The late Supreme Court Justice William O. Douglas haunted my dreams in law school back in the 1970s—he seemed to win every case, even when he took the losing side—so I could only smile the other day when I saw that state public utility commissions (PUCs) in nine states had revived his ghost to aid them in one last ditch fight to defend their turf from the Federal Energy Regulatory Commission, which now regulates just about everything that matters in the electric utility industry.
The case I remember from my school days was . John Nassikas was chairman of the Federal Power Commission, the ancestor of today's FERC. The issue was simple: Since electric utilities in Georgia and Florida shared power with each other on a regular basis, with electrons crossing state lines whenever they pleased, how could anyone tell whether activities fell under federal or state control?
To the hearing examiner at the FPC, it was clear cut:
"If a housewife in Atlanta on the Georgia system turns on a light, every generator on Florida's system almost instantly is caused to produce some quantity of additional electric energy ...
"If sensitive enough instruments were available and were placed throughout Florida's system, the increase in generation ... could be precisely measured."
Thus, the FPC announced that any incidental commingling of electric power across state lines could invoke a federal interest, and the Supreme Court so ruled. But that didn't sit well with Justice Douglass, who fired off one of his signature dissenting opinions that seemed always to crop up on my exams. Douglass saw right away that the new FPC policy—a marked departure from the former practice of tracing actual flows—would put the state PUCs right out of business.
"The [FPC's] abandonment of the conventional test in favor of the commingled method will now mean that every privately owned interconnected facility in the United States (except for those isolated in Texas) is within the FPC's jurisdiction."
That was 1972. And the law has budged hardly a smidgen since then. But that may change, as the U.S. Supreme Court has agreed to hear two appeals that challenge FERC Order 888, the decision that introduced open access to electric transmission lines for all power producers and their customers.
YOU MAY HAVE READ ABOUT THIS ALREADY, BUT WHAT YOU'VE READ IS LIKELY DEAD WRONG. Put aside any thoughts of a referendum on FERC policy. This court likes to defer to agency expertise. Yes, the Justices will review the FERC order, but they have no intention of killing open access. That's here to stay. The Justices read the newspapers and watch the evening news. They can see, as well as you or I, that the whole nation needs more generating plants. And that requires an open grid to bring the power to market.
Instead, the Justices will likely focus on the Federal Power Act, signed in 1935. Anyone can see the law is broken. It presumes a bright line between local distribution and long-distance transmission—a line that vanished long ago. The federal appeals court said as much last year when it upheld most of FERC Order 888:
"[W]hile the electricity world once neatly divided into spheres of retail versus wholesale ... and local distribution versus transmission ... such is no longer the case." Words like these are mother's milk to the Supreme Court. No Justice can resist the urge to look the law straight in the eye and declare it ambiguous, irrelevant or unconstitutional. That's the court's highest calling. It's the balance of powers between Washington and the states that makes this case important. In Order 888, the FERC deferred to state authority over the "retail" portion (whatever that is) of electric transmission used by utilities when they sell traditional, integrated electric service to captive ratepayers (the so-called "native load" customers). But the FERC seized jurisdiction over retail transmission when it is unbundled from distribution under programs that introduce retail choice. This power grab irked the state PUCs no end. Former Ohio regulator Craig Glazer captured that view in our pages a few years back. He predicted that FERC's rule would mire the feds in claims about stray voltage interfering with milk production on dairy farms:
"The FERC has not explained why unbundling changes the nature and exercise of its jurisdiction. ... Do I now send the citizens groups and irate farmers with cows in tow down to North Capitol Street because only the FERC has jurisdiction over transmission?" (".)
And so in the case of , the supreme court will hear an appeal by regulators from the Empire State, plus the PUCs of Florida, Idaho, New Jersey, North Carolina, Virginia, Washington, Vermont, and Wyoming, on whether the FERC jurisdiction over retail transmission violates the Federal Power Act. The nine PUCs say the FERC's move violates FPA section 201(a), which concedes federal regulation over interstate transmission and interstate wholesale transactions. But in the last clause of that section, Congress muzzled the feds by limiting such authority "only to those matters which are not subject to regulation by the states."
The irony, of course, is that the state PUCs never exercised their jurisdiction over retail transmission. Try to remember a traditional utility rate case in which the state PUC reviewed the prudence of transmission investment. You can't, because no such case exists over the past 20 years-not to my knowledge, anyway. But, with their influence waning, the PUCs are suddenly filled with desire to recapture the power they never used.
IF THAT WAS ALL THERE WAS, THIS APPEAL WOULDN'T MATTER MUCH. BUT THERE'S MORE. In a second companion case, the High Court also agreed to review appeals by Enron Power Marketing Inc., aimed at overturning the preference for bundled native load.
In particular, Enron has asked the Supreme Court to explain why the FERC has not required electric utilities to put point-to-point service on an equal footing with network transmission service dedicated to captive native-load ratepayers taking bundled retail sales service. Enron (and many others) believe the FERC has coddled native load in rules for designing open-access transmission tariffs and offers of capacity, terms, and rates for transmission service in electronic OASIS notice systems. Enron further asks why the FERC has not moved to relieve discrimination favoring native load against third-party merchant transactions. After all, the whole purpose of Order 888 was to locate and uproot unlawful discrimination in the transmission sector. And if discrimination should be the enemy, why then should the FERC enjoy discretion to use the Federal Power Act to target some forms of discrimination, while shielding others from federal oversight? (.) This is where the headlines may well miss the mark. It is not the FERC that should fear a reversal from the nine Justices. Rather, it is the bundled native load customer who is most at risk.
Ten years ago, former FERC commissioner Martin Allday cemented his memory with his famous quip, "Everyone is somebody's native load customer."
That long-cherished notion may soon vanish, and with it, the raison d'etre for state regulation.
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