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Illinois Commerce Commission v. Federal Energy Regulatory Commission

United States Court of Appeals, Seventh Circuit

June 7, 2013

Illinois Commerce Commission, et al., Petitioners,
Federal Energy Regulatory Commission, Respondent.

Argued April 10, 2013

Petitions to Review Orders of the Federal Energy Regulatory Commission. Nos. er10-1791-000, er10-1791-001, er10-1791-002

Before Posner, Wood, and Williams, Circuit Judges.

Posner, Circuit Judge.

Control of more than half the nation's electrical grid is divided among seven Regional Transmission Organizations, as shown in Figure 1. These are voluntary associations of utilities that own electrical transmission lines interconnected to form a regional grid and that agree to delegate operational control of the grid to the association. See 18 C.F.R. §§ 35.34(j), (k)(1)(i); Midwest ISO Transmission Owners v. FERC, 373 F.3d 1361, 1363-65 (D.C. Cir. 2004). Power plants that do not own any part of the grid but generate electricity transmitted by it are also members of these associations, as are other electrical companies involved in one way or another with the regional grid.

Figure 1

Regional Transmission Organizations

Image Omitted

The RTOs play a key role in the effort by the Federal Energy Regulatory Commission "to promote competition in those areas of the industry amenable to competition, such as the segment that generates electric power, while ensuring that the segment of the industry characterized by natural monopoly—namely, the transmission grid that conveys the generated electricity—cannot exert monopolistic influence over other areas .... To further pry open the wholesale-electricity market and to reduce technical inefficiencies caused when different utilities operate different portions of the grid independently, the Commission has encouraged transmission providers to establish 'Regional Transmission Organizations'—entities to which transmission providers would transfer operational control of their facilities for the purpose of efficient coordination . . . [and] has encouraged the management of those entities by 'Independent System Operators, ' not-for-profit entities that operate transmission facilities in a nondiscriminatory manner." Morgan Stanley Capital Group, Inc. v. Public Utility District No. 1, 554 U.S. 527, 536-37 (2008).

Two Regional Transmission Organizations are involved in this case—Midwest Independent Transmission System Operator, Inc. (MISO) and PJM Interconnection, LLC (PJM). As shown in Figure 1, MISO operates in the midwest and in the Great Plains states while PJM operates in the mid-Atlantic region but has midwestern enclaves in and surrounding Chicago and in southwestern Michigan.

Each RTO is responsible for planning and directing expansions and upgrades of its grid. It finances these activities by adding a fee to the price of wholesale electricity transmitted on the grid. 18 C.F.R. §§ 35.34 (k)(l), (7). The Federal Power Act requires that the fee be "just and reasonable, " 16 U.S.C. § 824d(a), and therefore at least roughly proportionate to the anticipated benefits to a utility of being able to use the grid. Illinois Commerce Commission v. FERC, 576 F.3d 470, 476 (7th Cir. 2009); Pacific Gas & Electric Co. v. FERC, 373 F.3d 1315, 1320-21 (D.C. Cir. 2004). Thus "all approved rates [must] reflect to some degree the costs actually caused by the customer who must pay them." K N Energy, Inc. v. FERC, 968 F.2d 1295, 1300 (D.C. Cir. 1992). Courts "evaluate compliance [with this principle, which is called 'cost causation'] by comparing the costs assessed against a party to the burdens imposed or benefits drawn by that party." Midwest ISO Transmission Owners v. FERC, supra, 373 F.3d at 1368.

MISO began operating in 2002 and soon grew to have 130 members. (Unfortunately, the voluminous briefs say little about the association's governance structure.) In 2010 it sought FERC's approval to impose a tariff on its members to fund the construction of new high-voltage power lines that it calls "multi-value projects" (MVPs), beginning with 16 pilot projects. The tariff is mainly intended to finance the construction of transmission lines for electricity generated by remote wind farms. Every state in MISO's region except Kentucky (which is barely in the region, see Figure 1) encourages or even requires utilities to obtain a specified percentage of their electricity supply from renewable sources, mainly wind farms. Indiana, North Dakota, and South Dakota have aspirational goals; the rest have mandates. The details vary but most of the states expect or require utilities to obtain between 10 and 25 percent of their electricity needs from renewable sources by 2025—and by then there may be federal renewable energy requirements as well.

"The dirty secret of clean energy is that while generating it is getting easier, moving it to market is not . . . . Achieving [a 20% renewable energy quota] would require moving large amounts of power over long distances, from the windy, lightly populated plains in the middle of the country to the coasts where many people live. . . The grid's limitations are putting a damper on such projects already." Matthew L. Wald, "Wind Energy Bumps into Power Grid's Limits, " New York Times, Aug. 27, 2008, p. A1. MISO aims to overcome these limitations.

To begin with, it has identified what it believes to be the best sites in its region for wind farms that will meet the region's demand for wind power. They are the shaded ovals in Figure 2. Most are in the Great Plains, because electricity produced by wind farms there is cheaper despite the longer transmission distance; the wind flow is stronger and steadier and land is cheaper because population density is low (wind farms require significant amounts of land).

Figure 2

Wind Development Zones and MVP Projects (dashed lines are initial proposals, solid lines approved projects)

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MISO has estimated that the cost of the transmission lines necessary both to bring electricity to its urban centers from the Great Plains and to integrate the existing wind farms elsewhere in its region with transmission lines from the Great Plains—transmission lines that the multi-value projects will create—will be more than offset by the lower cost of electricity produced by western wind farms. The new transmission lines will also increase the reliability of the electricity supply in the MISO region ...

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