On June 28, 2024, the Supreme Court overruled Chevron in Loper-Bright Enterprises v. Raimondo, fundamentally altering the judicial approach to agency interpretations of the law, particularly when assessing an agency’s scope of authority. This landmark 6-3 ruling by Chief Judge Roberts, joined by Justices Thomas, Alito, Gorsuch, Kavanaugh and Barrett, signifies a significant shift that is likely to affect how the Federal Energy Regulatory Commission (FERC) interprets and implements its authorities under the Federal Power Act (FPA), which involves (among other things) tariffs and business practices for wholesale power sales and interstate (high-voltage) transmission services. During an era when the interstate power grid is in a state of transition due to public policy concerns relating to carbon emissions, the nature and scope of FERC’s authorities under the FPA is of substantial interest.
The retirement of Justice Anthony Kennedy in 2018, a noted critic of Chevron deference, and the subsequent nomination and confirmation of Justice Brett Kavanaugh, then Justice Neil Gorsuch (both also noted critics of Chevron) signaled the very real prospect that the Supreme Court would prompt questions about the future of this significant judicial doctrine, which had granted agencies broad interpretive leeway. Many, including this writer, anticipated that FERC would face substantial changes in judicial review, given its role in regulatory and tariff structures under the FPA in the event Chevron were to be overruled. Chevron deference, previously crucial to FERC’s defense of various major rulemakings when challenged on judicial review, has been a foundational support for the agency. That foundation may now have a crack. With the Supreme Court's decision to overturn Chevron deference, concerns about the erosion of judicial deference and its consequences for FERC have been realized, spotlighting the challenges and implications for how FERC will navigate its regulatory responsibilities going forward. A significant issue to watch going forward is the derivative impact of Loper-Bright because there are various other deference constructs that have been built on the now rickety Chevron foundation.
The Basics of Chevron Deference
The basics of Chevron deference were relatively straight forward. First there is Chevron “step zero,” which asks whether the governing statute clearly delegates interpretative authority to the agency (such as FERC). If so, then under Chevron’s “step one,” the question is whether the statutory language is clear after applying traditional canons of interpretation. If so, then the statute controls. If not, then the analysis proceeds to “step two.” Under Chevron step two, the question is whether the agency interpretation is reasonable. Then there are several other “Chevron-like” deference doctrines, including “Auer deference” for agency interpretation of its own regulations. The Auer extension is of particular interest to agencies like FERC who preside over mountains of regulations (regulations it has promulgated) and jurisdictional agreements (such as operating agreements, interconnection agreements, transmission owner coordination agreements or other records required to be “on file” with the agency. NextEra Desert Ctr. Blythe, LLC v. FERC, 852 F.3d 1118 (D.C. Cir. 2017) (collecting cases on deference to FERC construction of jurisdictional agreements).
The Loper Bright Decision
On June 28, 2024, the Supreme Court issued a landmark 6-3 decision in Loper Bright Enterprises v. Raimondo overturning Chevron deference, and fundamentally altering how courts interact with agency interpretations of statutes. Chevron deference had previously allowed courts to defer to agency interpretations if the statute was ambiguous and the interpretation was reasonable. This ruling mandates courts to use their independent judgment to decide if an agency’s actions are within its statutory authority, removing the presumption favoring the agency’s interpretation. The decision stems from a consolidation of appeals involving the National Marine Fisheries Service’s interpretation of the Magnuson-Stevens Fishery Conservation and Management Act, which highlighted inconsistencies in how lower courts applied ’Chevron’s two-step test. The Supreme Court argued that Chevron deference contradicted the courts’ Constitutional mandate to interpret laws and was unworkable and inconsistently applied, thereby undermining the rule of law.
The end of Chevron deference may lead to a more conservative approach by agencies, including but not limited to FERC, in drafting regulations and making administrative determinations so to avoid adverse outcomes on judicial review. Although Loper Bright does not affect cases previously decided under Chevron or other forms of deference that have been applied by the judiciary to agency interpretations of their own regulations, such as the Auer deference standard discussed above’, it signals a significant shift in the Federal judiciary’s approach to administrative law and statutory interpretation, also presenting potential for a broader reevaluation of deference—such as Auer—doctrines more generally.
Interpreting the FPA
Under the FPA, FERC regulates key aspects of the U.S. electric power sector, including the wholesale sale and interstate transmission of electricity, ensuring rates are “just and reasonable” and non-discriminatory. It also licenses hydroelectric projects, upholds bulk power system reliability, and modernizes the electric grid. However, FERC's authority is limited by Section 201, which restricts its jurisdiction over areas regulated by states, such as certification of need for new power generation facilities, integrated resource planning, retail electricity sales and local distribution systems. The recent Supreme Court decision in Loper-Bright and the end of Chevron deference require FERC to tread carefully, especially when its actions may encroach on state-regulated areas. FERC's jurisdiction has been evolving gradually in the direction of encroaching on subjects traditionally regulated by the states, particularly its new long-term transmission planning requirements in Order No. 1920, so the loss of Chevron could impact judicial review of
FERC’s view of its regulatory authority.
