Freer Electricity Market Upheld
The Supreme Court upheld federal rules Monday that move in the direction of creating a national market for electricity.
In a 9-0 ruling, the justices said that once electric power moves onto interstate transmission lines, it is freed of a state’s regulatory control.
This freer market should “encourage lower electricity rates,” especially for big power users, by creating “competitive bulk power markets,” the high court said in endorsing the 1996 rules set by the Federal Energy Regulatory Commission.
However, states retain some regulatory control over the retail electric rates that utilities charge their customers. On a separate 6-3 vote, the justices rejected a claim from now-bankrupt Enron Power Marketing that such power sales should be freed from state regulation as well.
Experts in electric energy called Monday’s mixed decision significant but not surprising.
On the one hand, it merely upheld 6-year-old regulations and rebuffed regulators from nine states. However, neither last year’s energy crisis in California nor the Enron Corp. bankruptcy persuaded the justices to reconsider the move toward national deregulation of energy.
It is not clear whether the ruling will have much impact in California, energy regulators said.
The state moved early to deregulate the sale of electric power and to encourage competition. But the steep spike in power prices last year prompted lots of second-guessing.
Officials of the California Public Utilities Commission switched sides on the issue and belatedly joined the nine other states, led by New York, that challenged FERC’s move to deregulate.
But Monday’s ruling sharply limits California’s authority to re-regulate the electricity business.
“This confirms there has been a significant erosion of the state’s ability to protect its consumers,” said William Julian II, an attorney for the state PUC.
The biggest winners of the deregulation move, energy experts said, are large users of electric power who can take advantage of lower, bulk rates from the interstate power grid--mostly huge manufacturers such as Ford Motor Co. and DuPont Co. The losers in this move toward national competition tend to be older and smaller power producers, who may lose business to out-of-state competition.
“This gets us back on the track to restructuring the last big monopoly and heading toward a truly competitive market,” said John Hughes, director of the Electricity Consumers Resource Council, which represents large manufacturers that want to buy power at the lowest rates. “We believe this [electricity] is naturally an interstate market, and we’re encouraged the Supreme Court agrees.”
A coalition of independent power producers also applauded the ruling. The court and FERC are “right to seek an end to discriminatory, anti-competitive practices and to make sure customers have access to the lowest possible prices,” said Lynne H. Church, president of the Electric Power Supply Assn.
Power producers have been somewhat divided over the move toward national competition. Some say they want to sell their excess power elsewhere.
However, some local utilities say competition is not entirely fair, since they have costly legal duties to provide electricity to all their customers at all times, including, for example, homes in rural areas.
Nonetheless, the electric industry has been moving steadily toward deregulation and wider competition.
Justice John Paul Stevens said the law is simply catching up with a basic change in the nature of electric power distribution.
In 1935, when Congress passed the first Federal Power Act, electricity was a local business. Power plants served their own communities. State utility commissions regulated these local monopolies.
Since the 1970s, electric power has moved on huge networks or grids. The “Eastern Interconnect” serves most of the nation east of the Rocky Mountains, while the “Western Interconnect” serves California and the West.
“Any electricity that enters the grid immediately becomes a part of the vast pool of energy that is constantly moving in interstate commerce,” Stevens said. “As a result, it is now possible for power companies to transmit electric energy over long distance at a low cost.”
But since local utilities often owned the transmission lines, they could block the interstate competition. In 1996, FERC adopted rules that required the utilities to open their transmission lines for a fee.
“Transmission is the vital link between sellers and buyers,” the agency said.
The nine states went to court to challenge FERC’s authority. They said they had control of the retail rates charged to customers, even if the electricity moved on the interstate grid. But Stevens said federal law allows the agency to deregulate the movement of this electricity “without regard to whether the transmissions are sold to a reseller or directly to a consumer.”
All the justices agreed to this conclusion in New York vs. FERC, 00-568. Justices Clarence Thomas, Antonin Scalia and Anthony Kennedy said they would have gone farther and forced FERC to deregulate electricity sales even in the areas where local utilities sell directly to their customers.
