From Attleboro to EPSA: The Pace of Change and Evolving Jurisdictional Frameworks in the Electricity Sector.

AuthorPanfil, Michael

INTRODUCTION

The United States electricity sector is undergoing fundamental change. Increasing competition, technological innovation, and environmental policy imperatives are reshaping the electricity sector. This change holds enormous promise; sector modernization drives more affordable and reliable electricity. Rapid change has also spurred policy makers and regulators to reexamine the elemental legal structures underpinning the sector. This reaction is significant; incumbent actors have challenged regulatory and legal response in court at every turn. (1)

Such litigation is predictable given the industry's monopolistic roots, historically tight regulation, and the transition's scale and scope. Indeed, the pattern of change, reaction, and resolution is not unique; a similar history led to the passage of the Federal Power Act (FPA) in 1935. The circumstances surrounding the FPA's passage--changing technology, a legal and regulatory response, and symptomatic jurisdictional tension--is instructive. The way industry actors, governmental regulators, and courts acted during that period of rapid transition provides a template upon which current actions can be understood and framed. This Article explores that prior context and compares it to the sector's current transition. It then examines how current trends are spurring a legal and regulatory response, which in turn prompts courts to adjust the jurisdictional frameworks to better adjudicate disputes. This Article proceeds in four Parts.

Part I introduces the past: traditional electricity sector regulation from inception to around the 1970s. This Part pays particular attention to the ways in which advancing technology strained the prior regulatory regime, the development of new law to harmonize the disjointed sector, and the judicial interpretation of that new law based on the grid's physical characteristics.

Part II describes present changes underway in the sector: restructuring, technological innovation, and evolving state environmental policy priorities and preferences. This Part explores how these changes create new pressures upon longstanding regulatory and legal structures created to oversee the sector as described in Part I.

Part III discusses the legal and regulatory response to the foundational change described in Part II. Just as Congress responded to technological changes with the FPA in the 1930s, legislators and regulators have crafted responsive policies and actions to realign FERC's foundational mandate in light of sector change.

Part IV explains how the legal and regulatory response to sector transition has spurred jurisdictional tension between federal and state actors. Here, this Article describes how courts have adopted a collaborative federalism jurisdictional framework in the face of the sector transition, and legal and regulatory response as described in Parts II and III.

This Article reaches several conclusions. First, it finds that current sector trends closely resemble the transition that unfolded at the beginning of the twentieth century. That is, the fundamental sector change that led to the Attleboro gap, the FPA, and the adoption of a 'bright-line' jurisdictional framework mirrors the impact of current foundational change. Modern changes have led to a legal and regulatory response and the adoption of the 'collaborative federalism' jurisdictional framework. Second, this Article asserts that this pattern is instructive in understanding today's sector evolution. Three fundamental changes--restructuring, technological innovation, and evolving state policy preferences--have driven legal and regulatory response. In turn, a jurisdictional framework has taken shape that equips judges with the tools needed to resolve disputes with legal and regulatory responses to foundational sector change. The adoption of a 'collaborative federalism' jurisdictional framework enables courts to resolve disputes regarding the FPA's division of authority through a lens that best fits the changes occurring in the sector today. (2)

  1. Traditional Energy Sector Regulation

    1. Foundational Change: Growth of the Grid and the Attleboro Gap Edison helped spark a new industry with the invention of the first practical light bulb in 1879. (3) The first centralized generation was installed three years later, on Pearl Street in New York City. (4) Scores of electric companies would sprout up over the next decade. (5) Regulatory oversight followed soon after, with state legislation first enacted in 1907. (6) By 1914, a total of forty-three more states had followed suit. (7)

      State regulation in this early era made practical sense; the sector took the form and function of natural monopolies best suited for careful oversight to prevent anticapitalist ills associated with an absence of competition. (8) Similarly, the timing of state regulation made sense; in a span of less than thirty years, the United States had moved from single light bulb to entire electric grids, owned and operated by electric utility companies. Regulatory oversight sprang up with commensurate speed. States, rather than the federal government, first regulated the sector--an organic result that mirrored an industry of generally small, isolated, and individual electricity grids. (9) Yet this was changing rapidly, with systems growing increasingly larger in scale.

