Federal Energy Regulatory Commission

• 1. Introduction

  ›

  The Federal Energy Regulatory Commission exists because of a crisis that caught the country entirely off guard. Congress created FERC in 1977, in the aftermath of the 1973 oil crisis. Its purpose was to impose order on an energy system that crossed every state border.

  The legislation that brought FERC into being also created the Department of Energy. Congress insisted, however, that the new commission remain free from the Secretary of Energy's review or approval. By law, FERC's activities are not subject to further review by any officer or employee of the department.

  The commission regulates the wholesale sale and interstate transmission of electricity and natural gas. It also sets the prices that pipelines charge to move oil between states. It licenses roughly 1,600 hydroelectric projects and reviews proposals for natural gas storage and liquefied natural gas terminals. Working alongside the United States Coast Guard, FERC scrutinizes proposed LNG facilities for safety and environmental impact. Five commissioners, each appointed by the president and confirmed by the Senate to staggered five-year terms, make those calls. No more than three may share a political party at any given time.

  The law assigned FERC a stark mandate: determine whether wholesale electricity prices are unjust and unreasonable, and if so, fix them. Behind that technical language lies a history of market collapses, contested enforcement actions, and activism that has reached FERC's own Washington, D.C., doorstep. What the agency has done with that mandate, and what the consequences have been, is what this documentary examines.

• 2. A Century in the Making

  ›

  The Federal Power Commission, FERC's predecessor, was established by Congress in 1920. Its initial role was to allow cabinet members to coordinate federal hydropower development, not to act as an independent regulator. Genuine rulemaking authority came later.

  In 1935, Congress transformed the FPC into an independent regulatory agency with power to regulate both hydropower and interstate electricity. The Natural Gas Act of 1938 extended that authority to interstate natural gas pipelines and wholesale sales. A further expansion in 1942 added the licensing of additional natural gas facilities.

  The courts kept adding to the FPC's mandate. In 1954, the Supreme Court ruled in Phillips Petroleum Co. v. Wisconsin that FPC jurisdiction over natural gas reached all the way to wellhead sales in interstate commerce. That decision drew federal oversight deep into the upstream gas industry, well beyond the pipelines themselves.

  The Department of Energy Organization Act of 1977 also transferred authority over interstate oil pipelines to FERC from the Interstate Commerce Commission. The following year, FERC gained authority to harmonize wellhead gas regulation across both intrastate and interstate markets. The National Energy Act of 1978 included two laws that directly affected FERC's responsibilities. The Public Utilities Regulatory Policy Act created a program to foster cogeneration and small power production. The Natural Gas Policy Act reduced the scope of federal price regulation, aimed at bringing greater competition to both gas and electricity.

  By 1989, Congress had decided that federal price controls on natural gas had run their course. The Natural Gas Wellhead Decontrol Act of 1989 ended federal regulation of wellhead prices entirely. That step toward competitive gas markets set the stage for an equally ambitious experiment in electricity, which FERC would pursue with Order No. 888 seven years later.

• 3. The Deregulation Experiment

  ›

  In 1996, FERC issued Order No. 888, a directive that fundamentally changed how the American electric grid was organized. The order required transmission operators to open market access to all power generators. That included independent generators known as qualifying facilities, which operated outside traditional utility structures. A companion directive, Order No. 889, required generators to connect to transmission markets through electronic data portals called Open Access Same-Time Information Systems.

  The stated goal was to eliminate undue discrimination in access to the electric grid. Regional Transmission Organizations, or RTOs, emerged as the mechanism for achieving that goal. Three early adopters were PJM, covering Pennsylvania, Jersey, and Maryland; the New York Independent System Operator; and Independent System Operator New England.

  California's approach to forming its own ISO was more fraught. State and Congressional policymakers backed a controversial scheme to set up the California Independent System Operator, sited near Sacramento. FERC approved it without changes, because California had warned it would not accept any modifications. That decision left structural flaws in the California electricity market intact.

  Enron assigned a policy analyst to identify how to exploit those flawed rules. The effort produced fraudulent market transactions that became a central element of the California electricity crisis. FERC investigated those transactions, along with the conduct of other energy companies that had taken advantage of the flawed market. That investigation, and the settlements it produced, would test how far the agency's enforcement authority could actually reach.

• 4. Power to Penalize

  ›

  The investigation of the California electricity crisis led to one of the largest enforcement actions in FERC's history. By the time settlements were complete, FERC had collected more than $6.3 billion from California electric market participants. That result demonstrated that the agency could hold market manipulators financially accountable on a very large scale.

  In 2001, the George W. Bush administration sought to give FERC the power of eminent domain. That power would allow the agency to override state and local objections that had often slowed the siting of new transmission projects. The fiercest opposition came from Bush's own Republican party, which viewed the proposal as an unacceptable expansion of federal authority. Legal battles over that dispute ran until 2005, when the Energy Policy Act passed with support from both Democrats and Republicans.

  The 2005 law expanded FERC's authority to protect the reliability and cybersecurity of the bulk power system through mandatory standards. It also significantly increased FERC's power to impose civil penalties on entities that manipulate electricity and natural gas markets. Since the passage of the Energy Policy Act of 2005, FERC has imposed more than $1 billion in civil penalties and disgorgement of unjust profits under those expanded powers.

  The same law introduced what became known as FERC's backstop siting authority. Within designated corridors facing transmission congestion, FERC can override a state's denial of a transmission project. That authority gave the federal government a new way to push through grid expansions that individual states had blocked. Order No. 2003, which FERC had issued two years before the Energy Policy Act, had already required utilities to standardize how power plants connect to the grid and to reimburse generators for upfront interconnection costs over a long time period.

