Federal Energy Regulatory Commission

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Federal Energy Regulatory Commission

The Federal Energy Regulatory Commission (FERC) is an independent, five-member commission within the U.S. Department of Energy . The Commission was created in October 1977 as a part of the Federal government's mammoth effort to restructure and reorganize its energy program. The Commission was assigned many of the functions earlier assigned to the Federal Power Commission (FPC).

The Federal Power Commission had existed since 1920 when it was created to license and regulate hydroelectric power plants situated on interstate streams and rivers. Over the next half century, the Power Commission was assigned more and more responsibility for the management of United States energy reserves. In the Public Utilities Holding Company Act of 1935, for example, Congress gave to the Commission responsibility for setting rates for the wholesale pricing of electricity shipped across state lines. FPC's mission was expanded even further in the 1935 Natural Gas Act. That act gave the Commission the task of regulating the nation's natural gas pipelines and setting rates for the sale of natural gas .

Regulating energy prices in the pre-1970s era was a very different problem than it is in the 1990s. That era was one of abundant, inexpensive energy. Producers, consumers and regulators consistently dealt with a surplus of energy. There was more energy of almost any kind than could be consumed. That situation began to change in the early 1970s, especially after the oil embargo instituted by the Organization of Petroleum Exporting Countries in 1973. The resulting energy crisis caused the United States government to re-think carefully its policies and practices regarding energy production and use.

One of the studies that came out of that re-analysis was the 1974 Federal Energy Regulation Study Team report. The team found a number of problems in the way energy was managed in the United States. They reported that large gaps existed in some areas of regulation, with no agency responsible, while other areas were characterized by overlaps, with two, three, or more agencies all having some responsibility for a single area. The team also found that regulatory agencies were more oriented to the past than to current problems or future prospects, worked with incomplete or inaccurate date, and employed procedures that were too lengthy and drawn out.

As one part of the Department of Energy Organization Act of 1977, then, the FPC was abolished and replaced by the Federal Energy Regulatory Commission. The Commission is now responsible for setting rates and charges for the transportation and sale of natural gas and for the transmission and sale of electricity. It continues the FPC's old responsibility for the licensing of hydroelectric plants.

In addition, the Commission has also been assigned responsibility for establishing the rates for the transportation of oil by pipelines as well as determining the value of the pipe lines themselves. Overall, the Commission now controls the pricing of 60% of all the natural gas and 30% of all the electricity in the United States.

Ordinary citizens sometimes do not realize the power and influence of independent commissions like the FERC. But they can have significant impact on federal policy and practice. As one writer has said, "While Energy Secretaries come and go, and Congress can do little more than hold hearings, the five-member FERC is making national energy policy by itself."

[David E. Newton ]