A US APPEALS COURT dealt a blow to the Federal Energy Regulatory Commission.

The court cast doubt in mid-July on the federal government’s ability to require utilities to enter into — and stay put in — transmission organizations like ISOs and RTOs. In an ISO or RTO, utilities cede operating control (or sometimes even ownership) of their transmission lines to a central grid operator. The US appeals court for the DC circuit held that FERC has no authority to prevent utilities from withdrawing from such organizations. This comes at a time when the agency is having a hard enough time getting utilities to join such groupings in the first place.

Many independent generators have been encouraging the federal government to order utilities to join RTOs, or regional transmission organizations, in the hope that this will make for more uniform operating procedures for the national grid. To date, FERC has left participation in RTOs voluntary, but its Order No. 888 — which the courts have upheld — requires individual utilities to allow open access to their grids. FERC may now have to seek Congressional modification of its statutory authority if it wants to make participation in RTOs mandatory.

However, in potentially a favorable move for independent generators, the court also set aside, in the same decision, a FERC attempt to modify an entire class of contracts. The agency had made a generic finding that the contracts are against the public interest. The court said the agency had to look at individual cases. This part of the decision could tie the agency’s hands in responding to a complaint by the California Public Utilities Commission that power purchase agreements California signed when electricity prices were high last year should be set aside en masse.

The case is Atlantic City Electric Co. v. FERC. The court issued its decision on July 12.