FERC under fire

From Capitol Hill to the federal courthouse, the Federal Energy Regulatory Commission is under fire for issuing controversial mandates that overstep its authority and impinge upon state authority. Democrats and Republicans alike have questioned FERC’s aggressive regulatory approach. Perhaps nowhere has FERC’s regulatory grasp exceeded its statutory reach than with Order 1000, the commission’s unprecedented effort to federalize the nation’s electricity grid.

Fortunately, federal courts are scrutinizing FERC’s expansive assertions of its regulatory authority in other cases. Twice in the last month, the U.S. Court of Appeals for the D.C. Circuit rejected FERC’s power grab. The court found FERC’s actions respectively violated the nation’s core environmental and energy statutes, the National Environmental Policy Act (NEPA) and the Federal Power Act (FPA).

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In a June 6 ruling that reviewed a FERC decision on a natural gas pipeline project, the D.C. Circuit held that FERC “impermissibly segmented the environmental review in violation” of NEPA. 

Two weeks earlier, the D.C. Circuit overturned FERC’s highly publicized demand response rule. The appeals court ruled that FERC exceeded its authority under the FPA by addressing retail electricity markets when jurisdiction belongs solely to the states. The FPA granted FERC authority only over wholesale markets, the court said.

Judge Janice Rogers Brown discarded FERC’s argument that because retail rates affect wholesale rates, FERC could assert jurisdiction and advance its demand response plan. If FERC’s contention were true, its power would be “almost limitless,” allowing the commission to “regulate any number of areas, including steel, fuel, and labor markets,” Brown stated.

The D.C. Circuit ruling has a far-reaching impact. The holding buttresses an argument made in a 2013 court filing that Order 1000 constitutes “a regulatory sea change without grounding in the FPA or the record.” Utilities, public power entities and state regulators have already asked the D.C. Circuit to overturn transmission Order 1000 on the same jurisdictional grounds.  In a May 30 filing with the D.C. Circuit, the same groups stated that the court’s holding “is relevant to, and undermines FERC’s claim” that the FPA gives the Commission broad authority over retail rates in Order 1000.

For years, the Coalition for Fair Transmission Policy and others have challenged Order 1000, which mandates changes in the way regions and utilities plan and pay for new transmission.  Order 1000 will force some consumers to pay “unjust and unreasonable” rates for new transmission.  In court filings, the CFTP opposed FERC’s extraordinary attempt to force utilities to pay for new transmission even if they have no contractual obligation with the transmission developer.  

Nobody questions the need to build more transmission infrastructure and encourage the development of renewable energy. Under Order 1000, however, FERC intends to micro-manage the nation’s grid by effectively dictating utility fuel choices. Its approach is predicated on a risky plan aimed at building thousands of miles of high voltage power lines  to deliver electricity from the windiest, often most desolate parts of the country, to populous urban centers—even when cheaper clean energy is located closer to consumers. Meanwhile, low-cost natural gas and the rise of solar energy, especially distributed generation, have undermined the rationale behind Order 1000 and could leave consumers paying for transmission lines to nowhere.

FERC’s implementation of Order 1000 galvanized opposition to the grid plan. The FERC compliance plans have eviscerated the traditional authority of state regulators and asserted unprecedented federal jurisdiction over public power. In response, the National Association Regulatory Utility Commissioners (NARUC) last summer adopted a resolution saying implementation of Order 1000 “inappropriately infringes on State authority” over key areas of transmission policy. Likewise, the compliance plan for the Pacific Northwest unleashed a backlash on Capitol Hill. Then Senate Energy and Natural Resources Committee Chairman Ron Wyden (D-OR), for example, criticized FERC for an order he deemed “directly counter to the interest of Northwest ratepayers.”

The growing dismay over the FERC’s compliance plans and the D.C. Circuit’s recent decisions raise questions about FERC’s regulatory ambitions. Congress built important limitations on the Commission’s power into the FPA, purposely reserving significant powers to the states. Congress did not authorize FERC to devise and implement the kind of sweeping restructuring of the nation’s transmission system that Order 1000 would impose.  The magnitude of change FERC has undertaken in Order 1000 deserves a full and public debate in the legislative branch, not a high handed order from an agency that does not answer to ratepayers. 

The timing is propitious. The recent nomination hearings of Ron Binz and Norman Bay highlighted the important role FERC plays in the energy economy. Hopefully, the revived interest in FERC can translate into congressional action addressing the future of the nation’s electricity grid.

Edelston is the executive director of the Coalition for Fair Transmission Policy, a diverse group of electric utilities across the country, and president of the Energy Policy Group, LLC, an economics and public policy consulting firm serving the energy industry,