by public policy requirements, in the orders under review, FERC imposed a new obligation on ISO-NE to select in the regional plan for purposes of cost allocation the more efficient or cost-effective transmission solution that resolves an identified transmission need driven by public policy requirements.

This ruling impermissibly expands the scope of Order No. 1000.  In so doing, it significantly infringes upon states’ authority.  A state has various options in determining how to best implement its own state laws.  FERC’s orders intrude into that determination and exceed FERC’s statutory authority.  Neither ISO-NE nor FERC has the authority, expertise, or accountability to substitute its judgment for that of a state in connection with implementing its own laws, many of which contemplate that state officials will exercise their judgment in balancing the interests and goals identified under state law.

In the Final Rule, upheld by this Court, FERC required transmission providers to develop “procedures to identify transmission needs driven by public policy requirements established by federal, state, or local laws or regulations and evaluate potential solutions to those needs.”  S.C. Pub. Serv. Auth. v. FERC, 762 F.3d 41, 52 (D.C. Cir. 2014) (“South Carolina”) (citing Order No. 1000, at PP 2, 146, 203-05) (emphasis supplied).  FERC’s Final Rule expressly did not require transmission providers to select any transmission project.  This Court emphasized that the Final Rule “merely require[s] regions to establish processes for identifying and evaluating public policies that might affect transmission needs.”  South Carolina, 762 F.3d at 91 (emphasis in original).

In the orders under review, FERC imposed a new requirement on ISO-NE – one that goes beyond the requirements of Order No. 1000 – that ISO-NE must select the project that, in ISO-NE’s view, is the more efficient or cost-effective solution among the transmission options it studied to meet a public policy need.  ISO-NE itself sought rehearing of FERC’s failure “to comply with Order No. 1000’s provisions by introducing a new requirement that is not in Order No. 1000:  imposing an obligation on the ISO to select more efficient or cost-effective public policy driven transmission solutions to be included in the regional transmission plan for purposes of cost allocation.”  JA 337.[4]

In their rehearing request, the States asked FERC to clarify that this was not what it intended.  JA 333-335.  FERC did not so clarify. The States now petition for review of FERC’s orders that, for the New England region, have effectively expanded the requirements of Order No. 1000 in a way that violates the Administrative Procedure Act, exceeds FERC’s jurisdiction, and interferes with authority reserved solely to the states.

II.           ISO-NE and the Regional System Plan

ISO-NE oversees and administers New England’s wholesale electricity market and is responsible for ensuring the reliable operation of the region’s electric power system.  It has no authority, delegated or otherwise, in connection with state policies in such administration and operation.  As part of its duties as New England’s regional transmission organization, ISO-NE manages the region’s transmission planning process, the rules of which are included in ISO-NE’s Open Access Transmission Tariff (“OATT”).  ISO-NE completes a “Regional System Plan,” which is ISO-NE’s determination, over a ten-year horizon, of the region’s electricity system needs and its plans for meeting those needs.  JA 357-360.  The Regional System Plan, which must be approved by the ISO-NE Board of Directors, includes a project list that identifies proposed regulated transmission solutions to meet the identified needs.  JA 360, 362.  This project list is updated periodically throughout the year.

Once ISO-NE has selected a transmission upgrade, modification or addition to the transmission system – referred to as a “planned” project (JA 363, there is an established, preapproved method for cost recovery for such planned project under Schedule 12 of the ISO-NE OATT.  Pursuant to Schedule 12, the costs of all upgrades included in the Regional System Plan for reliability, market efficiency (i.e., economic) or public policy purposes are recoverable under the ISO-NE OATT from all transmission customers taking service under the ISO-NE OATT.  JA 355.  By contrast, the costs of “elective” transmission upgrades, which are developed outside the ISO-NE planning process, are allocated solely to the entity volunteering to make and pay for such upgrades and assuming the market risk of the project (JA 354).  The costs of local projects are recovered by transmission owners pursuant to Schedule 21 of the ISO-NE OATT and allocated to their respective local loads.  JA 30-31, 74.

Because inclusion in the Regional System Plan comes with “cost-recovery certainty” (see JA 51), ISO-NE’s selection of a transmission project for inclusion in the plan is a critical and material step in a project obtaining financing and moving towards siting and construction.  See Compliance Filing, JA 7(once a project is placed on the Regional System Plan project list it moves forward to siting and construction).[5]  Indeed, NESCOE is unaware of any major transmission project constructed wholly within New England over the past decade that was not first placed in the Regional System Plan as a preferred solution to a regional reliability need.[6]

III.         Order No. 1000

A.           Rulemaking

In 2010, FERC issued a Notice of Proposed Rulemaking, setting forth a number of potential reforms to transmission planning processes and associated cost allocation for new transmission infrastructure.  Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities, Notice of Proposed Rulemaking, 75 Fed. Reg. 37,883 (June 30, 2010) (“NOPR”).  FERC proposed, among other things, “to require that each regional transmission planning process consider and evaluate transmission facilities and other non-transmission solutions that may be proposed and develop a regional transmission plan that identifies the transmission facilities that cost-effectively meet the needs of transmission providers, their transmission customers, and other stakeholders.”  NOPR at P 51.  Additionally, as relevant to this case, FERC proposed that “local and regional transmission planning processes explicitly provide for consideration of public policy requirements established by State or Federal laws or regulations that may drive transmission needs.”  NOPR at P 64.

Several of the States participated in the rulemaking.  For example, NESCOE expressed a generally favorable view of FERC’s proposal to establish procedures in the regional planning process to consider public policy-driven transmission needs, noting that NESCOE shared “the Commission’s interest in helping to bring to fruition projects and associated transmission that meet state and federal policy objectives” and that “[i]f properly structured and implemented, inserting policy considerations in the planning analysis could help the states identify the most cost-effective means to achieve the policy objectives.”[7]

B.            Order No. 1000

The NOPR culminated in FERC’s adoption of Order No. 1000, in 2011.  Among other things, FERC determined that existing regulatory requirements were insufficient to ensure that public utility transmission providers in each region, with input from stakeholders, “identify and evaluate transmission alternatives at the regional level that may resolve the region’s needs more efficiently or cost-effectively than solutions identified in the local transmission plans of individual public utility transmission providers.”  Order No. 1000 at P 78.  Order No. 1000 sought to address this identified deficiency.

