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D.C. Circuit Dismisses Challenge to FERC’s Grant of Transmission Incentive to Baker Botts Client ITC Midwest LLC

On January 14, 2025, the U.S. Court of Appeals for the D.C. Circuit dismissed for lack of Article III standing a challenge to the Federal Energy Regulatory Commission’s (“FERC”) grant of a rate incentive to Baker Botts client ITC Midwest LLC.  

To induce new investment in energy infrastructure, FERC offers various incentives to public utilities.  One incentive is the abandonment incentive, which allows a utility to recover 100% of its prudently incurred costs in transmission rates if the project is abandoned due to factors beyond the utility’s control.  To obtain the incentive, the utility must follow a two-step process.  First, it applies to FERC for the incentive.  FERC determines if the utility has satisfied the requisite criteria, and approval of the application means the utility may petition FERC to allow recovery of its prudently incurred costs if the project is later abandoned.  Second, if the project is abandoned, the utility will apply to FERC to recover the costs of the abandoned project. 

ITC Midwest constructs and operates electric transmission lines throughout the Midwest.  In this case, it was selected to build an electric transmission project in Iowa designed to meet future economic and reliability needs in the region.  Recognizing the unique challenges posed by the Iowa project, ITC Midwest applied for an abandonment incentive.  FERC concluded that the project faced numerous risks that threatened cancellation of the project, and the incentive would address those risks.  

A group of organizations whose members purchase electricity at rates that could be affected by the incentive petitioned for review of FERC’s grant of the incentive.  ITC Midwest intervened to defend FERC’s decision and argued that, as a threshold matter, the petitioners lacked Article III standing to challenge the incentive grant.  Specifically, ITC Midwest argued that FERC’s decision did not result in any rate increase for the petitioners, and any chance of a rate increase depended on a long chain of speculative contingencies.  FERC did not contest the petitioners’ standing and argued only the merits.

In its decision, the Court sided with ITC Midwest and agreed that the petitioners lacked Article III standing.  It emphasized that the petitioners could not point to any immediate or concrete injury, and the prospect that they may someday face a rate increase if the project is abandoned was too speculative and relied on an attenuated chain of events to support standing.  The Court accordingly dismissed the petition for review for lack of jurisdiction.

The Baker Botts team was led by Aaron Streett (argued), Mark Little, Christopher Tutunjian, Jay Ryan, and Mary Franco.  

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