Overview:
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The Federal Energy Regulatory Commission (FERC), formerly known as the Federal Power Commission (FPC, est. 1920), is the federal agency responsible for regulating the transmission of electricity, natural gas, and oil. It has jurisdiction over state-to-state electricity sales, wholesale electric rates, hydroelectric licensing, natural gas pricing, and oil pipeline rates. It also reviews and authorizes liquefied natural gas (LNG) terminals, pipelines and non-federal hydropower projects.
FERC is composed of up to five commissioners who are appointed by the President with the consent of the Senate. No more than three commissioners may belong to the same political party. As an independent agency, FERC’s decisions are not reviewed by the President or Congress. However, the agency has proven susceptible to lobbying and political influence (for example: political appointments, lobbying and campaign contributions were noted as instrumental in deregulation of the California energy market—setting the stage for the ensuing energy “crisis” and the Enron scandal).
History:
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The agency has its roots in the Federal Power Commission (FPC), a small federal agency created in the 1920s to regulate hydropower dams. President Franklin D. Roosevelt pushed legislation to dismantle utility monopolies in the 1930s, and the Federal Power Act of 1935 and the Natural Gas Act of 1938 gave FPC the power to regulate the sale and transportation of electricity and natural gas. FPC’s new role included a responsibility to set “just and reasonable” wholesale electricity prices. (Subsequent legislation and legal decisions through the 1940s, 50s, and 60s expanded FPC’s role to include regulation of natural gas facilities—including those producing natural gas sold in interstate commerce, intra-state power sales transmitted over state lines and intrastate utilities (if connected to others outside the state).
The expanded jurisdiction, argued proponents of deregulation, resulted in a national energy “crisis”—with a “colossal backlog of applications for natural gas permits… chronic brownouts in the 1960s and the OPEC embargo in the 1970s,” leading to a reorganization of the FPC.
In 1977, FERC was established as a replacement for FPC, with a specific mandate to determine whether wholesale prices were “just and reasonable,” critical language over which a power struggle would be fought in the California energy crisis of the early 21st century.
In the late 1970s and 1980s, FERC began deregulating the gas markets. And as complex deregulation spread throughout the country and at the state level, the agency’s responsibilities expanded—while its budget shrunk. The government, meanwhile, promoted deregulation as a means of aiding consumers in negotiating the supply and transportation of natural gas to markets.
In 1992, Congress passed the Energy Policy Act, opening energy markets (sales and transportation) to competition, and giving FERC regulatory oversight responsibility of wholesale competition. In the effort to liberalize the market, utility companies were forced to open their transmission lines to electric wholesalers—whom critics claimed were receiving preferential treatment at the expense of price regulation.
Prior to the 1992 legislation, the nation’s electricity transmission network was primarily built by and for electric utilities, which were regulated by state agencies. Deregulation was meant to increase competition without infringing on state authority. Since the reforms, transmission lines still transport locally, but also move wholesale energy across regions—regulated by FERC. States still have jurisdiction over retail competition.
The dispute over deregulation eventually led to a standoff between energy companies and the state leaders who accused them of price gouging. At the center of the debate, and responsible for regulating commerce between the two sides, FERC was criticized as a weak and ineffective entity that let the commercial interests of big market players trump those of consumers.
In California, state power operators estimated that utilities had been overcharged by $6.2 billion in one year. See Controversy Section for more on the California energy crisis and the Enron scandal.
The Federal Energy Regulatory Commission: Flexing Its Deregulatory Muscle (Federal Restructuring News)
What is FERC? (PBS Frontline)
Frontline's interviews with FERC Commissioners
and
, and FERC economist
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What it Does:
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FERC oversees and regulates the wholesale energy market, including inter and intra-state operations. According to the agency:
“FERC is an independent federal regulatory agency responsible for seeing that the wholesale electricity prices that generators charge utility companies are ‘just and reasonable.’ It does not regulate the retail electricity rates that households, businesses and organizations pay directly -- that is up to state utility commissions. FERC also oversees rates for transmitting electricity between states, hydroelectric licensing, certification of natural gas and oil pipelines and pipeline transmission rates.”