Among the directives in Order No. 1000, FERC required that “the regional transmission planning processes . . . provide an opportunity to consider transmission needs driven by Public Policy Requirements.”  Id. at P 6.[8]  FERC explained that “by considering transmission needs driven by Public Policy Requirements, we mean: (1) the identification of transmission needs driven by Public Policy Requirements; and (2) the evaluation of potential solutions to meet those needs.”  Id. at P 205.  FERC explained that there are many ways potential upgrades to the transmission system can be evaluated, ranging from the use of scenario analyses to production cost or power flow simulations, and emphasized that as with any proposed solution offered in the planning process for transmission needs driven by reliability issues or economic considerations, there is no assurance that any proposed transmission facility will be found to be an efficient or cost-effective solution to meet local or regional needs.  Order No. 1000 at P 211.

Order No. 1000 required each public utility transmission provider to revise its OATT to “describe procedures that provide for the consideration of transmission needs driven by Public Policy Requirements in the local and regional transmission planning processes.”  Order No. 1000 at P 203.  FERC determined that it would “leave to public utility transmission providers to determine, in consultation with stakeholders, the procedures for how such evaluations will be undertaken, subject to the Commission’s review on compliance and with the objective of meeting the identified transmission needs more efficiently and cost-effectively.”  Order No. 1000 at P 211.  FERC confirmed in Order No. 1000 that states would play a significant role:

In response to commenters that urge us to recognize the role of the states in transmission planning, especially as it relates to compliance with Public Policy Requirements

. . . nothing in this Final Rule is intended to alter the role of states in that regard . . . . In Order No. 890, the Commission stated its expectation that ‘all transmission providers will respect states’ concerns’ when engaging in the regional transmission planning process.  This is equally true with regard to the consideration of transmission needs driven by Public Policy Requirements.

Order No. 1000 at P 212 (footnote omitted).

Finally, FERC expressly held that there need not be a project selected at the end of the identification and evaluation process.  FERC’s holding appropriately recognized that project selection is a different act than identification of transmission needs and evaluation of potential solutions to meet those needs: “while a public utility transmission provider is required under this Final Rule to evaluate in its local and regional transmission planning processes those identified transmission needs driven by Public Policy Requirements, that obligation does not establish an independent requirement to satisfy such Public Policy Requirements.”  Order No. 1000 at P 213.

C.           Order 1000-A

On rehearing, FERC clarified that with respect to the requirement to consider public policy requirements in transmission planning processes, it was “not requiring anything more than what [it] directed in Order No. 1000, namely, the two-part identification and evaluation process.”  Order No. 1000-A at P 321.  More generally, FERC confirmed that “Order No. 1000’s transmission planning reforms are concerned with process; these reforms are not intended to dictate substantive outcomes, such as what transmission facilities will be built and where.”  Order No. 1000-A at P 188.

FERC provided assurances that it would not intrude into states’ authority, clarifying that it was “not placing public utility transmission providers in the position of being policymakers or allowing them to substitute their public policy judgments in the place of legislators and regulators.”  Id. at P 318.  FERC added that “[i]t is not the function of the transmission planning process to reconcile state policies” (id. at P 327), emphasizing that it did not intend to interfere with states’ public policy efforts (id. at P 330) (“Order No. 1000 and state-level Public Policy Requirements should be complementary – Order No. 1000’s intent is to establish a space in the transmission planning process to identify transmission needs driven by Public Policy Requirements and to evaluate potential solutions to identified needs”).

In upholding challenges to Order No. 1000, including challenges to whether regional planning must include consideration of transmission needs driven by public policy requirements, this Court similarly recognized that “[r]ather than mandating any particular outcome, the challenged orders require transmission providers to establish procedures to address the effects of public policy on the electricity grid.”  South Carolina, 762 F.3d at 89.  The Court emphasized that Order No. 1000 “merely require[d] regions to establish processes for identifying and evaluating public policies that might affect transmission needs.”  Id. at 91 (emphasis in original).

IV.         Orders on Review

A.           2012 Compliance Filing

On October 25, 2012, following a regional stakeholder process lasting over a year, ISO-NE and the participating transmission owners administrative committee[9] (collectively, the “Filing Parties”) filed with FERC a package of proposed changes to the OATT and other governing documents in order to comply with Order No. 1000.  Order No. 1000 Compliance Filing of ISO New England Inc. and the Participating Transmission Owners Administrative Committee, Docket Nos. ER13-193-000, et al. (October 25, 2012) (“Compliance Filing”), JA 1-103.

The Compliance Filing addressed the Final Rule’s general requirement that public utility transmission providers participate in a regional transmission planning process that, with input from stakeholders, produces a regional transmission plan.  The planning process evaluates alternative transmission solutions that might meet needs within a region more efficiently or cost-effectively than solutions identified in the local transmission plans of individual public utility transmission providers (see Order No. 1000 at PP 6, 78, 148).  If an alternative solution is determined to be “more efficient or cost-effective than transmission facilities in one or more local transmission plans,” then that solution “can be selected in the regional transmission plan for purposes of cost allocation.”  (Order No. 1000 at P 148).  The Filing Parties explained that ISO-NE already had such a process in place, and described the distinction between the regional and local planning processes in New England that followed ISO-NE’s transition to becoming a FERC-approved regional transmission organization.

Specifically, pursuant to the ISO-NE OATT and other agreements, ISO-NE has planning authority over regional transmission facilities that serve the whole New England region, referred to as “Pool Transmission Facilities” (JA 15).  Pool Transmission Facilities are generally those higher voltage facilities that are “required to allow energy from significant power sources to move freely on the New England Transmission System.”  JA 77.  By contrast, individual public utility owners in New England have planning authority over local transmission facilities, i.e., non-Pool Transmission Facilities, which “typically are lower-voltage radial transmission facilities that serve load or generation to connect to bulk power system.”  JA 29.  The Filing Parties told FERC that the then-existing New England planning process in the ISO-NE OATT, as modified by their Compliance Filing, met the Order No. 1000 requirement that a region develop a plan for identifying facilities that meet the region’s reliability and economic requirements on a more efficient or cost-effective basis than local planning.  JA 33-34.

