Michael Keegan


Many industries are subject toregulation, whether by the federal government,the state, or both. Electric utilitycompanies’ retail rates are subject to regulationby the states, and their wholesale ratesharged among enterprises involved in providing the electric power to retail sellers are regulated by the federal government. Under the Federal Power Act of 1935 (“FPA”), the Federal Energy Regulatory Commission (“FERC”) is responsible for ensuring that rates for wholesale electric power sales and electric transmission are “just and reasonable.” The “classic scheme” of administrative rate setting called for rates to be established unilaterally by the regulated companies and set forth in rate schedules of general applicability (i.e.,“tariffs”), subject to oversight by the relevant administrative agency. However, the federal government has regulated rates for goods and services transferred between businesses differently from the way rates between businesses and the public are regulated.The Supreme Court has noted that “[i]n wholesale markets, the party charging the rate and the party charged were often sophisticated businesses enjoying presumptively equal bargaining power, who could be expected to negotiate a ‘just and reasonable’ rate as between the two of them.” With the FPA, Congress departed from a strict scheme of tariff-only rate regulation, permitting wholesale arrangements between the parties to be established through individually-negotiated contracts, subject to FERC oversight. Over the years, the number of FERC-regulated transactions has grown, and FERC and electric utilities have developed new contractual vehicles under which to transact. Among other innovations, FERC has established organized markets, instituted a market-based rate program,and ordered electric industry restructuring (i.e., unbundling of power and transmission transactions). In addition, FERC has required electric utilities offering transmission service to do so pursuant to standardized tariff of general applicability, with rates established under the “classic scheme” of administrative rate setting mentioned above.

First Page