NARUC paper examines FERC theories on regulation

A new paper from the research arm of the National Association of Regulatory Utility Commissioners (NARUC) posits that the Federal Energy Regulatory Commission (FERC) should reassess its long-established theories of regulation.

The paper, “Whither the FERC?: Overcoming the Existential Threat to Its Magic Pricing Formula through Prudent Regulation,” was authored by Carl Pechman, director of the National Regulatory Research Institute, the research arm of NARUC.

Pechman outlines FERC’s role in affecting the U.S. economy through its regulation of interstate markets for wholesale electricity. It examines the agency’s continued effectiveness and ability to fulfill its responsibility to ensure just and reasonable rates, its capacity to respond to an ever-changing industry and address the needs of the ‘prosumer.’ The author deconstructs FERC’s ‘magic pricing formula,’ which is the foundation of its method of regulation.

“FERC needs to move beyond what the courts have described as its ‘passive’ regulatory approach and become a proactive force for decarbonization and customer protection,” Pechman said. “The paper provides a number of recommendations for ways to accomplish this task, including the adoption of prudent regulation to put FERC on that path.”

NRRI and NARUC Executive Director Greg White said the paper should provide value for state and federal regulators, as well as anyone concerned with the state of energy regulation.

“It explains why the theory underlying the FERC’s regulation of wholesale electric markets — its ‘magic pricing formula’— is being rendered obsolete by the changing role of the consumer, advances in technology, and calls for decarbonization,” White said.

The paper is available for download online from the NARUC website.