The Federal Energy Regulatory Commission (or FERC) is an independent agency within the Department of Energy that regulates the transmission of electricity, natural gas, and oil in interstate commerce. FERC is also responsible for licensing hydropower projects as well as reviewing proposals for the construction of liquefied natural gas (LNG) terminals and interstate natural gas pipelines. Some of FERC's responsibilities include regulating the transmission and wholesale sales of electricity in interstate commerce, review of certain mergers and acquisition by electricity companies, regulate the transmission and sale of natural gas for resale in interstate commerce, regulates interstate oil pipeline transportation, licenses private, municipal, and state hydroelectric projects, and monitors energy markets. FERC is NOT responsible for regulation of retail electric or natural gas sales to customers, regulating nuclear power plants, oversight for the construction of oil pipelines, mergers and acquisitions related to oil and natural gas companies, pipeline safety, and other such aspects that are handled by state and local governments.
History and Background
The Federal Energy Regulatory Commission (FERC) is an outgrowth of the former Federal Power Commission (FPC). Created pursuant to the passage of the Federal Water Power Act of 1920, the FPC had jurisdiction over hydroelectric projects and nothing more. The leadership of the FPC originally consisted of the Secretary of War, the Secretary of the Interior, and the Secretary of Agriculture, however , in 1930, Congress changed the composition of the FPC to five commissioners appointed by the President, no more than three of whom could belong to the same political party. This composition has been retained to this day.
For fifteen years the FPC regulated only hydroelectric projects until 1935 when Congresses expanded the Federal Power Act. This expansion gave the FPC jurisdiction over the transmission and sale of wholesale electric energy in interstate commerce as well as jurisdiction over the public utilities engaged in such business. The FPC's jurisdiction was further expanded in 1938 with the passage of the Natural Gas Act, which gave the FPC jurisdiction over the transportation and sale of wholesale natural gas in interstate commerce and the companies engaged in such business.
On September 30, 1977, pursuant to the Department of Energy Organization Act and Executive Order No. 12009, the Federal Power Commission was replaced by the Federal Energy Regulatory Commission. FERC was created as an independent agency within the Department of Energy and assumed most of the powers and duties of the former FPC. Congress also transferred to FERC the authority to regulate rates and charges for the transportation of oil via pipeline as well as the valuation of oil pipelines. Congress, however, did withhold from FERC jurisdiction over imports or exports of natural gas and electricity, an authority that the Secretary of Energy later returned to the agency.
Like many agencies (such as the EPA), FERC accomplishes its regulatory duty by both promulgating regulations or adjudicating disputes on a case-by-case basis. Like most other agencies, FERC is governed by the Administrative Procedure Act, sets the requirements for rule making and adjudication.
FERC has regulation and oversight authority in five different industries: Electric, Hydropower, Gas, Liquefied Natural Gas, and Oil.
With regard to the electric industry, FERC is responsible for regulating interstate transmission rates and services, wholesale energy rates and services, corporate transactions, mergers, and securities issued by public utilities. In addition, FERC is responsible for oversight of mandatory reliability standards. FERC also attempts to foster competition in wholesale energy markets in order to prevent the formation of electric monopolies.
FERC has also established rules to bolster investment in the national transmission infrastructure. The purpose of this is to promote electric power reliability and lower costs to consumers by reducing transmission congestion. Pursuant to the Energy Policy Act of 2005, FERC has implemented various incentives to encourage investment including cost recovery for construction, pre-operation costs, and abandonment of defunct facilities, quicker depreciation rates, and more. Utilities must select and justify the incentives they request under this program.
One of the unique powers of FERC relates to its power to oversee corporate mergers and acquisitions. In determining whether or not a particular transaction is consistent with the public interest, FERC examines a merger's effect on competition and rates.
FERC is also putting significant effort into what is known as the "Smart Grid." The Smart Grid involves applying digital technologies to the current infrastructure as well as infrastructural upgrades in order to enable real-time coordination of information from generation and supply resources, demand resources, and distributed energy resources. The purpose of the Smart Grid is to better enhance energy security, lower costs, and provide a stable and reliable energy network for the nation.
