[BETA] Fortnightly

Bunker Hill. Gettysburg. Pearl Harbor. Iwo Jima. The Cold War. Each of these famous conflicts resonates in our history books. Despite the end of the Cold War, we may face another battle, this time between the Federal Energy Regulatory Commission (FERC) and the states over jurisdiction. It could leave some of the better-known conflicts looking like minor squabbles.

And just as these other battles produced tragic losses, the dispute between the FERC and the states could leave jurisdictional disputes unresolved and the industry whipsawed. Competing messages coming from both inside and outside the Beltway threaten to frustrate many of the laudable goals of the Mega-NOPR (FERC's Notice of Proposed Rulemaking on Open-Access Transmission). Moreover, the movement toward competitive options for retail customers now coming from state capitols could come to a grinding halt, as state regulators and legislatures find themselves "frozen in the headlights" by the prospect that they may lose jurisdiction, not only over transmission lines, but over utility/customer relationships at the retail level, which for decades have formed a hallmark of regulation by state public utility commissions (PUCs).

Ohio recently hosted peace talks for Bosnia. So too would Ohio propose an olive branch (em more specifically, a solution to the conflict and confusion that may occur if the jurisdictional issues raised by the Mega-NOPR are not resolved clearly and amicably.

Overstepping the Bright Line

We should compliment the FERC on its substantial accomplishments in introducing more competition into wholesale bulk-power markets. The Mega-NOPR is an impressive document; the work that went into its development is evident. To promote competition and comparability of service, the FERC began a well-intentioned attempt to define a "bright line" between federal and state jurisdiction over transmission and distribution services. This bright line was apparently motivated by the FERC's interest to accommodate the states in their attempt to "hang" retail stranded costs on a piece of the wire between the customer and the utility. To define a bright line, the FERC established a four-part "functional test" to determine, on a case-by-case basis, whether a particular wire is a transmission line subject to FERC jurisdiction or a distribution line subject to state control. It is here that the Mega-NOPR goes awry: The FERC has underestimated both the importance and the scope of state responsibilities to ultimate customers.

We are at a crossroads. I am afraid that if the FERC adopts the functional test in its final order, the FERC, the states, and the industries we regulate will be diverted down a giant side track. Endless litigation will follow, shifting resources and attention away from the much more important goal of implementing the procompetitive policies embodied in the Energy Policy Act of 1992 (EPAct). The FERC's functional test is a lawyer's delight. After all, the prospect of repeal of the Public Utility Holding Company Act and Public Utility Regulatory Policies Act made life look a little bleak at meetings of the Federal Energy Bar Association. And although our law books are filled with famous decisions like Dred Scott and Roe v. Wade, I don't see people getting as