New York, et al. v. FERC, et al. / Enron Power Marketing, Inc. v. FERC

Questions presented: (1) Given that Congress in 1935 stated that federal regulation extends "only to those matters which are not subject to regulation by the states" (Section 201(a) of Federal Power Act), and transmission of energy from generators to retail customers in the same state was then "subject to regulation by states" (as it has been since 1935), may FERC preempt state jurisdiction over such intrastate retail transmissions of electric energy? (2) Does FERC have jurisdiction under the Federal Power Act to regulate all transmission of electric energy in interstate commerce, including the interstate transmission of electric energy that is sold to retail customers at "bundled" prices? (3) Did FERC have jurisdiction under the Act to eliminate pervasive "undue discrimination" in the provision of interstate electric energy transmission services by requiring transmission-owning utilities to provide interstate transmission services on the same terms to all users, for all interstate transmissions, including transmissions bundled with retail sales? (4) Did the appeals court err in ruling that FERC had discretion to interpret the Act as denying FERC the necessary jurisdiction to remedy undue discrimination it had found in the provision of interstate transmission?

BY BEN LANKA, MEDILL NEWS SERVICE

Providers of electric energy have traditionally owned their own generation, transmission and distribution facilities and sold their energy as a bundled package to the consumer. They would charge a single fee for their power, which was usually distributed to people in the same state.

Times have changed, however, as new, smaller electricity generation facilities have sprung up, creating a competitive market for the production of electricity. New technology has also allowed electricity to be carried across state borders at high voltages.

The new companies faced a serious problem: How to transmit high-voltage electricity?

They did not have the means to build their own transmission systems, and the large public utilities did not want to share their transmission systems. Thus, the Federal Energy Regulatory Commission (FERC) decided to take action.

The Energy Policy Act, which Congress enacted in 1992, gave FERC the authority to order utility companies to transmit power for other electricity producers on a case-by-case basis. FERC, however, said that such a piecemeal approach would result in an inefficient patchwork of transmission systems across the country.

"The ultimate loser in such a regime is the consumer," FERC argued.

In 1996, FERC issued Order No. 888, which directed the nations electric utilities to open their transmission lines to competitors. FERC chairwoman Elizabeth Moler heralded this action as a large step forward.

"[The order] will benefit the industry and consumers to the tune of billions of dollars every year," she said. "These rules will accelerate competition and bring lower prices and more choices to energy customers."

A FERC release claimed that this order would save approximately $3.8 billion to $5.4 billion per year.

Order No. 888 requires all public utilities that own, operate or control interstate transmission of electricity to offer companies outside of their partners the same transmission services they provide themselves at comparable terms.

One of FERCs reasons for this order was to prevent discrimination in access to transmission. FERC claimed that transmission-owning utilities could prevent smaller companies from gaining access to transmission services by preventing them from buying access or by charging extremely high fees.

Unhappy with Order No. 888, several companies petitioned to have it rescinded. FERC eventually transferred and consolidated the petitions to the Circuit Court of Appeals for the District of Columbia, which heard oral arguments on Nov. 3, 1999.

The petitioners, led by Puget Sound Energy, Inc. and the city of Dalton, Ga., argued that FERC did not have the authority to order a generic remedy because the Energy Policy Act only gave it power to change case-by-case situations.

They argued that in Otter Tail Power Co. v. U.S., the U.S. Supreme Court in 1973 set the precedent that FERC could not order involuntary sharing of transmission services as a generic remedy.

FERC argued that Otter Tail was an antitrust case and not a discrimination case, and it did not prevent FERC from making a generic remedy. FERC instead pointed to Associated Gas Distributors v. FERC, in which the D.C. Circuit in 1987 upheld a similar decision regarding open access transportation requirements placed on natural gas transmission.

Dalton also argued Order No. 888 discriminated against transmission owners who had invested millions of dollars building the transmission facilities by not allowing them to make money off of their investment.

FERC responded by saying that Order No. 888 does not create undue discrimination across the board, but there would be a way to address specific instances of discrimination. The company bringing charges of discrimination could petition FERC, which would then determine whether or not to grant a special exception. Order No. 888 also set up a plan for companies to recover costs it would lose because of the order.

