Opinion ID: 2795683
Heading Depth: 2
Heading Rank: 1

Heading: The Governing Statute and Regulatory Regime

Text: The Federal Power Act, as amended in 1935, see Pub. L. No. 74‐333, tit. II, 49 Stat. 803, 838–54 (1935) (codified at 16 U.S.C. § 792 et seq.), grants the Federal Power Commission, and now its successor agency FERC, regulatory authority over interstate aspects of the nation’s electric power system. See 16 U.S.C. § 824(a). Congress specifically excluded from this jurisdictional grant “facilities used in local distribution or only for the transmission of electric energy in intrastate commerce.” Id. § 824(b)(1). Regulation of these exempted facilities is reserved to the states. See, e.g., New York v. FERC, 535 U.S. 1, 22 (2002); Connecticut Light & Power Co. v. Fed. Power Comm’n, 324 U.S. 515, 518 (1945). The statute does not define “facilities used in local distribution.” Thus, from 1996 until the time of the challenged orders, FERC employed a seven‐factor test 4 (set out in the margin1) to identify facilities falling within the statutory exemption from jurisdiction. See New York v. FERC, 535 U.S. at 23. For many years, FERC exercised its statutory jurisdiction essentially as an economic regulator, overseeing the market for the sale of electricity in interstate commerce. See 16 U.S.C. § 824; see also Connecticut Light & Power Co. v. Fed. Power Comm’n, 324 U.S. at 524 (observing that purpose of Federal Power Act “was primarily to regulate the rates and charges of the interstate energy”). After 1 The seven indicators of local jurisdiction are as follows: (1) Local distribution facilities are normally in close proximity to retail customers. (2) Local distribution facilities are primarily radial in character. (3) Power flows into local distribution systems; it rarely, if ever, flows out. (4) When power enters a local distribution system, it is not reconsigned or transported on to some other market. (5) Power entering a local distribution system is consumed in a comparatively restricted geographical area. (6) Meters are based at the transmission/local distribution interface to measure flows into the local distribution system. (7) Local distribution systems will be of reduced voltage. Promoting Wholesale Competition Through Open Access Non‐Discriminatory Transmission Services by Public Utilities and Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, Order No. 888, FERC Stats. & Regs. ¶ 31,036, 61 Fed. Reg. 21,540, 21,620 (1996). The agency also signaled a willingness to consider state regulators’ recommendations as to where to draw this jurisdictional line. See id. at 21,625–27. 5 the northeast United States experienced a large‐scale blackout in the summer of 2003, however, Congress expanded FERC’s regulatory authority by enacting the Electricity Modernization Act of 2005, Pub. L. No. 109‐58, tit. XII, 119 Stat. 594, 941–86 (2005). That Act authorizes FERC to adopt and enforce mandatory technical reliability standards for facilities that make up the national energy grid. See 16 U.S.C. § 824o (authorizing FERC to impose reliability standards on facilities that comprise “bulk‐power system,” defined to include “facilities and control systems necessary for operating an interconnected electric energy transmission network”). The Act does not require FERC to develop these standards for itself. Rather, it directs FERC to certify an outside organization to develop such standards subject to agency approval. See 16 U.S.C. § 824o(c), (d). To fill this role, FERC certified North American Electric Reliability Corporation (“NERC”), an organization that had previously developed a series of voluntary technical standards for the industry.2 At the same time, however, the statute maintains the Federal Power Act’s jurisdictional exception by specifying that the bulk‐power system “does not 2 NERC now intervenes in this action and has filed a brief in support of FERC. Intervenor National Association of Regulatory Utility Commissioners has filed a brief in support of petitioners’ challenge to the FERC orders at issue. 6 include facilities used in the local distribution of electric energy.” Id. § 824o(a)(1). Again, the statute neither defines “facilities used in . . . local distribution” nor instructs as to how such facilities should be identified.