The Energy Policy Act of 2005 (PDF) gave FERC additional responsibilities as outlined in FERC's Top Priorities and updated Strategic Plan. As part of that responsibility, FERC:
- Regulates the transmission and sale of natural gas for resale in interstate commerce;
- Regulates the transmission of oil by pipeline in interstate commerce;
- Regulates the transmission and wholesale sales of electricity in interstate commerce;
- Licenses and inspects private, municipal, and state hydroelectric projects;
- Approves the siting and abandonment of interstate natural gas pipelines and storage facilities, and ensures the safe operation and reliability of proposed and operating LNG terminals;
- Ensures the reliability of high voltage interstate transmission system;
- Monitors and investigates energy markets;
- Uses civil penalties and other means against energy organizations and individuals who violate FERC rules in the energy markets;
- Oversees environmental matters related to natural gas and hydroelectricity projects and major electricity policy initiatives; and
- Administers accounting and financial reporting regulations and conduct of regulated companies.
See also Reforms and Debate sections for EPA 2005 and deregulation.
Organization
Office of Administrative Law Judges - resolves cases directed by the Commission by conducting investigations.
Office of Administrative Litigation - resolves disputes through settlement by assisting settlement judges and parties to ensure arguments are consistent, and litigates unresolved issues by conducting analysis and preparing arguments.
Office of External Affairs - this office is the primary contact with Congress, the general public, international, federal, state, and local government offices, and is responsible for developing outreach strategies for the Commission.
Office of the Executive Director - advises the Chairman of potential issues regarding management.
Office of Energy Projects - oversees hydroelectric and natural gas pipeline energy projects that are in the public interest.
Office of the General Counsel - represents the Commission before the courts and Congress.
Office of Enforcement - protects customers by remedying market problems and assuring compliance with Commission rules and regulations.
Office of Energy Markets and Reliability - integrates the Commission’s economic regulation of the electric, natural gas, and oil industries, as well as electric reliability responsibilities under the Energy Policy Act of 2005.
Where Does the Money Go:
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Energy traders; States (legislatures, regulatory commissions); utility companies, retail energy and electricity industry and marketing; wholesalers; energy consumers (businesses, individuals, organizations); natural gas industry;
National Rural Electric Cooperative Association
Controversies:
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Liquefied Natural Gas import terminal in Maine
In 2004, FERC proposed creating a liquefied natural gas (LNG) import terminal in Harpswell, Maine. FERC maintained that constructing a LNG terminal would help lower the increasing demand of natural gas through 2010. Natural gas is cooled to -260 degrees Fahrenheit, which converts to liquid, and reduces its volume, allowing tankers to transport more natural gas to terminals. Once at the terminals, it is pumped into storage tanks back in its initial stage, and delivered through natural gas pipelines. Community members who rejected this proposal were more concerned about their security, and the dangers that tank spills and leaks can have on their lives. According to James A. Fay, Professor Emeritus at MIT, fires burning above pools of spilled LNG could reach temperatures of 2000 degrees Fahrenheit. Anyone within a mile of a tanker that spilled substantial quantities of LNG would be at risk of radiation burns. After 9/11, authorities had to take extra precautions to oversee tank transporters. In addition, in Harpswell and Sears Island, concerned citizens have objected to proposed terminals because of safety hazards as well as adverse impacts on lobstering and fishing.
New England Grapples with Its Energy Future (by Melanie Stein, Conservation Law Foundation)
New York Pipeline
U.S. Opposes Chosen Route for Pipeline Under Hudson (by Al Baker, New York Times)
Under Whose Backyard? (by Kate Stone Lombardi, The New York Times)
California Energy Crisis and the FERC
The name “Enron” is readily identified with the boldest, most comprehensive corporate scandal in history. Enron was a company that participated in the gaming of a partially deregulated California energy system, bilking billions of dollars for its top executives—at the expense of taxpayers, consumers and employees. The company was also instrumental in preparing the market for the energy crisis that it would later take advantage of.
