FERC and Energy Regulation

Introduction

The Federal Energy Regulatory Commission (FERC) is the primary federal regulator of interstate energy markets. FERC regulates the transmission and wholesale sale of electricity, the interstate transportation of natural gas and oil, the licensing of hydroelectric projects, and the reliability of the bulk power system. The agency operates under several statutes, principally the Federal Power Act (FPA) and the Natural Gas Act (NGA) .

The Federal Power Act

The Federal Power Act of 1935 grants FERC jurisdiction over the transmission and wholesale sale of electricity in interstate commerce. Section 205 requires that all rates and charges for wholesale electricity and transmission service be just and reasonable, and it prohibits undue preferences or discrimination. Section 206 authorizes FERC to investigate existing rates and to order changes if they are not just and reasonable.

FERC’s jurisdiction under the FPA extends to the interstate transmission of electricity and the sale of electric energy at wholesale in interstate commerce. The statute does not reach retail sales, which are regulated by state public utility commissions, or the generation of electricity, except for hydroelectric licensing.

The Natural Gas Act

The Natural Gas Act of 1938 gives FERC jurisdiction over the interstate transportation and sale of natural gas. Section 4 of the NGA requires that natural gas transportation rates be just and reasonable. Section 7 requires that FERC issue a certificate of public convenience and necessity before a company may construct or operate interstate natural gas pipelines or related facilities.

The NGA also regulates the unbundling of natural gas sales and transportation, requiring pipelines to separate their merchant and transportation functions. FERC has used its authority under the NGA to restructure the natural gas industry, creating competitive markets for gas supply while regulating pipeline transportation rates and terms.

Electricity Markets

FERC has promoted competitive wholesale electricity markets through a series of orders. Order 888 (1996) required public utilities to provide open access to their transmission systems and to separate transmission from generation functions. Order 2000 (1999) encouraged the formation of Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs) to oversee regional transmission systems.

RTOs and ISOs operate wholesale electricity markets in regions covering approximately two-thirds of US electricity consumption. These organized markets include day-ahead and real-time energy markets, capacity markets, and ancillary services markets. FERC oversees market rules, monitors for market power abuse, and enforces compliance.

Transmission Regulation

FERC regulates the terms and conditions of interstate transmission service. Order 1000 (2011) reformed transmission planning and cost allocation, requiring public utility transmission providers to participate in regional transmission planning and to develop cost allocation methods for new transmission facilities.

FERC also regulates the reliability of the bulk power system under Section 215 of the FPA, added by the Energy Policy Act of 2005. The statute authorizes the North American Electric Reliability Corporation (NERC) as the Electric Reliability Organization (ERO) responsible for developing and enforcing mandatory reliability standards.

Hydroelectric Licensing

Part I of the FPA gives FERC exclusive authority to license non-federal hydroelectric projects. FERC issues licenses for terms of up to 50 years and imposes conditions for environmental protection, fish passage, and recreation. The licensing process involves extensive public participation and coordination with resource agencies.

Conclusion

FERC regulates the interstate transmission and wholesale sale of electricity, natural gas, and oil under the Federal Power Act and Natural Gas Act. The Commission has promoted competitive wholesale electricity markets through transmission open access and RTO formation. FERC’s jurisdiction over transmission, reliability, and hydroelectric licensing makes it central to the legal framework governing US energy markets.