Energy lawyer and law school professor William Massey, at 10 years the longest-serving commissioner ever at the Federal Energy Regulatory Commission, discusses the vast body of legal precedent finding FERC has expansive authority under the Federal Power Act and Natural Gas Act, and reviews pending cases before the Supreme Court that may test whether this expansive view of FERC's authority will continue under the court's new Major Questions Doctrine.
"The courts have said FERC’s authority is at its zenith when it comes to remedying undue discrimination. And FERC has remembered that and bases many of its policy choices on finding undue discrimination in either natural gas or electricity markets," Massey says. "We'll have to wait and see whether this Major Questions Doctrine, as it plays out over the next few years, whether it limits FERC’s authority in certain ways."
Massey also speaks to FERC's early days restructuring natural gas and electricity markets in the 1990s, the vast economic benefits that consumers have accrued as a result, and suggests that opening up the electricity sector to greater competitive forces will help policy makers bring about the clean-energy transition in response to the climate change threat at least cost to consumers.
Energy lawyer and law school professor William Massey, at 10 years the longest-serving commissioner ever at the Federal Energy Regulatory Commission, discusses the vast body of legal precedent finding FERC has expansive authority under the Federal Power Act and Natural Gas Act, and reviews pending cases before the Supreme Court that may test whether this expansive view of FERC's authority will continue under the court's new Major Questions Doctrine.
"The courts have said FERC’s authority is at its zenith when it comes to remedying undue discrimination. And FERC has remembered that and bases many of its policy choices on finding undue discrimination in either natural gas or electricity markets," Massey says. "We'll have to wait and see whether this Major Questions Doctrine, as it plays out over the next few years, whether it limits FERC’s authority in certain ways."
Massey also speaks to FERC's early days restructuring natural gas and electricity markets in the 1990s, the vast economic benefits that consumers have accrued as a result, and suggests that opening up the electricity sector to greater competitive forces will help policy makers bring about the clean-energy transition in response to the climate change threat at least cost to consumers.
EMP S4E1: William Massey
(transcript edited for clarity)
EMP: Welcome to the Energy Markets Podcast. We're kicking off our fourth season with Bill Massey, former FERC commissioner and an attorney now with Covington and Burling, and an adjunct professor at Georgetown and George Washington law schools. Bill, welcome to the podcast.
WM: Thank you, Bryan. It's good to connect with you again.
EMP: Oh, I'm absolutely delighted. I can't think of someone better to kick off our fourth season with. I want to talk to you about your 10 years at FERC. You're the longest serving FERC commissioner ever. Is that in the Guinness Book of World Records?
WM: It is. It's on the cover of the book. (laughter) There was a commissioner at the old Federal Power Commission that served longer but my tenure is the longest at FERC. And then I was rescued from the bowels of bureaucracy by Covington and Burling law firm.
EMP: Well, you were even FERC chairman. A distinguished tenure.
WM: That was one heck of a weekend, Bryan.
EMP: (laughter) Two days! January 19, 2001, and January 21, 2001.
WM: Exactly.
EMP: A tour de force.
WM: Yes, I was chairman for two days. I had been out of FERC for several years and Jon Wellinghoff, a good friend, was then chairman of FERC. It was perhaps 2009, 2010. And Jon called me up and said, Bill, weren't you chairman of FERC for a while I said, yes I was, Jon, for two days. He said, well, you should be on the chairman's wall. He said your photo is not there. I said, Jon, I don't – two days – I don’t really deserve to be there. He said, well, you need to be there. So I'm there now, Bryan. And that's my last night begins with “M”. I'm right in the middle of all of all the pictures.
EMP: That's so typical of Jon to correct a historical oversight like that.
WM: It was it was very, it was very, very nice of Jon to do that. (laughter)
EMP: So a lot happened in the 10 years you were there. You were a commissioner, fairly new commissioner, I guess when I started covering FERC in 1994. You had been appointed by Bill Clinton along with, let's see, Betsy Moler, Don Santa, Jim Hoecker, and it was Vicki Bailey, right?
WM: Exactly.
EMP: Yeah. And you were the Dream Team. Right? Didn't they call you that?