Another complaint addressed in court was whether or not FERC had overstepped its jurisdiction. Several states, including New York, complained that FERC had no right to claim jurisdiction over the transmission of electricity within their state. The states had historically regulated retail transmissions as part of the bundled sale of electricity.

FERC argued that when the transmission of electricity was separated from the generation and distribution, it could assert its jurisdiction over the transmission of electricity that crossed state lines.

A group led by Enron Power Marketing, Inc., argued that FERC had not gone far enough in regulating electric transmissions. The group argued that when the transmission lines of two utilities interconnect, it is inevitable that some energy from one state be transmitted to another state.

Jeffrey D. Watkiss, an attorney for Enron, said FERCs ruling would give companies that bundle the sale of electricity an unfair advantage. He said the ruling did not cover enough ground.

"It's only going to affect about 20 percent of the users," he said.

He also said he was not trying to take advantage of the companies who had built transmission facilities, but he was just trying to stop them from taking advantage of everyone else.

"No one is suggesting that the companies who invested in the transmission services not be rewarded for their investment," Watkiss said. "They just can't give it to themselves for free and overcharge everyone else."

FERC argued that once the transmission service is bundled with generation and local distribution, it becomes part of the retail sale, over which FERC has no jurisdiction.

On June 20, 2000, the D.C. Circuit unanimously affirmed Order No. 888 in all instances, while asking FERC to make minor clarifications.

In finding few defects in FERC's orders, the court noted that the challenges levelled by "all key players in the electricity market" ranged from the "hypertechnical to arguments that FERC lacks authority to order open access transmission at all."

Calling it a complex case, the three-judge panel shared in the writing of the opinion that exceeded 100 pages.

"We find that [FERC] has the authority...to require open access as a generic remedy to prevent undue discrimination," the court said. "We affirm FERCs decision in Order 888 to assert jurisdiction over unbundled retail transmission while leaving regulation of bundled retail transmission to the states."

The parties subsequently petitioned the U.S. Supreme Court, which granted certiorari in the case on Feb. 26, 2001, and limited review to Question 1 in New Yorks petition. The Court also granted certiorari in Enron Power Marketing v. FERC, consolidating the cases and allowing an hour for oral argument.

On March 4, 2002, a few months after Enron Power declared bankrupcy, the Court affirmed, holding for FERC that it did not exceed its jurisdiction by including unbundled retail transmissions within the scope of its open access requirements, while deciding not to regulate bundled retailtransmissions.

The Court's opinion allowed FERC, over the objection of nine states, to control management of the nation's power grids, yet also to leave the retail market issues to states, over Enron's claim that state-regulated utilities to dominate the transmission lines with power they generate and also sell retail.

The lead opinion was written by Justice John Paul Stevens.

Lawrence G. Malone Public Service Commission 3 Empire State Plaza Albany, NY 12223-1350(518) 474-2510

For FERC:Solicitor General U.S. Department of Justice Washington, DC 20530

For American Forest & Paper Assn.:Robert F. Shapiro 1101 Vermont Avenue, N. W., Suite 100 Washington, DC 20005

For American Municipal Power-Ohio, Inc.:Scott H. Strauss Spiegel & McDiarmid 1350 New York Avenue, N .W. Washington, DC 20005-4798

For American Public Power Assn.:Wallace L. Duncan Duncan, Weinberg, Miller 1615 M St., N. W., Suite 800 Washington, DC 20036

For Arkansas Public Service Commission:Mary W. Cochran 100 Center Street P. O. Box 400 Little Rock, AR 72203-0400

For Atlantic City Electric Company:Carmen L. Gentile 1100 New York Avenue, N. W. Suite 510 East Washington, DC 20005-3934

For Board of Water, Light & Sinking Fund Commrs. of Dalton, GA:John T. Miller 1001 Connecticut Avenue, NW, Suite 415 Washington, DC 20036(202) 331-1630

For Cajun Electric Power Cooperative:James D. Pembroke Duncan, Weinberg, Miller 1615 M St., N. W., Suite 800 Washington, DC 20036

For Carolina Power & Light Company:Steven J. Ross Steptoe & Johnson 1330 Connectict Ave., N. W. Washington, DC 20036-1795

