Energy Law Outline

Energy Law
Professor Spence
Fall 2012
 
FOUNDATION MATERIALS
     I.        Chevron Deference: Sets out clear standard for regulatory agency deference.  Agency action not to be challenged generally, consider following test:
a.    (1) Was Congress’ intent clear and precise in the statute? If so, analysis ends here – court and agency must give effect to unambiguously expressed intent of congress, if not, court does not impose its own interpretation of statute; rather
b.    (2) If intent of statute is silent or ambiguous, defer to agency interpretation as long as reasonable interpretation
                                         i.    How to determine plainness/ambiguity of statute: (a) language itself; (b) specific context in which language is used; and (c) broader context of statute as a whole
  II.        Constitutional and Regulatory Principles
a.    Conflicts between state and federal authority
b.    Commerce Clause: limit on federal authority to regulate energy
                                         i.    Also, implied limit on state authority to regulate interstate commerce (“Dormant Commerce Clause’)
c.     Supremacy Clause: Federal law supersedes state law
                                         i.    Federal regulatory statute preempts state law (explicit)
                                        ii.    “Occupy the field” preemption – no room for state law
                                      iii.    Federal Regulatory statute conflicts with state law – can’t comply with both so state law falls
d.    Contract Clause – Charles River Bridge v. Warren Bridge (SC 1837): states cannot pass laws that interfere with contract rights
                                         i.    Contracts between state and private company: when resolving ambiguities in contract, interpret in terms most favorable to the public
                                        ii.    Grants of exclusivity interpreted narrowly – exclusivity and monopoly will have negative effect on technological progress
e.    Common Carriers – Munn v. Illinois (SC 1877): Businesses used for the public good (“affected with public interest”) can be regulated by government
                                         i.    In case: Illinois allowed to cap rates charges by grain elevators
f.     Common law Rules for Public Utilities:
                                         i.    Service to Public: Operates as a business thought to provide service to the public
                                        ii.    Monopoly Power: Has legal or de facto authority to prevent other businesses from competing with it
                                      iii.    Fixed Territory: Geographical boundary is defined, within which the business is required to provide a service
                                      iv.    Technological Limits: As technology changes, nature of businesses’ monopoly may be narrowly construed
                                        v.    Duty to Serve: Business has duty to serve all members of the public, but only for specific services for which it has monopoly
                                      vi.    Reasonable Prices: Rates charged by public utilities, which common law had required be reasonable, can be regulated by legislature
g.    Theories of Market Regulation:
                                         i.    Perfectly Competitive Market: Firms will price products/services at marginal cost – cost to the firm of producing one more unit of output
1.    Laws of supply and demand will keep prices down as competitors work to undersell each other
2.    A neoclassical model of regulation would try to mimic a Perfectly Competitive Market
                                        ii.    Natural Monopoly: Basically other end of the spectrum – market that can be served at a lower average cost by a single firm than by two or more firms (e.g. public utilities)
1.    Faces decreasing average costs over entire range of production; single firm in such market could increase production or sales at lower average cost than if new entrant were to also compete in market
2.    For this reason, governments sometimes grant certain utilities and common carriers monopoly franchise to provide service to specific geographic region. 
a.    When natural monopolies may make sense: Monopoly can provide more reliable & economic service in markets that face significant economies of scale
3.    Elasticity of Demand: ability/willingness of consumers of to substitute away to a different market or provider as prices change
a.    In monopoly, prices are very elastic – consumers have almost not choice to substitute when prices rise
4.    Problem: once utility has been granted monopoly franchise, concern over monopoly pricing arises
5.    For this reason, monopoly public utilities usually subject to price regulation
6.    During 1980s/90s  – large move to deregulated, competitive markets
h.    Rate/Price Regulation: In order to prevent problems of monopoly pricing, price regulation implemented – designed to yield mix of price, output, and profits approximating competitive market
                                         i.    Smith v. Ames (SC 1898): Regardless of rate regulation, company has constitutional right to earn minimum profit reflecting fair value of service rendered
                                        ii.    How to calculate Revenue Requirement: R=B * r + O
1.    R = Revenue requirement
2.    B = Rate Base
3.    r = rate of return
4.    O = Operating Expenses
                                      iii.    How Rate Base is determined:
1.    Original cost of construction
2.    Amount of market values of utilities stocks and bonds
3.    Present as compared with original cost of construction
4.    Probable earnings capacity of the property under particular rates described
                                      iv.    Bluefield Water Works v. PSC: Constitutional minimum rate of return required for public utilities
1.    “little r” has to be big enough to attract investment comparable to companies in other industries with similar risk
2.    5th Amendment “Takings Clause” considerations in effect
                                        v.    FPC v. Hope Natural Gas: Statutory standard for rates is “just and reasonable”
1.    Doesn’t matter how rates are calculated, just so long as they’re fair
2.    Commerce Clause affects wholesale sale of natural gas
                                      vi.    Filed Rate Doctrine: if utility has approved rate and has filed its tariffs