U.S. Congress Creates the Federal Energy Regulatory Commission Summary

  • Last updated on November 10, 2022

The Department of Energy Organization Act of 1977 created the Federal Energy Regulatory Commission to administer the responsibilities formerly assigned to the Federal Power Commission.

Summary of Event

In August of 1977, the Federal Energy Regulatory Commission (FERC) was created by the Department of Energy Organization Act. FERC’s mission was to regulate the electric power and natural gas industries. The agency was associated with the Department of Energy (DOE), which had been created to replace the Federal Power Commission (FPC). Where federal regulation of utilities did not apply, state regulatory commissions were created. FERC began its operations on October 1, 1977. Federal Energy Regulatory Commission Energy;regulation [kw]U.S. Congress Creates the Federal Energy Regulatory Commission (Aug. 4, 1977) [kw]Congress Creates the Federal Energy Regulatory Commission, U.S. (Aug. 4, 1977) [kw]Federal Energy Regulatory Commission, U.S. Congress Creates the (Aug. 4, 1977) [kw]Energy Regulatory Commission, U.S. Congress Creates the Federal (Aug. 4, 1977) [kw]Regulatory Commission, U.S. Congress Creates the Federal Energy (Aug. 4, 1977) [kw]Commission, U.S. Congress Creates the Federal Energy Regulatory (Aug. 4, 1977) Department of Energy Organization Act (1977) Federal Energy Regulatory Commission Energy;regulation [g]North America;Aug. 4, 1977: U.S. Congress Creates the Federal Energy Regulatory Commission[02910] [g]United States;Aug. 4, 1977: U.S. Congress Creates the Federal Energy Regulatory Commission[02910] [c]Energy;Aug. 4, 1977: U.S. Congress Creates the Federal Energy Regulatory Commission[02910] [c]Laws, acts, and legal history;Aug. 4, 1977: U.S. Congress Creates the Federal Energy Regulatory Commission[02910] Carter, Jimmy [p]Carter, Jimmy;energy policy

The Federal Energy Regulatory Commission, an independent five-member commission within the Department of Energy, was responsible for setting rates and charges for the transportation and sale of electricity and for the licensing of hydroelectric power projects. Members were to serve four-year terms and could be removed by the president only for inefficiency, neglect of duty, or malfeasance in office. No more than three of the members could be of the same political party. The president appointed the members of the commission.

FERC was given most of the powers of the former Federal Power Commission. FERC was intended to be a separate entity within the Department of Energy and to retain a measure of autonomy. The specifics of the working relationship between DOE and FERC were left undefined; questions of authority on issues such as price regulations were left open.

FERC was responsible for establishing limits on the rates charged by the producers and gatherers of natural gas; Natural gas setting limits on rates and charges for the interstate transmission and sale of natural gas; issuing certificates for the abandonment and establishment of connections, for natural gas sales, for transportation of gas by pipeline, and for construction of natural gas pipelines and facilities; ruling on curtailment of natural gas service; limiting rates and charges for electric energy transmission and sale; issuing licenses and permits for hydroelectric plants; approving mergers between power and gas companies; supervising the issuance and acquisition of all regulated electric power company securities; limiting interlocking directorates among electric power industries; setting limits on oil pipeline rates, charges, and valuations; and requiring a uniform system of accounts, accounting rules, and procedures for regulated industries. The commission also made the final decisions on DOE actions that required a formal hearing, and it reviewed DOE proposals.

The chair of FERC was made responsible for the executive and administrative operation of the commission. The chair’s duties included such functions as appointing administrative law judges; selecting, appointing, and fixing the compensation of personnel; and procuring the services of experts and consultants.

One of the main functions of FERC was the regulation of the natural gas industry, which consisted of producers, pipeline companies (which transport gas from producing areas to consuming markets), and local distribution companies (which sell gas to consumers). FERC certified the status of gas wells and established, reviewed, and enforced rates and charges for the transportation and sale of natural gas by producers and local distribution companies. The commission also set the rates that interstate pipeline companies could charge for the transmission and sale of natural gas. (Local distribution companies that bought gas from pipeline facilities and sold it to homes and industries were generally regulated by state public utility commissions.) FERC was also made responsible for the construction of interstate pipeline facilities. In acting on a proposal to build a major pipeline facility, the commission had to take a number of factors into account, including the market for the gas and the facility’s safety, environmental impact, and financial viability. FERC also approved the siting, construction, and operation of liquefied natural gas (LNG) facilities as well as terminals to receive and regasify imported LNG.

