Federal Energy Regulatory Commission

Federal Energy Regulatory Commission
The Federal Energy Regulatory Commission (FERC) is the independent agency of the United States government that regulates the transmission and wholesale sale of electricity and natural gas in interstate commerce and regulates the transportation of oil by pipeline in interstate commerce. FERC also reviews proposals to build interstate natural gas pipelines, natural gas storage projects, and liquefied natural gas (LNG) terminals, in addition to licensing non-federal hydropower projects.
FERC is an independent federal agency, even though it is part of the U.S. Department of Energy. FERC is composed of five commissioners who are nominated by the U.S. president and confirmed by the U.S. Senate. There may be no more than three commissioners of one political party serving on the commission at any given time.
Primary duties
The responsibilities of FERC include the following:
Regulating the transmission and sale of natural gas for resale in interstate commerce;
Regulating the transmission of oil by pipelines in interstate commerce;
Regulating the transmission and wholesale sales of electricity in interstate commerce;
Licensing and inspecting private, municipal, and state hydroelectric projects;
Approving the siting of and abandonment of interstate natural gas facilities, including pipelines, storage and liquefied natural gas;
Ensuring the reliability of high voltage interstate transmission system;
Monitoring and investigating energy markets;
Using civil penalties and other means against energy organizations and individuals who violate FERC rules in the energy markets;
Overseeing environmental matters related to natural gas and hydroelectricity projects and major electricity policy initiatives; and
Administering accounting and financial reporting regulations and regulating businesses of regulated companies.
Jurisdiction and authorities
FERC is a large independent regulatory agency within the United States Department of Energy that participates in business oversight. The President and Congress do not generally review FERC decisions, but the decisions are reviewable by the federal courts. FERC is self-funding, in that Congress sets its budget through annual and supplemental appropriations and FERC is authorized to raise revenue to reimburse the United States Treasury for its appropriations, through annual charges to the natural gas, oil, and electric industries it regulates.
FERC is independent of the Department of Energy political structure because FERC activities "shall not be subject to further view by the Secretary [of Energy] or any officer or employee of the Department". The Department of Energy can, however, participate in FERC proceedings as a third party.
FERC has promoted voluntary formation of regional transmission organizations (RTOs) and Independent System Operators (ISOs) to eliminate the potential for undue discrimination in access to the electric grid; regional and interregional transmission planning and cost allocation through the landmark Order No. 1000.
FERC investigated the alleged manipulation of electricity market by Enron and other energy companies, and their role in the California electricity crisis. FERC has collected more than $6.3 billion from California electric market participants through settlements. Since passage of the Energy Policy Act of 2005, FERC has imposed, through settlements and orders, more than $1 billion in civil penalties and disgorgement of unjust profits to address violations of its anti-market manipulation and other rules.
FERC regulates approximately 1,600 hydroelectric projects in the U.S. It is largely responsible for permitting construction of a large network of interstate natural gas pipelines. FERC also works closely with the United States Coast Guard to review the safety, security, and environmental impacts of proposed LNG terminals and associated shipping.
Commissioners
FERC is composed of up to five commissioners who are appointed by the President and confirmed by the Senate to staggered five-year terms. The President appoints one of the commissioners to be the chairman of FERC, the administrative head of the agency. FERC is a bipartisan body; no more than three commissioners may be of the same political party. Commissioners may continue in office past the end of their term if a successor has not yet been confirmed, up to the end of the current session of Congress. The commissioners are:
Past commissioners
Chairmen
History
Federal Power Commission
The Federal Power Commission (FPC), which preceded FERC, was established by Congress in 1920 to allow cabinet members to coordinate federal hydropower development.
In 1935, the FPC was transformed into an independent regulatory agency with five members nominated by the President and confirmed by the Senate. The FPC was authorized to regulate both hydropower and interstate electricity.
