Established in 1977, the Federal Energy Regulatory Commission (FERC) is an independent agency within the Department of Energy that regulates the interstate transmission of electricity, natural gas and oil. FERC also reviews proposals to build LNG (liquefied natural gas) terminals and interstate natural gas pipelines as well as licensing hydropower projects. With a $347 million budget and 1,480 employees, FERC is responsible for overseeing a $280 billion electricity industry. So what exactly do they do and how does it affect the electric power industry?
Economic Role of FERC
FERC historically has regulated certain economic aspects of the public utility industry, such as the wholesale rates of electricity in interstate commerce. FERC also monitors and investigates energy markets.
The formation of independent system operators (ISOs) and regional transmission organizations (RTOs) began at the direction of FERC and were developed to serve as third-party independent operators for the transmission system. ISOs and RTOs provide fair trade transmission access to facilitate competition among wholesale suppliers. They also allow for better price transparency, more market flexibility and greater market diversity. ISOs and RTOs cover large regions of the United States, but most are located in the southeast, southwest and northwest. ISOs and RTOs conduct thorough oversight of both their markets and transmission functions and are regulated by FERC.
Reliability Role of FERC
The Energy Policy Act of 2005 gave FERC additional responsibilities and expanded its role in regard to electric grid reliability. FERC’s role and jurisdiction now includes monitoring the reliable operation of the nation’s bulk power system. To accomplish this, FERC oversees the development and enforcement of “reliability standards.” These reliability standards are brought to FERC for approval by the North American Electric Reliability Corporation (NERC). These mandatory reliability standards increase the reliability of the high voltage transmission system as well as the electrical grid as a whole.
FERC’s ultimate role is to ensure the nation’s electrical system is prepared to handle the challenges of the 21st century. Whether it’s through overseeing economic policy or ensuring the electric grid’s reliability, FERC plays an integral part in the electric power industry. Because the power sector is transforming due to shifts driven by market, regulatory and technology changes, FERC is responsible for not only ensuring the grid’s reliability for today’s energy sector, but also the power system of the future.