WM: We were called the Dream Team. Absolutely. Which we told all our family members and all our friends that of course, we bragged about that.
EMP: Rightly so.
WM: Yeah.
EMP: I started covering the electricity beat in ‘94. And you guys had just finished restructuring natural gas. Right? And you were just turning then to electricity restructuring?
WM: Exactly. The big restructuring for natural gas occurred in 1992 – you know, less than a year after we started and all of the pipelines were filing their tariffs when I got to the commission. And each tariff was idiosyncratic. It was up to each pipeline to prepare their own tariff. So it made it a lot more complicated but we were reviewing all those tariff filings when I got to the commission. But as a general matter, the gas restructuring, Bryan, I think, was perceived as fairly popular, opening up markets and hit the right political note and the right note in terms of timing of it. So we were very aware of that at the commission.
EMP: So in the decade you were there so much happened. So you continued the restructuring of gas. You moved to restructure electricity. There was the California market meltdown, there was Enron. There was the blackout. Then when Pat Wood came in as chairman, you guys were promoting organized wholesale power markets around the country.
WM: Standard market design. Yeah.
EMP: I was leading up to the SMD.
WM: Oh, I see.
EMP: I'd like to talk about all of those. But, so you went to FERC from Dale Bumpers’ staff?
WM: Well, I had been his chief counsel for a number of years and then went out in law practice. And Bill Clinton was elected. I was from Arkansas and knew him and Hillary. Bruce Lindsey was a friend of mine. He was the personnel director at the White House. And so Bumpers came to me one day and said, there's an opening at FERC. Would you be interested in that? And I said, yes, I would be interested in that.
EMP: So at the end of your 10 years, would you have taken another term?
WM: I think that was long enough. Actually. I loved the job. I told all my friends it was the best job in Washington, D.C., because you had a lot of independence and your decision making and the energy industries, these massive industries, were going through this movement to competitive markets, which was complicated and required a lot of follow up to get the bugs out of the market structures – market designs. So it was a really fun time to be at FERC despite the California crisis, which was quite painful.
EMP: I was really happy that I got a chance to work with you for a year or two before you left FERC. And yeah, and I came into FERC right as the embers in California were still burning, and SMD had already been pushed out the door.
WM: Wow. Yeah, you came in during the SMD era. It was a brilliant idea. Still the right thing to do. It was just politically ahead of its time.
EMP: Well, you know, I mean, Pat (Wood) was really pushing the rock uphill. California to this day has tarnished competition in electricity and the common thought is, oh, that Enron thing is why we shouldn't have electricity restructuring. And we've been kind of trapped midstream ever since.
WM: Yes, he and Nora Brownell, were appointed to the Commission during the California crisis, and we agreed to put a price cap in place to stop it. A soft cap in April of 2021, and then a hard cap in June and everything quieted down. And Pat Wood walk down to my office shortly thereafter, and he said, we can't ever let this happen again. And I said, I agree, Pat. We know what to do. And we both kind of in unison said, we really need to standardize these large wholesale markets. We know how to do that. We know the PJM model works reasonably well. We should organize the wholesale markets of the country according to that model. We don't want to face this again with a homegrown market design. The California market, as you recall, was unanimously passed by the legislature, designed in the state. Of course, FERC approved many aspects of it. We knew what would work better and decided to propose it.
EMP: When I was covering FERC I remember distinctly a meeting. Curt Hebert was chairman. And I guess he was a protege of Trent Lott. And there was a meeting with a California order. Now typically FERC met at 10 o'clock, right. Was it 10 o'clock or eleven?
WM: It was 10 am.
EMP: I don't think you came downstairs to vote on the order until nearly five o'clock or later because you refused to come down until you had read every word of the draft order.
WM: That's exactly right.
EMP: I remember I went upstairs in the elevator – this was the glorious pre-9/11 days and just like on Capitol Hill we had a pass and we could go anywhere in the building. And so I decided to go upstairs and snoop around and the chief of staff was coming down the hallway just as I stepped out of the elevator. He told me to turn around and go back downstairs or he’d take my credentials.