For Centerior Companies(Cleveland Elec. Illuminating Co., et al):Michael C. Regulinski Centerior Energy Corporation 6200 Oak Tree Blvd. Independence, OH 44131

For Central Montana Electric Cooperative, Inc.:James D. Pembroke Duncan, Weinberg, Miller 1615 M St., N. W., Suite 800 Washington, DC 20036

For Central Power & Light Co., et al.:Clark Evans Downs Jones, Day, Reavis & Pogue 1450 G Street, N. W. Washington, DC 20005-2088

For Citizens Action Coalition of Indiana, Inc.:Robert M. Glennon 100 North Senate Avenue, Room N501 Indianapolis, IN 46204

For City and County of San Francisco: Sheila S. Hollis Duane Morris & Heckscher 1667 K St., N. W., Suite 700 Washington, DC 20006-1608

For City of Alma, Michigan:Kirk Howard Betts 815 Connecticut Ave., N. W., Suite 1201 Washington, DC 20006

For City of Benton, Arkansas, et al.:Brian C. Donahue 321 Maple Street P. O. Box 5579 North Little Rock, AR 72219

For Cleveland, OH:Brian C. McDiarmid Spiegel & McDiarmid 1350 New York Ave., N. W. Washington, DC 20005-4798

For Lakeland, FL, et al.: Douglas F. John John & Hengerer 1200 17th St., N. W., Ste. 600Washington, DC 20036

For Tallahassee, FL:Gary Bachman 1050 Thomas Jefferson St., NW, #700 Washington, DC 20007

For Enron Power Marketing, Inc.:Jeffrey D. Watkiss Bracewell & Patterson 2000 K St., N. W., Suite 500 Washington, DC 20006-1872

For Commonwealth Edison Company:Donald C. Findlay Sidley & Austin 10 S. Dearborn Street Chicago, IL 60603(312) 853-2225

For New York State Electric & Gas Corporation, et al.:Richard M. Lorenzo Huber, Lawrence & Abell 1001 G St., N. W., 12th Floor Washington, DC 20001(202) 737-3880

For Consumers Energy Company:William M. Lange Consumers Energy Co.,Ste. 100 1016 16th Street, N.W. Washington, DC 20036(202) 293-5795

Jeffrey L. Landsman Wheeler, Van Sickle & Anderson 25 West Main St., Suite 801 Madison, WI 53703Party name: Dairyland Power Coop.608 255 7277

Kevin J. McIntyre Jones, Day, Reavis & Pogue 1450 G Street, N. W. Washington, DC 20005-2088Party name: Dayton Power & Light Co.

Paul M. Murphy Ball, Janik, LLP 101 S. W. Main Street Portland, OR 97204Party name: Direct Service Industries, Inc.

Robert V. Zener Swidler & Berlin 3000 K Street, N.W., Suite 300Washington, DC 20007-5115Party name: Edison Electric Institute

Gordon J. Smith John & Hengerer 1200 17th St., N. W., Ste. 600Washington, DC 20036Party name: Electric Clearinghouse, Inc., et al.

Larry F. Eisenstat Dickstein, Shapiro, Marin 2101 L Street, N. W. Washington, DC 20037-1526Party name: Electric Power Supply assn.

James K. Mitchell Reid & Priest 701 Pennsylvania Ave., N. W. Washington, DC 20004Party name: El Paso Electric Company

William Scherman Skadden, Arps, Slate Meagher 1140 New York Avenue, N. W. washington, DC 20005Party name: Entergy Services, Inc.

Robert Jablon 1350 New York Ave., N. W. Suite 1100 Washington, DC 20005-4798Party name: FL Municipal Power Agency

Catherine Bedell Capital Circle Office Center 2540 Shumard Oak Boulevard Tallahassee, FL 32399-0850Party name: Fl Public Service Commn.

William D. DeGrandis Paul Hastings Janofsky Walker 1299 Pennsylvania Ave., NW Washington, DC 20004Party name: GA Transmission Corp.

Pierre F. de Ravel d'Esclapon LeBoeuf, Lamb, Green 125 West 55th Street New York, NY 10019Party name: Hydro-Quebec & H. G. Energy Services, Inc.