The Compliance Filing also included the addition of new procedures in ISO-NE’s OATT to meet Order No. 1000’s requirement to consider public policy requirements in the regional transmission planning process.  JA 36-44.  A new Section 4A of Attachment K of the ISO-NE OATT described the process that ISO-NE proposed to use to plan regionally for public policy-driven transmission projects.  Specifically, proposed Section 4A detailed a process for (1) identifying public policy requirements driving transmission needs, (2) evaluating potential transmission solutions, and (3) determining how a project or projects, if any, would be selected for inclusion in the Regional System Plan.  JA 79-87.

Most relevant to this petition for review, the proposed process did not require ISO-NE to select any project at the conclusion of a competitive solicitation.  The Filing Parties stated that “[t]his process, collaboratively developed between the ISO and the New England states, with substantial input from stakeholders, permits, but does not require, projects to be further developed into full engineering plans and added to the Regional System Plan for construction.”  JA 44.  Instead, under the proposed process, as a pre-condition for ISO-NE selecting a policy-driven transmission project for placement in the Regional System Plan, NESCOE and/or state regulatory authorities would first need to submit a “public policy transmittal.”  JA 76.  Such transmittal would specify which states supported the project(s) and would identify the cost allocation among the states associated with particular project(s).

The Filing Parties also proposed a planning process that would apply to the individual participating transmission owners for local public policy-driven transmission projects (i.e., non-Pool Transmission Facilities), contained in Appendix 1 of Attachment K, Attachment K-Local.  JA 89-95.  Following the identification of public policy requirements, the individual participating transmission owners would each use their existing local planning processes to determine if non-Pool Transmission Facilities should be built to address transmission needs driven by such public policy requirements.  JA 46.

B.            Compliance Order

On May 17, 2013, FERC issued an order finding that the Compliance Filing partially complied with the requirements set forth in Order No. 1000.  Compliance Order at P 108, JA 239.  As relevant to this petition for review, FERC found that the proposal met Order No. 1000’s requirement to establish a just and reasonable and not unduly discriminatory process for identifying transmission needs driven by Public Policy Requirements (Compliance Order at PP 110-112, JA 240-242),[10] but rejected the Filing Parties’ proposed process for evaluating transmission solutions to identified transmission needs driven by Public Policy Requirements (Compliance Order at PP 64, 67, 116, JA 220-222, 244-245).

In addition to finding that the Filing Parties’ process failed  “to evaluate at the regional level potential transmission solutions to identified transmission needs driven by public policy requirements” (id. at P 67, JA 222), FERC found that the proposed process failed “to select more efficient or cost-effective transmission solutions to address transmission needs driven by public policy requirements in the regional transmission plan for purposes of cost allocation” (id.) (emphasis supplied).  FERC directed changes to the evaluation process that would make ISO-NE, not NESCOE or the states, the entity responsible for “evaluating whether to select a proposed Public Policy Transmission Upgrade in the regional transmission plan for purposes of cost allocation.”  Compliance Order at P 315, JA 295.

In discussing its objection to giving NESCOE and the states a primary role in evaluation of transmission projects to meet public policy needs, FERC conflated the concepts of evaluating transmission needs driven by public policy requirements and selecting a public-policy driven project to be cost allocated.  FERC found that “the Filing Parties’ proposed evaluation process fails to comply with Order No. 1000’s requirement that public utility transmission providers select more efficient or cost-effective transmission solutions to address transmission needs driven by public policy requirements in the regional transmission plan for purposes of cost allocation.”  Compliance Order at P 314, JA 295 (emphasis supplied).  FERC misstated Order No. 1000’s requirements when it articulated that Order No. 1000 “places an affirmative obligation on public utility transmission providers to select transmission solutions that may meet the region’s transmission needs driven by public policy requirements more efficiently or cost-effectively.”  Compliance Order at P 119 (emphasis supplied), JA 246 (citing Order No. 1000 at PP 80, 148-149).  See also Compliance Order at P 67, JA 222 (finding that the Filing Parties’ proposed process “prevent[s] the public utility transmission provider from meeting its obligation under Order No. 1000 to evaluate and select the transmission solution that more efficiently or cost-effectively meets the needs of the transmission planning region”) (emphasis supplied).

Order No. 1000, in fact, stated that “it is necessary to have an affirmative obligation in these transmission planning regions to evaluate” – not select – “alternatives that may meet the needs of the region more efficiently or cost-effectively” (P 80) and that “[i]f the public utility transmission providers in the transmission planning region, in consultation with stakeholders, determine that an alternative transmission solution is more efficient or cost-effective than transmission facilities in one or more local transmission plans, then the transmission facilities associated with that more efficient or cost-effective transmission solution can be” – not must be – “selected in the regional transmission plan for purposes of cost allocation” (emphasis supplied).  Order No. 1000 at P 148.

FERC’s rulings in the Compliance Order went beyond simply stating that it was ISO-NE, rather than the states, that should consider transmission projects to meet public policy needs.  Rather, FERC created and overlaid an additional obligation on ISO-NE, suggesting for the first time that ISO-NE must select a public policy transmission project for inclusion in the Regional System Plan if found to be the more efficient or cost-effective solution.  Compliance Order at P 119, JA 246.

The States did not agree with this characterization of Order No. 1000 and, therefore, sought clarification and, in the alternative, rehearing.

C.           Rehearing Request and Rehearing Order

The States’ rehearing request asked FERC to clarify that the Compliance Order “was not intended to expand the scope of Order No. 1000 by requiring not just the establishment of a process for determining which projects driven by Public Policy Requirements should be selected in the regional transmission plan for purposes of cost allocation, but also the actual selection of the more efficient or cost-effective solutions among those considered.”  JA 333 (citing Order No. 1000 at P 211).