WM: Oh, boy. Curt Hebert and I did not agree on everything. And I can't recall what the order was about. I know it was about something related to the California market. And I wanted to make sure I understood everything that was in it before I voted on it. It had come up to my office quite late, as I recall. And I didn't want to be surprised. So that was a controversial move on my part, but I felt like I needed to do that in order to cast my vote.
EMP: And then Pat Wood came in with Nora Brownell and you said something to the effect of I was never so glad to see two Republicans come over the horizon?
WM: Well, that's right. (laughter) I'm a Yellow Dog Democrat. (laughter) But I was never so happy as to see them because we agreed almost immediately that the out-of-control market in California needed to be stopped and we all voted to do that quite quickly. And I was very happy for that because to me, it had raged on way too, too long. The people of California in 1999 paid seven and a half a billion dollars for electricity. And in the year 2000, I believe they paid $32 billion for electricity. So that was the difference and it was an absolute disaster for market policy. As you pointed out, it gave market opponents an argument to make against markets that they've been making for years and years and years and may still be making.
EMP: Did Enron cause the California market meltdown?
WM: No. Enron didn't cause it. (laughter) A really bad market design allowed it to happen. And in my view, we at FERC who could have put a stop to it should have put a stop to it. We should have price capped it really right after it started because it was very clear that things were out of control. I mean prices within the first week spiked from $30 a megawatt hour up to $280 to several thousands as I recall, with no end in sight. And prices stayed high for a long time. Many, many, many months.
EMP: Yeah, Pacific Gas & Electric went bankrupt because of it.
WM: Yes. That was an example of buying high in the wholesale market. They had to buy their power in the wholesale market, which was out of control, and then they had to resell it in a price-capped retail market, which did not allow them to cover their cost. So it was just a disaster all around. I remember during the crisis, Bryan, there were some aluminum mills – one or more aluminum mills out West – that had nailed down (long-term) wholesale contracts for electricity before the crisis began. And they decided to shut down their plant and just sell electricity into the wholesale market. They could make a lot more money doing that. Now that is a market catastrophe when that is true.
EMP: Yeah, I remember that. You're talking about the Pacific Northwest.
WM: Yes.
EMP: There was a lot of economic imbalance inside California and the neighboring states. They all got hammered by it.
WM: What we needed was a large regional market, an ISO/RTO market over the entire Western Interconnection so that there couldn't have been arbitrage in and out of the market. That's what we needed but didn't happen.
EMP: Electricity is the most volatile market I think we've ever created, and to not allow the utilities to hedge their price risk in the retail market and the wholesale market is … stupid.
WM: Absurd. Absolutely absurd. Well, we, you know, we know how to do it now. There's a lot of painful learning over the years in how to structure markets for electricity.
EMP: Well, what was it like in those days, I mean, you had all of this very intense political pressure on the commission. You had the governor and others in California blaming the Enron “cowboys” for the whole situation. And FERC was under real pressure to put price caps in place, but that didn't happen for a long time. What was it what was it like inside? What was the debate?
WM: Well, I was kind of the outlier, Bryan, because I had voted to put a price cap in place quickly. But I was the only vote. The thinking of the others seemed to be, let's put some soft controls in place and see if this market will get under control. Let's see if that will work. Let's take baby steps to get it under control and see what will work and the Commission did take a number of steps over time that I think the agency hoped would help but nothing helped very much. It just raged on and on and on. What it needed was a cap in place. So I was kind of an outlier. It was stressful because I knew I was in many ways departing from – my vote was different from the vote of some of the other commissioners. Everybody was operating in good faith, doing their best thinking through the issues. I just happened to disagree. And I thought this was a political disaster, that the market fundamentals were out of whack, the market rules made no sense, and that we ought to just put a stop to it. But other commissioners disagreed. So it was a very tense time. The press was all over us. Everything we did was under a microscope. You know, it was front page news all over the world, what was happening in the fifth largest economy in the in the world, California. And the problem was it sent a signal (that) this is what happens when you try to restructure your electricity markets, you end up with chaos. And that is not true. The lesson from that crisis was not that markets are bad, but that a bad market design can lead to very bad outcomes.