Donald L. Howell II Attorney General's Office P. O. Box 83720 Boise, ID 83720-0010Party name: ID Public Utilities Commn.

James Weging 160 North LaSalle Street Suite C-800 Chicago, IL 60601-3104Party name: IL Commerce Commn.

Raymond B. Wuslich Winston & Strawn 1400 L Street, N. W. Washington, DC 20005-3502Party name: IL Power Company

Todd A. Richardson Lewis & Kappes 31763912101700 One American Square Indianapolis, IN 46282-0003Party name: IN Industrial Energy Consumers, Inc.

Stanley C. Fickle Barnes & Thornburg 11 South Meridian St. Indianapolis, IN 46204Party name: Indianapolis Power & Light Co.317 231 7240

Wallace Edward Brand 1730 K St., N. W. Suite 1000 Washington, DC 20006Party name: LA Energy & Power Authority

Alan J. Roth 1350 New York Avenue, N. W. Suite 1100 Washington, DC 20005-4798Party name: MA Municipal Wholesale Elec. Co.

Kenneth Toffee Swidler & Berlin 3000 K St., N. W., Suite 1100 Washington, DC 20005-4798Party name: Metropolitan Edison Company

Barbara S. Brenner 700 13th Street, N. W. Suite 950 Washington, DC 20005Party name: Multiple Intervenors

Glen L. Ortman McPherson & Hand 901 15th St., N. W., Suite 700Washington, DC 20005-2301Party name: Municipal Electric Auth. of GA

Michael P. May Baordman, Suhr, Curry & Field P. O. Box 927 Madison, WI 53701-0927Party name: Municipal Electric Utilities of Wisconsin608 283 1737

Charles Gray Old P. O. Pavilion, Suite 603 1000 Pensylvania Ave., NW Washington, DC 20044-0684Party name: Natl. Assn. of Regulatory Utility Commrs.

Joseph P. Serio 77 South High Street 15th Floor Columbus, OH 43266-0550Party name: Natl.Assn. of State Consumer Advocates

Susan N. Kelly Miller, Balis & O'Neil 1140 19th St.,N.W., Suite 700 Washington, DC 20036Party name: National Rural Electric Cooperative Association

Isaac D. Benkin Winthrop, Stimson, Putnam 1133 Connecticut Ave., NW Washington, DC 20036Party name: Nebraska Public Power District

Paige Graening NEES Companies 25 Research Drive Westborough, MA 01582Party name: New England Electric

John J. Farmer Jr. Dept. of Law & Publ. Safety P. O. Box 45029 Newark, NJ 07101Party name: NJ Bd. of Public Utilities

John D. Draghi Huber, Lawrence & Abell 605 Third Avenue New York, NY 10158Party name: NY State Elec. & Gas Corp.

Jo Anne Sandford NC Utilities Commission P. O. Box 29510 Raleigh, NC 27626-0510Party name: NC Utilities Commission, et al.

A. Hewitt Rose 1025 Thomas Jefferson St., NW 8th Floor, West Tower Washington, DC 20007Party name: Northest TX Elec. Coop., et al.

Peter M. Kirby Winston & Strawn 1400 L Street, N. W. Washington, DC 20005Party name: Ontario Hydro

Robert Weinberg 1615 M Street, N. W. Suite 800 Washington, DC 20036Party name: PA Rural Elec. Assn., et al.

Sandra E. Rizzo 815 Connecticut Ave., N. W. Suite 1201 Washington, DC 20006Party name: Publ. Power Assn. of NJ

Alan J. Statman 1200 G Street, N. W. Suite 600 Washington, DC 20005-3802Party name: Publ. Svc. Co. of CO, et al.

John T. Stough Jr. 701 Pennsylvania Ave., NW Suite 600 Washington, DC 20004Party name: Publ. Svc. Co. of NM

Sherilyn Peterson One Bellevue Center 4254537332411-108th Ave., N. E., S-1800 Bellevue, WA 98004-5584Party name: Puget Sound Energy, Inc.

Elizabeth W. Whittle Nixon, Hargrave, Devans One Thomas Circle, NW, S-700 Washington, DC 20005Party name: Rochester Gas & Ele. Corp.

