Toward Greener FERC Regulation of the Power Industry

Photo credit: Nixdorf, Wikimedia Commons
Photo credit: Nixdorf, Wikimedia Commons

August 12, 2014 at 1:30pm

America’s electricity industry is at the heart of some of the nation’s and world’s biggest environmental challenges, including climate change. Yet the Federal Energy Regulatory Commission (“FERC”), which has regulatory jurisdiction over wholesale sales and transmission of electricity in interstate commerce and is charged with ensuring that rates and other aspects of the industry are “just and reasonable,” has an official policy of excluding environmental considerations from its oversight of the industry.

In “Toward Greener FERC Regulation of the Power Industry,” in the forthcoming issue of the Harvard Environmental Law Review, Harvard Law School alumnus Christopher Bateman and Environmental Defense Fund senior counsel James T.B. Tripp trace the evolution of this policy and argue that it is time for a new and better approach—one that integrates economic and environmental regulation of the industry, and helps the United States achieve a clean energy future, especially with respect to greenhouse gas emissions.

Bateman and Tripp explore the possibility of such an approach under the Federal Power Act (“FPA”), which provides FERC’s mandate. In doing so, they address FERC’s reasoning for its current policy and find these reasons unpersuasive. Contrary to FERC’s position, they argue, it is plausible to view the FPA alongside other federal laws as being silent or ambiguous about FERC’s environmental authority, thus permitting an environmentally inclusive approach within reasonable constraints. This reading of the FPA is reinforced by a host of policy considerations: the urgent need to address the U.S. electricity industry’s significant contribution to climate change; the inadequacy of and continuing uncertainty surrounding existing regulatory efforts on this front; FERC’s expertise in aspects of the electricity industry important to effective design and implementation of regulatory solutions; the unique nature of greenhouse gas emissions as pollutants and the feasibility of FERC regulation of carbon emissions in particular; and the glaring problems with our schizophrenic approach to energy regulation, in which environmental regulation and traditional utility regulation often undermine each other, creating inefficiencies.

The article offers concrete examples of the types of progressive industry reforms that would be possible under an environmentally inclusive approach, while also acknowledging and exploring the limits and challenges of this approach. On balance, Bateman and Tripp conclude, the rewards seem to far outweigh the risks. FERC’s current policy causes it to regulate essentially in the dark as to environmental costs and benefits. By incorporating environmental considerations into its oversight of areas such as transmission planning and organized wholesale electricity markets, and by approaching environmental problems in a coordinated way with EPA and other regulators, the Commission would make better informed decisions and could potentially help the nation achieve significant, welfare-maximizing reductions in greenhouse gas emissions.

The question of whether FERC is doing enough to address climate change is one that scholars and policymakers are increasingly starting to raise. Recently, a pair of Berkeley scholars proposed a set of reformsendorsed by United States Congressman Henry Waxman on the floor of the House–that FERC could undertake across its jurisdictional areas to do more. Focusing on FERC’s oversight of the electricity industry, Bateman and Tripp reach similar conclusions about the need for FERC to do more, and seek to provide the most sustained argument yet for a new approach to meet the defining energy and environmental challenges of our time.