What Happened To The De-Regulated Wholesale Transmission Market?

In LSP Transmission Holdings, LLC v. Lange, 2018 WL 3075976 (D. Minn. June 21, 2018), a court upheld a "traditional" state-based regulation approved by the Federal Energy Regulatory Commission ("FERC") that restricts the wholesale transmission electricity market. The United States District Court for the District of Minnesota upheld Minnesota Statute § 216B.246,1 granting incumbent electric transmission owners the right of first refusal to construct transmission lines over merchant transmission developers. It found that neither interstate commerce nor the dormant Commerce Clause was violated, based on the FERC's approval of such "traditional" state regulation. An interesting concept for those attempting to move from "traditional" state monopolies of wholesale transmission to a de-regulated marketplace.

Interstate electric energy transmission and wholesale rates have become a matter of federal public interest since the Federal Power Act was enacted in 1935, granting FERC the authority to regulate the transmission and sale of electricity at wholesale rates in interstate commerce. FERC has since enacted a series of reforms to promote development of competitive markets to address the finding that “the economic self-interest of electric transmission monopolists lay in denying transmission or offering it only on inferior terms to emerging competitors,” S.C. Pub. Serv. Auth., 762 F.3d at 50; FERC Order No. 888 (requiring each jurisdictional electric public transmission provider to unbundle its wholesale generation and transmission services).Thereafter, FERC issued Order No. 2000, encouraging interstate electric transmission operators to cede operation of their transmission systems to independent system operators (“ISOs”) or regional transmission organizations (“RTOs”) to coordinate transmission planning, operation, and use on a regional and interregional basis.2

Prior to 2011, incumbent utilities had a federal right of first refusal ("ROFR"). In 2011, FERC Order 1000 eliminated the federal ROFR. See 136 FERC 61051, 2011 WL 2956837 ("Order 1000") ¶ 7. However, FERC Order 1000 recognized that states could continue to regulate electric transmission lines. (Order 1000 ¶ 107). Accordingly, Minnesota enacted its own ROFR law, Minn. Stat. § 216B.246.3, which authorized the Public Utility Commission to require an incumbent to build the electric transmission line. FERC approved MISO's tariff, and its decision to honor state ROFR laws.3

LSP challenged the...