July 1, 2001
L.A. Loves a Loophole
There's no getting around it...
Trading Spaces? Will CFTC Move Into FERC's House?
Will the CFTC move Into FERC's house?
Most of us in the energy industry have long thought that the "transmission of electric energy in interstate commerce" falls within the exclusive jurisdiction of the Federal Energy Regulatory Commission (FERC). The same goes for electric sales at wholesale, if also conducted in interstate commerce. We know that because the law 1 and the courts tell us so. And natural gas is much the same. 2
We learned all of this at least a half-century ago, as the courts began to develop what we now know as the "filed rate doctrine"-that FERC has exclusive power to set wholesale rates, and that such power extends also to allocations of power that affect wholesale rates.
The U.S. Supreme Court confirmed in 1988-in (487 U.S. 354)-that courts cannot invade the commission's province to determine, in its opinion, that a given rate is the only or the more reasonable one. This principle binds both state and federal courts and is mandated, in the former respect, by the Supremacy Clause. Indeed, the whole framework is built upon the inherent assumption that FERC is the only entity that can resolve questions as to rates, terms, and conditions. And where it cannot, there will be no change in rates at all!
The court ruled as much in 1951 in , 341 U.S. 246, in which a legitimate claim of a violation of the Sherman Act played itself out in an overcharge in jurisdictional rates, and the court held that there was no remedy. This line of cases is certainly not defunct; the court has followed it as recently as last term. See,
Nevertheless, there is a slight problem. No one has defined for sure what electricity "is." If it qualifies as a "commodity"-and in particular a commodity regularly bought and sold on an organized commercial exchange or board of trade that deals in futures trading-then everything we have said up to this point may just go up in smoke.
In that case, much of what FERC heretofore has claimed as its own could well pass on to a usurper who would enter the neighbor's house and commence to redecorate, just as in the popular television show , which airs on The Learning Channel. That redecorator is the federal agency we know today as the Commodity Futures Trading Commission (CFTC).
This prospect has lingered on the horizon for some time now. But it will gain in credence in the days to come, especially if we see Congress attempt this year to resuscitate a new version of H.R. 6, the proposed "Energy Policy Act of 2003" that died at the end of last year. In short, that bill contained sections that passed largely under the radar of most energy aficionados, but that could significantly exacerbate this situation. If these provisions should pass, the FERC that we know (and may or may not love) may soon find the basic authority it uses to set rates in the hands of another federal agency.
The CFTC and the act under which it operates, the Commodity Exchange Act