The United States urgently needs to expand its interstate transmission infrastructure, and appellate courts play a key role in addressing legal obstacles to this development. Historically, transmission projects have been delayed by disputes over land valuation, ”not-in-my-backyard” (NIMBY) opposition, and traditional siting challenges. Recently, the Third Circuit heard oral arguments in Transource Pennsylvania, LLC v. DeFrank, et al., a case that questions whether individual states can unilaterally block projects vital to regional energy needs.
The Transource Pennsylvania case highlights a major obstacle to building essential interstate transmission infrastructure in the United States: the complex web of government entities with overlapping jurisdiction. In 2016, PJM Interconnection (a regional transmission organization that manages the grid for 13 states and the District of Columbia) approved a project involving transmission lines between Pennsylvania and Maryland. PJM determined the project was necessary to address border congestion, which had cost approximately $800 million from 2012 to 2016. With projected benefits of $845 million outweighing construction costs of $509–528 million, the project was deemed cost-effective. However, the Pennsylvania Public Utilities Commission (PA PUC), responsible for siting the project within the state, denied approval, arguing that reducing regional transmission congestion would increase electricity rates for Pennsylvania consumers.
The project developer, Transource Pennsylvania, contested the PUC’s decision in the U.S. District Court for the Middle District of Pennsylvania. The district court responded with a well-reasoned and legally sound opinion, overturning the PUC’s denial of the siting permit. The court’s decision was grounded in two key constitutional principles: the Supremacy Clause, which establishes that federal law takes precedence over conflicting state law, and the dormant Commerce Clause, which prevents states from discriminating against or imposing burdens to interstate commerce. These rulings have significant implications for state authority over transmission infrastructure.
The Court’s analysis under the Supremacy Clause skillfully balanced the interplay between state and federal authority. While acknowledging states’ traditional authority over transmission line siting, the Court found that the grounds on which the PUC denied the permit fundamentally misaligned with federal energy policy objectives. Specifically, the PUC’s decision to treat reduced congestion pricing as a “cost” rather than a benefit directly contradicted FERC’s congressionally mandated mission to ensure just and reasonable wholesale rates. If upheld, this ruling could significantly limit how state regulators assess transmission projects. It effectively establishes a two-tier review process in which states retain authority over physical siting considerations but must defer to federal methodologies when assessing market impacts.
The dormant Commerce Clause ruling may have even broader implications. The Court held that the PUC’s attempt to shield in-state consumers from price increases resulting from expanded regional trade constitutes impermissible economic protectionism. Applying the U.S. Supreme Court’s dormant Commerce Clause framework, known as the “Pike test,” the Court determined that the burden imposed on interstate commerce outweighed the purported local benefits. This analysis establishes a precedent that may make it more difficult for states to defend policies that fragment regional electricity markets, even when those policies are designed to protect local ratepayers.
The Third Circuit’s upcoming decision will play a pivotal role in determining whether this new framework is upheld. During oral arguments, the judges appeared to differentiate between legitimate state authority over the project and impermissible interference with federal market objectives, signaling an awareness of the need for clear jurisdictional boundaries. A ruling affirming the district court’s decision would solidify the division of authority between states and regional transmission planning bodies created under federal law.
Understanding the Transource Pennsylvania case requires situating it within the broader context of transmission development and planning, where local opposition to large transmission projects is a common and persistent challenge. Such opposition often stems from dissatisfaction with the siting of transmission lines. For instance, Invenergy’s Grain Belt Express transmission line has faced significant delays, partly due to the high value of Missouri farmland along its proposed route. Invenergy encountered strong criticism for employing eminent domain to acquire land and, despite eventually offering 110% of the fair market value to secure the necessary parcels, ongoing legal challenges persist. In another scenario, Blackstone’s successful Champlain Hudson Power Express transmission line overcame NIMBY opposition when “buried lines were selected over above-ground lines to avoid community objections.”
The challenge to Transource’s Independence Energy Connection project is particularly notable because it highlights a conflict not tied directly to siting issues but rather to the broader tension between local community interests and regional needs.
Historically, some of the most significant examples of artificially deflated energy prices have been observed in areas with stranded renewable assets, like in the Electric Reliability Council of Texas (ERCOT) oversight territory. In ERCOT, isolated western wind production has caused negative pricing, an issue which has in part been remedied by Competitive Renewable Energy Zone (CREZ) transmission lines that have allowed excess wind power to be put to use in more populated areas within ERCOT. Unlike ERCOT’s single-state market, PJM operates across multiple states where some regions benefit from artificially low prices due to transmission constraints—these states have little incentive to support new transmission lines that would raise their local prices by enabling power exports to higher-priced regions.
To address the challenges highlighted by the Transource case and prevent the escalation of these issues amid growing energy demand, two critical outcomes must be pursued:
- The Transource court must affirm that FERC (and the regional organizations such as PJM formed through FERC rulemaking) maintain independent authority to designate ‘need’ for regionally-beneficial lines. The cost allocation conducted for the Transource lines confirmed multiple times that the benefits outweighed the costs based on a FERC-approved and RTO-implemented process. If states are permitted to overrule federally-sanctioned cost allocation processes, regional planning improvements (like those recently enacted in FERC Orders 1920 and 1920-A) will not have the intended positive impact.
- FERC should enact cost-allocation and planning measures for interregional transmission to alleviate the possibility of more regional price disparities. Under the current regulatory framework, regions mainly rely on resources within their own boundaries to relieve congestion pricing. By expanding electricity trade between regions, lower priced electricity could be procured from markets outside the region in need.
The Third Circuit’s decision in the Transource Pennsylvania case will have far-reaching implications beyond the fate of a single transmission project. It will establish a critical precedent for how states and federal authorities navigate the delicate balance between protecting local interests and addressing the urgent national need to modernize and expand America’s transmission infrastructure. This modernization is essential to creating a more resilient and sustainable energy grid capable of meeting future demands and supporting the transition to renewable energy sources.