Nicholas W. Fels Covington & Burling 1201 PennsylvaniaAve., NW Washington, DC 20044-7566Party name: San Diego Gas & Electric Company

Larry Kram General Counsel 2025 Victoria Avenue Regina, Saskatchewan, XX S4P 021Party name: SaskPower

For SC Elec. & Gas Co.:Robert S. Waters Jones, Day, Reavis, Pogue 1450 G Street, N. W. Washington, DC 20005-2088

For The Southern Companies (AL Power Co., et al.)Mark A. Crosswhite Balch & Bingham P. O. Box 306 Birmingham, AL 35201

For Southwestern Publ. Service Co.:Arnold B. Podgorsky Wright & Talisman 1200 G St., N. W., Suite 600 Washington, DC 20005-3801

For Suffolk County Elec. Agency:Christine C. Ryan 1025 Thomas Jefferson St., NW 8th Floor, West Tower Washington, DC 20007

For Transmission Access Policy Study Group:Robert C. McDiarmid Spiegel & McDiarmid 20287940001350 New York Ave., NW Washington, DC 20005-4798

For Transmission Dependent Utility Systems:Randolph Lee Elliott Miller, Balis & O'Neil 20229629601140 19th St., N. W.,Ste. 700 Washington, DC 20036

For VT Dept. of Public Service:William I. Harkaway 1150 18th St., N. W. Suite 800 Washington, DC 20036

For VA State Corp. Commn.:C. Meade Browder Jr. VA State Corp. Commn. P. O. Box 1197 Richmond, VA 23218-1197

For WA Utilities & Transp. Commn.:Robert D. Cedarbaum 1400 S. Evergreen Park Dr., SWP. O. Box 40128 Olympia, WA 98504-1028

For WI Power & Light Co.:Floyd L. Norton IV 1350 New York Avenue, N. W. Suite 1100 Washington, DC 20005-4798

For WY Publ. Svc. Commn.:Carroll S. Verosky Attorney General's Office 123 Capitol Cheyenne, WY 82002

L. Clifford Adams Jr. Alston & Bird One Atlantic Center Atlanta, GA 30309-3424

Terry Bassham El Paso Electric Company 123 West Mills Street El Paso, TX 79901

Neil H. Butterklee Four Irving Place New York, NY 10003

Brian C. Conahue 321 Maple Street P.O. Box 5579 North Little Rock, AK 72219

Michael Connolly General Public Utilities Box 1911 Morristown, NJ 07962-1911

Willaim M. Dudley 1225 17th Street, 6th Floor P.O. Box 840 Denver, CO 80201

Chris Forbes Edison Electric Institute 701 Pennsylvania Ave., NW Washington, DC 20004

Jeffrey L. Futter Long Island Lighting Company 175 East Old Country Road Hicksville, NY 11801

Christine O. Gregoire P.O. Box 40128 Olympia, WA 98504-0128

Robert P. Gruber P.O. Box 29520 Raleigh, NC 27626-0520

Harry Ivey Atty Gen. Office State of WY. 123 Capitol Cheyenne, WY 82002

Frederic Lee Klein Northesat Util. Service Co. P.O. Box 270 Hartford, CT 06141-0270

Alan G. Lance 472 West Wash., ST. P.O. Box 83720 Boise, ID 83720-0074

For Citizens Action Coalition of Indiana, Inc.:Michael A. Mullett Suite 233 309 West Washington St. Indianapolis, IN 46204317 636 5165

William R. Murray 1111-19th Street, NW Suite 800 Washington, DC 20036

Harvey L. Reiter 1150 18th Street, NW Suite 800 Washington, DC 20036

Sara D. Schotland 1752 N Street, NW Washington, DC 20036

Julie Simon Electric Power Supply Ass. 1401 H. Street, NW Washington, DC 20005

Bryan C. Tabler One Monument Circle P.O. Box 1595 Indianapolis, IN 46206-1595

James Volz Director of Public Advocacy 112 State Street - Drawer 20 Montpelier, VT 05620-2661

Charles F. Wheatley Jr. Wheatley & Ranquist 34 Defense Street Annapolis, MD 21401