 | |
| Agency overview | |
|---|---|
| Formed | October 1, 1977 |
| Preceding | |
| Jurisdiction | U.S. government |
| Headquarters | Washington, D.C., U.S. |
| Agency executive |
|
| Parent agency |  U.S. Department of Energy |
| Website | www.FERC.gov |
The Federal Energy Regulatory Commission (FERC) is the United States federal agency 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 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.
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.
Energy Policy Act of 2005
In
2001, the G.W. Bush administration sought to give the authority of
eminent domain to FERC to circumvent state and local bureaucratic
processed 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 nonincumbent transmission developers.
FERC's 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 an independent regulatory agency within the United States Department of Energy. 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 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 is composed of up to five commissioners who are appointed by
the President and confirmed by the Senate. 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.
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
The Commissioners are:
| Name | Title | Party | Took office | Term expires |
|---|---|---|---|---|
| Neil Chatterjee | Chairman | Republican | August 8, 2017 | June 30, 2021 |
| Cheryl LaFleur | Commissioner | Democratic | July 13, 2010 | June 30, 2019 |
| Richard Glick | Democratic | November 29, 2017 | June 30, 2022 | |
| Neil Chatterjee | Republican | January 2, 2019 | June 30, 2023 | |
| Bernard McNamee | Republican | December 11, 2018 | June 30, 2020 |
Criticism
FERC
has been subject to criticism and increasing acts of activism by people
from communities affected by Commission decisions approving pipeline
and related projects. They contend that FERC "blithely green lights 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 these critics have disrupted several regular open meetings of the Commission, and they staged two, week-long blockades of the Commission'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 these 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 that
"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 over recovery or under recovery.' 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 who 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.
Subsequently, in a separate decision, the D.C. Circuit 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 (e.g., New York).
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, any large (more than 20 MW for the NYISO and more than 25 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 mostly determined by the state
siting board (although the utilities' power pool
might have had their own closed door planning session) and large
generation projects were developed by the utilities themselves..
This 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.
This controversy similarly applies to various electric
wholesale-market issues within the RTO, i.e., 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.