Natural Gas Act of 1938
In 1938, the Natural Gas Act gave FPC jurisdiction over interstate natural gas pipelines and wholesale sales. In 1942, this jurisdiction was expanded to cover the licensing of more natural gas facilities. In 1954, the Supreme Court decision in Phillips Petroleum Co. v. Wisconsin extended FPC jurisdiction over all wellhead sales of natural gas in interstate commerce.
Birth of DOE; FPC Becomes FERC
In response to the 1973 oil crisis, Congress passed the Department of Energy Organization Act in 1977, to consolidate various energy-related agencies into a Department of Energy. Congress insisted that a separate independent regulatory body be retained, and the FPC was renamed the Federal Energy Regulatory Commission (FERC), preserving its independent status within the department. Its most basic mandate was to "determine whether wholesale electricity prices were unjust and unreasonable and, if so, to regulate pricing and order refunds for overcharges to ratepayers." FERC was also given added responsibility to hear appeals of DOE oil price control determinations and to conduct all "on the record" hearings for DOE. As a result, DOE does not have any administrative law judges. As a further protection, when the Department of Energy proposes a rule, it must refer the proposal to FERC, and FERC can take over the proceeding if FERC determines that the rulemaking "may significantly affect" matters in its jurisdiction. The DOE Act also transferred the regulation of interstate oil pipelines from the Interstate Commerce Commission to FERC. However, the FERC lost some jurisdiction over the imports and exports of gas and electricity.
In 1978, FERC was given additional responsibilities for harmonizing the regulation of wellhead gas sales in both the intrastate and interstate markets. FERC also administered a program to foster new cogeneration and small power production under the Public Utilities Regulatory Policy Act of 1978, which was passed as part of the National Energy Act of 1978. The National Energy Act included the Natural Gas Policy Act, which reduced the scope of federal price regulation, to bring greater competition to both the natural gas and electric industry.
In 1989, Congress ended federal regulation of wellhead natural gas prices, with the passage of the Natural Gas Wellhead Decontrol Act of 1989.
Order 888
In 1996, FERC issued Order 888, which spurred the creation of regional transmission organizations in the United States. This would impact existing electric power pools by rebranding themselves as independent transmission operators. Electric utilities in some regions began to spin off their generation units as separate companies that would compete in a wholesale electric market administered by the RTOs.
Once FERC had created the framework for Regional Transmission Organizations with Order No. 888, several such RTOs were approved. The pre-existing multi-state power pool called PJM (Pennsylvania, Jersey, Maryland), the New York Independent System Operator (NYISO), and the Independent Sysoperator - New England (ISO-NE) were early adopters. California, with the backing of its state and Congressional policymakers, sought approval of a controversial scheme to set up its ISO, called California ISO, based near Sacramento, CA. FERC approved it without changes because California had warned that it would not accept any changes.
Enron charged one of its policy analysts to figure out how to make the most of the flawed rules put in place for the California electricity market. Enron had success with its fraudulent market transactions.
Energy Policy Act of 2005
In 2001, the George W. Bush administration sought to give the authority of eminent domain to FERC to circumvent state and local bureaucratic processes which often slowed the siting of new transmission projects. This expansion of power was most fiercely opposed by Bush's own Republican party as being an expansion of federal power. Legal battles over the issue ended with the 2005 Energy Bill (Energy Policy Act of 2005) which was passed with approval of Democrats and Republicans.
The Energy Policy Act of 2005 expanded FERC's authority to protect the reliability and cybersecurity of the bulk power system through the establishment and enforcement of mandatory standards, as well as greatly expanding FERC authority to impose civil penalties on entities that manipulate the electricity and natural gas markets. The Energy Policy Act of 2005 also gave FERC additional responsibilities and authority. Among the many provisions of the law, FERC was given what is known as "backstop" siting authority which allows FERC to overrule any denial of transmission projects by a state within established corridors of transmission congestion "to expand transmission in limited regions of the country facing transmission constraints."
Order 1000
In 2010, FERC issued Order 1000, which required RTOs to create regional transmission plans and identify transmission needs based on public policy. Cost allocation reforms were included, possibly to reduce barriers faced by non incumbent transmission developers.
