No State “Need” Veto of FERC–Approved RTO Projects: Third Circuit Clarifies Supremacy Clause Limits on Siting Decisions

Introduction

This precedential decision from the U.S. Court of Appeals for the Third Circuit addresses a recurring friction point in modern energy federalism: how far state siting authority can go when it collides with federally supervised regional transmission planning.

In Transource Pennsylvania LLC v. Steven DeFrank (3d Cir. Sept. 5, 2025), the court affirmed a district court judgment invalidating a Pennsylvania Public Utility Commission (PUC) order that denied siting and related approvals for Project 9A—interstate transmission lines selected by PJM Interconnection, the regional transmission organization (RTO), to relieve persistent congestion along the AP South Reactive Interface on the Pennsylvania–Maryland border. PJM chose the project after applying a FERC-approved benefit–cost methodology designed to identify and select “market-efficiency projects” that reduce regional congestion.

The PUC denied Transource’s applications principally on “need,” using a different calculus that counted higher prices Pennsylvania consumers would face if congestion were relieved—a variable FERC had expressly excluded from PJM’s planning methodology. The district court held the PUC’s order violated the Supremacy Clause (and the dormant Commerce Clause). The Third Circuit affirmed on Supremacy Clause grounds alone, rejecting the PUC’s preclusion defenses and framing a durable line between regional planning (a federal domain) and state siting (a traditional state domain) when the latter is employed to second-guess the former.

Summary of the Judgment

• Preclusion: The PUC’s issue-preclusion argument was forfeited below and, even if considered, would fail. Transource properly made an England reservation to preserve its federal constitutional claims for federal court, so state-court review of the PUC order did not preclude the federal Supremacy Clause claim.
• Supremacy Clause—Conflict (Obstacle) Preemption: The PUC’s denial presented a clear obstacle to federal objectives under the Federal Power Act (FPA) and FERC’s Orders 888/890/1000. By rejecting PJM’s FERC-approved benefit–cost method and substituting its own “need” analysis, the PUC effectively rebalanced considerations Congress entrusted to FERC and its RTO processes. That is preempted.
• State Siting Authority Preserved—But Not as a Veto of Federal “Need”: States retain their traditional authority over siting, permitting, and construction, including environmental and safety considerations. However, when an RTO has selected a project under a FERC-approved regional planning process, a state may not deny siting on the ground that the project lacks “need” by reweighing or contradicting the federal planning criteria.
• Dormant Commerce Clause: Not reached. The Supremacy Clause holding fully resolved the appeal.
• Due Process/Eminent Domain: The court emphasized that PJM does not wield eminent-domain power. Pennsylvania’s multi-step process—PUC certification and hearings plus condemnation proceedings in the Court of Common Pleas—remains intact, preserving landowners’ due process rights.

Analysis

1) Precedents and Authorities That Shaped the Decision

The court’s analysis rests on a century of federal–state electricity jurisprudence and several pillars of FERC policy:

• Attleboro and the FPA: Public Utilities Comm’n v. Attleboro (1927) identified a constitutional “gap” in state authority over interstate wholesale electricity, prompting Congress to enact the FPA (1935). The FPA charges FERC with ensuring just, reasonable, and non-discriminatory rates for interstate transmission and wholesale sales (16 U.S.C. §§ 824, 824d, 824e) and to promote regional interconnection (§ 824a).
• FERC Orders 888, 890, 1000: These orders respond to anticompetitive incentives of vertically integrated utilities, mandate open access, require transparent regional planning, and establish mechanisms to identify and implement regional solutions to congestion and reliability needs. Order 1000 requires regional planning processes and selection of projects based on transparent, non-discriminatory methods.
• PJM’s FERC-Approved Benefit–Cost Methodology: In 2008, FERC approved PJM’s approach for evaluating market-efficiency projects, including the use of a bright-line 1.25:1.0 benefit–cost ratio over a 15-year horizon and the exclusion of “price increases” in zones not paying for the project from the benefits calculus. FERC later declined to revisit that exclusion.
• Filed-Rate Doctrine Line of Cases: The court analogized to Supreme Court decisions holding that states cannot “second-guess” the reasonableness of FERC-set or FERC-supervised rates or allocations:
  • Nantahala Power & Light Co. v. Thornburg (1986): State regulators may not reallocate FERC-allocated power entitlements.
  • Mississippi Power & Light Co. v. Mississippi ex rel. Moore (1988): A state cannot use prudence review to undermine FERC-required wholesale power purchases.
  • Hughes v. Talen Energy Marketing (2016): States may not undermine FERC-approved wholesale rates via in-state subsidies tethered to the wholesale price.
  In each, state action intruded by reweighing or offsetting FERC’s judgments; that logic applies here, where the PUC’s “need” finding recast the FERC-approved regional planning calculus.
• Preemption Framework: The court applies conflict (obstacle) preemption (see Oneok, Inc. v. Learjet; Farina v. Nokia; Geier v. Honda): where state action stands as an obstacle to federal purposes—here, FERC’s regional planning and congestion-relief regime—it must yield. The usual presumption against preemption does not control where the conflict is “clear and manifest.”
• State Law Savings vs. Conflict Preemption: Although the FPA preserves traditional state roles (e.g., siting), savings clauses do not disable conflict preemption when state action frustrates federal objectives.
• England Reservation and Preclusion: Under England v. Louisiana State Board of Medical Examiners, a litigant forced into state proceedings may reserve federal issues for federal court by notifying the state tribunal. The court holds Transource did so; thus, state proceedings did not preclude federal adjudication of the Supremacy Clause claim.

