819 F.3d 329
7th Cir.2016Background
- Three consolidated challenges to FERC orders implementing Order No. 1000 involving "rights of first refusal" (ROFR) in the MISO regional transmission organization.
- Historically, MISO transmission owners had contractual federal ROFRs to build new transmission facilities in their service territories; Order No. 1000 required removal of federal ROFRs to promote competitive selection and regional cost allocation.
- Petitioners (MISO transmission owners and competing developers) argued the contractual ROFRs are reasonable and should be preserved; FERC concluded competition lowers costs and abrogated federal ROFRs, with narrow exceptions.
- FERC allowed incumbents to retain ROFRs for certain baseline-reliability projects that are local and whose costs are allocated within a single pricing zone; it kept multi-value/regional projects outside that exception.
- FERC approved MISO’s broader project-selection criteria (not price-only), permitted recognition of state/local ROFRs, and treated Entergy’s combined operating territories as a single footprint for local/regional classification.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Validity of FERC’s elimination of federal ROFRs under Order No. 1000 | Contractual ROFRs are reasonable and should be presumed valid; FERC cannot abrogate them without justification | Order No. 1000 lawfully removed federal ROFRs to promote competition and lower costs to consumers | FERC lawfully abrogated federal ROFRs; Mobile–Sierra principles do not bar removal where public interest favors competition |
| Exception for baseline-reliability (local) projects | Baseline-reliability projects spanning zones should be regional; ROFR for such projects violates Order No. 1000 | FERC may exempt truly local reliability projects whose costs/benefits are allocated within the local pricing zone to avoid delay in urgent reliability fixes | FERC permissibly allowed ROFRs for baseline-reliability projects where costs are locally allocated and benefits roughly commensurate with costs |
| MISO’s non-cost-based selection criteria for project developers | MISO must prioritize cost estimates; non-cost factors disadvantage outsiders | MISO may consider design, management, schedule, reliability and other factors tied to cost-effectiveness and reliability | FERC permissibly approved MISO’s broader criteria; they relate to efficiency, reliability, and consumer rates and do not improperly favor incumbents |
| Recognition of state/local ROFRs and footprint definition (Entergy) | Allowing state/local ROFRs and treating Entergy’s multi-state service as a single "local" footprint blocks regional competition | Order No. 1000 preserves state authority; MISO may recognize state/local ROFRs and a large integrated operating footprint can be treated as local where entities operate as a single system | FERC appropriately allowed recognition of state/local ROFRs and treating Entergy’s integrated territories as a single footprint for local/regional classification |
Key Cases Cited
- Federal Power Commission v. Sierra Pacific Power Co., 350 U.S. 348 (1956) (establishes Mobile–Sierra principle that freely negotiated utility contracts are presumptively in the public interest unless they harm the public)
- United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U.S. 332 (1956) (companion Mobile–Sierra decision on contractual rate stability under utility regulatory scheme)
- Morgan Stanley Capital Group Inc. v. Public Utility District No. 1 of Snohomish County, 554 U.S. 527 (2008) (addresses limits of Mobile–Sierra and contractual challenges under federal power statutes)
- South Carolina Public Service Authority v. FERC, 762 F.3d 41 (D.C. Cir. 2014) (upheld Order No. 1000’s elimination of federal ROFRs in prior challenges)
- Illinois Commerce Comm’n v. FERC, 721 F.3d 764 (7th Cir. 2013) (discusses regional transmission planning, cost allocation, and limits on shifting costs to parties that do not benefit)