A federal appeals court upheld the Federal Energy Regulatory Commission's refusal to direct ISO New England to require more transmission projects to be subject to competitive solicitation requirements.
"Although the number of reliability projects so far exempted from competitive bidding exceeded those open to competition, the appropriate balance struck — between competitive procurement and quick redress of reliability needs — is the sort of policy judgment left to the commission," reasoned the U.S. Court of Appeals for the District of Columbia Circuit in an opinion by Judge A. Raymond Randolph and decided March 22.
Independent transmission developer LSP Transmission Holdings II had alleged that ISO-NE was violating FERC Order 1000. Issued in 2011, the order said that any federal right of first refusal, or ROFR, to build new transmission facilities must be removed from commission-approved tariffs and agreements.
Prior to Order 1000, many incumbent utilities had the right to construct any new transmission facilities in their particular service areas, even if the proposal for new construction came from a third party. If the utility concluded that such a project would offer substantial benefits, the incumbent usually decided to take on the project itself, which FERC claimed discouraged nonincumbents from proposing transmission facilities and drove up consumer costs in the process.
FERC's solution was to require the elimination of ROFRs, but it carved out an exception at the center of the dispute here: if the time needed to solicit and evaluate competitive bids would delay the project and thereby threaten system reliability, competitive bidding would not be required.
In ruling on ISO-NE tariff revisions filed to comply with Order 1000, FERC determined that any projected needed within three years to maintain grid reliability would qualify for the competitive solicitation exemption.
However, after becoming concerned about the number of transmission projects that ISO-NE and other regional grid operators were exempting from competitive selection requirements, FERC asked the grid operators to justify their practices.
In regard to ISO-NE, FERC cited the number of projects being exempted that had estimated "need-by dates" occurring within the three-year window but that would not become operational until some time later, sometimes years later. But the agency later accepted the ISO-NE's explanation that it uses "a more conservative set of assumptions" about when a project will be necessary to prevent reliability shortfalls.
Crying foul, LSP, a subsidiary of LS Power Group, asserted that since 2016, ISO-NE had exempted from competition "virtually every ... reliability need" project — 31 in all — from the competitive solicitation requirement. It, therefore, urged FERC to order the ISO to use the operational dates and not the need-by dates for determining eligibility for the reliability exemption.
The agency refused, reasoning that the ISO-NE's use or calculation of need-by dates ensured grid reliability. Most concerning to the commission was that the use of in-service dates could delay urgently needed projects that would take more than three years to complete because such projects would be subject to the competitive bidding process.
The D.C. Circuit ruled that FERC "adequately addressed" LSP's concerns.
"We see nothing irrational in the commission's response to LSP's general criticism of ISO New England's use of more conservative assumptions regarding its system capacity and future management," Randolph wrote.
The court nevertheless acknowledged that LSP "may have a point" in suggesting that since the current rules are not leading to greater competition, something must be wrong with those rules. But the developer never argued that ISO-NE was violating its tariff, and deciding whether that tariff needs to be changed is FERC's job and not the court's, the D.C. Circuit opinion said.
Joining Randolph in the decision, LSP v. FERC (No. 20-1422), were judges Judith Rogers and Cornelia Pillard.
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