Illinois Commerce Commission v. Federal Energy Regulatory Commission

PJM Interconnection (PJM) was a regional transmission organization that was responsible for operating the electric grid in a region spanning states from Virginia to Michigan. The region was divided into two subregions, the western utilities and the eastern utilities. Generally, the power plants in the western region were located closer to customers than the power plants in the eastern region. When PJM planned the construction of new, higher-voltage 500 kilovolt (kV) transmissions lines in the eastern region, the Federal Energy Regulatory Commission (FERC) (defendant) had to approve a method for allocation of costs among PJM’s member utilities. Ultimately, FERC issued an order that provided for a postage-stamp cost-allocation method. FERC determined that the cost allocated to a utility would be independent of the distance that electricity traveled over transmission lines, like how a postage stamp costs the same for all letters regardless of distance. The court of appeals set aside FERC’s initial order and remanded the matter back to FERC. On remand, FERC expressed the difficulty of estimating the benefits to the western utilities of new 500 kV lines in the eastern region. FERC estimated some of the benefits of the new transmission lines, but it did not provide any sources of evidence or analysis in its order. Nor did FERC conduct a cost-benefit analysis or make a finding as to why a cost-benefit analysis was impracticable and why, because of that impracticability, allocating costs equally based on electricity sales was reasonable. FERC simply determined that new transmission lines would provide a broad range of benefits throughout the PJM region, like reduced congestion, reduced outages, reduced capacity-reserve requirements, and reduced electricity losses. FERC issued an order again using the postage-stamp cost-allocation method. However, FERC ignored the fact that reduced outages and reduced electricity losses did not benefit western utilities as much as eastern utilities and failed to justify treating the benefits as equivalent in its order. The Illinois Commerce Commission and western-utility members of PJM (plaintiffs) filed petitions for review of FERC’s order.