The limitations on FERC’s jurisdiction to exclude matters regulated by the states are designed to maintain a balance between federal and state powers, respecting the rights of states to manage local energy issues while ensuring a coherent national energy policy where interstate commerce and system reliability are concerned. This allows for localized adaptation to the diverse needs and policies of different states while maintaining a standardized regulatory approach to the broader, interconnected energy market.
Anticipating Judicial Review of FERC’s Recent Order No. 1920 and Some Remaining Questions
On May 13, 2024, FERC issued Order No. 1920, introducing significant reforms in regional transmission planning and cost allocation. This landmark rule significantly expands planning obligations for transmission system expansions and mandates each transmission planning region in the U.S. to engage in long-term, scenario-based transmission planning. Some of the required scenarios will require forecasts concerning where new power generation resources will be located—but many years in advance of any state approvals required for those generation resources to be built or funded by retail ratepayers. If FERC were to require the transmission system to be built proactively to access locations where new power plants might be constructed, does the agency create a form of subsidy for generation developers in those locations? Does that subsidy for generation development provided via socialized costs allocation for transmission facilities to access those locations intrude on state regulatory authority over integrated resource planning, certification of new generation plant, and the like? Does it unfairly favor some types of generation technologies over others?
Proponents of Order No. 1920 argue that FERC’s interpretation of the FPA as permitting its prescriptive approach to regulating transmission planning practices should be confirmed on judicial review because it is the sound policy and consistent with the agency’s responsibilities to ensure transmission rates are “just and reasonable.” They contend that Order No. 1920 avoids mandating specific policies or outcomes and strictly adheres to the well-established principles of cost causation. The Supreme Court in FERC v. Electric Power Supply Assn. (2015) has otherwise recognized that Section 201 of the FPA calls for a form of “cooperative federalism” because FERC’s jurisdiction and reserved state authority are intertwined and are not “hermetically sealed from each other.” FERC actions taken within its authority do not become problematic simply because those actions may impact matters subject to retained state jurisdiction, such as siting and construction of transmission facilities. At the same time, though, the appellate court precedent relied on by FERC in adopting Order No. 1920, South Carolina Public Service Authority v. FERC (D.C. Cir. 2014), relied on Chevron deference in deciding that FERC acts within its authority under the FPA when overseeing transmission planning practices that are “affecting” rates, charges or classifications set forth in a tariff. In defining what practices are “affecting” rates, the courts have relied on Chevron to grant FERC deference when it concludes that a given practice is subject to its jurisdiction. That deference, though, is now lost and precedent built on deference presently resets on a questionable foundation.
In contrast, critics accuse FERC of jurisdictional overreach. They claim the rule is based on precedent that relied on Chevron deference and is thus built on an unstable foundation. They assert also that Order No. 1920 did not reach the proper balance between Federal and state jurisdictions because it will undermine states’ roles in power delivery systems planning. Furthermore, advocates for states’ rights argue that the order fails to protect consumers and may lead to higher costs that favor for-profit renewable power generators, detracting from state policy interests. These criticisms also sometimes invoke the Major Questions Doctrine, which is a principle used by the Supreme Court to handle cases involving assertions of regulatory authority by federal agencies, especially when these agencies claim the power to resolve issues of vast economic and political significance. They also suggest that FERC has probably exceed its authority and point to issues with the rule’s timing and perceived political influences.
Eleven petitions challenging Order No. 1920 have been filed to date and all appeals will be combined and reviewed by the U.S. Court of Appeals for the Fourth Circuit. Loper-Bright is sure to come up early and often, as the Court will be called upon to scrutinize FERC’s reliance use of the “related to” principle as the jurisdictional basis for imposing requirements concerning long-term transmission planning processes by utilities. FERC’s claimed expertise in construing what practices are or are not sufficiently connected to actual transmission service rates, terms or conditions rates will be reviewed de novo --but it remains to be seen whether this will make any difference due to the weight a reviewing court may lend to precedent and reliance interests. Another open question is whether and to what extent the downfall of Chevron will bring with it other forms of judicial deference to agency determinations of what the law is with respect to the terms and conditions of jurisdictional agreements. The Supreme Court in Loper-Bright was very clear that it is the judiciary that is responsible for determining what the law is, and if the law is rooted in a jurisdictional contract filed with FERC, it would follow that agency interpretation of contracts—especially those that do not include rate design or other matters that require specialized expertise to construe—may no longer benefit from “Chevron-like” deferential review.
