U.S. House Committee Looks at ‘Balance of Power’ Between FERC and States

U.S. House Energy and Commerce Committee Chairman Fred Upton (R-MI) and Energy and Power Subcommittee Chairman Ed Whitfield (R-KY) sent a letter on June 10 to Federal Energy Regulatory Commission (FERC) Chairman Norman Bay – noting that it is time to “comprehensively evaluate and address some of the broader market design, policy, technology, and jurisdictional issues” in the electricity sector.

The legislators noted that, “As consumer expectations and technology evolve, consideration of new business and regulatory models within the electricity sector is occurring – particularly at the state level – to better reflect changing market conditions.

“As these changes occur, the competitive electricity market – particularly the organized wholesale markets – continues to underachieve,” the letter stated, blaming the situation on “pervasive and persistent problems within their respective regulatory frameworks.”

This is not the first attempt to address such concerns with FERC, Representatives Upton and Whitfield claimed. “We have previously communicated many of these concerns to the commission, ranging from an inability to provide accurate price to signals, to a lack of fairness and transparency in governance structures and stakeholder processes.”

Indeed, the committee chairmen cited, “as further evidence of the evolution taking place – and perhaps evidence of the shortcomings of the current state of the organized markets …” – the Supreme Court has issued rulings on two “recent and significant” cases regarding the scope and reach of the Federal Power Act, the jurisdiction of, and how new products and programs fit into the existing statutory and regulatory regimes.

They pointed to the case, FERC v Electric Power Supply Association (EPSA), decided last January, in which the Supreme Court upheld the commission’s demand response program, finding that FERC has jurisdiction because the program directly affects wholesale rates.

So what is the fine line between the states’ jurisdiction over retail sales and the federal commission’s jurisdiction over wholesale prices?

In kicking off the review, the legislators posed five questions to FERC, to help them better understand the current state of electricity markets:

1. Have the competitive markets fared as expected since restructuring began over 20 years ago, particularly in terms of market efficiency, capital investment, reliability, electricity rates, and consumer impacts?
2. Are the competitive markets equipped to promote, integrate, and adapt to new technologies, new products and services, and state and federal policy changes?
3. What is the commission’s view as to how non-FERC jurisdictional federal and state actions, such as the federal production tax credit or state renewable energy mandates, impact the operation of wholesale markets generally, and, specifically, in terms of impacts on reliability, resource and technology neutrality, and wholesale power prices?
4. How do new technologies, programs, incentives, and policy changes at the state and federal levels affect the jurisdictional “bright line”? [Editor’s note: The legislators refer to the traditional “bright line” of the commission’s jurisdiction over products and practices that ‘directly affect’ wholesale sales and rates, with the states reserving jurisdiction over retail matters.] Is that line becoming increasingly blurred as a result of such changes?
5. Does the Federal Power Act continue to be well-suited for today’s electricity sector? Is it well-suited for the electricity system of the future?

In posing the questions, the committee chairmen noted, “In addition to [FERC’s] responses to the above questions, we also seek the commission’s technical assistance, as the committee seeks to provide  a strong educational foundation for members and set the stage for a more comprehensive review of the electricity markets in future Congresses.”

The committee plans to hold an introductory oversight hearing in the coming weeks. More information will be available here as it becomes available.