In 1996, the California legislature unanimously passed AB 1890 to deregulate electricity markets. It created the Power Exchange (PX) and the California Independent System Operator (ISO), which oversaw many electricity companies and allowed them to place a price cap on electricity prices.
In the summer of 2000, as wholesale energy started to rise, retail energy prices remained the same due to the price caps. The energy crisis was caused by high wholesale electricity prices and inadequate supply caused by insufficient generating capacity and market manipulation by energy companies such as Enron—which was poised to reap billions of dollars from the perceived shortage.
Enron and Deregulation
Enron’s lobbyists played an important role in California’s deregulation. According to critics, former Enron head Ken Lay spent millions of dollars on lobbying and (Republican) campaign contributions to push deregulation and give his company free reign to capitalize on the “crisis.”
As reported by The Nation, Enron controlled about a quarter of wholesale trading in electricity, with no regulatory oversight. In the meantime, the White House and FERC’s Enron-friendly head refused to impose price controls—which, once enacted, after $50 billion in costs to state residents, made the “crisis’ disappear.
The government’s slow response, in fact, forced the state to accept long-term contracts that, while putting out the immediate fires, assured continued price-gouging in the energy market.
FERC investigated allegations of market manipulations by Enron and other companies—but were widely criticized for essentially doing too little, too late. Former California governor Gray Davis carried out a public battle with FERC, and threatened to sue the agency for failure to institute price caps.
Former FERC head Pat Wood (a Texas Republican appointed by Bush at the urging of former Enron CEO Ken Lay) argued that Enron’s demise shouldn’t stand in the way of deregulating the California electricity market. FERC officials had been promoting deregulation for years:
In the years after the crisis, FERC has collected more than $6.3 billion from California electric market participants by facilitating settlements. Critics called the settlements a joke—token payments coaxed from government-backed energy companies who had set up market conditions to swindle consumers.
On July 5, 2006, the former CEO of Enron, Kenneth L. Lay, died of a heart attack six weeks after a Houston jury found him guilty of conspiring to inflate the energy company’s stock price and misleading investors and employees who lost billions of dollars when Enron declared bankruptcy in 2001.
Lay’s death cast doubt on whether the government could recover the request of $43.5 million from his estate in restitution. In October 2006, a federal judge in Houston set aside the criminal conviction and denied requests to have Lay’s estate pay restitution to victims of his crimes, citing the fact that he died “before sentencing, before a final judgment could be entered, and before a notice of appeal could be filed.”
Further, Enron sued FERC for failing to open up the interstate transmission grid to competition, arguing that the agency’s Order 888 didn’t go far enough to provide “open access” and force participation in regional transmission organizations (RTOs). FERC—along with consumer advocates—had maintained that it wasn’t authorized to force companies with regional control over certain power lines to open up to competition.
Enron Conservatives (by Robert L. Borosage, The Nation)
Enron's Enablers (by Robert Scheer, The Nation)
Davis threatens to sue regulators to get price limits (by Lynda Gledhill and Robert Salladay, San Francisco Chronicle)
Enron's Lay Dies Of Heart Attack (by Carrie Johnson, Washington Post)
Enron Traders Caught On Tape (CBS News)
New evidence of Enron’s criminal role in California’s energy crisis (by Andrea Peters, World Socialist Website)
Hearings reveal Enron at center of California energy crisis (by Andrea Cappannari, World Socialist Website)
Enron ‘manipulated energy crisis’ (BBC News)
Enron: What Dick Cheney Knew (by John Nichols, The Nation)
Enron's Power Play: Enron, the nation's largest energy merchant, won't let California stand in its way (by Wendy Zellner, Christopher Palmeri, Peter Coy, and Laura Cohn, Business Week)
A Most Favored Corporation: Enron Prevailed in Federal, State Lobbying Efforts 49 Times (by M. Asif Ismail, Center for Public Integrity)
Enron Crises Timeline (PDF)
Is it FERC's fault? (by Severin Borenstein, PBS Frontline)
Eminent Domain
Section 7(h) of the Natural Gas Act grants the right of eminent domain when a proposed project is in the public’s convenience and necessity; the company is allowed to acquire that property if the landowner and pipeline company cannot come to a common consensus. In the case where a consensus isn’t met, FERC assesses the environmental factors and the benefits of constructing something under its jurisdiction (e.g., over a gas storage facility or a gas import station). If FERC feels that there aren’t significant problems that may harm human beings or wildlife, then it will issue a “Certificate of Public Convenience and Necessity.”