Significance

In the 1970’s, demand for natural gas exceeded supply in the interstate market, which caused pipeline companies to curtail deliveries of gas to some of their customers. The interstate natural gas supply improved greatly after the implementation of the 1978 Natural Gas Policy Act. Natural Gas Policy Act (1978) By 1983, there were surpluses. The commission approved a number of programs for producers and pipelines that were aimed at lowering gas costs and increasing sales to industrial customers with fuel switching capabilities. FERC also reviewed proposals by interstate pipeline companies to provide service to new customers or to modify or abandon pipeline facilities. Department of Energy, U.S. Federal Power Commission Department of Energy Organization Act (1977)

Sales of electricity between utilities, or by a utility to a municipality, made up approximately 15 percent of the total amount of electricity sales in the United States in the 1970’s. Retail sales of electricity, such as those to home owners and businesses, were regulated by state public utility commissions. The commission ensured that rates for wholesale transactions in interstate commerce were fair and not unduly discriminatory. The commission also reviewed agreements for the interconnection of utility systems and the transfer of power between utilities, with the aim of achieving reliable service at reasonable rates.

During the fiscal year 1981, the commission adopted a new rule for the filing of changes in the electric rate schedules of public utilities under the Federal Power Act. Under the new rule, the commission could provide a full cost-of-service analysis to all parties involved in a dispute about rates. It was hoped that this would discourage trivial litigation and encourage more settlements. In addition to the review of rates and service standards, FERC had authority over the mergers of regulated utilities, certain issuances of utility stock, and the existence of certain interlocking relationships between top officials in utilities and major firms doing business in utilities.

FERC was responsible for administering the Federal Power Act of 1920, Federal Power Act (1920) which had established its predecessor, the Federal Power Commission, and had authorized it to grant preliminary licenses, study potential sites, and issue licenses for the development of hydroelectric power plants. Power plants;hydroelectric This act subsequently became part of the Federal Power Act of 1935, Federal Power Act (1935) which gave the FPC the added responsibility of regulating interstate transmission and wholesale sale of electric energy. The 1935 act also gave the commission authority to prescribe a system of accounts and to inspect the books and records of licensees and public utilities.

FERC became responsible for administering the Natural Gas Act of 1938, Natural Gas Act (1938) which had given the FPC jurisdiction over interstate transportation of natural gas, the wholesale price of natural gas in interstate commerce, and the accounting systems used by natural gas companies. FERC assisted in administering compliance with the Clean Air Act Clean Air Act (1963) and its amendments, which expanded federal responsibility for air-pollution control.

FERC handled the National Environmental Policy Act of 1969, National Environmental Policy Act (1969) which established the Council on Environmental Quality Council on Environmental Quality, U.S. (CEQ), and the Water Pollution Control Act Amendments of 1972, Water Pollution Control Act Amendments (1972) which set up a program of grants to states for construction of sewage treatment plants and established permit programs for industrial and municipal pollutant discharges.

The Federal Energy Regulatory Commission served for many years to help set the nation’s energy policy, performing effectively under U.S. presidents Jimmy Carter, Ronald Reagan, George H. W. Bush, and Bill Clinton in setting policy, giving permits, and administering prices for more effective uses of the nation’s natural resources.

During the 1990’s, many states passed laws that deregulated their public utilities systems, and the public utilities industry underwent a restructuring and resultant economic stresses that were passed on to consumers. The most notorious case occurred in California, where deregulation in 1996 under Governor Pete Wilson Wilson, Pete was hampered by requirements placed on the industry to maintain certain rate charges, as well as a large bureaucracy that made capital improvements such as power stations extremely difficult and time-consuming for the state to approve.

In 2001, the role of FERC became a matter of news when the agency refused to step in after energy brokers, such as Enron, allegedly manipulated the electric power market in California and other states. Under the Republican administration of George W. Bush, Bush, George W. this foot-dragging on the part of FERC was seen by some as the commission’s shirking its duty to guard the public interest. Nevertheless, the need for a strong agency to fill that role proved more apparent than ever in the wake of the utilities’ deregulation. Department of Energy Organization Act (1977) Federal Energy Regulatory Commission Energy;regulation

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Crowley, Maureen. Energy. New York: Neal Schuman, 1980. Provides an excellent overview of energy and U.S. energy policy.
  • citation-type="booksimple"

    xlink:type="simple">Ih-Fei Lie, Paul. Energy and the Environment. New York: Van Nostrand Reinhold, 1993. Presents a thorough explanation of the relationship between the use of natural resources for energy and the impact of technology on the environment. Examines environmental problems caused by energy-related wastes.
  • citation-type="booksimple"

    xlink:type="simple">Victor, Richard H. K. Energy Policy in America Since 1945: A Study of Business-Government Regulations. New York: Cambridge University Press, 1984. Includes discussion of the interaction between government and business in the United States during FERC’s creation.
  • citation-type="booksimple"

    xlink:type="simple">Witnah, Donald. Government Agencies. Westport, Conn.: Greenwood Press, 1983. A complete guidebook to the complex maze of federal agencies, their purposes and relationship to one another, and the history of their creation by Congress.

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