Order 841
In February 2018, FERC issued Order 841, which required wholesale markets to open up to individual storage installations, regardless of interconnection point (transmission, distribution or behind-the-meter). The Order was challenged in court by the state public utility commissions via the National Association of Regulatory Utility Commissioners (NARUC), the American Public Power Association, and others who claimed that FERC overstepped its jurisdiction by regulating how local electric distribution and behind-the-meter facilities are administered, i.e., in not providing an opt out of wholesale market access for energy storage facilities located at the distribution level or behind-the-meter. A United States courts of appeals court (the D.C. Circuit) issued an order in July 2020 that upheld Order 841 and dismissed the petitioners' complaints.
Order 2222
FERC issued Order 2222 on September 17, 2020, enabling distributed energy resources such as batteries and demand response to participate in regional wholesale electricity markets. Market operators submitted initial compliance plans by early 2022. The Supreme Court had ruled in 2016 in FERC v. Electric Power Supply Ass'n that the agency had the authority to regulate demand response transactions.
Criticism
FERC has been subject to criticism and increasing activism by people from communities affected by its decisions approving pipeline and related projects. They contend that FERC "blithely greenlights too many pipelines, export terminals and other gas infrastructure" and that FERC's structure in which it recovers its annual operating costs directly from the entities it regulates creates bias in favor of the issuance of pipeline certificates. Some of the critics have disrupted several regular open meetings of the Commission and staged a couple of week-long blockades of FERC's headquarters in Washington, D.C., to make their points. "Pipelines are facing unprecedented opposition," Commissioner LaFleur remarked to the National Press Club in a 2015 speech. "We have a situation here."
FERC's decisions in those cases are often upheld by the courts. In a July 1, 2014, decision, No Gas Pipeline v. Federal Energy Regulatory Commission, the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit) said that pipeline applicants are not likely to pursue many certificates that are hopeless. "The fact that they generally succeed in choosing to expend their resources on applications that serve their own financial interests does not mean that an agency which recognizes merit in such applications is biased," the court said. Others have directly disputed FERC's critics by pointing out, "FERC is a creature of law. It follows a careful administrative path to regulate only a portion of natural gas such as interstate pipelines and LNG import and export terminals. That regulation includes extensive environmental review, driven by many federal laws enacted by Congress, signed by the president, and reviewed and upheld by the U.S. Supreme Court. If the agency were to adopt the path [suggested by these critics], FERC's decisions would routinely be overturned by the federal courts."
The United States District Court for the District of Columbia also dismissed a case involving allegations of structural bias on the part of FERC. The plaintiffs contended that the Omnibus Budget Act of 1986 funding mechanism requires the commission to recover its budget through proportional charges on regulated entities, therefore making FERC biased in favor of the industry from which it gets its funding. But in an order issued March 22, 2017, the court said the plain language of the statute indicates that FERC does not have control over its own budget. "The Commission's budget cannot be increased by approving pipelines; rather, [the statute] requires the Commission to make adjustments to 'eliminate any overrecovery or underrecovery.' If Plaintiffs are unhappy with Congress's chosen appropriations to the Commission..., Plaintiffs' recourse lies with their legislative representatives."
In New Jersey, the FERC approval of the PennEast Pipeline was met with widespread criticism by environmental groups, which called the decision highly partisan. "FERC has once again demonstrated its tremendous bias for, and partnership with, the pipeline industry," said Maya van Rossum, leader of the Delaware Riverkeeper Network. Doug O'Malley, president of Environment New Jersey, called the FERC approval of the pipeline a "disaster." David Pringle, state campaign director of Clean Water Action and 2018 Congressional candidate, suggested the FERC was serving a partisan interest over the interests of the people of New Jersey, suggesting "The FERC needs to remember it works for the people of the United States not PennEast."
