Supreme Court decision involving FCC narrows avenues to limit FERC authorities

A June 27 US Supreme Court ruling that upheld US Federal Communication Commission powers could head off one line of legal challenges on the US Federal Energy Regulatory Commission's standard when it comes to ratemaking.

The high court on June 27 found that the FCC's framework for funding universal communications service did not violate constitutional limits on the delegation of legislative powers to the executive. The court's majority in the 6-3 case concluded that Congress had met the standard of setting an "intelligible principle" to guide an agency when it told the FCC to collect contributions that are "sufficient" to support universal-service programs.

"The word 'sufficient' sets both a floor and a ceiling—the FCC cannot raise less than what is adequate or necessary to finance its universal-service programs, but it also cannot raise more than that amount," the majority opinion filed by Justice Elena Kagan said (FCC v. Consumers' Research, 24-354).

The FCC case has been watched in energy law circles for whether the decision would limit FERC's authority.

In reaching its conclusion, the court cited prior cases where it upheld authorization to regulate in the "public interest" and to set "just and reasonable" rates -- including a case that involved FERC's predecessor.

FERC reviews whether rates are just and reasonable under the Federal Power Act and Natural Gas Act.

The legal tactic that argues FERC's "just and reasonable" standard is unconstitutional "now appears dead," Ari Peskoe, director of the Electricity Law Initiative at the Harvard Law School, said in a social media post.

In an interview June 30, Peskoe emphasized that both the majority and the dissent in the decision provided "just and reasonable" rates as an example of something that would likely survive scrutiny.

"It seems unlikely to me that this court in the next few years would just ignore what it just said in this case," Peskoe said. Transmission owners have raised constitutional delegation questions in a dispute pending at FERC over whether the commission can deny electric utilities the right to initial self-funding of network upgrades.

George Washington University law professor Emily Hammond emphasized that the court specifically cited the Hope Natural Gas case involving the FERC's predecessor the Federal Power Commission and the text of the Natural Gas Act, which uses the same language as the Federal Power Act.

"So, FERC's just-and-reasonable authority was expressly approved by the court," she said.

"But Consumers' Research should help energy lawmakers rest easy for another reason: it suggests that the Federal Power Act's provisions giving grid reliability responsibilities to [the North American Electric Reliability Corp.] do not overstep the private nondelegation doctrine," Hammond said. FERC has supervisory authority over NERC's proposed standards, and so no NERC standard can take effect unless FERC permits it, she said.

The dissent, by Justice Neil Gorsuch, also noted that the court "has sometimes found that phrase [just and reasonable] satisfies the intelligible principle test when it comes to setting rates for regulated monopolies like public utilities."

Public Citizen cast the ruling as a "resounding victory for the sensible administration of government programs."

"The Supreme Court reaffirmed Congress's constitutional authority to confer flexibility on executive agencies to implement statutory mandates in a way that is responsive to rapidly evolving on-the-ground realities," Nicolas Sansone, Public Citizen staff attorney, said. "Without the ability to confer that flexibility, Congress would be deprived of an important tool for advancing its substantive policy aims."

Sean Marotta, partner at Hogan Lovells, said that in his view, the Supreme Court was "never likely to force Congress to get into the nitty-gritty of wholesale gas and electricity regulation."

He added that: "Even as the court reins in administrative agencies in other areas or with particular decisions, FERC as a whole seems safe from Supreme Court invalidation."

Future independence

Nevertheless, a concurring statement by Justice Brett Kavanaugh contributed to questions about whether the court will limit FERC's independence in the upcoming judicial term.

Drawing a distinction between the FCC and independent agencies, Kavanaugh wrote that independent agencies raise "substantial" separation of powers issues. Specifically, there are problems with delegation to "unaccountable" officials at independent agencies headed by officers who are not removable at will by the president, Kavanaugh said.

A case working its way to the Supreme Court could be a vehicle for the court to overturn its precedent in Humphrey's Executor v. US and instead allow presidents to fire heads of independent agencies at will.

Kavanaugh said there are at least two possible solutions to the "problem caused by congressional delegations of authority to independent agencies."

One is to overturn Humprey's Executor so that heads of "all or most" independent agencies are removable at will, he said. A second would be a stricter version of the nondelegation doctrine, such as requiring agencies to submit proposed rules to Congress for review, Kavanaugh wrote.