In its Rehearing Order, FERC purported to grant the request for clarification, stating that:

We . . .  provide clarification that, if ISO-NE determines that there is not a more efficient or cost-effective solution to transmission needs driven by public policy requirements in the regional transmission planning process, ISO-NE need not select a transmission project in the regional transmission plan for purposes of cost allocation.

Rehearing Order at P 126, JA 400.

This statement, however, failed to provide the requested clarification.

SUMMARY OF ARGUMENT

FERC’s Compliance Order includes statements that are inconsistent with, and that go beyond the scope of, Order No. 1000.  In Order No. 1000, FERC assured states and others that it was merely requiring public utility transmission providers to consider in their regional transmission planning processes transmission needs driven by public policy requirements.  FERC explained that this meant, simply, that once transmission needs were identified to meet public policy requirements, the public utility transmission provider was authorized only to evaluate potential transmission solutions to meet those needs.  FERC was not purporting to supplant the states’ judgment as to how to best meet their own statutory mandates.  FERC emphasized that it was not requiring any particular substantive outcome; rather, it merely was requiring that processes be established for the consideration of public policy requirements.  The States relied on these assurances, as did this Court in South Carolina.

In the orders under review, FERC reversed course and held that ISO-NE must not only have in place a process to identify transmission needs driven by public policy requirements and evaluate potential transmission solutions that could meet those needs, but must also select the more efficient or cost-effective project.  This ruling, issued less than a year after this Court affirmed that FERC’s public policy requirements were intended only to establish procedures for evaluation (South Carolina, 762 F.3d at 52, 89, 91), expanded the scope of Order No. 1000 in a substantive way.  Had the States been on notice that FERC’s rulemaking was going to require transmission providers such as ISO-NE to select transmission projects designed to address state public policy requirements, they could have filed comments in the rulemaking opposing such a requirement.  However, because the rulemaking did not make such a proposal – to the contrary, it expressly stated that such an interpretation was incorrect – the States were deprived of their opportunity under the Administrative Procedure Act to be apprised of and respond to the proposal.  5 U.S.C. § 553.

FERC’s expansion of the Order No. 1000 requirements inflicts significant harm on the States.  States, not FERC or a FERC-regulated public utility transmission provider, have the authority and responsibility to determine the best means of implementing their own policy requirements reflected in their state laws.  FERC exceeded its statutory authority and impermissibly infringed upon the authority of states by requiring ISO-NE to select transmission projects to meet the requirements of state policies.

FERC claimed in response to the States’ arguments below that FERC was “in no way interfering” with state policy execution (Rehearing Order at P 133, JA 405).  However, by placing an obligation on ISO-NE to select a transmission project if found to be the more efficient or cost-effective solution to a state policy need, FERC’s orders do, in fact, interfere with state officials’ judgments about how to implement state policies.  FERC’s orders strip a state of the ability to determine, for example, that a transmission solution is not the most appropriate means by which a state can implement its clean energy requirements.  Even if cost-effective, a transmission solution may not provide the range of benefits or risk mitigation that a state official might capture for consumers by pursuing other potential solutions, which could include developing incentives for renewable generation or reducing greenhouse gas emissions through transportation initiatives.  Once ISO-NE selects a regional transmission project for inclusion in the Regional System Plan to address a state public policy need, it has exercised its own judgment, rather than the state’s, over the appropriate means of executing the state’s laws.

FERC could end any uncertainty now by issuing in the proceeding below a definitive statement that (1) ISO-NE is not required to select a policy-driven transmission project and, consistent with FERC’s prior declarations, is only required to identify needs and evaluate potential solutions, and (2) ISO-NE has no authority to substitute its judgment for a state whose laws are at issue in selecting a project.  Absent such a declaration, and in the face of the language of the Rehearing Order, it is clear that FERC intends to require ISO-NE to make these decisions.  FERC’s orders are arbitrary and capricious in that, without explanation, they depart from and expand the scope of the Order No. 1000 rulemaking in a manner that interferes with states’ implementation of their own laws.  The Court should, accordingly, vacate this aspect of the orders under review and remand them to FERC.

ARGUMENT

I.              FERC Unlawfully Expanded the Scope of Order No. 1000.

The Administrative Procedure Act requires that interested parties be given notice of, and an opportunity to comment on, proposed rulemakings, including amendments to existing rules.  5 U.S.C. § 553, 5 U.S.C. § 551(5).  Because FERC established Order No. 1000 through notice-and-comment rulemaking, FERC can only amend the order through further notice-and-comment rulemaking.  City of Idaho Falls, Id. v. FERC, 629 F.3d 222, 227, 231 (D.C. Cir. 2011).  FERC’s ruling that ISO-NE is required not just to consider transmission needs driven by public policy requirements, but also to select transmission projects to meet such needs expands the scope of the Final Rule without providing required notice and opportunity to comment to the States and other interested parties.

There is nothing on the face of Order No. 1000 that requires the transmission provider to select a project for inclusion in the Regional System Plan.  Rather, as FERC explained in Order Nos. 1000 and 1000-A, all that is required is the “opportunity to consider transmission needs driven by Public Policy Requirements” (Order No. 1000 at PP 6, 109) and nothing more than “the two-part identification and evaluation process” (Order No. 1000-A at P 321).  In fact, FERC expressly held that public utility transmission providers need not select a project at all:  “In requiring the consideration of transmission needs driven by Public Policy Requirements, the Commission is not mandating fulfillment of those requirements.  Instead, the Commission is acknowledging that the requirements in question are facts that may affect the need for transmission services and these needs must be considered.”  Order No. 1000 at P 109.  An obligation to consider – i.e., identify needs and evaluate potential transmission solutions to public policy-driven needs –  is materially different from an obligation to select a transmission project to meet those needs.

