Tag Archives: Energy Law
Reading Professor William Boyd’s fine piece, Just Price, Public Utility, and the Long History of Economic Regulation in America, I couldn’t help but think of Jostein Gaardner’s international bestselling novel Sophie’s World. To be clear, there’s no teenage girl in Boyd’s essay receiving letters from a mysterious stranger that enlighten her on the history of philosophy (or, in Boyd’s case, economic regulation). But, like Gaardner, Boyd does an outstanding job of bringing to life and making accessible what many might otherwise consider a dense, perhaps even tedious subject matter—the history of price regulation. And unlike Gaardner, Boyd manages to do so with remarkably little sacrifice in breadth and depth of coverage.
Professor Boyd’s essay takes readers on an intriguing journey through time, tracing the doctrine of “just price” all the way back to the Aristotelian concept of corrective justice, devoted to preserving equality in exchange, commonly understood as an arithmetic proportion around a mean. From ancient Greece, readers are guided to medieval Italy where Thomas Aquinas and other Scholastics expanded Aristotle’s framing into the notion of commutative justice, a construct intended to encompass the full range of voluntary and involuntary interpersonal relationships, including but not limited to economic exchange.
Drawing on the work of Max Weber and Joseph Schumpeter, among others, Boyd relates cost-of-service pricing—a staple of modern-day regulation of public utilities—back to medieval markets and their notion that just price reflected the “common estimation” as the market clearing price under free competition. Another worthwhile stop is at the grain markets of France’s ancien régime where the police des grains enforced trading prices as the product of customary practices and formal rules of exchange to ensure a just price for life’s basic necessities, evidence of the emerging concept of a moral economy. At the dawn of industrialization, Boyd reminds us, price regulation, was widely accepted as a necessary means for maintaining social stability.
With this historic tour de force, professor Boyd sets the stage beautifully for his discussion of public utility regulation in the United States. From Munn v. Illinois over Smyth v. Ames to FPC v. Hope Natural Gas, his essay traces the defining moments in the evolution of the modern concept of public utility. Along the way, Boyd makes a persuasive argument that, Munn’s famous image of private enterprises “clothed with a public interest” notwithstanding, expanding government regulation of (previously) private economic activity was motivated primarily by growing concerns over deviations from the elusive ideal of just price. To drive this point home, Boyd reminds readers that the concept of just price had long been more than a mere numbers game, as the arithmetic mean promoted by Aristotelian corrective justice might suggest. The prevailing view among economists suggests that the just price doctrine was, at its core, about preventing coercion in economic exchange, especially in the context of essential services and other necessities.
With the doctrine of just price properly understood as a safeguard against the coercive exercise of market power, Boyd makes it easy to follow along on the final stage of his essay’s time travel through recent and ongoing efforts to complement, if not altogether replace, traditional regulation of public utility with competitive markets. Pointing to agency capture and other pathologies of the regulatory process, Boyd persuasively reframes the move from cost-of-service regulation to greater reliance on competitive markets as a mere resurrection of the historically prevailing notion of just price as facilitating economic exchange free from coercive forces. Today, the Federal Energy Regulatory Commission and other regulators are retreating from the actual setting of prices, instead focusing on creating and monitoring markets with sufficient competition to realize the ideal of just price—whatever the exact number—properly conceived of as the product of economic exchange free from structural inequities.
Professor Boyd closes by musing that the experiment of just price may have run its course. It is this, the very last sentence that prompts my only gripe with his excellent essay. It is undoubtedly a tribute to Boyd’s refreshing intellectual humility that the author understates the importance of his own work. In doing so, however, an opportunity is missed to emphasize the critical role that the doctrine of just price, in its various iterations over time, has yet to play as we decide the future of public utility in the United States and beyond.
Two examples of the need for continued guidance from Aristotle and his intellectual progeny quickly come to mind: first, the ongoing debate over the “fairness” of policies that seek to promote the transition to a low-carbon future by enabling better-to-do homeowners to put solar panels on their rooftops and thereby reduce their electric utility bills. The doctrine of just price so ably unpacked and brought to life by professor Boyd has a lot to teach us in the assessment, and ultimately, design of policy incentives and electricity rates, among others. The second example builds on Boyd’s discussion of competitive wholesale power markets. With their (current) inability to internalize the social costs of carbon and other externalities, these markets remind us of the Scholastics’ insight that only fully competitive markets operating free from market failures, should be trusted to realize the ideal of just pricing.
With Just Price, Public Utility, and the Long History of Economic Regulation in America, William Boyd adds important historic perspective and a much needed voice of reason to the increasingly polarized debate over the future of public utility regulation. Boyd himself describes his fine essay as part of a larger project. I for one cannot wait to see the sequel. If it is as captivating and compelling a read as Just Price, we are all in for another treat.
