Overview
Senator Joe Manchin (D-WV) dramatically withdrew his permitting reform proposal (formally known as the "Energy Independence and Security Act” (EISA)) yesterday because he lacked the votes in the U.S. Senate to attach the legislation to a federal government funding bill. All indications are, however, that permitting reform will remain on the Congressional agenda for the balance of the year. After a brief discussion of this legislative context, this alert discusses the bill’s provisions on electric transmission.
Legislative Context
As a result of negotiations with Senator Joe Manchin that led to the recent enactment of the climate-focused Inflation Reduction Act (IRA), Democratic leadership agreed to support Manchin in an effort to advance energy project permitting legislation. Because the IRA passed via budget reconciliation, Manchin could not insert permitting reforms considered inappropriate for reconciliation legislation. He accordingly sought a separate commitment from Democratic leadership to work toward passage of energy project permitting legislation. Senate Majority Leader Chuck Schumer, House Speaker Nancy Pelosi, and President Joe Biden had agreed to include the permitting bill in this month’s continuing resolution, which must pass by September 30 to avert a government shutdown.
Manchin released his proposed text late last week, and it was quickly endorsed by the White House and Speaker Pelosi. But the proposal has divided groups across the political spectrum, with organizations like the Clean Energy Buyers Association and American Clean Power Association supporting the permitting bill and groups such as the Center for Biological Diversity opposing it. Senator Bernie Sanders came out against it, while Republican Senators are also split—Senator Shelley Moore Capito supports the bill but other Republicans oppose it. Because the bill ultimately had insufficient support to pass with the continuing resolution, Schumer and Manchin agreed last night to pull the permitting bill from that legislation.
Whether or not the permitting bill stays in its current form, legislative activity in this area will continue. It is possible, for instance, that the permitting bill may become part of the negotiations surrounding the next National Defense Authorization Act or the next round of must-pass spending legislation. These issues occupy a prominent spot in the overall energy policy debate, and permitting reform has bipartisan support in both houses of Congress and backing from the Biden Administration. It thus remains essential to monitor ongoing developments in this area, and Steptoe stands ready to counsel clients on potential implications for energy projects. Below, we discuss issues of importance related to the bill’s electric transmission provisions
Permitting Bill Provisions on Electric Transmission
The bill contains significant provisions addressing a wide range of energy project permitting issues. For instance, it includes reforms related to National Environmental Policy Act (NEPA) reviews, a mandate for the president to designate and prioritize energy projects of “strategic national importance,” an expansion of FERC authority to regulate hydrogen under the Natural Gas Act, and authorizations for the Mountain Valley Pipeline. The discussion below will analyze only the provisions on electric transmission.
The bill's electric transmission provisions cover three main areas: amendments to FPA (1) section 216, (2) section 202, and (3) section 219. In a fourth and final section, we discuss additional provisions affecting transmission projects.
(1) Section 216 Amendments
(a) Section 216 Background
The Energy Policy Act of 2005 added section 216 to the FPA. In its original form, section 216(a) gave the Department of Energy (DOE) the authority to designate “national interest electric transmission corridors” (NIETC) and subsection (b) gave FERC the authority to issue construction permits for transmission facilities in those corridors if, among other requirements, a state commission had “withheld approval” for the project for more than one year. That effort failed to spur any transmission development for at least three reasons.
First, in California Wilderness Coalition v. DOE (2011), the Ninth Circuit vacated the only two transmission corridors DOE has ever designated. The court held that DOE’s designations of the Mid-Atlantic Area National Corridor and the Southwest Area National Corridor were defective because DOE had failed to properly consult affected states in conducting its underlying congestion study and it had not followed NEPA.
Second, in Piedmont Environmental Council v. FERC (2009), the Fourth Circuit held that a state commission had not “withheld approval” of a permit application if it simply denied it. FERC had interpreted the subsection (b) trigger broadly, but, after the Fourth Circuit reversal, FERC has never sought to use its authority under section 216 to grant a construction permit for transmission facilities.
Third, while subsection (e) allows a permit holder to acquire a right-of-way through eminent domain, commentators have noted that this authority omits state-owned lands. Because of the ubiquity of state lands, states have many veto points over potential transmission lines.
(b) Recent Developments
In the Infrastructure Investment and Jobs Act (Bipartisan Infrastructure Law), Congress made several relatively minor amendments to section 216. In apparent response to Piedmont, Congress added state commission denial of an application to the actions that could trigger FERC authority to issue a construction approval for qualifying transmission facilities. Just last month in the IRA (section 50151), Congress appropriated $2 billion for loans for transmission facilities designated under section 216. Finally, as part of the Building a Better Grid Initiative, DOE has issued a Notice of Intent stating that it intends to provide for the designation of NIETCs on a route-specific, applicant-driven basis.
