The Federal Energy Regulatory Commission, or FERC, traces its history back to
the 1920s and the creation of the Federal Power Commission, a small federal
agency that controlled hydropower dams. A decade later, President Franklin D.
Roosevelt championed legislation to dismantle utility monopolies, and in 1935
Congress passed the Federal Power Act, requiring the Federal Power Commission
to set "just and reasonable" wholesale electricity prices. |
When FERC was established in 1977 as a replacement for the Federal Power
Commission, its 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.
Today, this little-known federal agency regulates the country's natural gas
industry, hydroelectric projects, oil pipelines, and wholesale rates for
electricity. With a modest $175 million budget and 1,200 employees, FERC is
responsible for overseeing a $250 billion electricity industry, which puts the
agency in charge of regulating pricing for about 73 percent of the electricity
used in the United States.
FERC's five-member governing board is selected by the president and
consists of five commissioners, all of whom serve staggered five-year terms.
No more than three commissioners may belong to the same political party. The
president designates the chairman of the commission, which means the chairman
is usually from the same political party as the president and serves as the
tie-breaking vote on matters that are deadlocked by party-line vote.
Until recently, FERC remained remarkably hidden from the public eye, even
though it played a pivotal role in setting the stage for today's debate over
deregulation. In the late 1980s, the agency began deregulating the gas
markets, and by 1992, when Congress passed the Energy Policy Act, FERC had
the authority to order wholesale competition with regulatory oversight
responsibility. In this new open market, utility companies were required to open their transmission lines to electricity wholesalers. Some critics say FERC has loosened its definition of "just and reasonable" standards and has allowed price regulation to take a backseat to competition.
As electricity deregulation has spread across the country, FERC's
responsibilities have grown in parallel with the complexities of the various
state deregulation schemes. At the same time, its resources have shrunk. In
recent years, Congress cut the agency's budget despite the thousands of cases
pending at FERC, involving everything from power pricing to restructuring
of transmission lines. It has also amassed a growing number of critics who
claim that the agency is timid and ineffective, because its policies have
adhered to strict free-market principles and have not put consumers' concerns
Over the past year, as the energy crisis has worsened, FERC has been center
stage in an increasingly fierce standoff between powerful energy companies and
state leaders who accuse them of price gouging. Nowhere is this more apparent
than in California, where state power operators estimate that utilities have
been overcharged $6.2 billion in the past year. The battle lines have been
drawn over the issue of how FERC and California state officials separately
define "just and reasonable." California officials -- especially Governor Gray
Davis -- are demanding that FERC cap wholesale power rates in the state
temporarily. In April, FERC did order price mitigation for electricity
sold to California during acute power shortages, allowing for caps on wholesale
prices when reserves fall below 7.5 percent of capacity. Critics say the action
is too little too late.
Until recently, FERC's governing board had a Democrat majority with
Chairman Curt Hebert serving as its only Republican member. With regard to the crisis in California, the board has been split along policy, not political, lines with Hebert and Democratic Commissioner Linda Breathitt against setting price caps, and Commissioner William Massey, the other Democrat, favoring price caps. Massey has been especially critical of the FERC policy of not helping California with temporary price caps, and he also criticizes his agency for ignoring blatant evidence of widespread overcharging in California.
Hebert, whose term expires in 2004, is a close ally of Senate Minority Leader
Trent Lott (R-Miss.) and was previously a state utility regulator in Mississippi. He is a strong proponent of electricity deregulation and competitive market pricing,
and under his leadership FERC has resisted requests to impose price caps in the
Although the Bush administration adamantly opposes price caps, ironically,
two new Bush appointees to FERC's board could change the tide in the agency's
policy towards California. President Bush chose Republicans Pat Wood of Texas
and Nora Brownell of Pennsylvania, both former state utility regulators and
self-described free-market advocates. But both Wood and Brownell have said they
believe regulators should play a more active role, particularly on the issue of
consumer protection. California state officials are hopeful that their past
statements concerning consumers may signal a willingness to cast the deciding
votes in favor of temporary price caps.
Wood was appointed to the Texas Public Utility Commission (TPUC) in 1995, when Bush was still governor, and he was later the TPUC chairman. An old friend and longtime political ally of the president, Wood is expected to be appointed FERC
chairman, replacing Hebert in a move that could potentially shift the agency's
Brownell, who is a member of the Pennsylvania Public Utility Commission, has
been quick to acknowledge the severity of the situation in the West Coast
energy markets. She has a long history of working with both electricity and
telecommunication deregulation and was involved with the successful
deregulation of the mid-Atlantic region's electricity market.
Yet just when things were starting to look calmer for the beleaguered agency, a
proposal in the recently announced Bush energy plan could put FERC back in
the hot seat. President Bush has included a recommendation that would allow the
federal government to seize private property for public use, something that is
very controversial in the Republican Party. Under "eminent domain" authority, FERC could compel the sale of private land for new electricity transmission
lines. The agency currently has the power to use eminent domain in placing
natural gas lines, but Bush's plan would significantly expand this authority.
Expansion of this power within FERC is strongly opposed by most conservatives
in the Republican Party, who see it as a flagrant expansion of federal
Current FERC Chairman Herbert is strongly opposed to unilaterally expanding
FERC's federal jurisdiction over transmission lines at the expense of states'
rights. In the past he has supported the Southern Company, a monopoly utility
company that has sought to maintain control of access to its power lines. This
states' rights position is viewed by some critics, including Enron
Corporation, as anti-competitive, and in the fall of 2001, the U.S. Supreme Court will hear a case on this issue brought by Enron.
As long as the energy crisis persists, scrutiny of FERC and its action or
inaction will continue. This once obscure government agency tucked away behind
a train station in Washington, D.C., is now in the center of the energy storm.
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