Demand for electricity continues to grow, and the costs of producing and delivering electricity to consumers are rising. In the face of these developments, and amid increasing concerns about greenhouse gas emissions, government leaders at the state and federal level are taking action. As a result, more new lawyers may find themselves tackling electric utility regulatory issues for their clients. This article is intended to give a new lawyer a very broad introduction to electricity regulation, particularly the division of authority between the states and the federal government.
To understand how electricity is regulated, it helps to understand the three categories of facilities used to bring electricity to consumers: generation, transmission and distribution.
- Generation: Facilities used to produce electricity, typically through steam (created by burning coal or natural gas, or from nuclear processes), falling water ( i.e. hydroelectric dams), internal combustion engines or turbines.
- Transmission: Facilities used to transmit electricity from power plants over long distances; such facilities are operated at higher voltages to avoid losses of power.
- Distribution: Facilities used to distribute electricity to the end user (homes and businesses); such facilities are operated at lower voltages than transmission facilities.
Electric utilities generally face dual regulation from both the state and federal governments. Regulators at each level of government operate in separate but interrelated spheres, and the split in jurisdiction between state and federal regulation is often a critical issue.
- State Regulation: Focuses on the retail rates charged by electric utilities for service to end users, such as homes and businesses. State regulators approve the rates, terms and conditions of retail electric service, usually taking into account the cost incurred by the utility to serve its customers (unless the state has retail electric competition, in which case market forces determine rates). State regulators also review utility decisions to invest in new facilities (such as a new power plant or distribution line), and rule on requests by the utility to include the cost of such investments in its retail rates. States typically also exercise jurisdiction over the location and siting of generation, transmission and distribution facilities.
- Federal Regulation: Focuses on the rates charged by electric utilities for transmitting electricity in interstate commerce, and for wholesale sales of electricity in interstate commerce. This generally includes approving the rates, terms and conditions for such transactions. Federal regulation does not directly apply to generation facilities themselves (only the rates they charge at wholesale), and does not extend to distribution facilities. Federal regulation does extend to hydroelectric and nuclear generation facilities, however, and in these areas federal authority is more pervasive and includes direct regulation of the facilities themselves.
The state and federal statutes giving regulators authority over the electric utility industry are too numerous to summarize here. There are a few key statutes a new lawyer should begin with, however.
- Federal Statutes
- Federal Power Act (16 U.S.C. § 791a et seq.) - The FPA, the first major legislation regulating electricity at the federal level, remains the primary federal regulatory statute today. Among other things, it: creates and empowers the lead federal agency regulating electric utilities (the Federal Energy Regulatory Commission, or FERC); governs (through FERC) development and regulation of hydroelectric dams (16 U.S.C. § 797a et seq.); regulates (also through FERC) the rates, terms and conditions of electric utilities transmitting electricity in interstate commerce or selling electricity at wholesale in interstate commerce (16 U.S.C. § 824 et seq.) (this authority includes review of electric utility mergers or sales, limited authority to order an electric utility to interconnect to other facilities, and other powers).
- Public Utility Regulatory Policies Act (codified in various sections of 15, 16, 42 and 43 U.S.C.) - Known as PURPA, this statute requires electric utilities to purchase the electricity produced by "qualifying facilities" (QFs), which are small cogeneration facilities (producing electric energy along other energy, such as steam or heat, which is used for other purposes) and facilities using renewable sources of fuel. This requirement is generally referred to as the PURPA "purchase obligation."
- Energy Policy Act of 1992 (Pub. L. No. 102-486, 106 Stat. 2776) - This legislation enacted important amendments to the FPA, including enacting an FPA provision giving FERC specific authority to order electric utilities to transmit wholesale electricity for other entities.
- Energy Policy Act of 2005 (Pub. L. No. 109-58, 119 Stat. 594) - The most significant recent Act of Congress dealing with electricity, this legislation repealed the Public Utility Holding Company Act (previously a significant federal statute) and enacted several important amendments to the FPA and PURPA. Most notably, it amended the FPA to: give FERC specific authority over the reliability of transmission facilities (16 U.S.C. § 824o); give FERC authority to approve the location of electric transmission facilities where a state has not acted (16 U.S.C. § 824p), and; add electricity market transparency and consumer protection provisions, including provisions giving FERC civil penalty authority. (16 U.S.C. §§ 824t-v)
This legislation also amended PURPA to, among other things, revise the purchase obligation for new facilities, and to eliminate the purchase obligation where the Commission in areas where FERC finds that QFs have non-discriminatory access to competitive wholesale electricity markets (16 U.S.C. §824a-3 as amended).
- Atomic Energy Act (42 U.S.C. chapter 23) - This statute provides for the comprehensive regulation of nuclear materials, including the licensing of nuclear generation facilities by the Nuclear Regulatory Commission.
- State Statutes
- Public Utility Acts - Most states have a Public Utility Act or similar statute giving authority to a public utility commission or public service commission to regulate the rates, terms and conditions of retail electric service to end users. This usually includes authority to approve retail electric rates, to determine utility franchise service territories, and other matters impacting end user utility service. ( See, e.g., 220 Ill. Comp. Stat. 5/1-101 et seq.)
- Location Control Statutes - Many states also have statutes that require regulatory approval for siting generating facilities and/or transmission facilities; under such a statute, the approving authority is usually charged with considering environmental and aesthetic impacts from the facility and any other matters identified by the statute. ( See, e.g., Fla. Stat. § 403.502 et seq.)
- Other Statutes - States also often have ancillary statutes governing the development or conservation of energy resources within their states, such as laws governing access to solar rays ( see, e.g., N.M. Stat. § 47-3-1), or laws governing the sale of energy back into the grid by home-based generating resources ( see, e.g., N.Y. Pub. Serv. Law Art 4, §§ 66-j and 66-l). Like the federal government, they will also typically have tax laws intended to promote development of certain energy facilities, such as wind generators. ( See, e.g., Iowa Code § 476C.1 et. seq.)
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About the Author
Jeffery S. Dennis is an attorney with the Federal Energy Regulatory Commission in Washington DC. The views expressed here are solely those of the author and do not necessarily represent the views of the Federal Energy Regulatory Commission or the United States.
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