Eminent domain is a controversial issue because it gives FERC authority strong enough to override any opposition to a proposed plan. For example, in response to the social effects caused by having a pipeline built into their property, the website of the Williams Gas Pipeline company stated:
“Do we have the right to condemn for an easement? Generally, once the Federal Energy Regulatory Commission issues a Certificate of Public Convenience and Necessity for a project, the company may, by virtue of the authority granted in the Natural Gas Act, seek authority from the court to obtain the limited rights necessary to construct, operate, and maintain a pipeline.”
Therefore, eminent domain is seen as primarily beneficial to the companies under the jurisdiction of FERC.
Natural Gas Pipeline Proposed through Southern Oregon (Umpqua Watersheds)
Construction of the North Lansing Storage Facilities:
On December 4, 2002, FERC approved the expansion of the North Lansing, Texas, storage field by eminent domain, including the construction of a 6,000 horsepower compressor and 17 injection/ withdrawal wells, with appurtenant facilities, which would increase the rate of the output of gas.
S.J. Keasler, a landowner in the proposed vicinity, contended that one of the proposed wells would be on his land and cause undesirable odors that would decrease his property value. He also emphasized his concern regarding the impact on wildlife in the area. The Natural Gas Pipeline Company of America maintained that there would be no hazardous waste from the storage facilities. FERC’s environmental assessment also found that the project would have no significant impact on wildlife.
In January 2006, FERC approved the construction of 12 new I/W wells; one 13,000 hp electric compressor; 8.7 miles of 30-inch pipeline to connect one the North Lansing Compressor Station 338 and Natural’s Gulf Coast mainline, along with a 30-inch tap on the mainline.
Washington Coast energy project
Ecology challenges FERC for bypassing environmental reviews of energy projects
(Department of Ecology News Release)
Suggested Reforms:
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In recent years, FERC Orders 888 and 889 have been introduced in order to reform “pro forma open access transmission tariff,” or OATT, —towards eliminating “discriminatory practices” and increasing “transparency” in the provision of transmission services.
Changing the Rules of the ‘ROE’: A Reform in Waiting (by Joshua Z. Rokach, Electricity Journal)
The Energy Policy Act of 2005
Legislation cemented a commitment to deregulation, but with a policy mix including government oversight. New agency “responsibilities” include: “overseeing the reliability of the nation’s electricity transmission grid; implementing new tools, including penalty authority, to prevent market manipulation; providing rate incentives to promote electric transmission investment; supplementing state transmission siting efforts in national interest electric transmission corridors; and reviewing certain holding company mergers and acquisitions involving electric utility facilities, a well as certain public utility acquisitions of generating facilities.”
EPAct Fact Sheet (PDF)
FERC & EPAct 2005 (PDF)
Federal Energy Regulatory Commission and environmental justice: Do the National Environmental Policy Act and the Clean Air Act offer a better way? (by Jason Pinney, Boston College Environmental Affairs Law Review)
Debate:
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Energy Deregulation
Critics cite the Enron scandal as a prime example of how deregulation benefits energy brokers—at the expense of utilities and consumers. On the other hand, the energy industry contends that free-market trading keeps energy prices low, and selective constraints on the system can be used to control illegal behavior. And while FERC policies are blamed for the crisis, industry officials defend market liberalization and instead extend blame to an environmental shortage (Pacific Northwest draught that affected hydroelectric production, and impacted the entire energy system.)