EMP: Oh, that's well said. So, when y'all were debating Orders 888 and 889, there was a – there were all kinds of things being talked about. How far should FERC assume jurisdiction over the electrons? Where should that not-so-bright line between federal authority and state authority under the Federal Power Act, where do you draw that line? Should FERC go all the way to the outlet in terms of asserting authority? What was the thinking back then? I mean, I guess not totally restructuring the industry – leaving utilities in the business of selling to customers – just going that far was a big reach and to go even further, would have been even more controversial, right? I mean, the States took it all the way to the Supreme Court.
WM: Absolutely. Even opening up the wholesale markets was a giant leap. Did the Commission have the authority to do that? After all Congress had in 1992 passed the Energy Policy Act and had opened the door slightly to competitive markets. Congress had said, FERC, you can order open access on a utility-by-utility basis, on a customer-by-customer basis, with a whole lot of process. And that's what Congress had said. However, it was a fairly clear signal that Congress was not opposed to more competition in electricity markets. We looked at what was happening on the gas side with the restructuring of pipelines, which generally was going reasonably well. And we said, well, we should open the wholesale markets. There was a debate about whether we should corporately restructure the industry. In other words, require transmission to be in a separate corporate entity. It could be affiliated with generation but put it in a separate corporate entity, which seemed to be a very bold step. It might have led more quickly to greater competition, but we decided not to do that. What we decided on was functional unbundling at wholesale, and we had learned from the gas restructuring that it was more time-consuming, more challenging, because all of the pipelines had filed their own separate idiosyncratic tariffs complying with certain standards that FERC had adopted. And so on the electric side we said look, we're going to write the tariff. So our staff wrote the Order 888 tariff, and said to the industry, file this or something better. You know, we're not going to prohibit you from filing a tariff that's better than that. But we decided that as far as we could go was to open the wholesale markets and unbundle transmission from wholesale sales functionally, but that we probably couldn't go farther than that. We also said, however, that if a state had unbundled at retail and allowed retail competition, then the transmission piece that underlay those retail sales in a restructured retail market – the transmission piece – would be subject to FERC jurisdiction. And that ended up being what went to the U.S. Supreme Court. The state of New York took it up and said, wait a minute, FERC doesn't have the authority to take jurisdiction over retail transmission. And the Supreme Court basically said, yes, yes, it does. FERC has jurisdiction over all transmission of electric energy in interstate commerce, and Justice Thomas went even further than that. He was listening to the Enron filing in the Supreme Court. Enron argued, well, FERC didn't go far enough. FERC had the obligation once it found discrimination to open up the whole market, both at wholesale and at retail, because the electric energy that's flowing on the wires doesn't know whether it's wholesale or retail. It's just the whole grid is energized. And the electricity flows, both at wholesale and retail. Wholesale and retail is a commercial split. But it doesn't, it doesn't define the flows of electric energy. So Enron went to the Supreme Court and said, Court, you've got to tell FERC to go even farther. And the court did not do that. But Justice Thomas, basically, with two other justices, as I recall, said FERC could certainly have gone farther than it did.
EMP: Yeah, that's what I remember the order saying that FERC had the authority should it choose to exercise that authority.
WM: Exactly.
EMP: And it rejected Enron in terms of Enron saying, well, they have to go farther.
WM: Exactly. The other thing that's really important about Order 888, and it's important, for lots of reasons, Bryan, because the issue is undue discrimination. The Order 888 legally was not based on the Energy Policy Act of 1992 as the legal foundation. It was based on Sections 205 and 206 of the Federal Power Act, which say if FERC finds undue discrimination it must issue an order remedying it. And so we concluded that the closed transmission grid was unduly discriminatory and the remedy for that was open access. And the courts have said FERC’s authority is at its zenith when it comes to remedying undue discrimination. And FERC has remembered that and bases many of its policy choices on finding undue discrimination in either natural gas or electricity markets.
EMP: Well I guess that authority to assert jurisdiction over wholesale transmission bundled in retail rates has only been exercised in Standard Market Design.
WM: Yes, the proposed Standard Market Design of 2002 proposed to take jurisdiction over all transmission.
EMP: And look at the political windmill that that went through and had you guys tried to do that back with Order 888, I guess it would have been the same thing.