2) The Court’s Legal Reasoning

The Third Circuit’s reasoning unfolds in three steps:

1. Identify the Federal Objectives and Delegations: Congress empowered FERC to supervise interstate transmission and wholesale sales, ensure just and reasonable rates, prevent undue discrimination, and promote regional interconnection. To effectuate this, FERC requires RTOs like PJM to conduct regional planning and select projects via transparent and non-discriminatory processes. The PJM benefit–cost methodology is a FERC-reviewed, bright-line tool for achieving these ends and attracting investment certainty.
2. Locate the Conflict: The PUC’s “need” denial arose from a different calculus than PJM’s FERC-approved method. It included Pennsylvania’s projected price increases as a “cost,” counter to FERC’s approved approach, and discounted PJM’s long-run congestion findings. That is functionally indistinguishable from the “second-guessing” rejected in the filed-rate doctrine context—substituting a state’s idea of what is just and reasonable for FERC’s methodology, thereby undermining the federal balance among competition, non-discrimination, reliability, and investment certainty.
3. Preserve Genuine State Siting but Police Its Limits: The court is careful: states retain authority over siting, permitting, construction, public safety, environmental impacts, and—importantly—“need” determinations for local projects conceived outside the RTO-led regional plan. But when an RTO has selected a regional project under FERC-approved criteria, a state cannot deny siting on the ground that the project lacks “need” by reweighing or contradicting those criteria. If conditions materially change (e.g., congestion dissipates), the remedy lies in PJM’s annual reevaluations and in FERC complaint procedures (FPA § 206), not in state vetoes premised on alternative economics.

3) The New Rule in Plain Terms

When an RTO has selected a transmission project through a FERC-approved regional planning process, a state commission may not deny siting based on a “need” determination that conflicts with, or rebalances, the FERC-approved methodology used to select that project. Doing so creates an obstacle to the federal scheme and is preempted by the Supremacy Clause. State commissions remain free to address traditional siting concerns (safety, environmental compliance, route alternatives) and to make “need” findings for local projects not arising from the RTO’s regional plan.

4) Impact and Forward-Looking Consequences

• For State Commissions:
  • Continue to exercise robust authority over safety, environmental review, routing, and local land use considerations.
  • Refrain from reweighing regional-benefit economics or substituting an alternative “need” test that contradicts a FERC-approved RTO methodology for projects in the regional plan.
  • Channel disagreements over congestion modeling or economics to the RTO’s reevaluation cycles or to FERC via § 206 complaints.
• For RTOs and Developers:
  • This decision materially reduces the risk that a state can veto a regional project by redoing the federal economics under a home-state lens.
  • Nevertheless, developers must build strong records on safety, environmental impacts, and route alternatives—areas where states still hold decisive authority.
• For Consumers and Markets:
  • The decision advances FERC’s goal of reducing unduly discriminatory congestion patterns and improving regional market efficiency.
  • It also preserves rate-integrity and investment signals that depend on consistent, bright-line federal planning criteria.
• For Landowners and Due Process:
  • The court emphasizes that eminent domain is not exercised by PJM and that Pennsylvania’s multi-step process (PUC certificates and hearings plus judicial condemnation proceedings) remains fully operative, safeguarding individual rights.
• For Other Jurisdictions:
  • Expect parties to cite Transource in other RTO regions when states weigh “need” for regional projects. The opinion’s careful boundaries—preempting conflicting state “need” denials while preserving other siting prerogatives—offer a template.

