Restructuring and Regulation of Electric and Gas Industries

• Pages: 27-49

27

CHAPTER 2

RESTRUCTURING AND REGULATION OF

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, highlights electric industry

regulation in particular and concludes with a brief discussion of the

regulation of natural gas pipelines. As restructuring, and in some cases

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

The 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 FP A, 16 U.S.C. § 791a, enacted in 1920, governs licensing

hydroelectric projects. Sectio n 10(h)(1) of the FPA c onditions all

hydroelectric licenses with a prohibition of agreements restricting

electrical output or fixing prices. Section 10(h)(2) pro vides for further

license conditions in order to prohibit conduct under the licenses in

“contravention of the policies expressed in the antitrust laws.”

3

. 16 U.S.C. § 824.

4

. Federal Power Comm’n v. S. Cal. Edi son Co., 376 U.S. 205 (1964);

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

see also Federal Power Comm’n v. Fla. P ower & Light Co., 404 U.S. 453

(1972) (affirming use of “commingling test,” which postulated that if

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

the energy is in interstate commerce); Jersey Cent. Power & 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

28 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 with FERC all rates and charges for

jurisdictional services.

8

Section 206 of the FPA gives FERC, either upon

a complaint or on its own motion, continuing jurisdiction to revise rates

that it finds unjust, unreasonably or unduly discriminatory or

preferential.

9

FERC may also order a public utility to make refunds of

amounts collected in excess of the just and reasonable level.

10

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.

11

Section

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

transfer j urisdictional facilities or consolidate its jurisdictional facilities

with those of another.

12

The Energy Policy Act of 2005 (EPAct 2005)

13

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.

14

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 interstate commerce).

5

. 16 U.S.C. § 824(b).

6

. Id. § 824(f).

7

. 16 U.S.C. § 824d (a); Federal Power Comm’n v. Conway Corp., 426 U.S.

271 (1976).

8

. 16 U.S.C. § 824d(c).

9

. Id. § 824e(a).

10

. Id. § 824e(b).

11

. Id. §§ 824a, 824i.

12

. Id. § 824b.

13

. Energy Policy Act of 2005, Pub. L. No. 109-58, 119 Stat. 594 [hereinafter

EPAct 2005].

14

. 16 U.S.C. § 824b(a).