The States’ view that FERC imposed a new obligation on ISO-NE in the orders under review was shared by ISO-NE itself.  ISO-NE sought rehearing of FERC’s Compliance Order, objecting to the introduction of a new requirement not in Order No. 1000:  “Contrary to Order No. 1000 . . . the Compliance Order did require something more than identification and evaluation – it requires that the ISO ‘select’ the public policy project.”  JA 340.  ISO-NE pointed out in its rehearing request, as did the States, that in Order No. 1000, FERC “only referred to an obligation to ‘identify’ transmission needs and ‘evaluate’ potential solutions, not to select solutions and turn them into projects included in the regional plan.”  JA 339 (citing Order No. 1000 at P 205).

FERC explained in the rulemaking proceeding that “Order No. 1000’s transmission planning reforms are concerned with process; these reforms are not intended to dictate substantive outcomes.”  Order No. 1000-A at P 188; see also supra at 13.  At no point in the proceeding did the agency propose that the actual selection of a transmission project to meet such public policy needs would ever be mandatory.  An obligation to select such a transmission project goes beyond the requirements of the Final Rule, and therefore, cannot be imposed as a compliance matter.[11]  In the rulemaking, FERC explicitly denied any intention to interfere with or supplant state decision making on public policy projects, or to require a substantive outcome.  See, e.g., Order No. 1000-A at PP 188, 318.

In upholding the petitions for review of Order No. 1000, this Court made several statements that corroborate the States’ view of Order No. 1000:

• “Rather than mandating any particular outcome, the challenged orders require transmission providers to establish procedures to address the effects of public policy on the electricity grid.” South Carolina, 762 F.3d at 89 (citing Order No. 1000 at PP 109, 111, 206-10 and Order No. 1000-A at PP 209, 318-21).
• Order No. 1000 “merely require[s] regions to establish processes for identifying and evaluating public policies that might affect transmission needs.” at 91 (citing Order No. 1000 PP 205-11, 214-16; Order No. 1000-A PP 318, 327-29, 332-33 (emphasis in original)).
• “[R]egions must only create procedures to ‘identify, out of the larger set of potential transmission needs driven by public policy requirements that may be proposed, those transmission needs for which transmission solutions will be evaluated in the . . . regional transmission planning process.’” at 89 (quoting NorthWestern Corp., 143 FERC ¶ 61,056, at P 85 (2013)).

FERC attempts to rewrite its own history by now declaring that Order No. 1000 did, in fact, mandate the selection of transmission projects to meet public policy needs:  “Order No. 1000 places an affirmative obligation on public utility transmission providers to select transmission solutions that may meet the region’s transmission needs driven by public policy requirements more efficiently or cost-effectively.”  Compliance Order at P 119, JA 246 (emphasis supplied).  This obligation “to select” a transmission solution was created by FERC after the fact and from whole cloth.  FERC has pointed to nothing in the Order No. 1000 rulemaking containing such a mandate, and it has ignored its own numerous statements to the contrary.  Simply stated, “the rulemaking process tells a different story.”  Idaho Falls, 629 F.3d at 228.

In response to the States’ rehearing request, FERC stated that “if ISO-NE determines that there is not a more efficient or cost-effective solution to transmission needs driven by public policy requirements in the regional transmission planning process, ISO-NE need not select a transmission project in the regional transmission plan for purposes of cost allocation.”  Rehearing Order at P 126, JA 400.  The only logical inferences that can be drawn from this cryptic, double-negative declaration are that (1) if the regional project(s) studied are found by ISO-NE to be more efficient or cost-effective than a local transmission alternative, ISO-NE must, in fact, select the regional public policy transmission project for inclusion in the Regional System Plan; and (2) if a local project is found to be the more efficient or cost-effective alternative (which, as explained below, is highly unlikely in New England), ISO-NE need not select the regional transmission alternative(s) for inclusion in the Regional System Plan.

The distinction that this purported clarification may draw between a comparison of regional and local projects is essentially meaningless in New England.  Even before the Final Rule was issued, the ISO-NE regional planning process was designed to identify regional facilities that were more efficient or cost-effective than those identified through local planning.  The Filing Parties explained in their Compliance Filing that “the existing planning process has been highly successful at identifying the most cost-effective regional alternative as a solution to an identified need and getting that solution built and into service.”  JA 4.  Thus, the regional planning process in New England has for years been designed precisely to identify regional transmission projects that are more efficient or cost-effective than those that individual utilities would identify through their local planning processes.  The States believe that it is, therefore, highly unlikely that a preferred transmission project that ISO-NE identifies through the regional process would ever not be selected because a local project is more efficient or cost-effective.

FERC’s ruling that ISO-NE is required not just to consider transmission needs driven by public policy requirements, but also to select transmission projects to meet such needs, expands the scope of the Final Rule without providing required notice to the States and other interested parties.  In direct contravention of its repeated assurances to states and stakeholders in the rulemaking proceeding – some of which this Court relied upon in rejecting challenges to the Final Rule – FERC now seeks to dictate particular outcomes. See, e.g., Order No. 1000-A at P 188.

The Administrative Procedure Act requires that notice of a proposed rulemaking be published in the Federal Register and that interested persons be given an opportunity to participate.  5 U.S.C. § 553.  Further, the Administrative Procedure Act defines “rule making” to include the process of amending an existing rule.  5 U.S.C. § 551(5).  Because FERC established Order No. 1000 through notice-and-comment rulemaking, the agency can only amend the order through further notice-and-comment rulemaking.  Idaho Falls, 629 F.3d at 227, 231.

FERC earlier assured States and others in the Order No. 1000 rulemaking that nothing about the public policy transmission planning process – other than a requirement to develop procedures for identification of needs driven by public policy requirements and evaluation of potential transmission solutions to meet those needs  – was prescriptive.  Had FERC been prescriptive in Order No. 1000, as it became in the contested orders, the States would have had the opportunity to object and seek rehearing.  As it was, there was no reason for States to anticipate that FERC would implement Order No. 1000 in a manner inconsistent with the very language of that rule.

