COMPETITION, CONVERGENCE ... AND CASHFLOW? THE POWER BUSINESS IN THE NEXT 20 YEARS
APRIL 01, 1996
In its recent Notice of Proposed Rulemaking (NOPR) on wholesale competition and open-access transmission,1 the Federal Energy Regulatory Commission (FERC) has outlined a plan to revolutionize the electricity industry. The linchpin of its new plan is open access to transmission facilities (em or, in more traditional terms, "mandatory wheeling" of electricity.
The FERC proposes that all utilities file tariffs requiring them generally to wheel power from any electric generator on nondiscriminatory terms. By providing all comers with equal access to the grid, the Commission hopes to foster development of cheaper power sources and encourage transactions between these new power producers and wholesale and retail purchasers.
But there is a catch. The FERC may lack authority to compel wheeling on such a grand scale. In fact, the Commission admits in the NOPR that it cannot satisfy the stringent conditions prerequisite under current law to compel wheeling. Under these circumstances, the courts may well find that the FERC's new plan (em while admirable in purpose (em may exceed its legal authority.
THE RATIONALE: HARD PRESSED
As the Commission observes, many nontraditional generators can now build and operate new generating capacity at prices "substantially lower" than utilities' embedded costs.2 That puts new capacity in danger of being under-utilized. As the FERC puts it, "It is in the [utilities'] self-interest to maintain and use market power to retain (or expand) market share for their existing generation facilities, at least until they can get their generation costs in line with current market prices."3
The FERC's solution is to order the broad-scale wheeling of electricity through nondiscriminatory tariffs of general application. The tariffs would apply 1) to sales for resale (wholesale sales) by any generator of electricity (including the transmitting utility itself), and 2) when an end user arranges
to buy power from a third-party supplier and a public utility transmits that energy in interstate commerce and includes it as part of a "bundled" retail sale to the end user (so-called "buy-sell" transactions).4 The first category amounts to wholesale wheeling. The second appears closer to retail wheeling, since the utility would transmit energy to ultimate consumers.
To accomplish its goals, the Commission invokes Federal Power Act (FPA) sections 205 and 206. Section 205 bars discriminatory conduct; section 206 empowers the FERC to remedy the problem, but only in the case of a "transmission or sale" already subject to its jurisdiction. In the NOPR, the FERC finds discrimination in the absence of tariffs for open-access transmission, which impedes competition. It defends its authority to mandate wheeling to correct that discrimination.
Does the FERC's rationale find support in law?
In 1973, the U.S. Supreme Court examined federal authority to compel wheeling. In the celebrated case of Otter Tail Power Co. v. United States,5 the high court found no congressional intent for federal regulators to compel wheeling: "Congress rejected a pervasive regulatory scheme
for controlling the interstate
distribution of power in favor of voluntary commercial relationships."6 Relying on Otter Tail, the lower courts have held, in a variety of settings, that the FERC lacks authority to compel wheeling.7
Against this backdrop,