This paper examines, enunciates, and makes explicit a set of market principles historically relied upon by the Federal Energy Regulatory Commission (FERC) to regulate wholesale electricity markets as required under the Federal Power Act (FPA). These identified competitive market principles are supported by policy and legal foundations that run through a myriad of FERC orders and court decisions. This paper seeks to make that history and those implicit market principles explicit by distilling and organizing Commission Orders and court decisions. It concludes that five market principles, each with multiple subprinciples, can be identified as elemental to how FERC understands and implements its statutory authority. Clear articulation of these foundational principles should help guide engaged entities as wholesale power markets continue to evolve. Market Principle 1 states that wholesale market revenues should predominantly flow from well-designed energy and ancillary services markets. Market structures generally are found to be preferable to non-market structures. Moreover, energy and ancillary services markets, in relationship to wholesale capacity markets, are better able to efficiently promote a least-cost resource. Market Principle 2 states that when altering market design, FERC and Independent System Operators (ISOs) should focus on only those services that are clearly needed, and ensure that any market design change does not unduly discriminate between resources. Market design changes focused on technology-neutral and well-defined granular services will help ensure that the design change does not lead to undue discrimination or preference that effectively favors certain resources. When such an impact still occurs, strong evidence showing that the rules are not unreasonable and arbitrary and that no non-unduly discriminatory and preferential alternative exists must support the change. Market Principle 3 states that interventions that distort transparent and accurate pricing should be minimized. Out-of-market interventions, in particular, have the potential to distort price signals and undermine competition. Market Principle 4 states that FERC’s just and reasonable standard strongly favors rate decreasing outcomes. Markets are premised on the economic presumption that competition reduces prices, in furtherance of the just and reasonable standard. Market Principle 5 states that FERC and ISOs should facilitate and not undermine state public policy preferences. FERC and ISOs are not well-situated to serve as decision-makers in determining which state public policy preferences should be given effect. State public policy preferences that do not run afoul of FERC’s authority under the FPA should thus be given full effect.
This Article compares the pattern of fundamental change, legal and regulatory response, and judicial adaptation underlying the electricity sector's twentieth century beginnings to its current and ongoing rapid transition. This comparison is then used as a basis to examine and contextualize the collaborative federalism jurisdictional framework that the Supreme Court employs when adjudicating modern-day jurisdictional disputes in the sector.The early 1900s saw a period of rapid industry expansion, with the electricity sector progressing from small intrastate utilities to a sprawling interstate grid. The expanding grid rapidly outgrew the state-led regulatory framework that had organically developed. In turn, Congress responded by passing the Federal Power Act to fill what is now known as the Attleboro gap. Courts in turn needed to resolve consequent jurisdictional tensions that arose under the new federal and state balance of authority. The courts employed a bright-line jurisdictional framework that divided authority on the basis of location, adjudicating disputes by determining where the contested action took place. This line-drawing split federal authority on one side of the juridical line-such as wholesale sales and interstate activities-and state authority on the other, such as retail sales and intrastate activities.Just as the interstate expansion of the grid disrupted industry and regulatory structure in the 1900s, modern rapid change is once again creating new benefits and interests through foundational sector disruption. This disruption has similarly placed pressure upon the electricity sector and its regulation. This Article analyzes three foundational changes to the electricity sector that are spurring energy transition and grid modernization: opening the industry to competitive market forces; technological advances making a multidirectional grid possible; and evolving state policy preferences and priorities that seek to combat climate change.The foundational change underway in the electricity sector has spurred a legal and regulatory response in order to create new connections between longstanding statutory mandate and sector change. Congress, the Federal Energy Regulatory Commission (FERC), and states have responded with laws and regulations that acknowledge a sector that now resists simple, bright-line
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.
hi@scite.ai
10624 S. Eastern Ave., Ste. A-614
Henderson, NV 89052, USA
Copyright © 2024 scite LLC. All rights reserved.
Made with 💙 for researchers
Part of the Research Solutions Family.