History of FERC

Navigation before Electricity

Prior to 1900, there was little appreciation for the role hydropower would play in the development and expansion of the United States. Until then, the nation’s waterways were primarily regulated by Congress for navigational purposes; using water power to generate electricity was not even on the radar screen. In Gibbons v. Ogden, the Supreme Court ruled in 1824, that federal authority covered interstate commerce including riverine navigation, under the Commerce Clause of the Constitution. For the most part, this ruling ended considerable divisiveness regarding transportation improvements between those supporting Federalism versus States rights advocates.

Early Legislation

The first piece of federal legislation came shortly thereafter when Congress set out to improve navigation in the Mississippi and Ohio Rivers. Similar legislation was passed throughout the 1800’s.

In the late 1800’s a significant amount of energy for the nation came from coal, but water powered mills and machine shops along many small streams and large rivers were abundant, reliable, and renewable. It became apparent that hydropower would fill become an important component of the expanding electricity market. Congress began passing legislation more specifically focused on hydropower:

In 1889, Congress passed the Rivers and Harbors Appropriation Act, making it illegal to dam navigable streams without a license (or permit) from Congress. The legislation was passed at a time when the electric utility industry began expanding rapidly, and specifically mentioned damming for purpose of hydroelectric generation.

In 1901, Congress passed the first Federal Water Power Act, which gave the Secretary of the Interior authority to permit rights-of-ways through public lands and reservations. The rights authorized were revocable and made it extremely difficult for developers to secure financing for hydropower development.

In 1906 and 1910, Congress passed legislation with expressed conditions under which rights on navigable waterways could be secured; each requiring a special act of Congress. These acts set forth principles that again, made financing projects difficult.

The early electricity industry was a natural monopoly: state regulators assumed power companies were bound to be monopolies, so they regulated them accordingly and gave them legal monopoly status. By 1914, forty-five states had created state-level commissions to oversee electric utilities. At the federal level, the administration of water power was handled by three independent departments (Department of Agriculture on National Forests, Department of Interior on public lands, and Department of War on navigable streams). There was little attempt to coordinate a common federal policy, and only 25 hydropower projects were developed on public lands since the first act in 1901.

Federal Power Commission

In 1920, following years of controversy over a national energy policy, the US Congress established the Federal Power Commission (FPC) to coordinate hydroelectric projects under federal control. However, the FPC could only employ an Executive Secretary. Other personnel were “borrowed” from the Secretaries of War, Interior, and Agriculture. Needless to say, this organization framework resulted in conflicting mandates, and made it difficult to produce a consistent energy policy. After World War I ended in 1918, the use of electrical power expanded by more than 3,000%, driven by the invention of many domestic appliances, better motors and controls, and power transmission and distribution. The 1920’s brought enormous change and prosperity to the United States in many ways. The electrical industry was no exception, and the FPC received a flood of applications for water power development. In 1928, Congress voted to give the FPC funds to permanently hire their borrowed staff. Two years later, the Federal Power Act established a five-member, bipartisan commission to run the FPC.

Mission of the FPC

During the first 10 years of the FPC, the electric industry underwent many changes. Energy generated crossed state lines as utilities worked together to expand service. In addition the wholesale cost of gas and electricity directly imported from other states became an important component cost of providing service. By 1932, the eight largest utility holding companies controlled 73 percent of the investor-owned electric industry. Based on a series of investigations in the early 1930’s, Congress amended the FPA in 1935, giving the FPC jurisdiction over all interstate commerce in electric energy, and to apply “just and reasonable” cost-based rate regulation to the wholesale power market. Another law, the Public Utility Holding Company Act of 1935, remedied abuses by utility holding companies and their subsidiaries on financial transactions.

With the passage of new acts and court decisions, the mission of the FPC expanded to certify and regulate hydropower and natural gas facilities involved in interstate commerce. Following a backlog of applications for natural gas permits, energy brownouts in the 1960’s, and the OPEC embargo in the 1970’s the FPC was reorganized.

Reorganization to FERC

In 1977, Congress reorganized the FPC as the Federal Energy Regulatory Commission (FERC), and the responsibilities of the Commission continued to expand into the electricity markets. The FERC has overseen a gradual deregulation of the energy markets, the unbundling of sales services from transportation services. Recent hydropower legislation has focused more on small project development, reformed licensing process, and the introduction of new technologies such as hydrokinetic and off-shore tidal wave generation.

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