Complex Concepts Simplified

• RTO (Regional Transmission Organization): An independent regional grid operator (like PJM) that plans, operates, and oversees interstate transmission, subject to FERC oversight. It produces annual Regional Transmission Expansion Plans (RTEPs).
• Congestion: A physical or operational constraint on the grid that forces use of more expensive local generation because cheaper power cannot flow across constrained lines; relieving congestion can lower total system costs but may raise prices in zones that previously benefited from constraints.
• PJM’s Benefit–Cost Ratio: A FERC-blessed test for “market-efficiency projects” requiring projected benefits to exceed costs by at least 1.25 over 15 years. “Benefits” include wholesale cost reductions in paying zones and exclude price increases in non-paying zones, a choice FERC accepted to ensure economic efficiency and fair cost allocation.
• Filed-Rate Doctrine Analogy: Courts will not permit states to revisit FERC’s expert judgments on rates or akin economic allocations. Here, “second-guessing” FERC-approved regional planning criteria triggers the same federal supremacy concerns.
• Preemption—Obstacle Type: Even if a state acts within a traditional field (like siting), its action is preempted if it frustrates federal objectives—here, FERC’s regional planning to reduce congestion and prevent undue discrimination.
• England Reservation: A procedural device that allows a litigant, forced to litigate some issues in state court, to reserve federal claims for federal court by clearly informing the state tribunal of the reservation.
• Backstop Siting (NIETC): In limited “National Interest Electric Transmission Corridors,” FERC can issue construction permits if states delay or deny; this case involves non-NIETC territory and does not rely on that backstop.
• Pennsylvania Eminent Domain Path: A utility must have a PUC certificate of public convenience; affected landowners receive notice and a PUC hearing; any condemnation requires a separate declaration of taking and judicial proceedings in the Court of Common Pleas, where landowners can file objections. PJM has no eminent-domain authority.

Key Issues Addressed (and Not Addressed)

• Addressed:
  • State “need” denials cannot contradict FERC-approved RTO planning criteria for regional projects.
  • Preclusion defenses fail; England reservation protects federal claims.
  • Preservation of state authority over safety, environment, routing, and local impacts.
• Not Addressed on the Merits:
  • The dormant Commerce Clause claims (unnecessary to resolve given preemption holding).
  • The “major questions doctrine” argument (raised too late, not addressed).

Practical Guidance

• For PUCs: When reviewing RTO-selected regional projects, avoid redoing PJM’s FERC-approved economics under alternative local “need” criteria. Focus on state-law safety, environmental, and routing factors, and build a robust record on those issues.
• For Opponents of a Regional Project: Target the right forum. Present congestion/economic modeling critiques through PJM reevaluation rounds or file a § 206 complaint with FERC challenging the selection or methodology—not via a state siting veto that conflicts with FERC’s framework.
• For Developers: Document adherence to PJM’s planning criteria and FERC approvals, and be prepared to meet state-law environmental and safety obligations, which remain fully enforceable.
• For Landowners: Be aware of your rights in Pennsylvania’s two-tiered process: PUC hearings and separate condemnation proceedings in court. This decision does not diminish those protections.

Open Questions

• How will other circuits approach similar conflicts, especially in regions where state statutes define “need” differently? Transource is likely to be persuasive authority, but the landscape may vary.
• What happens if PJM’s periodic reevaluations later show a project falls below the 1.25 threshold? The Third Circuit points to PJM’s own cancellation reevaluations and FERC complaint processes as the proper remedies, not state “need” vetoes.
• How will this interact with future FERC reforms to regional planning and cost allocation? The core principle—states cannot frustrate federal regional-planning judgments by reweighing them—will likely remain stable.

Conclusion

Transource v. DeFrank marks a significant clarification of the federal–state boundary in transmission development. The Third Circuit holds that while states retain broad authority over siting, they cannot use “need” determinations to reweigh or contradict FERC-approved RTO planning criteria for regional projects. Such vetoes pose an obstacle to federal objectives—reducing undue discrimination, improving regional efficiency, and ensuring reliable, just, and reasonable service—and are preempted by the Supremacy Clause.

At the same time, the decision preserves traditional state roles: safety, environmental protection, routing, and local impacts remain fully within state purview, and “need” determinations may continue for local (non-RTO) projects. The court also reassures landowners that due process and eminent-domain safeguards are unaffected; PJM wields no condemnation power, and Pennsylvania’s judicial oversight of takings remains robust.

Bottom line: Regional planning judgments made under FERC’s umbrella cannot be undone by state siting vetoes grounded in alternative economic “need” analyses. Disagreements over regional benefits and congestion belong in PJM’s reevaluation processes and before FERC—not as state-level rebalancing of federally approved criteria.