Shelley Welton, Clean Electrification
, 88 U. Colo. L. Rev.
571 (2017), available at SSRN
Climate change has made the timely decarbonization of the electric grid a top priority for policymakers in the United States and across the globe. In the absence of a meaningful price on carbon, net metering, tax credits, and other incentive programs dominate the low-carbon policy landscape. Critics of clean energy incentives have long argued that government should not engage in the business of picking winners and losers among competing technologies. With her thoughtful article, Clean Electrification, Professor Shelley Welton reminds us that public policy support for a low-carbon energy economy has disparate impacts not only on technologies but also on ratepayers, utilities, and other stakeholders.
U.S. policymakers increasingly seek to enlist ratepayers in the war on carbon, harnessing technology innovation to turn previously passive electricity customers into active partners in grid decarbonization efforts. This vision of a “participatory grid” rests on smart appliances, rooftop solar, energy storage, and other technologies capable of empowering ratepayers to more actively manage their energy consumption, generation, and other grid interactions. Access to these technologies and, hence, to the benefits of active grid participation, however, comes at considerable cost raising concerns over the vision’s implications for distributional equity, as evidenced by “solar fairness” debates across the country.
Professor Welton acknowledges and unpacks the various equity concerns surrounding the participatory grid, shedding light on the different stakeholders and their perspectives. In one of my favorite sections, she compares and contrasts the “distinct but overlapping equities” of climate law and energy law. Welton hones in on the disproportionately harsh impact of global warming, sea level rise, and other manifestations of our changing climate on lower-income households. Against this background, she makes a persuasive argument that, whatever the inequities of a decarbonized participatory grid, they do not justify a business-as-usual scenario as climate change itself will bring about far more serious inequities if left unmitigated.
Professor Welton’s article places the current equity debate into historic context, tracing energy law’s preoccupation with balancing equity and efficiency from the beginnings of public utility law all the way to present-day restructuring efforts. From this historical analysis, Welton distills “widespread access to affordable power” as energy law’s overarching distributive tenet. Nowhere is this commitment more apparent than in the Tennessee Valley Authority Act, the Rural Electrification Act, and other New Deal efforts to electrify rural America.
Eighty years ago, the New Deal’s electrification campaign raised the standard of living for rural communities and expanded their access to radios, refrigeration, and other amenities of modern-day technologies. Now, Professor Welton urges her readers, it is time for a successor campaign, clean electrification, to broaden public access not only to the grid itself but, critically, to the emerging suite of participatory technologies required to maintain access to affordable power in a de-carbonizing world. Welton identifies several openings in public utility regulation for a clean electrification campaign, including the long-standing mandate to maintain “just and reasonable” electricity rates and questions over ownership and management of the rich data produced by an ever-smarter grid. In the balanced thinking that distinguishes her article throughout, Welton cautions that widespread grid participation may not be achieved in the near term unless public policy moves beyond its current individualistic notion of participation to embrace more collective forms, such as community solar programs and semi-autonomous micro grids.
With Clean Electrification, Professor Welton adds to the emerging literature on clean energy equity a careful historical analysis of equity’s deep roots in energy law as well as a compelling argument for a concerted effort by policymakers, utilities, and others to usher in a low-carbon, high-participation energy economy. At a time when pundits polarize political debates over the future of net metering and other clean energy policies, Welton presents herself as a welcome voice of reason.
Today’s electricity sector has little in common with the industry’s humble origins in the late 1800s, when small power plants located every ten blocks or so served nearby customers through a local grid. Nor does it share many commonalities with the heavily regulated, largely monopolized electricity sector of the 1930s, whose interstate grid prompted passage of the 1935 Federal Power Act. And yet, this more than eighty-year-old statute continues to define the requirements and scope of federal and, indirectly, state regulatory authority over today’s electricity sector. As deregulation and competitive markets, the rise of renewable energy, smart metering, and demand response transform the way electricity is generated, traded, transmitted, and used, regulators and courts are struggling to apply the Federal Power Act to a changing industry.
Earlier this year, the Supreme Court offered its views when, in Federal Energy Regulatory Commission v. Electric Power Supply Association, the Court recognized federal authority to regulate wholesale market operators’ compensation of demand response—temporary reductions in electricity consumption by end-users at times of peak demand. In his thoughtful article FERC’s Expansive Authority to Transform the Electric Grid, Professor Joel B. Eisen places FERC v. EPSA in historical context, proposes a set of principles to guide FERC’s regulation of rules and practices that affect rates in wholesale power markets, and applies these principles to a hypothetical carbon price added to fossil-fueled electricity.