      The growth of the electricity grid, enabled by technological change and a heavily regulated monopolistic industry created important benefits. An interconnected grid provided a larger balancing area, which supported reliability. (10) It also allowed for pooling of resources and improved economies of scale, and reduced the cost to the end consumer. (11) Close regulatory oversight and regulated rate of return based upon volume incented electric utilities to build, in turn expanding the grid to new population centers. (12) For these reasons, the buildout of the electricity grid was an important and positive development. However, it strained a legal and regulatory structure not designed for interstate oversight.

      An early interstate transmission contract ultimately pushed the sector's regulatory structure to its limit. In 1917, Narragansett Electric Lighting Company, a Rhode Island company, agreed to sell power at a specified rate for twenty years to Attleboro Steam & Electric Company, a Massachusetts company. Attleboro planned to use that power to supply customers in and around the City of Attleboro. (13) The electricity was to be delivered "by the Narragansett Company at the state line between Rhode Island and Massachusetts and carried over connecting transmission lines to the station of the Attleboro Company in Massachusetts, where it was to be metered." (14) The Narragansett Company filed the contract with the Rhode Island Public Utility Commission (PUC), which approved the matter. (15)

      All proceeded smoothly for several years. However, a conflict emerged in 1924, when the Narragansett Company sought to increase the rate for Attleboro Steam & Electric. It filed a new contract with the Rhode Island PUC "purporting to cancel the original schedule and establish an increased rate for electric current supplied, in specified minimum quantities, to electric lighting companies for their own use or sale to their customers and delivered either in Rhode Island or at the [s]tate line." (16) The new contract only applied to the Attleboro Company, which led the Rhode Island PUC to institute an investigation involving both companies. (17) Based upon its review, the PUC found the original contract rate was unreasonable and approved the Narragansett Company's new contract. (18) The Attleboro Company quickly appealed the decision, finding relief before the Supreme Court of Rhode Island, which held that "the order of the Commission imposed a direct burden on interstate commerce and was invalid because of conflict with the commerce clause of the Constitution." (19) On appeal, the U.S. Supreme Court agreed with the state supreme court that "the sale of electric current by the Narragansett Company to the Attleboro Company is a transaction in interstate commerce, notwithstanding the fact that the current is delivered at the [s]tate line." (20) Therefore, the Court reasoned, "[t]he rate is ... not subject to regulation by either of the two states in the guise of protection to their respective local interests." (21) But, the Court also acknowledged the lack of any federal regulator with authority over the rate: "[I]f such regulation is required it can only be attained by the exercise of the power vested in Congress." (22) The decision's immediate impact was to leave state PUCs powerless in matters involving interstate electricity transactions. Yet even more farreaching, the decision effectively made regulation of interstate electricity transactions impossible, as no federal regulatory entity existed to provide the needed oversight. The result was the so-called Attleboro gap--a space in which state entities were barred from exercising regulatory authority and federal entities were conspicuously absent.

    2. The Legal Response: Passage of the Federal Power Act

      The Attleboro gap was a symptom of natural industry evolution and growth. Within a few decades a sector was created out of whole cloth: from unconnected light bulb to generating station; from generating station to small utility; from small utility to consolidated monopoly. Yet, despite such rapid technological advances across the industry, the regulatory structure stood still. Without federal law or a federal regulator, congressional action was the only remedy available to harmonize a now disjointed sector. (23) In 1935, Congress took this step by enacting the FPA. (24) This legislative action was an explicit response to the Attleboro gap, (25) closing the regulatory no-man's land by vesting a federal authority (originally the Federal Power Commission (FPC), (26) now FERC) with power over "the sale of electric energy...

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