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Energy Law
University of North Carolina School of Law
Cohen, Michael B.

Cohen Energy Law Fall 2011

Energy, Economics and the Environment, 3d (University Casebook) Fred Bosselman, et al

Introduction: CB 1-25

I. Introduction

A. Importance of Energy: major changes:

a. Emphasis on competition and conservation rather than monopoly and increased production and use

b. Scientific/technological advances+wildly fluctuating marketsàcompanies’ long-range plans obsolete quickly; regulatory agencies challenged to keep up

c. Older firms merge and consolidate across traditional sector boundaries to compete w/ entrepreneurial new entrants

d. Privatization of state owned energy companies alternates w/ renewed bouts of nationalization

(2) Book’s scope:

a. Legal issues raised in regulation of energy sector

i. Energy law defined as allocation of right and duties concerning exploitation of energy resources between individuals, between ind. and govs, between govs and between states

b. Tug of war between economics and environment: we want clean energy, but don’t want high energy prices

c. Framework to use in assessing and analyzing the many forces directed at energy industry today

i. Private actors in framework (energy producers, distributors, traders, end users, shareholders, and customers) jostled in tug-of-war for the “public interest,” balance between clean energy and cheap energy

(3) Energy Resources

a. Over 80% of energy from fossil fuels

b. 2/3 of primary energy resources converted into electricity or transportation, other third is used in industrial, commercial, or residential sectors

c. Energy law and policies closely intertwined w/ econ growth

B. Government regulation:

(1) National energy legislation

a. Energy law=state and fed statutes and agency rulings reviewed by cts using admin law principles of review

b. Many energy issues addressed under common law rules of property and contracts

(2) Multiplicity of regulatory agencies – overlapping juris of regulatory agencies of energy industry poses constant problems; programs may parallel but not preempt regulatory programs adopted by state/ local govs

a. Federal agencies – many energy issues addressed at national policy level so federal agencies play important role in energy sector

i. Agencies most directly affecting energy industries are:

· Department of Energy: sponsors energy research, international issues

· Department of the Interior: controls onshore and offshore fed lands, from which much of coal, oil and gas resources is extracted, and regulates surface mining of coal

· Federal Energy Regulatory Commission: construction of hydroelectric facilities and oversees rates of natural gas and electricity to extent that transported in interstate commerce; articulates policies for structure of natural gas and electric power markets

· Nuclear Regulatory Commission: regulates construction/operation of nuclear power plants

· Environmental Protection Agency: administers environmental programs that affects energy, e.g., Clean Air Act and Oil Pollution Act

b. State agencies

i. State systems of public utility regulation have not been replaced by new federal regulatory programs

· Public utility commissions continue to regulate rates, facilities and services of private utilities supplying natural gas/electricity w/in the state

· Great deal of litigation over line between state and fed juris over rates and service

ii. State govs have environmental regulatory agencies that administer state programs/cooperate w/ EPA in administration of fed programs

iii. State natural resource agencies participate in many energy resource decisions, such as development of hydropower

c. Local agencies

i. Energy companies must comply w/ range of land use regulations at local level

· Fed/state legislatures have often granted incentives such as tax exemptions/cheap loans to municipal electric facilities/rural cooperatives, relieving them from some forms of regulation

(3) Const issues/ other legal issues – b/c of overlapping regulatory systems at fed/state/local level, key issues involve federalism policy: balance of state authority versus fed power

a. Const often invoked to invalidate energy statutes and regulations; regulation raises const challenges based on variety of theories:

i. How much judicial deference appropriate to congressional determination that activity is w/in commerce power? U.S. v Lopez: statute did not regulate econ activity that had “substantial effect” on interstate commerce. 10th amend , which reserves to states powers not given to fed gov, remains impo mechanism for challenging energy regulation.

ii. State regulatory program may favor one state’s econ interests at expense of another. May violate dormant commerce clause, judicially created doctrine inferred from text of Commerce Clause.

iii. State regulatory program may be preemepted by a fed law/program. Under Supremacy Clause, fed law takes precedence over state regulation.

iv. Regulation must comply w/ due process clause; dpc challenges focus on whether agency decision making processes provided for adequate procedural protections pursuant to dpc

v. Takings Clause places constraints on rate regulation

vi. Fed or state regulation of energy may conflict w/ U.S. obligations under international lawà obligations include GATT and NAFTA, which prevent US from unilaterally imposing impediments to trade; Int Energy Program Agreement, which commits US to plan for energy emergencies by maintaining strategic oil reserves to provide assistance through Int Energy Agency in case of emergency; Nuclear Non-Proliferation Treaty and programs

model are in fact several diff markets w/ varying characteristics. E.g., gas sales market is competitive but transportation subject large economies of scale and is a natural monopoly. Yet natural gas and its transportation have been bundled w/in a single rate regulated service. Congress began restricting natural gas industry in late 1980s by unbundling gas sales from pipeline transportation services and providing equal access to latter. à2 step approach: recognize that there are 2 or more distinct markets bundled together, only one is a natural monopoly; second, after unbundling the 2 distinct markets, implementing equal access regulatory scheme that applies only to natural monopoly market so that all gas producers and electricity generators can ship gas or electron to buyer who offers them best deal.

C. Climate change: global environmental issues facing energy sector. E.g., tanker spills without national boundaries.

(1) Most troublesome issue for energy sector: increasingly strong evidence that combustion of fossil fuels will increase global temps and cause rising sea levels. How are 2 billion ppl living subsistence lifestyle w/ out access to electricity to be provided acceptable standard of living as climate change threatens droughts/floods?

(2) 1st: whether and how greenhouse gas emissions can be slowed. 2nd: how ppl will adapt to changes caused by global warming.

a. Carbon wedge technologies to reduce carbon emissions to form stabilization triangle in graph—the emissions that do not occur

b. Wedges represent what current technologies could do, if implemented, regardless of cost or externalities, but require large amounts of water/land/additional energy to transport and store CO2 underground in carbon capture/sequestration

c. Slowing pace of climate change= future pervasive influence on energy law

Historical Origins: CB 26-51

II. General Principles of Public Utility Regulation

A. Historical Origins – regulation of ferries, sewers, mills, bridges, and rrs provide historical origins for modern public utility regulation

(1) Feudal system allowed monarchy and aristocracy to grant themselves/friends wide range of privileges, including privilege of operating some type of business, such as flour mill or ferry, on monopoly basis – no competition.