In the years following Enron’s collapse, critics—including consumer advocates Public Citizen—continue to contend that deregulation has not led to increased competition in wholesale markets, and that the agency has not done enough to make sure prices are “just and reasonable,” and to protect consumer rights. Critics further argue that the entire FERC deregulation scheme is in violation of the Federal Power Act (underlying FERC legislation from the 1930s).
Proponents of deregulation continue to blame higher fuel prices for rising energy prices. In early 2008, FERC Chairman Joseph Kelliher reiterated the agency’s fervent commitment to deregulation:
“Our goal at FERC is perfect competition, textbook competition. Competition that is so perfect and beautiful it would make an economist weep.” (Dallas News)
Energy deregulation: Is it friend or enemy? (by Thomas A. Fogarty and Edward Iwata, USA Today)
Deregulation is here to stay, FERC chief says (by Elizabeth Souder, Dallas Morning News)
From the Left
Public Citizen Leads Consumer Advocates’ Challenge to FERC’s Illegal Deregulation of Electricity Rates (Public Citizen)
Bush Lite: The Daschle-Bingaman-Enron bill is spoiled by energy industry special interests (Public Citizen)
Blind Faith: How Deregulation and Enron’s Influence Over Government Looted Billions from Americans. Sen. Gramm, White House Must Be Investigated for Role in Enron’s Fraud of Consumers and Shareholders (Public Citizen) (PDF)
Fuel Retention Costs
Debate sharpens on fuel cost retention policy at FERC (Pipeline & Gas Journal)
The debate about Kelliher’s appointment as Chairman of FERC
In 2003, local organizations questioned Kelliher’s qualifications to run FERC. Public Citizen, a nonprofit organization that advocates on behalf of consumer interests in Congress, the executive branch and the courts, expressed its concerns over the appointment of Kelliher as Chairman of the commission. Public Citizen believing that his history working with Vice-President Dick Cheney in the National Energy Policy Development Group made him unfit for the independent commission. (In 2001, one of George W. Bush’s first acts as president was to give Cheney permission to administer an Energy Task Force to develop an energy policy. Concerns rose when news surfaced of secret meetings with oil companies, and no official papers were released to confirm the meetings. Public Citizen criticized the Energy Task Force for presenting a one-sided vision of energy policy, without consulting many community and local organizations that represent the public’s interests). In 2005, the Energy Policy Act was passed, generating increasing debate. According to Public Citizen, “As one of the primary coordinators of the Administration’s National Energy Policy Development Group, Kelliher actively solicited the advice of large energy industry corporations and associations while ignoring similar requests from organizations representing the public interest.”
Supporters of Kelliher argue that his 20 years of experience with energy policy qualifies him to be Chairman.
Appointing the Director
FERC Faces Challenge (PDF)
Bush Nominates Tainted Insider for Key Energy Regulatory Post (Public Citizen)
Kelliher relishes role as chairman of the newly robust Federal Energy Regulatory Commission (by Jim Snyder, The Hill)
James Kelliher, the Man Who Invited Enron to Help Write Bush’s National Energy Policy (by Jason Leopold, Counter Punch)
Former Directors:
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Pat Wood is a former Texas Public Utilities Commission Chairman and long-time Bush ally. A proponent of deregulation, he was appointed by Bush to head FERC at the urging of former Enron Chairman Kenneth Lay.
Enron Chairman Gave List of Favored Names to White House; Bush Named Two as Energy Regulators (by Marcy Gordon, Associated Press)
- Table of Contents
- Overview
- History
- What it Does
- Where Does the Money Go
- Controversies
- Suggested Reforms
- Comments
- Leave a Comment
Federal Energy Regulatory Commission (FERC)
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