WM: Well, our Chairman when we did Order 888 was Betsy Moler, who was very politically savvy. Betsy had come from Capitol Hill. I had come from Capitol Hill, and Don Santa had. So we had some political sense about what might fly and what wouldn't fly. When we were developing Order 888 one of the controversial issues that the utilities came to us and said, look, FERC, if you do this, we'll have all these stranded costs. We'll have stranded costs because we have built generation resources to serve wholesale load.
EMP: The regulatory compact.
WM: Yeah, that was the bargain. We would build these generation resources to serve wholesale load and that was the bargain. And we had reason to believe we would recover all those costs. FERC you're changing the bargain midstream and you need to allow us to recover these stranded costs. Once we made a judgment to allow the utilities to recover their stranded costs through a wires charge, a lot of the opposition to this melted way. And if I recall correctly, the Edison Electric Institute may have actually endorsed it. They didn't fight it. And it became very popular once we issued final Order 888 in 1996 we were called up on Capitol Hill to testify (before) various committees, energy committees, oversight committees. Members of Congress wanted to kind of line up and take credit for it. They liked the idea. Why would they like that idea? Because competition was in the air during that era. And as it turned out, Bryan, we were in a growth economy. And so there really wasn't much in the way of stranded costs at all. There were new customers, new opportunities to make sales. And so it was the right political stroke and the right policy stroke at the time. And it was in the era of restructurings, and I don't like the word deregulation because there's still many, many rules that apply. It's not a frontier at all. But airlines had been a deregulated, trucking had been deregulated, railroads had been deregulated (in) countries around the world and in the United States. The idea that all of these basic industries needed to be so heavily regulated was being reconsidered, and we heard that as well. As matter of fact, when we were considering Order 888 many economists came in and said, well, this is the right thing to do, because the generation portion of the power grid – I mean, there's literally thousands of generators – with the right rules, and with mitigation of market power they can compete in the marketplace and benefit consumers. So we believed that.
EMP: So I guess we're eventually going to get to a regional market in the West. It looks like we're real close. FERC has approved the EDAM that the California ISO has put forward, the day-ahead market and but I guess there's still a lot of caution among the states surrounding California in terms of cooperating with California in terms of this, but it'll be interesting to see how this shakes out. But that was the area that was a hotbed of opposition to SMD.
WM: Yes, exactly. Particularly the Pacific Northwest. But as I understand what's happening, a lot of – you know the energy imbalance market, which started up several years ago, has been pretty successful, I think, in terms of saving costs for consumers. There's a good deal of data on that. And, of course, the renewable power industry, as a general matter, likes the large regional markets which are very good at handling the variability – the intermittency – of renewable energy, the large footprint. And so out West it's really developing organically. Yes, FERC commissioners have been out there urging them on, or at least some FERC commissioners have. I know Rich Glick when he was chairman was championing a Western market, a regional market. And there's been a lot going on. The CAISO has made proposals. Southwest Power Pool has made inroads out there. I don't know how it will ultimately end up but I think, as you say, it looks like over the next few years, we’re headed for a larger regional – at least one large regional market in California.
EMP: It was interesting. You mentioned Rich Glick. He's the other former Bumpers aide who was appointed to FERC. Dale Bumpers introduced the first bill to require retail competition in electricity and Rich Glick wrote the bill for him.
WM: He certainly did. And I like to brag – Rich is a good friend – I like to brag to Rich that Dale Bumpers hired him because of me. I recommended Rich. He was with a law firm and applied to Senator bumpers and I discussed it with Senator Bumpers and I said, well, Rich is really smart and has the best work ethic of anybody you'll ever meet. Rich was always at the office at 7 am. And so Bumpers did hire him and ultimately he became his legislative director, and was quite effective. And Rich had lots of energy background. He had worked at the Department of Energy before he came to FERC and worked as chief Democratic electricity council on the Senate Energy Committee.
EMP: When Rich was gracious enough to come on the podcast last year. We talked about the impromptu press conference that Bumpers had the day the bill was introduced, and he had a scrum of the energy press surrounding him wanting details on the bill. And he kind of starts off by saying, well, I kind of found this subject about as interesting as watching paint dry.
