Public attention to the energy industry over the past decade and more has focused on four issues: (1) the movement from fossil fuels to more emissions-friendly energy sources, (2) the increased availability and affordable nature of fossil fuels, (3) the greater ability of consumers to control their energy use and (4) the introduction of new market structures.
The public is undoubtedly witnessing the energy industry in the midst of an evolution. However, less well known is that during this same time, the regulation of the energy industry in general, but particularly in the West, has been evolving in ways that will affect energy markets and energy customers.
A "Paper World" No Longer
Traditionally, federal energy regulation was dominated by "rate and routes"—that is, applications by regulated entities for rate increases or approval to construct and operate new facilities.
From the 1920s and into this century, lengthy evidentiary hearings were held on most matters, and even small matters were subject to some level of formal, and individual, preauthorization. In total, participation at the Federal Energy Regulatory Commission (FERC) was time-consuming and expensive.
At the state level, agencies that regulated energy also did so with a somewhat heavy hand. However, these agencies also spread their limited resources across other regulated industries subject to their jurisdiction such as water, transportation and telecommunications. This created delays in processing matters and expenses in the process that were usually passed on to consumers in rates.
Altogether, the process at either level was dominated by the regulated entities, a few large customer groups and, at the FERC, some larger state agencies who could afford to travel to D.C. to participate in the processes. It was a paper world of personal contacts among limited players.
That world either no longer exists or is being reformulated.
Technology has played a significant part. The movement to electronic filings has made the federal and state agencies much more accessible, participation in matters less costly, and processing matters more efficient.
More impactful, new participants have joined the administrative process, bringing with them new agendas that often conflict with entrenched energy interests.
Where energy utilities once dominated the regulatory conversation, they now share the spotlight with groups representing renewable resources or alternate energy sources, new customer groups, and environmental interveners whose advocacy has matured considerably over time. The process is now open to the many, who take full advantage of the opportunity to participate.
Timely Processing Is Challenging
This, in turn, has made it more difficult for regulators to process matters in a timely and effective manner.
The FERC and many states have moved to more expeditious processes dominated by generic rulemakings and regional approaches that allow for meaningful participation from a distance at a fraction of previous costs. Many routine matters are now handled by agency personnel through delegations of authority. In many instances, states have adopted these same process tools (either before or as a result of the changes at the FERC).
However, as the number of parties, interests, matters and areas of responsibility multiply, additional limitations are viewed to be necessary in order to maintain prompt, efficient and less costly regulatory review.
The FERC has increasingly turned to forms of so-called "light-handed" regulation. This approach utilizes rulemakings and workshops, "blanket certificates" requiring only limited reporting, "at risk" pipeline projects that allow for a more expedited review and market-based rates.
In part as a result of the Energy Policy Act of 2005, the FERC has also concentrated on enforcement to prevent market manipulation and act as a check on its "light-handed" regulatory approach. While this "rear-end" form of regulation has drawn some criticism, it has seemingly improved the ability of the FERC to process its workload requirements.
Scrutiny at the State Level
Change has likewise occurred at the state level, often caused by increasing public attention and dissatisfaction with regulators or the regulatory process itself.
Some state agencies have been replaced, such as in New Mexico, with new names and promises of reform. In California, in response to high-profile matters involving safety, access to decision makers and allegations of potentially misleading or incomplete submittals to regulators, several bills have been introduced to address perceived abuses.
Overall, the regulatory process of the states has become increasingly politicized. Election to a public service commission position is no longer ignored or uncontested. Appointments in states that use that process are now prized by many potential applicants. Furthermore, reelection or reappointment is by no means assured. Commissioners cannot count on prolonged service.
As public and industry scrutiny of regulatory actions and regulators themselves increases, so does the interest of elected officials. This politicization and the belief that lobbying efforts can affect results have placed new pressure on regulators to ensure that their processes are fair and open.
All told, regulators are adjusting to new influences from within and outside their agencies.
Part of the ongoing evolution of state agencies includes an internal evaluation of whether the agencies and their staffs are unable to cover all the areas they currently regulate. Contributing to this administrative burden is the wide-ranging and more aggressive participation of nongovernmental organizations.
Further, new forms of energy and markets are often not regulated through the same enabling statutes and present new and constantly changing development, operational and financing models. These factors have complicated meaningful and timely review of agency dockets.
Although federal and state agencies have increasingly adopted forms of regulation designed to streamline review of their heavy calendars, more needs to be done to address this administrative burden.
Potential solutions include creating new agencies, partial deregulation, an expansion of funding for current regulators through fee increases, and adoption of less formal and abbreviated processes—all of which have been tried in the past with varying levels of success.
The emergence of multijurisdictional approaches to reductions in greenhouse-gas emissions, the development of regional energy markets, the greater national interest in renewable energy and the development of new technologies, the development of distributed generation and energy storage products, the creation of microgrids, and the creation of new market structures will all force necessary changes in regulatory systems to adapt to such new technological and market realities.
The next step in this regulatory evolution is not assured.
Changes in the regulation of energy have been shaped by industry restructurings, the addition of new and more diverse participants in energy markets, and the need for more timely actions.
Looking ahead, this evolution will likely be driven by new issues that will challenge the old ways and create new problems for regulators that we can only guess at today.
As the evolution continues, regulators are challenged to make sure that these changes continue to serve the public interest in assuring safe, reliable and affordable energy.
Reprinted with permission from the May 2, 2016 edition of the National Law Journal © 2016 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or firstname.lastname@example.org.