What is FERC and How Does it Function? - ABA YLD 101 Practice Series

By Jeffery S. Dennis

Demand for energy continues to grow, and the cost of producing and delivering electricity, natural gas and oil to consumers is increasing. As a result, energy practice is growing, and more new lawyers will come into contact with the Federal Energy Regulatory Commission (FERC). This article gives a broad overview of FERC and its regulatory authority.

What is FERC?
FERC is the federal agency generally charged with regulating electric and natural gas utilities and oil pipelines operating in interstate commerce, and with issuing licenses and certificates for hydroelectric facilities and natural gas pipelines. FERC is an independent regulatory agency under the Department of Energy.

What FERC Regulates.

  • Electric Utility Rates and Practices. Pursuant to the Federal Power Act (FPA) and other statutes, FERC regulates the rates, terms and conditions of transmissions of electricity in interstate commerce and wholesale sales of electricity in interstate commerce. Such regulation includes monitoring energy markets, enforcing accounting and financial record-keeping requirements, overseeing electric transmission system reliability, and conducting investigations. (16 U.S.C. § 824 et seq.)
  • Hydroelectric Facilities. Under the FPA, FERC grants licenses to construct and/or operate hydroelectric facilities. Under its licensing authority, FERC must consider several issues, including impacts on the environment and wildlife and development and use of the waterway, including for recreation. FERC also monitors and inspects existing licensed facilities. (16 U.S.C. § 797 et seq.)
  • Natural Gas Utility Rates and Practices. Pursuant to the Natural Gas Act (NGA), FERC regulates the rates, terms and conditions of natural gas transportation in interstate commerce and to the sale in interstate commerce of "natural gas for resale for ultimate public consumption." (15 U.S.C. § 717 et seq.)
  • Natural Gas Facilities. Under the NGA, FERC issues certificates of public convenience and necessity for the construction of interstate natural gas pipelines, natural gas storage facilities, and liquefied natural gas terminals. This includes approving the location of such facilities. FERC also must approve the abandonment of natural gas facilities subject to its jurisdiction. (15 U.S.C. § 717f)
  • Oil Pipeline Rates. Under the Interstate Commerce Act, FERC regulates the rates, practices and conditions of oil pipeline companies transporting petroleum products in interstate commerce. (49 U.S.C. App. § 1)

What FERC Does Not Regulate .
While FERC has broad ranging regulatory authority, it is important to note the areas where FERC does not have jurisdiction. In particular, FERC does not act in several areas left to state regulation, including: retail rates charged to end users of electricity and natural gas; directing or approving the construction of electric generation, transmission or distribution facilities; approving the location of such facilities (except in limited circumstances with regard to electric transmission facilities), and; regulation of local distribution pipelines. FERC also does not have jurisdiction over the rates, terms and conditions of service provided by federal power marketing agencies, municipal or governmentally-owned utilities, and many rural electric cooperatives. Additionally, FERC does not act in matters of pipeline safety, nor does it regulate nuclear generating facilities, except with regard to the rates for wholesale power sold from such plants.

Organization of FERC.
FERC is composed of five Commissioners who are appointed by the President and confirmed by the Senate. Commissioners serve a five-year term, and no more than three sitting Commissioners may be from the same political party. Each Commissioner has one equal vote. One Commissioner is designated as Chair by the President. FERC's staff is divided into several functional offices, including:

  • Office of General Counsel. Provides legal advice to FERC with regard to matters before it, and represents FERC before Congress and courts.
  • Office of Energy Markets and Reliability. Advises FERC on electric, natural gas and oil pipeline rate matters, as well as matters relating to FERC's jurisdiction over electric transmission system reliability.
  • Office of Energy Projects. Handles matters related to FERC's hydropower licensing and interstate natural gas pipeline construction certification authority, including advising FERC on new applications and monitoring and overseeing existing or approved projects.
  • Office of Enforcement. Monitors energy markets and individual regulatory entities for market problems, market manipulation, or non-compliance with FERC rules and regulations, and initiates investigations of possible violations.
  • Office of Administrative Law Judges. Adjudicates matters set for trial-type evidentiary hearings by FERC.
  • Office of Administrative Litigation. Represents the public interest in trial-type evidentiary hearings held before Administrative Law Judges.

State Public Utility or Public Service Commissions.
Each state has a public utility or public service commission that exercises state regulatory jurisdiction in energy matters not regulated by FERC ( e.g., New York Public Service Commission). Among other things, most state commissions regulate the retail rates for electricity and natural gas charged to end users (such as homes and businesses), and approve the siting of generation, transmission and distribution facilities.

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About the Author

Jeffery S. Dennis is an attorney with the Federal Energy Regulatory Commission. 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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