• 5. Building the Modern Grid

  ›

  In 2010, FERC issued Order No. 1000, requiring regional transmission organizations to create long-range transmission plans grounded in public policy needs. That order also sought to lower the barriers faced by transmission developers who were not already incumbents in the market.

  Order No. 841, issued in February 2018, required wholesale electricity markets to open up to energy storage installations. This applied regardless of whether those installations connected at the transmission, distribution, or behind-the-meter level. State public utility commissions challenged the rule in court. The D.C. Circuit upheld Order 841 in July 2020, dismissing the petitioners' complaints.

  On the 17th of September 2020, FERC issued Order No. 2222. The order extended market participation to distributed energy resources such as batteries and demand response programs. The Supreme Court had already ruled in 2016, in FERC v. Electric Power Supply Association, that the agency held the authority to regulate demand response transactions. Market operators submitted initial compliance plans by early 2022.

  On the 28th of July 2023, FERC issued Order No. 2023. The order targeted the backlog of renewable energy projects waiting to connect to the large-scale grid. Transmission planners were required to group projects into clusters and evaluate them on a first-ready, first-served basis, prioritizing the most thoroughly studied and fully financed projects. The rule also imposed firm deadlines and financial penalties on transmission providers that failed to complete interconnection studies on time. An amendment, Order No. 2023-A, clarified specific provisions on the 21st of March 2024.

  On the 13th of May 2024, FERC issued Order Nos. 1920 and 1977. Order No. 1920 required utilities to plan regional transmission needs twenty years in advance, with five-year updates. It introduced right-sizing provisions: when aging transmission facilities are replaced, the new ones must be large enough to meet anticipated future demand. The order also prevents states that benefit from regional transmission projects from declining to pay their share of the cost. Order No. 1977 affirmed FERC's siting authority in National Interest Electric Transmission Corridors when a state regulatory agency declines its own siting responsibility. An amendment to Order 1920, passed unanimously that November, gave state regulators more opportunities to provide input on interstate grid projects and added six months to the cost allocation negotiating process. Those provisions acknowledged a long-standing tension: that states and developers sharing the cost of a new transmission line rarely agree easily on who should pay how much, or when.

• 6. Independence Under Pressure

  ›

  "Pipelines are facing unprecedented opposition," Commissioner Cheryl LaFleur told the National Press Club in 2015. "We have a situation here." Her words captured something that had been building for years. Communities affected by FERC pipeline decisions were no longer content to submit written comments and wait. Some disrupted regular open meetings of the commission. Others staged a couple of week-long blockades of FERC's headquarters in Washington, D.C.

  The structural criticism runs deeper than any single pipeline project. Congress appropriates FERC's budget, but FERC raises revenue by charging the natural gas, oil, and electric industries it regulates. That revenue reimburses the United States Treasury. Critics argue that this arrangement creates a bias toward approving pipelines and other infrastructure. Approving more projects, the argument goes, expands the regulated industry from which FERC collects its charges.

  Courts have repeatedly examined that argument and declined to accept it. On the 22nd of March 2017, the United States District Court for the District of Columbia dismissed a structural bias case. "The Commission's budget cannot be increased by approving pipelines," the court stated, noting that the statute requires FERC to adjust charges to eliminate any overrecovery or underrecovery. After FERC approved the PennEast Pipeline in New Jersey, Maya van Rossum of the Delaware Riverkeeper Network said the agency had demonstrated "tremendous bias for, and partnership with, the pipeline industry." On the 10th of July 2018, the D.C. Circuit rejected her network's legal challenge to that approval.

  The D.C. Circuit has, however, pushed back on how FERC handles cumulative environmental review. In one case, the court held that four pipeline projects by the same developer constituted a single pipeline that was "linear and physically interdependent." FERC should have reviewed their cumulative environmental impacts together rather than as four separate assessments. That guidance has since shaped how the agency approaches similar segmentation questions.

  FERC's leaders have consistently pointed to the agency's documented administrative record and its openness to public comment, site visits, and scoping meetings. On the 1st of July 2014, the D.C. Circuit ruled in No Gas Pipeline v. Federal Energy Regulatory Commission that pipeline applicants are "not likely to pursue many certificates that are hopeless." An agency that recognizes merit in those applications is not, the court reasoned, thereby biased toward the industry. That ruling has bounded the legal arguments available to critics, pushing the sharpest disputes over FERC's independence back toward Congress, where the commission's authority was first written into law.

• 7. Shared Ground

  ›

  In regions where FERC and state regulators operate in identical geographic footprints, the line between federal and state authority is difficult to draw. New York State offers the most documented example. Before the New York Independent System Operator was formed in 1999, wholesale energy prices were determined inside a utility's state rate case proceeding. The state, not a federal market, controlled that process.

  The formation of the NYISO transferred wholesale market operations to a federally supervised framework, but left retail regulation with the state. Any generation or merchant transmission project exceeding 20 megawatts in the NYISO must clear both the federal planning process and the state siting process. For the state Siting Committee, the threshold is a much lower 2 megawatts. Each track operates on its own timeline, giving market participants multiple junctures at which to mount legal challenges.

  Contested issues in New York include buyer-side mitigation rules in the capacity market and how proxy peaking-unit specifications are set during demand-curve resets. The state also granted zero-emissions credits to nuclear power plants participating in the wholesale market, a decision with direct implications for federal pricing. The creation of new capacity zones has drawn in both layers of authority and required negotiated outcomes that neither controls outright.

  Order No. 1977 established an Applicant Code of Conduct requiring proper landowner outreach for transmission siting proceedings. The order also added air quality, environmental justice, and tribal engagement reports to the list of requirements for project applicants. Those requirements show how much the scope of federal energy regulation has changed since 1920, when the Federal Power Commission was first given authority over the nation's hydropower resources, and how much the expectations placed on anyone seeking approval have grown alongside it.