House energy subcommittee reviews evolution of electricity markets under Federal Power Act
The House Energy and Power Subcommittee examined the role of the Federal Power Act on the electricity sector in a hearing on Wednesday to help determine if the nation’s grid has the strength needed to respond to future market challenges.
The committee is conducting a long-term review of the Federal Power Act, which gives the Federal Energy Regulatory Commission (FERC) its legal authority, and will focus on changes in how the United States generates, transmits and consumes electricity.
The latest hearing on historical perspectives of the law was led by Subcommittee Acting Chairman Pete Olson (R-TX), who noted the competitive options that consumers of electricity have gained since FERC issued Order No. 888 in 1996, essentially requiring open access over the transmission lines of the nation’s utilities.
Today, a large purchaser of electricity can not only purchase from a local utility, but that customer can also purchase power at wholesale rates from a neighboring utility, an independent power producer or any number of competitive suppliers. Those options were designed to keep costs down for consumers.
Still, Olson said in an opening statement, some object to subsidies and tax breaks granted to a few favored types of power sellers, while others complain that certain power plants generate too much pollution, while the owners of power plants object that the markets don’t always establish the right prices.
Energy and Commerce Committee Chairman Fred Upton (R-MI) said in his opening statement that the committee will begin exploring a number of evolving issues next year, including the blurred lines between historic federal and state jurisdictional divides; how regulated and competitive markets continue to fare under both FERC’s and the states oversight; how reliability and security of the grid, innovation, and distributed energy resources are prioritized in the current system; and how other factors, such as tax policy and renewable mandates, factor in to the functioning of competitive markets.
While the Federal Power Act has been amended over the years since being enacted in 1935, its main provisions on FERC jurisdiction and its core standards for reviewing rates, terms, and conditions of transmission service and wholesale sales have remained largely the same, Doug Smith, a former general counsel at FERC and partner at the law firm Van Ness Feldman, said in his testimony before the committee.
What has changed, Smith said, is the huge growth in volume of activity within those categories, which increases the influence of federal regulatory policies on the shape of the industry.
The Federal Power Act has seen the electric industry evolve from a collection of city- and regionally-focused utilities subject to cost of service regulation into a very different enterprise, Linda Stuntz, former deputy secretary of the U.S. Department of Energy under President George H.W. Bush, said.
“As our economy becomes more electrified, and ever more dependent on reliable and affordable electricity, and as the demand increases for ever cleaner sources of electricity, consideration of whether the policies and lines of jurisdiction embodied in the Federal Power Act remain appropriate is wise and necessary,” Stuntz, a founding partner of the law firm Stuntz, Davis & Staffier, said.
Susan Tomasky, a former general counsel at FERC, testified that markets are working effectively to create a functioning commodity market for electricity where the price is set by competitive forces.
Tomasky noted, however, that the power industry faces two main sets of challenges.
“Although the industry has changed considerably in the last twenty years, we find ourselves in some regions with good systems for operating short-term markets, and for incentivizing economic capacity additions, but with limited ability to commit to long-term strategies that take other values and policy objectives into account,” Tomasky said. “Other regions continue to operate within state-based regulatory constructs that are largely unchanged from twenty years ago, which may effectively support ordinary regulatory activity but which cannot reach very well across state boundaries to solve broader problems on a regional basis.”
