The Legal Framework of the Federal Power Act

The Legal Framework of the Federal Power Act

January 22, 2020
The Legal Framework of the Federal Power Act
The Federal Power Act (FPA or the Act) (16 U.S.C. §§ 791
License Conditions
et seq.) is the primary federal statute governing the
FPA Section 10 establishes several conditions applicable to
wholesale transmission and sale of electric power, as well
all hydropower licenses issued pursuant to the FPA.
as the regulation of hydroelectric power. The Act is divided
Notably, Section 10(a) (16 U.S.C. § 803) requires FERC to
into a few discrete Parts. Part I (16 U.S.C. §§ 791-823d),
give “equal consideration” to purposes other than power
initially enacted in 1920 as the Federal Water Power Act,
generation, including the environmental and recreational
created the Federal Power Commission (FPC) and gave the
concerns listed in Section 4(e). Section 10 also requires
new agency the authority to regulate the construction,
licensees to refrain from substantial alterations to their
operation, and maintenance of nonfederal hydroelectric
facilities without approval from FERC, maintain and repair
power generation. Part II (16 U.S.C. §§ 824-824w)
the facilities as necessary, pay certain fees and charges to
authorized the FPC to regulate the interstate transmission
the United States and to other hydropower licensees from
and wholesale sale of electricity. Congress transferred the
whom they derive a benefit, and adhere to other conditions
authorities and responsibilities of the FPC under FPA Parts
FERC deems appropriate, including those intended to
I and II from the FPC to the Federal Energy Regulatory
protect fish and wildlife.
Commission (FERC or the Commission) pursuant to the
Department of Energy Organization Act of 1977 (91 Stat.
Navigation Facilities and Fish Passage
565; 42 U.S.C. § 7101 note). Part III (16 U.S.C §§ 825-
FPA Section 18 (16 U.S.C. § 811) specifically addresses a
825u) established a set of rules and procedures governing
hydropower licensee’s obligation to construct, maintain,
recordkeeping and proceedings before the FPC and its
and operate “such lights and signals as may be required by
successor, FERC. The Act also includes Part IV (16 U.S.C.
the Secretary of the Department in which the Coast Guard
§§ 828-828(c)), which carved out exemptions from certain
is operating” and “such fishways as may be prescribed by
requirements in the Act “in order to facilitate the
the Secretary of the Interior or the Secretary of Commerce,
development and construction by States and municipalities
as appropriate.” While Section 10 references such
of water conservation facilities.”
obligations among others, Section 18 establishes them with
specificity, and obliges the licensee to provide them at its
This In Focus provides an overview of the FPA, focusing
own expense. FERC incorporates these requirements in
largely on the first two Parts of the FPA. These Parts
licenses or reserves the right to mandate them as prescribed
establish the framework for FERC regulation of two
by the Department of the Interior at a later date.
different energy industries: hydroelectric power generation,
and wholesale electric energy sale/purchase and
Compliance
transmission.
FPA Section 31(a) (16 U.S.C. § 823b) details FERC’s
investigation and enforcement authority over hydropower
FPA Part I: Hydropower Licensing
facilities. The agency is empowered to investigate and
FERC licenses the construction and operation of nonfederal
monitor hydropower facilities for compliance with license
hydropower projects under Part I of the FPA. “Nonfederal
terms and conditions.
hydropower” refers to any hydropower project not owned
by the federal government, regardless of location.
FPA Part II: Regulation of
Electric Utilities
Licensing Authority
Section 4(e) (16 U.S.C. § 797(e)) authorizes FERC to issue
Scope of Applicability
hydropower licenses, and sets forth some basic parameters
FERC’s jurisdiction over the electric power industry as set
for the application and review process, including a
forth in Part II of the FPA is limited. Pursuant to Section
requirement that the Chief of Engineers and the Secretary
201, Part II applies only to “the transmission of electric
of the Army approve plans for any hydropower project
energy in interstate commerce and to the sale of electric
“affecting the navigable capacity of any navigable waters of
energy at wholesale in interstate commerce.” (16 U.S.C.
the United States” prior to issuance of the license. Section
§ 824(b)). The FPA defines “wholesale” as sale for resale.
4(e) also provides that when deciding on a license, the
(16 U.S.C. § 824(d). Intrastate transmission and distribution
Commission should not only “consider the power and
of electricity, as well as intrastate and/or retail sales of
development purposes for which licenses are issued,” but
electricity, are largely regulated by state agencies.
also “give equal consideration to the purposes of energy
conservation, the protection, mitigation of damage to, and
Interstate Transmission and Wholesale Power
enhancement of, fish and wildlife …, the protection of
Rates Under FPA Sections 205 and 206
recreational opportunities, and other aspects of
FERC derives much of its authority over the electric power
environmental quality.”
industry from FPA Sections 205 and 206. Section 205 (16
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The Legal Framework of the Federal Power Act
U.S.C. § 824d) provides that “[a]l rates and charges … for
authorizes the Secretary of Energy, in consultation with the
or in connection with the transmission or sale of electric
affected states, to designate areas experiencing electricity