In FERC v. EPSA, a 6-2 majority of the Supreme Court reversed the D.C. Circuit’s vacatur of FERC’s Order No. 745 regarding demand response compensation in wholesale power markets, holding that the order was within FERC’s authority under the Federal Power Act to ensure that rules and practices directly affecting wholesale rates are just and reasonable. EPSA and other critics had previously argued that the Federal Power Act could not be stretched to apply to wholesale market compensation for demand response—a concept clearly not contemplated during the Act’s drafting over eighty years ago.
Professor Eisen’s article offers an in-depth historical analysis that contextualizes and, ultimately, supports the Supreme Court’s expansive reading of FERC’s authority under the Federal Power Act. Starting with railroad regulation in the early 1900s—the origin of the Federal Power Act’s “practices affecting rates” language—continuing with regulation of the electric utility industry from the Act’s 1935 passage to the beginning of deregulation in the 1980s, and culminating with regulation of today’s increasingly market-based electricity sector, Eisen examines the regulatory regime’s evolution across two industries and one century. In the process, he identifies “a distinctive arc, featuring flexibility about conduct being regulated” that FERC v. EPSA continues.
But Professor Eisen’s article offers more than historical context and validation for the Supreme Court’s interpretation of the Federal Power Act. Policymakers, regulators, courts, and practitioners will appreciate the four-factor framework that Eisen proposes to guide future application of the Act’s “practices affecting rates” standard for FERC authority. First, to be jurisdictional an activity must involve “FERC regulation of market rules or other aspects of direct participation by jurisdictional entities.” Second, FERC may offer incentives to adjust inputs to markets under its supervision in order to maintain system reliability—even if these input adjustments impact the states. Third, the notion of practices under the Federal Power Act has evolved from firm-specific to market-wide practices, allowing (and, possibly, requiring) FERC to regulate the structure and operation of wholesale electricity markets. Fourth and finally, the activity in question must have “direct and significant impacts on wholesale rates,” that is, “without the actions of an intervening decision maker.” To illustrate the import of his proposed framework, Professor Eisen applies the above factors to a hypothetical FERC-mandated carbon adder for fossil-fueled electricity traded on wholesale power markets, which he suggests could be reconciled with FERC v. EPSA, assuming a proper finding of discrimination.
With FERC’s Expansive Authority to Transform the Electric Grid, Professor Eisen adds to the growing literature on (clean) energy federalism an unprecedented historical analysis of FERC’s authority under the 1935 Federal Power Act and a practical guide for its application to today’s electricity industry. Demand response is but one of many drivers of the grid’s ongoing transformation, with others, such as electricity storage, already waiting in the wings. FERC v. EPSA and Professor Eisen’s fine article suggest that the Federal Power Act is still very much alive and up to the task of guiding the transition to a bright energy future.
In a 2013 report, the American Society of Civil Engineers awarded the U.S. electricity grid the grade “D+” noting that aging components and limited maintenance contribute to a growing number of brownouts and blackouts. Indeed, the 450,000 miles of high-voltage transmission lines that connect America’s nearly 7,000 power plants with some 6 million miles of lower-voltage distribution networks are based on a grid architecture that dates back to the 1880s. The average transformer in the national power grid is 42 years old and, hence, two years past its projected useful life. Every year power outages cost the economy billions of dollars in lost output and wages, spoiled inventory, production delays, among others. Meanwhile, successful mitigation of global climate change urges the transition to a low-carbon energy economy fueled by solar, wind, and other renewables. But the best renewable resources are often located far from population centers, such as wind resources in the upper Midwest and Plains states or solar resources in the desert southwest. As a result, the U.S. electricity grid requires both modernization and expansion calling for $1 trillion of investment to maintain even current levels of grid reliability. In Revitalizing Dormant Commerce Clause Review for Interstate Coordination, professors Alexandra B. Klass and Jim Rossi take stock of the regulatory impediments to upgrading and expanding the electricity grid, and propose a fresh take on dormant Commerce Clause review to incentivize greater interstate coordination on long-distance transmission projects.
Notwithstanding the vast macroeconomic benefits of an upgraded and expanded electric grid, transmission lines remain highly unpopular and subject to strong “not-in-my-backyard” reactions – at the individual and institutional level alike. Drawing on a series of precedents, professors Klass and Rossi illustrate how states use their virtually exclusive authority over electric transmission line siting and eminent domain to block and, ultimately, defeat interstate transmission projects. “In the context of multi-jurisdictional energy infrastructure projects, a single state or local holdout can keep an infrastructure project from going forward.” Such regulatory holdouts are especially popular among “pass-through” states that often struggle to identify benefits to local constituents from transmission lines that originate and end out-of-state. In the words of Klass and Rossi, “interest group dynamic[s] along with many existing siting and eminent domain laws enable, and may even encourage, these kinds of state and local government holdouts.”
