Frontlines

Critics say FERC's filed rate doctrine is wrong for the times.

It's quite remarkable how the Federal Energy Regulatory Commission (FERC) has been able to pound a square peg into a round hole. With not much more than a wink and a smile, FERC has taken a depression-era law meant for monopolies-the Federal Power Act (FPA)-and has made it serve double duty as a foundation for competitive power markets.

Yet FERC's reinterpretation, for all its good intentions, may prove inadequate in the long run to define and support full-fledged energy markets.

Here's the gist of it:
If an electric utility wants to go off tariff and sell wholesale power at market-based rates (such as the clearing price in a regional spot market), then it need only convince FERC that it lacks market power in generation and transmission. Once it leaps that hurdle, then a mere filing of an umbrella tariff, coupled with later-filed quarterly reports (with numerical details on the actual market sales prices) will satisfy the requirements of FPA section 205. That section requires FERC to find that wholesale power rates are "just and reasonable."

But what happens if the market later behaves in strange ways? What happens later if the utility continues to sell into the regional spot market, but the clearing price climbs higher than anyone could have imagined at the time FERC had certified the utility as free of market power?

Lockyer's Troubles, Spitzer's Triumph

Well, if you are California Attorney General Bill Lockyer, and if you think the market has done wrong to the consumers you represent, you ask for a refund. You ask a court to overturn the "rate" that FERC "approved" in advance, sight unseen, when it granted umbrella authority for market-based sales.

But you have a problem. A big obstacle stands in the way. That's when the filed-rate doctrine-an arcane legal construct that is out-dated for today's competitive markets-rises up and blocks your path.

The "filed-rate doctrine" says that the approved "rate" now has the force of law, as if enacted by Congress itself. This means that a person, group, or company that wants to challenge the validity of the "rate" through a court appeal cannot ask the court to second-guess what FERC did. "There is no relief other than which the commission can provide-a regulatory regime," wrote attorneys Robert McDiarmid and Beth Emery in this magazine in 2003.

But Lockyer, a divisive figure in energy circles, argues a valid point: that there is really no "filed rate." In court documents, he says, "Market-based tariffs do not contain any rates at all, 'just an offer to negotiate.'" He continues that the filed-rate doctrine prevents the enforcement of state antitrust and unfair competition statutes.

The chief point of contention here is not necessarily FERC's process for allowing market-based rates, though the commission's review of its four-pronged market power test is causing great concern (see this issue's , p. 16). Nor is it a call for cost-based rates, which is the agenda of some that have attacked the filed-rate doctrine.

Rather, how do we protect