homecaliforniamy billnew businessregulationthe future

what is ferc?
Established in 1977, the Federal Energy Regulatory Commission controls the country's natural gas industry, hydroelectric projects, electric utilities, and oil pipelines and has played a critical role in the deregulation of these industries. Here's an explanation of the origins of the agency, what it does, and its role in the California crisis.
federal power comission 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 first.

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 West.

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 energy strategy.

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 government control.

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.

More on FERC

Read FRONTLINE's interviews with FERC Commissioners Curt Hebert and Pat Wood, and FERC economist Ron Rattey.

Is the California crisis FERC's fault?
Critics have accused FERC Chairman Curt Hebert of being a free market ideologue who is blindly devoted to the free market. Did FERC neglect its obligations as an energy market monitor and exacerbate -- or cause -- California's crisis? The Federal Energy Regulatory Commission
This web site provides information on the status of any active case filings, as well as a list of pending complaints filed with the commission. It also includes selected notices, issuances, congressional testimony, and actions taken by the commission.

home - california - my bill - new business - regulation - the future - new york times reports
video - interviews - glossary - discussion - synopsis - press - tapes & transcripts - credits
FRONTLINE - wgbh - pbs online

power lines photo ©2001 entropy media/images
web site copyright 1995-2014 WGBH educational foundation