Opinion ID: 3040019
Heading Depth: 3
Heading Rank: 3

Heading: Shifting Authority to FERC

Text: When combined with federal preemption law, one crucial result of these energy market regulatory reforms has been “a massive shift in regulatory jurisdiction from the states to the FERC.” Gentile, supra, at 373. As noted, a “bright line” exists between state and federal jurisdiction, with wholesale power sales — the type of sales at issue in the challenged contracts in this case — falling on the federal side of the line. Nantahala Power & Light Co. v. Thornburg, 476 U.S. 953, 966 (1986) (quoting Fed. Power Comm’n v. S. Cal. Edison Co., 376 U.S. 205, 215 (1964)). FERC’s jurisdiction to determine the reasonableness of wholesale rates is exclusive. Miss. Power & Light Co. v. Mississippi ex rel. Moore, 487 U.S. 354, 371 (1988). Prior to 1996, vertically-integrated state monopolies would charge public consumers rates regulated by state entities and would purchase power from interstate utilities at rates regulated by FERC. The 1996 FERC reforms opened up local monopolies to competition among suppliers in the wholesale power market, resulting in a sharp increase in wholesale power sales — subject to FERC’s exclusive jurisdiction — as utilities shopped among suppliers. See Gentile, supra, at 373; Pub. Util. Dist. No. 1 v. Idacorp Inc. (Grays Harbor), 379 F.3d 641 (9th Cir. 2004). Additionally, state regulatory reform laws, like California’s A.B. 1890, resulted in a less active role for state regulators and a more active one for FERC, as the breakup of vertically integrated utilities created the need for many more wholesale transactions. In California, for example, regulators “ceded most of their authority for regulating generator or trader behavior to FERC through A.B. 1890.” Duane, supra, at 507. 11 The details of A.B. 1890 are discussed below. 19566 PUBLIC UTILITY DISTRICT v. FERC The upshot of these federal and state innovations in electricity regulation is that state regulators, despite their continued authority over rates charged directly to consumers, have much less actual authority over those rates than they did when Mobile and Sierra were decided. Local utilities now obtain power largely through wholesale contracts subject to FERC’s exclusive regulation, rather than through self-generated and self-transmitted power. As a result, state regulators ordinarily must set retail rates with the wholesale rates as an established cost factor. FERC recognized this dynamic when issuing its reform orders, noting that customers will obtain more power delivered via “unbundled” wholesale transactions — in which the generation and transmission are separately traded rather than provided by an integrated local utility monopoly — making “[t]he exercise of our jurisdiction over rates, terms and conditions of unbundled retail transmission . . . more important.” Order 888-A, 62 Fed. Reg. at 12,279. Accordingly, while the state and federal regulatory reforms of the 1990s did not end regulation of the electric energy industry, they did begin a new regulatory era. Although state regulators formerly took an extremely active role so as to ensure the just and reasonable retail power rates, FERC has exclusive jurisdiction over the wholesale rates that now drive the electric power market and, as a practical matter, largely determine the rates ultimately charged to the public. These changes profoundly affect this case and require us to ensure that FERC’s application of the Mobile-Sierra doctrine reflects both the historical and regulatory purpose of the doctrine and contemporary regulatory reality. With the history of electric rate regulation thus in mind, we now turn to the facts of the particular contracts at issue and then consider whether FERC applied the correct legal standard to review of these challenged contracts. PUBLIC UTILITY DISTRICT v. FERC 19567