WM: That’s exactly right. I heard him say that. Yeah.
EMP: And he gave full faith and credit to Rich for writing the bill.
WM: Or blame. (laughter) Or blame if it didn't turn out well. (laughter)
EMP: Well, a couple of years after you left FERC you and I got to work together again with a thing called the COMPETE Coalition. And you were counsel to the COMPETE Coalition. I went through the revolving door. Betsy Moler was the head of the Exelon Washington office and she wooed me away from FERC to help set up the COMPETE coalition, so you and I got to get to work together for a few years after that.
WM: Exactly. It formed in 2004. It was organized by companies, both utilities and large customers – primarily commercial customers. There were large commercial customers that wanted competitive markets because they believed that they could save on their electricity rates. So we learned early on in that coalition that putting a bunch of generators out there arguing we want competitive markets was not nearly as effective as the customer voice. Those who bought electricity saying to policymakers, look, we will benefit, we will save money in buying electricity if you give us the opportunity to participate in competitive markets. By the year 2015 we had over 900 corporate members and we focused at wholesale but it seemed pretty clear that when it was first formed – it wasn't clear that FERC was going to continue down the path of competitive markets and maybe FERC needed more support in doing so. So we supported competitive markets at FERC and championed retail competition.
EMP: So basically COMPETE was formed by utility-affiliated competitive wholesale generators. So Exelon, Constellation, these other big utilities with competitive wholesale generation arms. And so what we found out, as you're explaining, is that we made that message palatable on the wholesale market side by bringing in the retail market side.
WM: Exactly. The retail customers who joined COMPETE, they were quite vigorous in their support for competitive markets. But we were trying to be savvy in our marketing, as you know, in our advocacy when we go up on Capitol Hill or go to FERC for meetings. And we always put the customer voice out front.
EMP: Yeah, I think maybe the biggest accomplishment of COMPETE – of course, this was a time when Jon Wellinghoff was chairman. There was a lot of concern with him coming in as chairman as to his commitment to markets. And as he said on this podcast, in our first season, that he gives COMPETE the credit for making him a pro-markets guy.
WM: Well, we spent a lot of time talking with Jon, providing evidence to Jon. I remember the customer voice was very important to him. And as Chairman of FERC – when he first got there, as chairman, he was all about renewable energy and clean energy. He was perceived to be ahead of his time. But he was actually prescient. He was advocating for wind and solar before that was in the actual mainstream. I don't speak for Jon, but I believe he recognized that the innovators, the new technologies that electricity markets could attract, would be attracted to a market-based approach rather than an old-fashioned monopoly. They would not have the opportunities to come in and compete unless they had markets. And we wouldn't end up with the innovation that we needed moving forward without markets. I think that's what Jon realized over time and became a staunch advocate for competitive markets.
EMP: You mentioned his advocacy for renewables, but his big issue was demand response.
WM: Exactly.
EMP: I think he realized that the best way to get effective demand response was to have price signals for the customers to react to.
WM: Exactly. And on his watch, FERC issued Order 745, which declared that demand response in the wholesale markets was as valuable as generation at peak.
EMP: That was very controversial.
WM: Very controversial, because you can't run the country on demand response. Order 745 brilliantly made the case for it, so much so that when it went to the U.S. Supreme Court, Justice Kagan's opinion affirmed wholesale demand response even though the Federal Power Act doesn't say a word about demand response or giving FERC jurisdiction over it. The states had opposed it thinking that it was an actual regulation of retail sales is what FERC was doing and that that was unlawful. But her opinion explained that wholesale demand response was all about maintaining reliability and keeping prices just and reasonable. So it was affirmed in all respects. Jon was quite prescient in moving forward with – he understood that the industry today and over the next few decades is going to be defined by a lot of brand-new technologies – that storage, microgrids, demand response, rooftop solar, electric vehicles. Jon wrote a book that you're familiar with called the Cashback Car. (laughter) Well, actually, I think that there was a chapter in his book called the Cashback Car, but about how electric vehicles would actually feed electricity into the power grid.
EMP: You mentioned the Supreme Court twice now in terms of upholding 745, but also Orders 888 and 889. I wonder if today's court would have so readily approved those, those rulemakings which have realized billions of dollars in economic benefits.
