Court: FERC can restructure grid rate

By MICHAEL KIRKLAND, UPI Legal Affairs Correspondent  |  March 4, 2002 at 1:35 PM
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WASHINGTON, March 4 (UPI) -- The Supreme Court ruled Monday that the federal government has broad powers when it sets up the structure under which utility companies charge to transmit power across their grids.

Enron Power Marketing was one of the losers in the case.

The 1935 Federal Power Act, among other things, gave the predecessor of the Federal Energy Regulatory Commission jurisdiction over the "transmission of electric energy in interstate commerce and the sale of such energy at wholesale in interstate commerce."

The act also tried to help utility competitors and, ultimately, consumers by banning unreasonable rates and discrimination against potential competitors.

Prior to the 1935 act, utilities were local monopolies regulated by state or local law, and there was little competition. Since then, however, the suppliers of electricity have multiplied. All deliver electricity across three major power "grids" in the continental United States.

For almost all the states, any electricity entering the grid becomes part of the much larger stream of energy moving across the country.

Public utilities retain ownership of the grids, but under law must allow their competitors to deliver electricity to customers, wholesale and retail. Prior to FERC action, that meant the old utilities still held the whip hand, and could refuse to deliver a competitor's energy or charge the competitor rates higher than they apply to their own transmissions.

The situation charged when FERC issued Order No. 888 in 1997.

The order mandated "functional unbundling" of wholesale production and transmission services. That meant that each utility had to post separate rates for its production of energy for the wholesale market and for the transmission of that energy. The same structure was applied to production of energy for the retail market.

In the same order, FERC refused to unbundle the retail transmission rates, saving that decision for a later time.

Order No. 888 generated a lot of challenges from the power industry. A federal appeals court in Washington consolidated the challengers, but upheld most of the order.

One group of challengers led by New York questioned whether FERC had the power, as it said it had, to unbundle retail transmissions. Another group of challengers, led by utility competitor Enron Marketing, questioned FERC's refusal to take jurisdiction over bundled retail transmissions.

After hearing argument in October, the Supreme Court ruled Monday that FERC did not exceed its authority in either instance.

Writing for the majority, Justice John Paul Stevens said the text of the law "unquestionably supports FERC's jurisdiction to order unbundling of wholesale transactions ... as well as to regulate the unbundled transmissions of electricity retailers."

As for Enron's challenge, Stevens said the company's reading of Order No. 888 was incorrect. "FERC chose not to assert such jurisdiction (over bundled retail transmissions), but it did not hold itself powerless to claim jurisdiction (in later proceedings)."

Justice Clarence Thomas dissented to part of the majority opinion, and was joined by Justices Antonin Scalia and Anthony Kennedy.

(No. 00-568, New York et al vs. FERC et al)

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