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Four Olive Branches

Fortnightly Magazine - October 1 1996

out its promise of "deference to the states." Will the Commission really defer when the states take actions consistent with the principles of open access and comparability?

But the FERC's behavior alone will not define the success of cooperative federalism. Will state officials avoid protectionist policies designed designed to favor native utilities? Will state officials really give the FERC a chance to demonstrate that "deference" means "deference," before charging to the appellate courts?

Where Interests Lie

The federal and state governments possess legitimate interests and important roles to play in creating wholesale and retail markets in electric generation. The federal government shoulders a constitutional duty to ensure free interstate movement of goods, services, and products, including electricity. The supply, movement, and price of electricity remains vital to the economies of Pennsylvania and the nation. Americans spend more than $200 billion on electricity each year. Approximately 50 percent of the nation's Gross National Product is powered by electricity. In my opinion, the price of electricity affects our nation's economic well-being more than the price of oil.

All these facts give the federal government a legitimate interest in ensuring that the regulation of the electric industry promotes efficiency. And while the federal interest is legitimate, it is not exclusive. Nor should it preclude state action that does nothing to impede the interstate movement of electricity.

States, too, have a vital interest in their electric industries and the restructuring efforts rapidly taking place. The electric industry is vital to the economy and public safety of every neighborhood. It has also historically been regulated by states.

The existence of legitimate federal and state interests in restructuring underlines an inescapable reality: Federal and state officials need each other to achieve full competition in wholesale and retail electric generation. Moreover, America's families and businesses need federal and state cooperation for the benefits of generation competition to become real.

Reciprocity, Not Protectionism

Reciprocity may require federal-state cooperation. Some protectionists stand determined to erect barriers to the retail interstate commerce of electricity. Given that some states have begun a transition to retail customer choice but many states have not, what should happen? This area invites the federal government to step in and resolve conflicts between states.

The Supreme Court suggests that the Constitution forbids electric protectionism:2

"We have interpreted the Commerce Clause to ... prohibit state or municipal laws whose object is local economic protectionism. ... [Such] discrimination is per se invalid, save in a narrow class of cases in which the municipality can demonstrate, under rigorous scrutiny, that it has no other means to advance a legitimate local interest."

Retail electric laws that discriminate against the interstate commerce of electricity by prohibiting retail buyers and sellers of electricity that are located in different states from completing interstate sales may well fail this Constitutional test.

As long as they do not frustrate or impede interstate commerce by erecting barriers to the retail sale and movement of electricity, states should be allowed to decide how they will implement customer choice. That right should include set-asides for renewable energy, incentives for conservation,