WM: That is really a fascinating question that at both George Washington University Law and Georgetown Law we want our students to focus on. Because when we read these Supreme Court cases, particularly Justice Kagan's opinion in the demand response case, FERC v. EPSA, her reading of the Federal Power Act is that it gives FERC quite broad jurisdiction. Then if you look at New York v. FERC, which came out and I think the year 2002, the Supreme Court approved Order 888, Justice Thomas, who is one of the advocates now for reining in regulation, issued an opinion in New York v. FERC implying that FERC could have gone even farther. Here's the way I see it. The Federal Power Act is very clear in its wording. FERC has jurisdiction over all electricity, all transmission of electricity in interstate commerce. And it's all interstate commerce, except for Hawaii, Alaska and parts of Texas. So the law is very clear. The law on demand response, since the Federal Power Act does not mention demand response, was a little murkier. But Justice Kagan was persuaded by the arguments that FERC made that wholesale demand response was within FERC’s jurisdiction. So, to me, the question would be, how clear is the statutory authority that FERC has? I mean, the same debate is going on on the pipeline side. What is FERC’s authority to consider greenhouse gas emissions in pipeline certifications? Is the Natural Gas Act clear in that respect? So I often wonder and we, we debated it, we had a student debate in our law school class about what the Supreme Court would do with respect to various FERC orders that seemed to go fairly far. FERC also issued an order on regional planning for transmission, Order 1000, that went up to the D.C. Circuit. It was controversial. The utilities said where the Federal Power Act doesn't say FERC has authority over regional planning for transmission? But the court said, well, it's a practice that affects rates, just like demand response is a practice that affects wholesale rates. So it's hard to say whether FERC would have its wings clipped by the Major Questions Doctrine in this Supreme Court.
EMP: And I guess Chevron wasn't involved in any of these decisions. It was basically just the Federal Power Act language.
WM: Generally, the Federal Power Act – whether it was broad enough by its wording to grant FERC the jurisdiction to go farther than it had ever gone before. While we're talking about this, there's the D.C. Circuit opinion. FERC issued a regulation on electricity storage. And FERC said, we, FERC, have jurisdiction over electricity storage even if it's interconnected to the distribution grid – distribution systems – and the states intervened and said, well, wait a minute. We have jurisdiction over the distribution system. The D.C. Circuit said, well, if it's selling into the wholesale market, FERC does have jurisdiction. It's a practice affecting rates. So we'll have to wait and see whether this Major Questions Doctrine, as it plays out over the next few years, whether it limits FERC’s authority in certain ways.
EMP: Well, it’ll be interesting to see what they do with Chevron this term. That seems to be on the chopping block is everybody's view of that.
WM: Yeah, absolutely. There's also a Texas case about whether the incumbent utilities have the right of first refusal to build transmission. And Texas has said, yes, they do have the right of first refusal. I believe the Justice Department has filed – and that's been appealed to the Supreme Court – the Justice Department filed a brief saying it was a violation of the Commerce Clause to limit competition in transmission building that way. So we'll see how that plays out too. So there are important cases this term that affect energy markets.
EMP: So ROFR is going to be this term?
WM: I believe it's going to be this term.
EMP: Critics of competitive markets always assert that restructuring was supposed to lower electricity prices. Did competition lower prices for consumers?
WM: In my view it has. There is a battle of the statistics going on. I think in the RTO markets, it's pretty clear, if you look at the data that is published by PJM and Southwest Power Pool and MISO, competitive markets have lowered wholesale prices there. I don't think there's any question about it. When we were debating competitive markets, we were all about lowering prices. We were not so much thinking about innovative products and services. But that is a big focus now. And I think it's quite clear that competitive markets will pave the way for more innovative products and services in electricity. I wonder, you know, FERC has issued this Order 2222 on distributed energy resources, which includes microgrids, rooftop solar, electric vehicles, demand response, fuel cells . . .
EMP: Virtual power plants.
WM: Virtual power plants, yes. And FERC has said, welcome to the wholesale market. And there are those who believe and I'm one of them that, over the next 10 to 15 years, distributed resources may end up being 10% to 15% of our resources in the wholesale markets. They tend to be cleaner resources too. And that's important.