The mandate to select transmission projects to satisfy policy objectives is a new substantive rule and not simply an interpretation of the preexisting rule.  The mere consideration of transmission needs cannot under any reasonable interpretation be construed to encompass an obligation to select a transmission option, regardless of how cost effective it may be.  The orders under review, therefore, amend, rather than interpret Order No. 1000.  See Perez v. Mortgage Bankers Ass’n, 135 S. Ct. 1199, 1207-09 (2015) (distinguishing amendment from interpretation).  To broaden the scope of Order No. 1000 in this manner, FERC was required to follow the notice-and-comment requirements of the Administrative Procedure Act.  FERC’s failure to do so dictates that this aspect of the orders be vacated.  See Idaho Falls, 629 F.3d at 231; cf. Dominion Resources, Inc. v. FERC, 286 F.3d 586, 587, 593 (D.C. Cir. 2002) (vacating compliance order because it “was far broader than the order on which it purportedly rested” and holding that “if the Commission has a general case for broader restrictions, it can make that case in the rulemaking that it has launched”).

Additionally, FERC’s orders violate the requirements of reasoned decision-making.  FERC’s orders must be vacated if they are “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A).  FERC’s Rehearing Order does not explain why, following the project evaluation process, ISO-NE would be obligated to select one or more policy-driven projects for inclusion in the Regional System Plan, or why ISO-NE would not have discretion to decline to select any project.  FERC’s response is so vague and cryptic that it falls short of its obligation to engage in reasoned decision-making. K N Energy, Inc. v. FERC, 968 F.2d 1295, 1303 (D. C. Cir. 1992) (“It most emphatically remains the duty of this court to ensure that an agency engage the arguments raised before it — that it conduct a process of reasoned decisionmaking.”) (emphasis in original); American Mining Congress v. EPA, 907 F.2d 1179, 1187 (D.C. Cir. 1990) (emphasizing that deference to an agency’s judgment does not relieve a reviewing court of its responsibility to ensure that the agency has articulated a satisfactory explanation for its action); Neighborhood TV Co. v. FCC, 742 F.2d 629, 639 (D.C. Cir. 1984) (explaining that the Court will uphold agency’s decision “if, but only if, we can discern a reasoned path from the facts and considerations before the [agency] to the decision it reached.”); Motor Vehicle Mfrs. Ass’n. v. State Farm Mutual Auto. Ins. Co., 463 U.S. 29, 57 (1983) (“it is the agency’s responsibility, not this Court’s, to explain its decision”).

In sum, because the Commission failed in the contested orders to conform its rulings with those in the Order No. 1000 rulemaking, the Court should remand the orders on review.

II.           FERC Exceeded the Bounds of Its Limited Authority and Infringed Upon State Sovereignty.

Courts hold unlawful and set aside agency actions that are found to be “in excess of statutory jurisdiction, authority, or limitations, or short of statutory right.”  5 U.S.C. § 706(2)(C).  “As a federal agency, FERC is a ‘creature of statute,’ having ‘no constitutional or common law existence or authority, but only those authorities conferred upon it by Congress.’”  Atlantic City Electric Co. v. FERC, 295 F.3d 1, 8 (D.C. Cir. 2002) (quoting Michigan v. EPA, 268 F.3d 1075, 1081 (D.C. Cir. 2001)) (emphasis in Atlantic City).  Hence, the Court must determine whether the agency, in granting ISO-NE authority to determine the means of meeting state public policy requirements, “has stayed within the bounds of its statutory authority.”  City of Arlington, Tex. v. FCC, 133 S. Ct. 1863, 1868 (2013) (emphasis in original).  The States submit that FERC has not.

Section 201(a) of the Federal Power Act provides that FERC regulation under the Federal Power Act is “to extend only to those matters which are not subject to regulation by the States.”  16 U.S.C. § 824(a).  The Supreme Court has explained that, while this declaration “cannot nullify a clear and specific grant of jurisdiction,” it is nonetheless “relevant and entitled to respect as a guide in resolving any ambiguity or indefiniteness in the specific provisions which purport to carry out its intent.”  Conn. Light & Power Co. v. Fed. Power Comm’n, 324 U.S. 515, 527 (1945).

The Federal Power Act does, in fact, include several “clear and specific” grants of jurisdiction over certain matters.  For example, it is indisputable that FERC is authorized to regulate the rates charged for transmission of electricity in interstate commerce and for its sale at wholesale.  16 U.S.C. §§ 824(a) and 824d(a).  The Federal Power Act also requires FERC to “facilitate the planning of a reliable grid.”  South Carolina, 762 F.3d at 90 (citing 16 U.S.C. § 824q(b)(4)).  However, nothing in the Federal Power Act, express or implied, can be construed as granting FERC authority over the means by which states meet their own public policy mandates.  Yet that is precisely the effect of FERC’s orders.

By way of example, all New England states have enacted statutes mandating that certain percentages of electricity sold at retail be generated from renewable energy resources (i.e., renewable portfolio standards).[12]  State A’s preference in meeting its own targets might be to encourage the siting of renewable generation close to population centers.  But under the process that FERC established in the contested orders, ISO-NE could trump a state official’s preferences in connection with State A’s policies.  As the contested orders stand, once ISO-NE commences a study to evaluate potential solutions to transmission needs driven by State A’s renewable portfolio standards law, ISO-NE would be required to select the more efficient or cost-effective transmission project for inclusion in the Regional System Plan for purposes of cost allocation.[13]  Inclusion in the Regional System Plan comes with the benefit of an established, preapproved method of cost recovery under the ISO-NE OATT.  Therefore, inclusion in the Regional System Plan is a critical and material step toward project financing and construction, allowing the costs of a project to be recovered from all customers taking regional network service under the ISO-NE OATT[14] and triggering a series of next steps including application for state siting review.  Notwithstanding State A’s judgment in connection with its own statutes, which could be that transmission is not the best means to achieve the relevant statutory objectives, State A would not be able to override ISO-NE’s decision to move forward under the tariff procedures that FERC directed.  Hence, ISO-NE – as authorized by FERC – would decide how the requirements of State A’s public policy requirements would be met.