(c) Permitting Bill Amendments
The Manchin permitting bill would amend section 216 to address each of the three challenges noted above. First, it would substitute NIETC designations with a facility-based regime. FERC would be able to apply to DOE for designation of any particular transmission facility as “necessary in the national interest,” based on criteria similar to those currently required for a NIETC designation. This provision appears aimed at providing an easier route to designation than the current corridor-based mechanism, which DOE is only required to consider once every three years (and which has not resulted in any designations since the 2011 Ninth Circuit loss). This would also more closely align with DOE’s recently announced, “route-specific” approach.
Second, the bill would further streamline subsection (b) by allowing FERC to issue construction permits for facilities DOE designates as necessary in the national interest without requiring FERC to wait for state action/inaction. The significance of FERC issuing a construction permit is that it appears to prevent a state from denying siting approval for the construction of the transmission facility. FERC would have to find that the proposed facility, among other things, is in the public interest, reduces congestion, benefits consumers, and enhances energy independence. To be sure, it appears—at least currently—that FERC would be reluctant to use this authority over the protests of states. FERC Chairman Richard Glick reiterated last week that he views state input and partnership as critical for transmission projects.
Third, the bill would allow permit holders to exercise eminent domain over state-owned lands. This would put transmission facilities on equal footing with natural gas pipelines, which under the Natural Gas Act are already able to use eminent domain for state-owned lands. The Supreme Court in fact held just last year in PennEast Pipeline Co. v. New Jersey that the Act properly bestows that power on permitholders—which would place on solid ground the bill’s grant of eminent domain authority over state lands for electric transmission lines.
The bill would also require FERC to allocate costs for section 216 facilities broadly to “customers within the transmission planning region or regions that benefit from the facilities in a manner that is at least roughly commensurate with” “the broad range of reliability, economic, and other reasonably anticipated benefits and the specifically identifiable benefits,” including reduced transmission congestion, consumer benefits, and enhanced energy independence,—“in accordance with cost allocation principles of the Commission.” It is unclear whether this provision would lead to a materially different result in the hypothetical situation in which FERC issued a section 216 construction permit and Congress had been silent on cost allocation. It is possible that this subsection would merely affirm the approach FERC would otherwise take to cost allocation for an interstate transmission facility of national importance—especially given FERC’s recent proposed rule on transmission planning and cost allocation, which demonstrates FERC interest in broad cost allocation for large-scale regional transmission facilities. Even still, this subsection may at least put a thumb on the scale in favor of broad cost allocation.
(2) Section 202 Amendments
The permitting bill would extend FERC’s authority to order interconnection under FPA section 202(b) by granting FERC the additional authority to order construction of section 216 transmission facilities. Specifically, “Whenever the Commission, upon application of any State commission or of any person engaged in the transmission or sale of electric energy, … finds such action necessary or appropriate in the public interest it may by order direct a public utility (if the Commission finds that no undue burden will be placed upon such public utility thereby) … to construct or modify additional electric transmission facilities determined by the Secretary of Energy to be necessary in the national interest.” This would provide FERC with a direct enforcement mechanism against FERC-jurisdictional public utilities to compel the construction of transmission facilities determined by DOE to be necessary in the national interest. (Had the bill proposed to amend section 210 rather than section 202(b), then FERC’s authority would extend to all electric utilities, publicly and privately owned.)
The bill would also extend FERC’s duty under FPA section 202(a) to promote regional coordination to encompass promoting transmission facilities. The bill would require FERC “to promote and encourage … the construction or modification of electric transmission facilities needed to ensure an abundant supply of electric energy.” It is hard to predict whether this open-ended obligation to “encourage” the construction of transmission facilities will specifically cause new FERC policy. That said, when FERC promulgated Order No. 2000 to encourage and regulate regional transmission organizations, it did expressly rely, in part, on its section 202(a) authority to promote regional districts for the voluntary interconnection and coordination of transmission facilities.
(3) Section 219 Amendments
The bill would amend FPA section 219 to allow cost recovery for "payments to jurisdictions impacted by electric transmission facilities" designated as in the national interest under section 216. Given the absence of legislative history for the bill, the objective of this portion is not certain. It appears that the amendment may be aimed at encouraging transmission developers to make payments to non-beneficiary jurisdictions through which transmission lines pass in order to further grease the wheels for transmission development.
(4) NEPA-Related and Other Provisions Affecting Electric Transmission
Finally, the bill also contains general provisions seeking to streamline the process for authorizations and reviews of energy projects, which would include transmission projects. For instance, the bill would:
- Set a two-year target for NEPA reviews for certain major energy projects;
- Require issuance of all other permits within 180 days of finishing the NEPA process;
- Designate a lead agency to coordinate reviews (g., FERC for many section 216 projects);
- Set a 150-day statute of limitations for court challenges; and,
- Require the president to designate and prioritize reviews for certain strategically important energy projects (including at least two transmission or grid-enhancing technologies projects).
Given potential challenges related to authorizations and reviews for electric transmission projects, these provisions could encourage development of transmission facilities.
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Steptoe’s Energy and Government Affairs Groups are following developments on the Manchin permitting legislation carefully. The stage is clearly set for more debate on Capitol Hill in the months ahead.
Please let us know if you have questions about the permitting proposal or if we can otherwise be of assistance.
