Chapter II. Regulation and Deregulation of Energy: Electric and Gas Industries

• Pages: 17-43

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CHAPTER II

REGULATION AND DEREGULATION OF ENERGY:

ELECTRIC AND GAS INDUSTRIES

Understanding how the antitrust laws apply to the conduct of energy

industry participants requires an understanding of the evolving regulatory

framework in which those participants operate. This chapter provides an

overview of that regulatory framework, highlighting electric industry

regulation in particular and concluding with a brief discussion of the

regulation of natural gas pipelines. As deregulation in these prominent

areas of the energy industry has proceeded, the influence of the antitrust

laws has grown.

A. Federal Statutory Scheme for Electric Utility Regulation

Part II of the Federal Power Act (FPA)

1

is the source of authority for

much of the federal regulation of the electric utility industry.

2

T he FPA

grants jurisdiction to the Federal Energy Regulatory Commission

(FERC) over the transmission of electricity in interstate commerce and

the sale of energy for resale in interstate commerce.

3

A sale or resale of

power into a multi-state transmission system is deemed to be in interstate

commerce regardless of the contractual designation of the power source

and delivery point.

4

The FPA exempts from the jurisdiction of FERC

1. 16 U.S.C. §§ 824-824w.

2. Part I of the FPA, 16 U.S.C. §791a enacted in 1920, governs licensing

hydroelectric projects. Section 10(h)(1) of the FPA conditions all

hydroelectric licenses with a prohibition of agreements restricting

electrical output or fixing prices. Section 1 0(h)(2) also provides for

further license conditions in order to mini mize conduct under the licenses

in “contravention of the policies expressed in the antitr ust laws.”

3. 16 U.S.C. § 824.

4. Fed. Power Comm’n v. S. Cal. Edison Co., 376 U.S. 205 (1964); Pa.

Water & Co. v. Fed. Power Comm’n, 343 U.S. 414 (1952); see also Fed.

Power Co mm’n v. Fla. Power & Light Co., 404 U.S. 453 (1972)

(affirming use of “commingling test,” which p ostulated that if energy

commingles at a bus with energy that will leave the state, all of the

energy is in interstate commerce); Jersey Cent. Po wer & Light Co. v. Fed.

Power Comm’n, 319 U.S. 61, 63-66 (1943) (utility’s transmission to

neighboring utility’s grid may have ultimately contributed to small

18 Energy Antitrust Handbook

facilities for the generation and local distribution of electric energy, as

well as facilities for the transmission of electric energy in intrastate

commerce or for the consumption of the transmitter.

5

Section 201(f) of

the FPA also exempts municipal utilities and other state instrumentalities

from certain aspects of the FPA, but not from FERC’s authority to

require mandatory transmission service under Section 211.

6

Sections

205 and 206 of the FPA govern services under FERC’s jurisdiction.

Section 205(a) requires all rates and charges made, demanded, or

received to be just and reasonable, a standard that incorporates a policy

of protecting consumers from the exercise of market power.

7

Section

205(c) of the FPA requires public utilities to file all rates and charges for

jurisdictional services.

8

Under Section 206 of the FPA, FERC has

continuing jurisdiction to revise rates that it finds unjust or unduly

preferential and authorizes FERC, in response to a complaint or sua

sponte, t o modify any rate, charge, or classification that it finds unjust,

unreasonable, or unduly discriminatory, and to order a public utility to

make refunds of amounts collected in excess of the just and reasonable

level.

9

Under FPA Sections 202 and 210, either the Department of Energy

(DOE) or FERC may require interconnection of utility transmission

facilities and coordination of operations in certain situations.

10

Section

203 of the FPA requires FERC approval before a public utility may

transfer jurisdictional facilities or consolidate its j urisdictional facilities

with those of another.

11

The Energy Policy Act of 2005 (EPAct 2005)

12

revised this authority expressly to include acquisitions of generation and

certain holding company acquisitions, as well as to require FERC to

address cross-subsidy issues arising from business combinations.

13

Section 204 of the FPA requires FERC approval before the issuance of

amounts of electric energy reaching an out-of-state utility, and therefore

constituted the transmission of electric energy in intersta te commerce).

5. 16 U.S.C. § 824(b).

6. Id. § 824(f).

7. 16 U.S.C. § 824d(a); Fed. Power Comm’n v. Conway Corp., 4 26 U.S.

271 (1976).

8. 16 U.S.C. § 824d(c).

9. Id. § 824e(a).

10. Id. § 824a.

11. Id. § 824b.

12. Pub. L. No. 109-58, 119 Stat. 594.

13. 16 U.S.C. § 824b(a).