Energy Law 2013
Energy Regulation
Energy is highly regulated, even in strong market economies.
What is regulation?
· Regulation sets the rules of the market
· When a market doesn’t work out so well for utilities, they will start to look to regulation to help them out
· Industry wants regulation, they just want it to be beneficial to them
· Environmental groups want regulation, they just want it to be beneficial to them
· When utilities are regulated, the regulation serves a purpose
o Serve the community
What is deregulation?
· Deregulations allows competitive energy suppliers to enter the markets and offer their energy supply products to consumers
· In the Enron scandal, California deregulation rules didn’t mean unregulated markets
o In fact, remaining regulations were key
· In deregulated markets, consumers can choose their supplier
Purposes of regulating energy market:
1. Economic
2. Environmental
3. Safety
4. National Security
5. Emergency Preparedness
6. Social Welfare/Safety Net
Goals of Administrative Regulation:
· To be more fair
o Opportunity for individuals to be heard
o Object to specific problem
o People get the opportunity to have judicial review of the process
· Accuracy
o Minimize the risk of wrong decisions
· More efficient
o Congress can’t weigh on every decision
o Problem is the time it takes to administer rule
· Acceptability
o Some sort of public consent
o Put the rules out and have opportunity to comment
What is regulated?
· Pricing
· Access
· Production
· Transportation/transmission
· Corporate structure
· Use and its externalities
· Technology development
Methods of Regulation:
· Statutes and regulations
· Treaties and other international agreements
· Contracts
· Taxes/tax breaks and government funding
Who are the regulators?
· Federal Energy Regulatory Commission (FERC)
o Regulates the interstate transmission of electricity, natural gas, and oil
o Regulates
· Nuclear Regulatory Commission (NRC)
o Regulates safety of nuclear generating facilities
· Department of Energy (DOE)
o Regulates mostly research and development but also deals with emergency response
· National Electric Reliability Council (NERC)
o Works in conjunction with FERC to ensure electric reliability
· Bureau of Land Management (BLM)
o Regulates production and resource development on federal lands
· EPA
o Environmental Regulation
· Coast Guard and Homeland Security
· State Commission
o Regulate economics (rate making) and access at the retail level
o In WV its’ the Public Service Commission (PSC)
Who is regulated?
· Everyone in the chain from production to consumption
o Utilities – certified by government
o Large companies
o Small producers and marketers
o Consumers – large and small
o Technology developers
· Some are self-regulated under federal or state law
o Federal power authorities
o Municipalities and electric cooperatives
What is regulated?
· Fuels and fuel alternatives
· Includes:
o Fossil fuels (coal, oil, and gas)
o Nuclear
o Renewables
o Conservation and efficiency
· In reality, the cheapest, most abundant resources tend to have the greatest environmental externalities
Benefit of Administrative Regulation:
· Easier to regulate things instead of legislature trying to regulate something they don’t know about
· More expertise
Administrative Procedure Act (APA):
· Governs the process by which federal agencies develop and issue regulations
· Includes requirements for publishing notices of proposed and final rulemaking in the Federal Register
· Provides opportunities for the public to comment on notices of proposed rulemaking
· Requires most rules to have a 30 day delayed effective date
· Addresses other agency actions such as:
o Issuance of policy statements
o Licenses
o Permits
· Provides standards for judicial review if a person has been adversely affected or aggrieved by an agency action
The APA authorizes courts to hold unlawful and set aside agency action that is:
· Not in accordance with the law
· Unconstitutional
· Contrary to a statute
· Against the law
APA Adjudication (Quasi-Judicial Process):
· First start with administrative law judge
o Law judge writes an initial opinion that is not binding
§ It is what the judge recommends the board to do
§ Board can adopt it, tweak it, or reject it
· Second, go to the Agency review board and they look at all the information that the Law Judge reviewed
o They then make the decision
· Third, go to the circuit court
o Usually the DC circuit court
o Don’t need to go to a finder of fact
o The circuit court applies appellate review of the Agency decision
Standing and the Zone of Interest Test:
· Must have an injury in fact
o Invasion of legally protected interest that is actual and imminent
· Must have causal connection b/w the injury and complaint
· Must be likely that the injury will be addressed by the judgment
· Zone of Interest Test
o Demands that a plaintiff seeking judicial review of federal agency action have suffered an injury that is within the zone of interests of the statute allegedly violated
o Two Supreme Court rules
§ One demands that a plaintiff s
, sentence, and provision should be given effect consistent with the main purpose of the contract
o Grants in a contract are interpreted in favor of the grantee, BUT reservations are interpreted in favor of the grantor
· Holding:
o Court construed the 1906 warranty deed conveying the land from U.S. Bank’s predecessor in interest (Washburn) to the Koenig’s predecessor in interest to reserve the coal to U.S. Banks predecessor
o The Washburns reserved and excepted the coal
· Main point of the case is to make sure you write contracts properly and do not use “party of the first part” or “party of the second part”
o Name the grantor’s and grantees by name all the time to avoid confusion
Economic Regulation and Market Structure
Purposes for Regulating Energy Market:
· Economic
· Environmental
· Safety
· National security
· Emergency preparedness
· Social welfare/safety net
Economics:
· The study of how we use and consume scarce resources, both now and in the future
· Resources are scarce
o Resources are limited; we can’t always get what we want
o Clean air, clean water, petroleum
o Scarcity is not poverty
Basic Energy Issues:
· What to generate/mine/drill and how much?
· How to produce the resource?
· When and where to produce it?
· Who is the market?
· Who decides and how?
Opportunity Cost:
· Things are scarce; time/money
· Next best alternative
o Read for energy law vs. watch tv
o Buy food vs. buy beer
· Cost of time
o 1 hour wait at the DMV
o Do an oil change yourself
Sunk Costs/Fixed Costs:
· Expenditures that can’t be recovered
· Example:
o You bought a car for $3500
o You replaced transmission for $1500
o Then it need new brakes/rotors for $1000
o Now it needs a head gasket for $1400
o What do you do?
Economics – Pareto v. Kaldor Hicks:
· Pareto = a change that can make everyone better off without making anyone else worse off
o This is not a reality
o Grandparenting
§ Leave kids with grandparents so you can go out but you still come home to the problem of kids