A state’s siting authority does not protect a state from FERC’s usurpation of state authority.  There is no assurance whatsoever of alignment between the location of an ISO-NE-selected transmission upgrade to meet a state’s policy objectives and that state’s siting jurisdiction.  In other words, while State A could choose not to site transmission within its boundaries, there is no certainty that a transmission project that ISO-NE selects to meet State A’s policy needs would be located within State A’s borders and thus subject to its permitting requirements.  Accordingly, the project ISO-NE selects in furtherance of State A’s policy objectives might still move forward even if state officials in State A object to such project on economic, environmental or other grounds, and State A’s consumers would still be responsible for paying for a portion of the ISO-NE preferred transmission upgrades.  See Rehearing Order at P 380, JA 445 (approving cost allocation proposal allocating 70 percent of the costs of public policy upgrades region-wide based on load-ratio share, and the remaining 30 percent to those states whose public policy necessitated a given project).

In implementing state laws, state officials use their judgment in considering a wide range of consumer costs and benefits of various approaches to achieving state policy objectives.  These often include hard-to-quantify societal benefits that state officials consider relevant and important to consumers in their states.  In each instance, the judgment and ultimate decision about whether, how and at what price state public policies will be executed is uniquely the state’s to make.  The state is ultimately accountable to its citizens for every aspect of state policy decision-making.

By contrast, ISO-NE is a transmission operator/planner and wholesale market administrator.  It does not, as an institutional or jurisdictional matter, have the authority to make judgments on states’ behalf about state policies or the means or costs by which a state will satisfy its public policy objectives.  Similarly, FERC does not, as an institutional and jurisdictional matter, have authority in connection with decisions about the means of implementing state public policies.  Neither ISO-NE nor FERC has the authority, expertise, or accountability to substitute its judgment for that of the states in connection with implementing state laws, many of which contemplate that state officials will balance various interests and goals, including those related to energy, the environment and economic development, and all of which cannot be viewed in isolation without considering the impacts on other state policies.

The Massachusetts Global Warming Solutions Act, for example, provides that “[i]n implementing its plan for statewide greenhouse gas emissions limits, the commonwealth and its agencies shall promulgate regulations that reduce energy use, increase efficiency and encourage renewable sources of energy in the sectors of energy generation, buildings and transportation.”  Mass. Gen. Laws ch. 21N, § 6.  This language makes clear that state officials must consider myriad factors and multiple industries in determining the best approach for the citizens of the state.  Similarly, Connecticut law requires the reduction of greenhouse gas emissions for the years 2020 and 2050.  Conn. Gen. Stat. § 22a-200a.  Connecticut state officials must be the ones to determine whether, for example, a large-scale hydro-electric project, a transmission project, or small biomass projects are best suited to achieve the greenhouse gas limits, while balancing economic considerations for the state.  These state-specific processes and judgments cannot be overridden by a FERC-mandated, unilateral ISO-NE determination that consumers must instead pay for a transmission solution that ISO-NE selects.

As a federal agency, FERC “may not exercise authority over States as sovereigns unless that authority has been unambiguously granted to it.”  Cal. State Bd. of Optometry v. FTC, 910 F.2d 976, 982 (D.C. Cir. 1990); see also Gregory v. Ashcroft, 501 U.S. 452, 460-61 (1991) (“[I]f Congress intends to alter the usual constitutional balance between the States and the Federal Government, it must make its intention to do so unmistakably clear in the language of the statute.”) (internal quotations omitted); Solid Waste Agency of N. Cook Cty. v. Army Corps of Engineers, 531 U.S. 159, 172 (2001) (internal citations and quotation omitted) (“Where an administrative interpretation of a statute invokes the outer limits of Congress’ power, we expect a clear indication that Congress intended that result.”).  In the instant case, FERC cannot point to any such unambiguous grant to justify its intrusion.  Nothing in the Federal Power Act, for example, allows FERC to interfere with a state’s decision as to how it will satisfy a renewable-energy target established by the state.

As explained by the Supreme Court, FERC itself has recognized that states retain “significant control” over matters of local concern.  New York v. FERC, 535 U.S. 1, 24 (2002).  The Court recently reaffirmed that general principle by holding that state antitrust claims were not preempted by the Natural Gas Act, a parallel statute administered by FERC.  Oneok, Inc. v. Learjet, Inc., 135 S. Ct. 1591 (2015); see also Panhandle Eastern Pipe Line Co. v. Pub. Serv. Comm’n. of Ind., 332 U.S. 507, 517-18 (1947) (“The [Natural Gas] Act was drawn with meticulous regard for the continued exercise of state power, not to handicap or dilute it in any way.”).

FERC cannot step into the shoes of the state and govern on its behalf.  FERC’s orders not only exceed the agency’s statutory authority but also implicate the constitutional boundaries of federal authority: “While Congress has substantial powers to govern the Nation directly, including in areas of intimate concern to the States, the Constitution has never been understood to confer upon Congress the ability to require the States to govern according to Congress’ instructions.”  New York v. United States, 505 U.S. 144, 162 (1992); see also Printz v. United States, 521 U.S. 898, 928 (1997) (“It is an essential attribute of the States’ retained sovereignty that they remain independent and autonomous within their proper sphere of authority.”).  The Federal Power Act cannot be construed to countenance FERC’s intrusion here.

FERC’s encroachment into state public policies in this case is readily distinguishable from FERC’s general authority to regulate transmission planning, as upheld by this Court in denying challenges to Order No. 1000.  South Carolina, 762 F.3d at 63-64.  Key to the Court’s decision there was that, because the planning mandate “is directed at ensuring the proper functioning of the interconnected grid spanning state lines . . . the mandate fits comfortably within Section 201(b)’s grant of jurisdiction over the transmission of electric energy in interstate commerce.”  Id. at 63 (internal quotation omitted).  The planning of interstate transmission to ensure reliable and uninterrupted service, which is indisputably within the realm of FERC’s authority, is starkly different from planning for the purpose of meeting state policy objectives as codified in state statutes and regulations.

