The Energy Project

The Electric Industry
State and Federal Jurisdiction

By Matthew Brown
October 2001
ISBN 1-58024-160-3

 PDF Version To view PDF Files, you must have Adobe Acrobat Reader installed.

 

Introduction

Few state policymakers expected electricity prices in the western United States to jump as high as they did throughout 2000 and 2001.  Although prices did not rise to the same levels in the eastern United States as in the west, the increases that did occur provoked alarm among state policymakers there, too.  When state policymakers began to try to solve the problems, it quickly become clear that many states had not only to consider their own laws and regulations governing the power industry, but that they also needed to pay close attention to federal laws and regulations.  Many proposals that state policymakers considered-efforts to keep low-cost power within the boundaries of the producing state, for instance-would quickly run afoul of federal laws, regulations or even the U.S. Constitution.  Other proposals might not have run counter to federal laws or regulations but would require federal approvals.

In fact, largely as a result of state legislation, utility companies in many states had sold off their power plants and even their power lines; in some instances many electric utilities no longer were even in the business of generating electricity, and even fewer were in the business of building power plants.  Because of the new ownership structure, state power to govern the industry became far different from the powers that existed in the early 1990s-before these changes took place.  This fact became clear when California and the Federal Energy Regulatory Commission disputed the jurisdiction over the makeup of one of the boards governing the functioning of the California power system.

Underlying this document is an assumption that the electric power industry has undergone gradual and fundamental changes, not only since states began to debate the merits of retail competition in the mid-1990s, but for years before that.  The industry began in the early 20^th century to serve cities and small regions surrounding those cities.  Over the course of the century, it developed into an interstate, connected industry in which utilities relied not only on their own power plants and power lines, but on plants and lines that utilities in other states owned.  Utility systems in the six New England states, New York and the Pennsylvania/New Jersey/Maryland area operate as a single, integrated system.  Supreme Court decisions made in the early 20^th century and affirmed throughout the century determined that many of these transactions were in interstate commerce and, therefore, were subject to federal jurisdiction.

The trend towards regionalization has continued.  Power companies increasingly rely on this interconnected system.  Indeed, most analysts agree that a widely interconnected system-that happens to represent interstate commerce-will produce a more reliable, efficient and less expensive electricity system.  This wide-spread agreement is now leading industry, the federal government and many states to explore new regional efforts and institutions.  These new institutions will necessarily involve some shifting of jurisdictional authority from states to regional entities and, perhaps, the federal government.

This document attempts to define who has jurisdiction-the states or the federal government-in a multiplicity of scenarios. Many of these scenarios have been suggested by state policymakers as potential solutions to rising electricity prices.  These scenarios, and the definition of who has jurisdiction in what situation, should help state policymakers understand where their jurisdiction begins and where federal jurisdiction applies.