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Appeals Court Hears Argument that Federal Regulators Aren't Ensuring Fair Electric Rates

On June 8, 2011, Public Citizen was granted a full hearing in the U.S. Courts of Appeals on the question of whether Federal regulators are ensuring, as the law requires, that utility wholesale rates ultimately charged to electricity consumers are fair. The oral argument given by the Litigation Division’s senior attorney, Scott L. Nelson, clearly made the case that the Federal Energy Regulatory Commission (FERC) is failing to ensure fair electric rates by ignoring its own controlling law, the Federal Power Act (FPA), in two ways.

First, FERC now allows “the market,” that is, the utility sellers, to set their own rates by negotiation with wholesale buyers, which rates they file as “reporting requirements” months after they are being charged. Courts have found that these buyers may or may not have the ability or interest to protect retail consumers. This is because such buyers are guaranteed by federal preemption the right to pass negotiated rates along to customers because FERC has supposedly reviewed them, and the FPA trumps state law. But FERC ignores the FPA’s requirement that all changes (including increases) to rates must be filed in advance of being charged for review by regulators and the public. Instead, FERC simply grants almost every utility a “market-based rate tariff” that allows utility sellers to avoid this filing requirement and permits them instead to merely file after-the-fact data.

Second, FERC has no standard by which to judge, even after the fact, whether these “market-set” rates are actually “just and reasonable,” even though the FPA requires FERC to ensure that they are.  Instead, FERC merely looks at the utility sellers to try to determine whether or not they have “market power” in FERC’s view or have manipulated markets. Because the FPA focuses on reasonable and fair rates, not on market behavior, FERC’s monitoring of such behavior does little to help electricity bill payers and at most results in occasional fines for utilities.

Public Citizen’s case was made easier by an earlier U.S. Supreme Court decision regarding a different FERC question in which, perhaps in response to a request by Public Citizen in its amicus brief, the Court confirmed that it has never determined the lawfulness of FERC’s market rate program. Moreover, FERC’s counsel had to admit at oral argument that the record contained no evidence that the market rate program benefited electricity consumers. 

The Court allotted a full twenty minutes per side, indicating that they took Public Citizen’s arguments seriously.  Public Citizens’ position was supported by the Attorneys General of three states, Connecticut, Illinois and Rhode Island, as well as the consumer advocates from New York (PULP) and Colorado on its brief. 

To hear the oral argument, go to www.ca9.UScourts.gov/media and choose “audio.”

The case is No. 08-71827, Montana Consumer Counsel v. FERC, argued 6/8/2011.