A proposal to expand federal regulation of electric power rates is largely unconstitutional.

On Sept. 28, 2017, the U.S. Secretary of Energy Rick Perry proposed new rulemaking to the Federal Energy Regulatory Commission (FERC). Under the authority granted the secretary under the Department of Energy Organization Act, RM18-1-000, he proposes that the FERC should use its authorities under the Federal Power Act (FPA) sections 205 and 206 to assure that “reliability and resilience of the electric generation resources are fully valued.”

FPA’s sections 205 and 206 would grant the FERC the ability to regulate the rates of independent system operators (ISOs, operators of organizations that provide interstate transmission of electricity) and of regional transmission organizations (RTOs, operators of the transmission lines that allow ISOs to transmit power across state lines). The secretary says that under existing regulations, those assets may not be fully supported to assure long-term reliable power. Perry wants FERC to fix this condition by adjusting rates of ISOs and RTOs.

The proposal was published, with comments due on Oct. 23, 2017, with added comments due by Nov. 7, 2017. Many parties have already submitted comments both to support the proposal and to oppose it. Those include many detailed comments on the existing conditions of national energy and reliability, from parties fully able to able to discuss those issues.

The secretary’s proposal in RM18-1-000 would require the FERC to exercise very specific rate controls on ISO’s and RTO’s. Under the language of the FPA Sections 205 and 206 the federal government could regulate the rates of those companies in interstate commerce. The secretary notices several Supreme Court decisions which seem to validate that decision, by referring to the original passage of the FPA.

But the Constitution does not give the federal government the power to regulate things just because the states lack them. Congress cannot itself create or exercise a power not delegated to it by the Constitution merely by passing a law to fill that vacuum. In proposing the FPA, Congress stated that “transmitting and selling electric energy for ultimate distribution to the public is affected with a public interest;” Congress “forgot” that the language “affected with a public interest” applied only to the rights of states. (See reference below, Chapter 2, 3 and 4 for more details on this “omission”.)

If the federal government had a power to issue licenses or control rates, and many other acts to directly regulate commerce, then there would be specific language in Section 1 of the Constitution that allowed that. There is no such language. Instead, when the Constitutional Convention considered language to allow the federal government to do those things, it was specifically, consciously, denied by the Convention. In contrast, the states of the United States retained the general powers of the British Parliament when the Constitution was written, unless the federal Constitution explicitly denied it. The states might thus regulate businesses “affected with a public interest,” but Congress, by specific, conscious omission by the Constitutional Convention, cannot.

The Constitution also contains the “commerce clause” in Article I, Section 8, delegating Congress the power to, “To regulate commerce with foreign nations, and among the several states, and with the Indian tribes.”

According to James Madison in Federalist Paper Number 41, the purpose of the commerce clause is to allow the Congress … “a reasonable discretion in providing for the convenience of their [the states] imports and exports, and to the United States a reasonable check against the abuse of this discretion.”

One purpose of the Constitutional Convention was, therefore, to allow the new federal government to limit state controls on interstate commerce that could create, for example, state monopolies of areas of commerce and thus inhibit interstate commerce. So, Congress can prohibit state-endorsed monopolies or similar restrictions of commerce, but Congress was specifically not given any other powers to control, license, set prices, or other manners of regulation.

The secretary’s RM18-1-000 proposal thus poses some very interesting questions to the FERC.

The secretary follows past Supreme Court decisions that allowed the FERC to exercise rate control on many aspects of the interstate power (and gas) industries. The purpose of RM18-1-000 is to relieve effects of previous FERC but also state rate decisions. But therefore RM18-1-000 also “corrects” (in the secretary’s view) many state laws which obstruct interstate commerce, especially, as claimed by the secretary, on preventing the assurance of interstate reliability.

Many of the state laws, for example, require specific forms of energy, and preclude or limit others, and therefore may be exactly the kinds of restrictions on commerce which the original intent of the Commerce Clause allows Congress to prevent.  Interestingly, a group of intervenors calling itself the State Commenters who oppose the proposed regulation also list many existing state actions which would be specifically prohibited by the original intent of the commerce clause, as they specifically interfere with commerce by making access more monopolistic, for specific states. Therefore, FERC could also start by making those interferences with interstate commerce inoperative.

The simplest view of RM18-1-000 is that FERC must deny it. Despite the secretary’s citations of previous Supreme Court decisions based simply on that fact that EPA was passed, FERC has no such authority regarding rates. The best thing FERC could do would be to inspect its authority and consider that the federal government doesn’t get authority over rates simply because certain enterprises may be “affected with a public interest” (which allows only state power on rates). Hence, FERC cannot carry out RM18-1-000.

But also taking into consideration that if the matters raised by the secretary are, or are in some part, caused by state actions, FERC can act on (if it finds validly has the authority), or refer to Congress, those matters which follow the original intention of the commerce clause and could be affected by Congress.

References: Paul Ballonoff, 2016, Limiting Federal Regulation

Paul Ballonoff

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