Federal Power Act

Issues

The Federal Power Act (“FPA”) empowers the Federal Energy Regulatory Commission (“FERC”) to regulate the transmission and sale of electric power in interstate commerce. See Electric Power Supply Ass’n v. FERC, 753 F.3d 216, 219 (D.C. Cir. 2014). FERC issued Order 745 to incentivize retail customers to reduce electricity consumption when economically efficient. See Electric Power Supply, 753 F.3d at 219. Under the new order, the cost of incentive payments to retail customers to encourage reduced energy consumption is subsidized by entities participating in the wholesale electricity market. See id. The Electric Power Supply Association (“EPSA”), along with four energy industry associations, brought suit under the Administrative Procedure Act alleging that the FERC’s Order 745 violates the  FPA,  because it invades the states’ exclusive jurisdiction to regulate the retail market. See id. at 218. The Supreme Court will consider whether (1) the FPA extends authority to the FERC to create a methodology that  wholesale-market  operators must use to calculate the compensation payments in the demand response scheme, and (2) whether the court of appeals erred in holding that Order 745 is arbitrary and capricious. See Petition for Writ of Certiorari, FERC v. Electric Power Supply Ass’n et al. at 35–36. The Court’s resolution of this case will impact the regulatory balance in the energy sector between federal and state governments. See Brief of Amici Curiae CES and Dr. Silkman, in Support of Respondent at 4.

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The Federal Power Act (“FPA”) gives the Federal Energy Regulatory Commission (“FERC”) power to regulate interstate energy markets. If the FPA does not address a particular area of regulation, then states can regulate that area. One of FERC’s powers is approving wholesale energy rates. In Hughes, the Court will consider whether Maryland encroached on FERC’s rate-setting power by entering fixed-rate contracts with an energy producer. Petitioners W. Kevin Hughes, the chairman of the Maryland Public Service Commission, and CPV Maryland, LLC (“CPV”), the “energy producer” in this case, argue that Maryland is within its rights to secure new sources of energy through competitive bidding. Maryland does not usurp FERC’s authority unless it actually dictates what price producers sell at, which it did not, Hughes and CPV claim. But respondent Talen Energy Marketing, a CPV competitor, contends that Maryland overstepped its authority by offering fixed-rate contracts, which Talen claims essentially guarantee revenue, to entice bidders like CPV. The outcome of this case may implicate state and FERC regulation of energy markets, and the growth of renewable energy.

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The Federal Energy Regulatory Commission (“FERC”) declared that future challenges to contract rates relating to New England's energy market will be evaluated under Mobile-Sierra’s public interest standard, which presumes that freely negotiated rates are just and reasonable as long as there is no serious threat to the public interest. Petitioners, NRG Power Marketing, LLC, et al. (“NRG Power”) support FERC’s use of the public interest standard. However, respondents, Maine Public Utilities Commission, et al. (“Maine Public Utilities”) contend that the use of the public interest standard deprives non-contracting third party challengers of their statutory right to evaluation under a more scrutinizing just and reasonable standard. Maine Public Utilities finds the statutory standard preferable because challengers merely have to prove that a rate is unjust and unreasonable to succeed in challenging the contract rate. The D.C. Circuit Court of Appeals agreed with Maine Public Utilities that the just and reasonable standard is the appropriate standard of review when challenges are initiated by non-contracting third parties. The Supreme Court's decision in this case will impact the stability of the electrical energy market, influence future investments in it, and, ultimately, affect New England’s supply of electricity.

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