These criticisms were unfounded as the D.C. Circuit Court of Appeals on July 10, 2018, rejected the Delaware Riverkeeper Network and Maya Van Rossum's claim that FERC has an incentive to award pipeline certificates because it collects its operating expenses from regulated parties. Upholding a lower court ruling, the D.C. Circuit also rejected the Delaware Riverkeeper Network's challenge to FERC's use of tolling orders to meet its statutory deadlines for acting on rehearing applications.
However, the D.C. Circuit has provided additional guidance concerning Commission procedures, stating that in one case FERC failed to consider the cumulative environmental impact of four projects that had been separately proposed by the same pipeline. The D.C. Circuit held that the projects were not financially independent and were "a single pipeline" that was "linear and physically interdependent," so the cumulative environmental impacts should have been considered concurrently. In a separate decision, the D.C. Circuit later sustained the commission's conduct of separate environmental assessments when it clarified that the "critical" factor was that all of the pipeline's projects were either under construction or pending before FERC for environmental review at the same time, noting that the projects lacked temporal overlap. Furthermore, in another case, the D.C. Circuit sustained the commission's use of a separate environmental assessment when it reasoned that the projects in dispute were "unrelated" and did not depend on one another for their justification. This guidance has allowed FERC to address additional claims of improper segmentation.
FERC's leaders have stressed many times since the onset of the increased activism that the proper way to oppose a proposed new infrastructure project is by participating in the related proceeding by submitting comments and participating in public comment sessions, site visits and scoping meetings, since FERC decisions can be appealed up to the Supreme Court.
Federal versus state authority
There are regions of the country where the state public utility commission and the FERC regulated Regional Transmission Organization operate in identical footprints (such as in New York State). Where this occurs, state policy makers and FERC frequently clash as to the extent of federal power and influence within the state.
The planning and siting of public policy and renewable power plants and merchant transmission lines can be contentious, because the planning process must proceed through both entities. For example, in New York State, any large (more than 20 MW for the NYISO or 2 MW for the state Siting Committee) generation or merchant transmission facility must proceed through both the planning process of the NYISO, which operates on a two-year cycle at minimum with an inclusive class year pool of new projects evaluated simultaneously, and the siting process of the state Board on Electric Siting and the Environment. Prior to the formation of the NYISO, the planning process was determined mostly by the state siting board (although the utilities' power pool might have had its own closed door planning session) and large generation projects were developed by the utilities themselves. The dual planning process provides an opportunity for other market participants to drag out the process legally, not including the other state and/or federal environmental, trade (if an international connection with Canada is requested), and local certification and regulation processes that need to be met.
The controversy similarly applies to various electric wholesale-market issues within the RTO, when a state public utility commission asserts that its retail ratepayers (under state regulation) will be impacted by wholesale-market stakeholder decisions and reforms (under federal-level regulation). In contrast, prior to the formation of the NYISO in 1999 in New York, wholesale energy prices were set within a utility's state rate case proceeding. Examples of contentious issues in New York include the NYISO's development of buyer-side mitigation (price floors) in its capacity market, proxy peaking-unit specifications during the demand-curve reset (that helps set capacity market prices), the state's granting of zero-emissions credits to wholesale-market participating nuclear power plants, and the creation of a new capacity zone amidst state and transmission owner policy initiatives.
See also
:Category:Federal Energy Regulatory Commission chairpersons
21st-century fossil fuel regulations in the United States
Custody transfer
High-voltage direct current
North American Electric Reliability Corporation (NERC)
United States energy law
Scenic Hudson Preservation Conference v. Federal Power Commission
Title 18 of the Code of Federal Regulations
References
Further reading
Gies, Erica. Making the Consumer an Active Participant in the Grid, The New York Times, November 29, 2010. Discusses distributed generation and the U.S. Federal Energy Regulatory Commission.
External links
Official site
Electricity
LNG Terminals
Natural Gas
Hydroelectric
Federal Energy Regulatory Commission in the Federal Register
Electric grid interconnections in North America
Government agencies established in 1977
Energy regulatory authorities
Energy
Environmental impact assessment
Independent agencies of the United States government