The article identifies three different patterns by which state regulation and, in some cases, legislation facilitate regulatory hold-outs. First, regulators may refuse to issue the required certificate of convenience and necessity based on a narrow assessment of the benefits associated with a proposed interstate transmission project. Second, regulators may refuse to grant eminent domain authority based on post-Kelo legislation or by requiring local need in order to establish “public use.” Third, regulation and/or legislation may limit the procedural rights of out-of-state applicants if not expressly ban them from transmission line siting permits or eminent domain authority in the state.
Professors Klass and Rossi make a compelling case for dormant Commerce Clause review as a doctrinal opening for courts to resolve state regulatory hold-outs – in electricity transmission and beyond. Building on the rich history of related jurisprudence, the article adds to the literature in at least two important ways. First, it revives the dormant Commerce Clause’s role as a catalyst not only for inter-state competition but, critically, also for coordination among states. Klass and Rossi draw on Rocky Mountain Farmers v. Corey to argue that coordination among state policies, as reflected in energy market initiatives that take into account out-of-state benefits, is allowed under dormant Commerce Clause doctrine and, in fact, “ought to be encouraged and, in some instances, required.” Second, the article calls on disfavored out-of-state applicants for electricity transmission siting and eminent domain to harness dormant Commerce Clause doctrine to challenge state legislation and regulation not only on substantive but also on procedural grounds.
In Revitalizing Dormant Commerce Clause Review for Interstate Coordination, professors Klass and Rossi offer a roadmap for states to better coordinate on multi-jurisdictional transmission projects and, where such coordination fails, devise an enticing litigation strategy for disfavored applicants based on a reinvigorated interpretation of dormant Commerce Clause doctrine. I, for one, look forward to seeing both in action.
Professor Oliver Houck’s recent article, The Reckoning: Oil and Gas Development in the Louisiana Coastal Zone, is easily one of the best articles that I have read in the last ten years and should be required reading regardless of one’s specialty. I should admit that I am not an environmental law professor and the environmental law articles I ordinarily read are those that intersect with one of my primary research areas: Indian law. So I initially downloaded The Reckoning expecting that I would skim it quickly. But it is a remarkable article. Although on its face, the article tells a story of oil and gas development in the fragile wetlands of Louisiana’s coast, it also has lessons about political corruption and short-sightedness that extend far beyond the environmental destruction at the heart of the article.
Professor Houck convincingly argues that the state government and oil and gas interests are seen as essentially the same, so much so that Houck refers to them collectively simply as “the company.” Louisiana actively courted oil and natural gas development to such an extent that the very state entities tasked with protecting the coastal zone participated in the promotion of development above all else, even above reason. As the article shows, it would be inaccurate to say that the state became the puppet of corporate interests or that it rubber-stamped the web of canals that destroyed the wetlands because nearly every Louisiana institution was and is invested in the rush to please big energy. Problematically, the list of those involved in opening up the wetlands, in denying the connection between development and destruction, and in attempting to shift the restoration costs away from oil and gas companies and unto the American taxpayer includes not only the ironically named Louisiana Department of Natural Resources, which time and again saw itself as an industry partner, but also parish governments, state-university academics and centers, politicians at the federal, state, and local levels, and even major environmental groups. As Professor Houck shows, no part of the Louisiana coast has been spared from devastation caused by “the company,” yet “the company” is unwilling to take responsibility and has largely succeeded in avoiding the costs associated with such destruction.
The article tells a remarkable and painful story and it does so in a way that is itself unflinching and remarkable. Professor Houck ends his 112 page article by noting that the work of parsing through the legal arguments in the Levee Board’s case against the oil and gas industries was the work of another article. The Reckoning is entirely dedicated to providing a rich and well-crafted history of the relationship between oil and gas companies, the state of Louisiana, and the coastal environment. And that singular focus is part of why this is a tremendous contribution. Many, and I would argue too many, articles consist of a small dose of observation and a large dose of theory or interpretation. Indeed, I remember vividly being admonished as a pre-tenured professor that my article about immigrant remittances was not sexy enough because I hadn’t dressed it up in theory. It was a mistake I corrected on a future property law article that I thought would be treated as my last article for tenure. But while the push for theory and for interpretation in the legal academy has its place, I think Professor Houck’s careful and thoroughly researched history will do far more to begin correcting course in Louisiana and holding the contributors to the problems there to account than will the many interpretive articles sure to follow. They will surely build off of and cite to The Reckoning but Professor Houck’s narrative of how “the company” operates in Louisiana is incredibly compelling and damning in its own right. The article will likely be widely read by environmental law professors but it is well worth reading regardless of one’s specialty.
Cite as: Ezra Rosser, A Story Well Told
(October 9, 2015) (reviewing Oliver A. Houck, The Reckoning: Oil and Gas Development in the Louisiana Coastal Zone
, 28 Tul. Envtl. L.J.
185 (2015)), https://lex.jotwell.com/a-story-well-told/