The States do not challenge FERC’s authority over interstate transmission or its responsibility to ensure “the proper functioning of the interconnected grid.”   Nor do the States challenge FERC’s authority to direct transmission providers to engage in transmission planning for public policies in general.  To the contrary, as noted above, NESCOE was generally supportive of this reform to the transmission planning process as originally articulated by FERC, before FERC recreated its own history.  See supra at 10.  The grant of authority under the Federal Power Act over transmission service, however, does not extend to determining whether a specific transmission project is the way to advance state policies or to authorizing what is effectively an ISO-NE veto power over a state official’s preference about whether, how and at what cost to satisfy a state’s policies.  State energy policies, many of which are largely aimed at achieving environmental benefits, undoubtedly fall within the scope of state authority to protect citizen welfare.  See Gonzales v. Oregon, 546 U.S. 243, 270 (2006) (“the structure and limitations of federalism . . . allow the States great latitude under their police powers to legislate as to the protection of the lives, limbs, health, comfort, and quiet of all persons”) (internal quotations omitted).

FERC has unlawfully leapt from process and procedure into a substantive outcome culminating in the required selection of a state public policy-driven transmission project.  FERC, without statutory authority, has stripped New England states of their ability to decide whether, how and at what cost a project or projects are the optimal or even preferred means to advance their own state policies, and instead transferred state policy implementation decisions to a public utility under FERC jurisdiction.

CONCLUSION

         For the reasons discussed above, the States respectfully request that the Court vacate the relevant aspect of the orders and remand the case to FERC.

Respectfully submitted,

                                             New England States Committee on                                                                Electricity, Inc.:

                                             /s/ Phyllis G. Kimmel                       

John Michael Adragna

Phyllis G. Kimmel

Jeffrey K. Janicke

McCarter & English, LLP

1015 Fifteenth Street, N.W.

Twelfth Floor                                                                                                 Washington, DC 20005

(202) 753-3400

pkimmel@mccarter.com

                                             /s/ Jason Marshall                  

Jason Marshall

General Counsel

New England States Committee

on Electricity, Inc.

655 Longmeadow Street

Longmeadow, MA 01106

(617) 913-0342

jasonmarshall@nescoe.com

Attorneys for the New England States

Committee on Electricity, Inc.

Connecticut Department of Energy and Environmental Protection:

/s/ Robert Snook                     

Robert Snook, AAG

Office of the Attorney General

Ten Franklin Square

New Britain, CT 06051

(860) 827-2657

Robert.Snook@ct.gov

Attorney for the Connecticut Department of Energy and Environmental Protection

                                             Connecticut Public Utilities                                                                           Regulatory Authority:

/s/ Clare Kindall                     

Clare Kindall, AAG

Department Head – Energy

Office of the Attorney General

Ten Franklin Square

New Britain, CT 06051

(860) 827-2683

Clare.kindall@ct.gov

Attorney for the Connecticut Public Utilities                                                      Regulatory Authority

Massachusetts Department of Public                                                              Utilities:

/s/ Jeffrey M. Leupold                      

Maura Healey, Massachusetts Attorney General                                                  Cecile M. Fraser, Counsel

Special Assistant Attorney General

Jeffrey M. Leupold, Senior Counsel

Massachusetts Department of Public Utilities

One South Station, Fifth Floor

Boston, MA 02110

(617) 305-3621

Cecile.Fraser@state.ma.us

Jeffrey.Leupold@state.ma.us

Attorneys for the Massachusetts Department of Public Utilities

New Hampshire Public Utilities      Commission:

/s/ F. Anne Ross                     

1. Anne Ross

General Counsel

New Hampshire Public Utilities Commission

21 South Fruit Street, Suite 10

Concord, New Hampshire 03301-2429

(603) 271-2431

f.anne.ross@puc.nh.gov

Attorney for the New Hampshire Public      Utilities Commission

Rhode Island Public Utilities Commission:

/s/ Leo J. Wold                       

Leo J. Wold

Assistant Attorney General

150 South Main Street

Providence, RI 02903

(401) 274-4400, ext. 2218

lwold@riag.ri.gov

Attorney for the Rhode Island Public Utilities

Commission

Vermont Department of Public Service:

/s/ Edward McNamara                                       

Edward McNamara

Regional Policy Director

Vermont Department of Public Service

112 State Street

Montpelier, VT 05620

(802) 828-4007

ed.mcnamara@state.vt.us

Attorney for the Vermont Department of Public

Service

Dated: January 11, 2016

Final Brief May 20, 2016

CERTIFICATE OF COMPLIANCE WITH RULE 32(a)

Certificate of Compliance with Type-Volume Limitation,

Typeface Requirements and Type Style Requirements

This brief complies with the type-volume limitation of Fed. R. App. P. 32(a)(7) and D.C. Cir. R. 32(a)(2), because this brief contains 9,465 words as determined by the word-counting feature of Microsoft Word, excluding the parts of the brief exempted by Fed. R. App. P. 32(a)(7) and D.C. Cir. R. 32(a)(2).

This brief complies with the typeface requirements of Fed. R. App. P. 32(a)(5) and the type style requirement of the brief exempted by Fed. R. App. P. 32(a)(6) because this brief has been prepared in a proportionally spaced typeface using Microsoft Word 2010 in Times New Roman 14-point font.

Dated this 20th day of May, 2016.

/s/ Phyllis G. Kimmel              

Phyllis G. Kimmel

McCarter & English, LLP

1015 Fifteenth Street, N.W.

Twelfth Floor

Washington, DC 20005

(202) 753-3400

Attorney for the New England States

Committee on Electricity, Inc.

CERTIFICATE OF SERVICE

I hereby certify that, pursuant to D.C. Cir. R. 25(c), service of the foregoing will be made electronically via CM/ECF system. All participants in the case are registered CM/ECF users and will be served by the appellate CM/ECF system.

Dated this 20th day of May, 2016.

/s/ Phyllis G. Kimmel              

Phyllis G. Kimmel

McCarter & English, LLP

1015 Fifteenth Street, N.W.

Twelfth Floor

Washington, DC 20005

(202) 753-3400

Attorney for the New England States

Committee on Electricity, Inc.