FERC and EPA: Better Together? (Part 2)

by Bruce Huber — Tuesday, Dec. 30, 2014

This is the second part of a discussion about the relationship between FERC and EPA. In Part 1, I explained that Congress has generally written its environmental statutes without regard for its energy statutes, and vice versa. Recent environmental regulatory activity—in particular, two massive initiatives announced by EPA in 2014—has heightened concerns that EPA and FERC are going about their business without much regard for one another. The complicated and fraught world of energy would seem a poor spot for the right hand not to know what the left is doing. The biggest concern in this space, of course, is that if the EPA regulates power plants too aggressively, our power supply will be impaired and the reliability of the grid threatened.

I ended Part 1 by noting that Congress has done little to help, let alone require, these two agencies work together. Instead, for the better part of the last 25 years Congress has sat in stalemate, unable to agree on anything but the narrowest of policy changes in this field. This inactivity has probably led both EPA and FERC to press the boundaries of their statutory authorizations more than they otherwise might.

It is said that one of FERC’s biggest accomplishments of the past several decades is its restructuring of wholesale energy markets. It’s probably better to say that FERC createdwholesale energy markets. In the old days, energy was delivered almost exclusively by local utilities that were vertically integrated (i.e., they owned the power plant, the wires on your street, and everything in between). If more power was needed, they generated it themselves. They were regulated primarily at the state level; FERC oversaw the interstate transmission of electricity, which was quite limited as compared to today. But in the 1970s and 80s, the agency, buoyed by success in deregulating natural gas markets, set about to introduce greater competition in energy markets. Prior to this, you’d be hard-pressed to call energy a “market”: trades were mostly one-off deals between neighboring utilities. But FERC induced (and eventually required) utilities to grant non-utilities access to their transmission lines. What had previously been a private highway became, as it were, a freeway open to anyone. Your local power company could now buy power from plants offering lower prices than the neighboring utility—plants which previously would have had no way to deliver that power.

Eventually, FERC conjured into existence regional marketplaces for power—independent system operators (ISOs) who manage both the physical flow of electricity across regions, as well as transactions to buy and sell power. Not every part of the country has such a marketplace (the Northwest and Southeast don’t, for example), but where they do exist, the grid looks far more like an actual market than anyone in the 1970s could have imagined possible. You can jump on a websitetoday and see exactly what power is selling for in various market segments. And FERC accomplished all of this with only the barest directions from Congress. (Law students starting administrative law would do well to peek at FERC’s history for an example of how much an agency can do with a bare-bones statute.)

Meanwhile, over at the EPA, regulators were struggling to fit a square peg (greenhouse gases) into a round hole (the Clean Air Act). Again, Congress hasn’t been able to agree on a new climate change law or amendment, so the agency has had to go it alone. (Many more great adventures in administrative law!)

So now we have a situation in which the EPA has launched a serious campaign to regulate greenhouse gas emissions, of which power plants are a leading source, at about the same time that FERC has wrested control of the grid from utilities and handed it to ISOs. Power markets are great for keeping prices in check, but as yet untested in their ability to keep the lights on when generators fall on hard times. It’s small wonder, then, that many observers wish for a stronger link between the two regulatory undertakings discussed above. Yet Congress has given no directions as to how this process should unfold. Expect the 114th Congress to examine this issue, even if a major legislative breakthrough remains unlikely.

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