energy … and all rules and regulations affecting or
transmission constraints or congestion as “national interest
pertaining to such rates and charges shall be just and
electric transmission corridors” (NIETCs). This section
reasonable.” Section 206 (16 U.S.C. § 824e) empowers
grants FERC “backstop” authority to issue permits for
FERC to initiate a proceeding to address any “rate, charge
interstate electricity transmission facilities in designated
or classification” related to the transmission or sale of
NIETCs. Generally, this authority can be exercised only if
electricity that the agency determines is “unjust,
the state that has authority to approve the facilities has
unreasonable, unduly discriminatory or preferential.”
“withheld approval for more than one year.” (16 U.S.C.
§ 824p(b)(1)(C)(ii)).
FERC has exercised its authority under FPA Sections 205
and 206 to reshape the electric power industry over the last
Two judicial decisions have hamstrung the exercise of the
24 years. In 1996, the Commission issued Order No. 888
Section 216 authority granted to the agencies. In Piedmont
(61 Fed. Reg. 21540 (July 9, 1996)), finding that the
Environmental Council v. FERC (558 F.3d 304 (4th Cir.
existing framework, in which utilities who owned both
2009)), the U.S. Court of Appeals for the Fourth Circuit
power generation and transmission facilities could refuse to
held that FERC may not permit transmission facilities if a
deliver the electricity generated by competitors, was unduly
state has denied the applicant’s request to site transmission
discriminatory under Section 205 of the FPA. FERC then
facilities; FERC may permit the transmission facilities only
invoked its Section 206 authority to order functional
in the event the state has not acted on the applicant’s
“unbundling” of generation and transmission services
request. And in California Wilderness Coalition v. U.S.
within its jurisdiction and to require entities providing
Dep’t of Energy (631 F.3d 1072 (9th Cir. 2011)), the U.S.
jurisdictional transmission to do so on a nondiscriminatory
Court of Appeals for the Ninth Circuit vacated the
basis, often referred to as “open access.” In New York v.
Department of Energy’s first two NIETC designations,
FERC (535 U.S. 1 (2002)), the Supreme Court held this to
finding that the agency had failed to consult adequately
be a legitimate exercise of FERC’s authority under FPA
with the states as required by the FPA. Since the Ninth
Part II. In 1999, FERC issued Order No. 2000, which
Circuit’s 2011 decision, the Secretary of Energy has made
encouraged the formation of Regional Transmission
no further NIETC designations.
Organizations (RTOs). RTOs are independent organizations
that control and regulate electricity transmission over large
Prohibition on Energy Market Manipulation:
areas and who FERC tasks with providing reliable,
Section 222
nondiscriminatory transmission service. FERC continues to
The Energy Policy Act of 2005 also added Section 222 of
regulate RTOs and other complex transactions for the
the FPA (16 U.S.C. § 824v) to ban energy market
transmission and wholesale sale of electric power pursuant
manipulation. FPA Section 222 prohibits any entity subject
to FPA Sections 205 and 206.
to FERC’s FPA jurisdiction from using “any manipulative
or deceptive device or contrivance … in contravention of
Grid Reliability: Section 215
such rules and regulations as the Commission may
The first iterations of the FPA did not address grid
prescribe as necessary or appropriate in the public interest
reliability. Section 1211 of the Energy Policy Act of 2005
or for the protection of electric ratepayers.” This expansion
(P.L. 109-58) added Section 215 to the FPA (16 U.S.C.
of federal jurisdiction was enacted just as FERC was
§ 824o). Section 215 directs FERC to certify an “Electric
completing an investigation, finding that market
Reliability Organization” (ERO) tasked with developing
manipulation had played a role in triggering the California
mandatory and enforceable reliability standards for electric
blackout crisis of 2000. FERC adopted its market
power. FERC subsequently issued Order No. 672 (71 Fed.
manipulation regulations in Order No. 670 (71 Fed. Reg.
Reg. 8662 (February 17, 2006)), which designated the
4244 (January 26, 2006)).
North American Electric Reliability Corporation as the
ERO, and adopted reliability standards to be enforced by
FPA Part III: Recordkeeping and
that organization, subject to FERC oversight.
Administrative Rules
FPA Part III includes several procedural, accounting, and
Transmission Siting: Section 216(h)
recordkeeping requirements. For example, Section 301 (16
Although the FPA directs FERC to regulate interstate
U.S.C. § 825) requires all licensees and public utilities to
electricity transmission pricing and service, siting of
keep accounts and records to the extent required by FERC
transmission facilities is largely left to the states. This
regulations, and Section 307 grants FERC broad
contrasts with the Commission’s role in permitting and
enforcement authority to investigate potential violations of
siting interstate natural gas facilities under the Natural Gas
the FPA, aid in enforcing or promulgating regulations under
Act (15 U.S.C. § 717f).
the FPA, or obtain information to serve as the basis for
legislative recommendations.
Section 1221 of the Energy Policy Act of 2005 added
Section 216 of the FPA (16 U.S.C. § 824p), which carves
Adam Vann, Legislative Attorney
out a small role for FERC and other federal agencies in
siting interstate electric transmission facilities. This section
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The Legal Framework of the Federal Power Act

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