Appeals Court Leaves Unresolved Whether FERC’s “Market-Based” Rate Program Violates Federal Law and Fleeces Consumers

June 25, 2007

Appeals Court Leaves Unresolved Whether FERC’s “Market-Based” Rate Program Violates Federal Law and Fleeces Consumers

Statement of Tyson Slocum, Director of Public Citizen’s Energy Program

The June 22 decision by the Court of Appeals for the D.C. Circuit in the case Colorado Consumer Counsel, et al v. FERC did not address the fundamental legal issues raised by Public Citizen on behalf of a group of state and national consumer advocates challenging the lawfulness of the Federal Energy Regulatory Commission’s (FERC) “market-based” rate regime promulgated in recent years.

Public Citizen argued that FERC violates the Federal Power Act by allowing electric utilities to charge whatever the market will bear, by not requiring rates to be filed for review by the agency and the public, and by not allowing the possibility for refund of excessive electric rate increases. The unfair and unreasonable wholesale electricity prices that FERC’s regime permits are passed along to consumers in their retail electricity rates. Public Citizen and other consumer advocates asked the court to overturn FERC’s market-rate deregulation program and require the agency to return to regulating wholesale electric rates as the Federal Power Act requires.

Despite our urgings, the court in this case declined to consider whether FERC’s entire market-based rate regime was lawful, holding that the issue was not properly before it. Although we are disappointed in that ruling, the result is an opinion that leaves open the important questions we have raised. Thus, the court did not rule whether FERC’s market-rate system violates the Federal Power Act, which requires advance public filing of all rates and charges and any changes in those rates and charges to protect consumers. The court also did not address whether FERC relies on market results alone to establish reasonable rates. All rates under FERC jurisdiction, no matter how they are set, must be within a zone of reasonableness, but FERC lacks any objective standard or test for determining whether a market rate is reasonable.

Ultimately, the court’s decision leaves unresolved the question of whether FERC in fact possesses the legal authority under the Federal Power Act to allow market-based rates. That issue will undoubtedly be the subject of further litigation, whether in this case or another one, and at some point the courts will have to address it.

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Public Citizen is a national, non-profit consumer advocacy organization based in Washington, D.C. For more information, please visit www.citizen.org.