FERC Rules That Competitive Transmission Trumps Negotiated Contract Rights

In a May 17 order (the "New England Compliance Order") on the New England compliance filing in response to Order No. 1000[1] ("Order 1000"), the Federal Energy Regulatory Commission ("FERC") rejected efforts by the New England transmission owners to retain their exclusive rights to build new transmission in the region. In doing so, FERC declared its "plenary authority" to abrogate or substantially modify contracts - even those protected by the Mobile-Sierra doctrine[2] - if changes in FERC's jurisdictional industries warrant such actions. FERC's bold sweeping away of federal rights of first refusal ("ROFRs") or exclusive rights to build and own regional transmission, including one expressly protected by a Mobile-Sierra provision, will likely result in federal appeals that will further shape Mobile-Sierra law. In the meantime, FERC has reshaped the electric transmission industry to open it up to competitive transmission development. Order 1000, which resulted from a FERC rulemaking proceeding, is designed to reform FERC's electric transmission planning and cost-allocation requirements for public utility transmission providers. The ROFR elimination is the most controversial aspect of Order 1000 compliance and brings into play Mobile-Sierra legal precedent. Under Mobile-Sierra precedent, for FERC to order any nonvoluntary change to contracts protected under Mobile-Sierra, FERC must first find that allowing the subject contract provisions to stay in place would harm the public interest, a more stringent standard than the ordinary "just and reasonable" standard. Thus, to abrogate or involuntarily modify contracts that have Mobile-Sierra protection, FERC must first conduct a public interest analysis. FERC announced its intention to eliminate ROFRs first in Order 1000, reaffirmed that intent on rehearing in Order No. 1000-A, and first implemented that intent in its orders on the compliance filings of PJM and MISO in March ("the PJM and MISO Compliance Orders"). In the PJM and MISO Compliance Orders, FERC was able to eliminate the ROFRs without going through a public interest analysis because the contracts did not have express Mobile-Sierra protection by their own terms and FERC found no presumption of Mobile-Sierra protection was justified. FERC reasoned that the Mobile-Sierra presumption applies to a contract only if the contract has certain characteristics that justify the presumption. FERC found the MISO and PJM contract provisions in question...