FERC's Expansive Authority to Transform the Electric Grid
49 Pages Posted: 9 Oct 2015 Last revised: 7 Feb 2016
Date Written: October 8, 2015
Using an unprecedented historical analysis of over 100 years of law dating to the Progressive Era, this Article concludes that the Supreme Court’s landmark decision in Federal Energy Regulatory Commission (FERC) v. Electric Power Supply Association properly asserted that FERC has ample authority to pursue broad environmental and energy goals in transforming the electric grid. Building on the Court’s finding that FERC may regulate “practices” that “directly affect” rates in wholesale electricity markets, the analysis develops a detailed standard that is consistent with interpretation of regulatory statutes in each of three distinct eras: the Progressive Era, the era of regulation of utilities under firm-specific tariffs, and the modern, market-based era. This Article also sets forth and discusses in depth four guiding principles that specify how FERC may use the “directly affecting” standard to take sweeping measures to inject new values in the wholesale electricity markets, such as accounting for environmental externalities. Analyzing FERC’s initiatives to promote demand response (techniques for reducing electricity consumption, upheld in FERC v. EPSA) and a hypothetical carbon price imposed on bids in wholesale markets, the Article broadens our understanding of what FERC can regulate and what states can regulate, aiming to lessen ongoing jurisdictional tension and provide a means for addressing difficult cases involving preemption of state laws. The hope is that additional clarity about jurisdictional boundaries will allow for more valuable innovation and experimentation in refashioning the electric grid.
Keywords: FERC, jurisdiction, electric grid, demand response, utilities, utility regulation, climate change, carbon adder, wholesale electricity markets, Federal Power Act, Supreme Court, externalities, ratemaking, regulated rates, Order 745, undue discrimination, practices affecting rates
JEL Classification: K10, K20, K23, K32
Suggested Citation: Suggested Citation