Navigating the New Frontier of Federal-State Energy Regulation: What Energy Companies Need to Know

By Ryan J. Regula

Introduction

The jurisdictional boundary between the Federal Energy Regulatory Commission (FERC) and the states is being actively contested, from challenges to landmark transmission planning rules to disputes over emergency cost-allocation orders, in ways that carry significant legal, financial, and operational implications for energy companies. For utilities, independent power producers, and transmission developers, understanding these dynamics is now a strategic imperative.

The Jurisdictional Divide: A Bright Line That Isn’t

The Federal Power Act divides authority between FERC and the states: FERC exercises jurisdiction over interstate transmission and wholesale electricity sales, while states retain authority over generation facilities, retail rates, and decisions about resource mix. The D.C. Circuit has regularly been called upon to “referee the Federal Power Act’s jurisdictional line separating [FERC’s] jurisdiction over the federal wholesale market and States’ jurisdiction over facilities used in local distribution.”¹

However, in practice, this line is far from clear. Transmission planning decisions inherently implicate the generation resource mix because the purpose, routing, and sizing of transmission infrastructure are shaped by what generation resources exist or are expected to be built. As states pursue divergent energy policy agendas, this jurisdictional overlap has become a source of increasingly high-stakes litigation.

FERC Order No. 1920: A Case Study in Jurisdictional Conflict

No recent proceeding illustrates these tensions more vividly than FERC Order No. 1920. Issued on May 13, 2024, under Section 206 of the Federal Power Act, the rule requires transmission providers to engage in long-term regional planning over a 20-year horizon, develop scenarios using seven categories of factors, evaluate projects using seven benefit metrics, and file ex ante cost allocation methodologies.

FERC characterized the rule as addressing deficiencies in transmission planning processes within its exclusive jurisdiction. A 19-state coalition led by Texas Attorney General Ken Paxton saw it differently: an attempt to “usurp the States’ exclusive authority over generation choices by adopting planning rules designed to benefit remote renewable generation and renewable developers, and shift billions or trillions of dollars in transmission costs from those developers onto electric consumers.” Invoking Pacific Gas & Electric Co. v. State Energy Resources Conservation & Development Commission, 461 U.S. 190 (1983), the states argued that Order No. 1920 effectively makes FERC “the national Integrated Resource Plan designer of the generation mix.”

Conversely, a coalition of 12 attorneys general led by California filed an amicus brief supporting Order No. 1920, arguing it will “support the development of needed transmission infrastructure, improve the grid’s reliability, incorporate state engagement, and reduce future costs to consumers” while “respect[ing] the important role played by states in developing and siting new power sources.”

Cost Allocation: Where Jurisdictional Tensions Hit the Bottom Line

Nowhere do the jurisdictional states become more tangible than in Order No. 1920’s cost allocation provisions, which determine who pays (and how much) for regional transmission buildout. The rule requires a default ex ante cost allocation method in every region, with an optional State Agreement Process overlay. If states cannot agree, the default method applies and the project proceeds.

Opponents argued this framework “will enable the assessment of the cost of public policy projects of other states upon ratepayers of non-consenting states.” Commissioner Christie’s dissent framed the issue as a “shell game” in which reliability projects are “lumped” together with “public and corporate-driven policy projects,” allowing costs to be “socialized across an entire multi-state region.”

For energy companies, the implications are significant. Transmission developers must evaluate how cost allocation outcomes affect project economics across states with divergent policy preferences. Utilities must assess rate impacts and determine whether to support or challenge proposed formulas. Independent power producers must understand how cost allocation will affect the competitiveness of their projects.

The Major Questions Doctrine: A New Dimension of Regulatory Risk

The state challenges also invoked the major questions doctrine, citing West Virginia v. EPA, 597 U.S. 697 (2022), to argue that the rule’s massive economic consequences and its implications for the federal–state jurisdictional divide require “clear congressional authorization” that FERC lacks. FERC countered that the D.C. Circuit already upheld these transmission planning practices in the Order No. 1000 litigation, and that the “fact that transmission has become a more politically salient topic does not transform our longstanding practice into a major question.”

This debate takes on added significance in the post-Loper Bright landscape. If courts apply the major questions doctrine to limit FERC’s transmission planning authority, it could reshape the regulatory landscape for transmission development and cost recovery. It could also open the door to state-level challenges to other FERC rulemakings.

Beyond Order No. 1920: DOE Emergency Orders and FERC Cost Allocation

These jurisdictional tensions are also playing out in a related arena: the Department of Energy’s (DOE) use of Section 202(c) of the Federal Power Act to issue emergency orders preventing the planned retirement of fossil fuel-fired power plants. While these orders originate from DOE, the critical follow-on question of who pays is resolved in FERC dockets. State attorneys general from Michigan, Illinois, Kentucky, and Minnesota have filed interventions, protests, and rehearing requests in FERC cost-recovery proceedings for plants such as the J.H. Campbell coal plant, the Schahfer generating station, and the Culley Generation Station.

These proceedings raise the same core questions: Can federal action override state generation planning decisions? Who bears the costs when federal reliability concerns conflict with state choices to retire aging plants? Energy companies with assets subject to potential 202(c) orders, or that participate in markets where such costs may be allocated, must be prepared to engage at both levels.

The Partisan Dimension: Red States, Blue States, and the Energy Transition

The Order No. 1920 challenge also has a partisan dimension. The 19-state opposing coalition is led by Republican attorneys general; the 12-state supporting coalition is led by Democratic attorneys general. For energy companies operating across multiple states, this means a transmission project or cost allocation formula that enjoys strong support in one set of states may face vigorous opposition in another, which requires regulatory strategies that account for this political reality.

Practical Takeaways for Energy Companies

The evolving FERC–state dynamic carries several practical implications. Regulatory risk is multidirectional: a favorable FERC order may be challenged by state attorneys general in federal court, while a state-level policy decision may be overridden by a FERC cost allocation ruling or DOE emergency order. Companies must monitor and participate in proceedings at both levels.

Cost allocation outcomes are becoming more contested and less predictable. Companies should engage early in cost allocation proceedings and build optionality into project economics. The consolidated Order No. 1920 cases, now pending before the Fourth Circuit under Appalachian Voices v. FERC, No. 24-1650, will likely set important precedent on the major questions doctrine, the scope of FERC’s Section 206 authority, and the degree to which federal transmission planning can accommodate or override state generation policies.

Finally, state attorney general engagement is intensifying across multiple fronts. Companies that fail to anticipate state attorney general involvement in FERC proceedings risk protests, interventions, and rehearing requests that can delay projects, alter cost recovery, and reshape market rules.

How Specialized Counsel Can Help

As federal and state proceedings increasingly move on parallel tracks, energy companies often benefit from counsel experienced in both forums. A coordinated approach can help organizations identify cost allocation risk earlier, keep deal milestones aligned with regulatory clearance timelines, respond effectively to attorney general interventions, and maintain the diligence record that supports board-level oversight. Companies considering how a coordinated federal–state strategy fits within their broader risk management framework are encouraged to reach out to specialized counsel.

Conclusion

The challenges to Order No. 1920, the Section 202(c) emergency order proceedings, and the broader engagement of state attorneys general in FERC dockets all underscore a single reality: energy companies cannot afford to view federal and state regulatory strategy in isolation. Success requires an integrated approach that accounts for the full spectrum of jurisdictional, political, and legal risks.