FERC's responsibilities related to hydropower include the issuance of licenses for the construction of new projects, licensing for the continuance of existing projects, and oversight of all ongoing project operations including dam safety inspections and environmental monitoring. FERC regulates over 1,700 non-federal damns in the US and ensures compliance with the terms and conditions in each license it issues. In approving dam construction and management, FERC requires license applicants to demonstrate that planned projects will minimize damage to the environment. FERC also writes various environmental provisions into its licenses. FERC is also responsible for licensing hydrokinetic projects, which are those that attempt to harness waves or the flow of water in ocean currents, tides, or inland water ways to produce energy.
FERC has many responsibilities as it relates to the natural gas industry. Among these duties are the regulation of pipeline and storage facility construction and abandonment, regulation of natural gas transportation in interstate commerce, establishment of rates and services, and oversight of the construction and operation of pipeline facilities for the import or export of natural gas at U.S. points of entry.
Liquified Natural Gas
Another area regulated by FERC is that of liquefied natural gas (LNG) terminals. LNG is natural gas that has been cooled to approximately -260° F at normal air pressure. LNG currently accounts for 2.8% of the natural gas consumption in the United States and represents less than 1% of the nation's energy usage. LNG is generally shipped in from abroad and stored at one of a number of LNG terminals. FERC's responsibilities related to LNG include ensuring the safe operation and reliability of both proposed and operational LNG terminals in the United States. FERC is responsible for determining appropriate locations for these terminals and, as part of that function, the Commission works closely with the U.S. Coast Guard, the Department of Transportation, as well as State and local governments.
Presently there are 40 LNG terminals that are being contemplated for North America. There are seven import terminals that are already operating on the East Coast, the Gulf Coast, and Puerto Rico. There is one export terminal currently in operation in Alaska.
FERC has some limited regulatory authority when it comes to the oil industry. FERC is responsible for regulating rates and practices of oil pipeline companies engaged in interstate transportation. FERC is also responsible for guaranteeing equal access of shippers to pipelines for transportation. In addition, FERC is responsible for the establishment of reasonable rates for transporting petroleum.
1 ^ James H. McGrew, FERC: Federal Energy Regulatory Commission, 5 (2d ed. 2009); See also: 16 U.S.C. §§ 791 a et seq.
2 ^ James H. McGrew, 5.
3 ^ 42 U.S.C. § 7171
4 ^ James H. McGrew, 5.
5 ^ James H. McGrew, 5-6.
6 ^ James H. McGrew, 2.
8 ^ Federal Energy Regulatory Commission, Electric Competition, available at http://www.ferc.gov/industries/electric/indus-act/competition.asp (accessed 22 June 2010).
9 ^ Federal Energy Regulatory Commission, Industries - Electric - Industry Activities - Transmission Investment, available at http://www.ferc.gov/industries/electric/indus-act/trans-invest.asp (accessed 22 June 2010).
10 ^ Federal Energy Regulatory Commission, Industries - Electric - General Information - Mergers, available at http://www.ferc.gov/industries/electric/gen-info/mergers.asp (accessed 22 June 2010).
11 ^ Federal Energy Regulatory Commission, Industries - Electric - Industry Activities - Smart Grid, available at http://www.ferc.gov/industries/electric/indus-act/smart-grid.asp (accessed 22 June 2010).
13 ^ Federal Energy Regulatory Commission, Industries - Hydropower - General Information, available at http://www.ferc.gov/industries/hydropower/gen-info.asp (accessed 22 June 2010).
14 ^ Federal Energy Regulatory Commission, Industries - Hydropower - Environment, available at http://www.ferc.gov/industries/hydropower/enviro.asp (accessed 22 June 2010).
15 ^ Federal Energy Regulatory Commission, Industries - Hydropower - Industry Activities - Hydrokinetic Projects, available at http://www.ferc.gov/industries/hydropower/indus-act/hydrokinetics.asp (accessed 22 June 2010).