EMP: All right. So we'll wrap things up here. I’ll let you get on your way. But I would note that today. I shoveled the driveway for the first time in three years. Do you think climate change is happening?
WM: Absolutely. It's happening.
EMP: This podcast attempts to identify the best policies to promote the clean-energy transition at least cost to consumers – as a response to climate change. Do you have any thoughts on that? What are the best policies we should adopt to promote the clean energy transition at least cost to consumers?
WM: Well, I think we need a lot more transmission. And so you might say well, if there's a whole lot more transmission that's going to be expensive. It is. But the studies I have read – the Princeton study and others – argues that over time, investments and transmission will actually lower rates for consumers because it will allow lots of zero-fuel-cost electricity production into the markets – wind and solar, storage and others. I think we need more transmission to access remote renewables. I believe that we need to develop modular nuclear power plants. You know, half of our carbon-free electricity now is nuclear. But I don't think there's going to be more $15 billion nuclear facilities built. I think the way forward is these modular nuclear plants that are in development now. Because I think in order to lower emissions nationwide, we're going to need a lot more renewables, we're going to need nuclear, we're going to need natural gas power plants to balance the system – dispatchable natural gas, too. So I don't know whether we'll ever get to a zero-emissions environment, but I do believe that over the next 20 years we can decarbonize the electricity grid significantly. And my view is we need to do that.
EMP: Well, those are outcomes. But what are the policies to effectuate those outcomes? What should we do? Should we have government rolling up its sleeves and getting involved in all of this? How do we make that happen?
WM: I think the combination of the Inflation Reduction Act and the infrastructure law is going to carry us a long way. A lot of the financial risk associated with investing in renewable energy technologies has been flattened out by these new laws. I think we're going to have a lot more investment in wind and solar going forward – as long as we have the transmission to access it. If I were Congress, I would give FERC jurisdiction to certificate transmission as it has the authority to certificate natural gas pipelines. I think that would carry us a long way. If I were at the Commission I would take out the old Standard Market Design, dust it off and take a look at its provisions. Because to me it makes no sense to have two-thirds of the country’s wholesale markets organized a certain way; the other third of the country they're not organized in the same way. That makes absolutely no sense to me. So I would take that out and dust it off and see if it has legs. I think Congress can do more to promote clean energy. I don't have any particular proposals in mind, but I think they can.
EMP: I'm so grateful that you finally mentioned markets as something that would be helpful. In terms of developing transmission, though, should utilities have a right of first refusal or should we have more competition in developing the transmission?
WM: My personal view is we ought to have more competition. I agree with the Justice Department brief – amicus brief – that's been filed in the Supreme Court. We ought to have lots of developers of transmission resources. We ought to open it up to any developers. And there are lots of developers out there that want to do this now that want to develop independent transmission companies, that want to develop transmission. To me, there's no reason why they shouldn't be able to do that. Because I think we're going to need a lot more of it. Yes, I think competitive markets both at wholesale and retail would assist fairly dramatically. Are the states going to open up their retail markets? I don't know. That's been a hard slog. I don't see that happening. Do I think that would assist in the effort to decarbonize the grid? I do.
EMP: You just have to look at Texas to see what competition at both wholesale and retail is doing in terms of the innovation that's necessary.
WM: Exactly. And of course, you could build things in Texas. And Texas has lots of transmission heading out to the Panhandle and out West and it's the largest producer of wind energy in the country as a state. If we're going to have a market dominated by renewable energy 20 years from now, we're going to have to build a lot more transmission to access that. I would give that authority to FERC because I think approving regional transmission projects on a state-by-state basis is going to be a real challenge. I think as we move forward with a decarbonization of the grid – and I think it's going to happen. I don't know, I don't have a crystal ball. I don't know what the pace will be. But I think it will happen. I think corporate America understands it. They get it. There is an association called the Clean Energy Buyers Association that has several hundred large corporate members that are committed to buying 100% clean energy. And they are knocking on the doors of a lot of state commissions advocating for greater access to retail markets. And they're doing the same thing at FERC on the wholesale side. I think the efforts to move to cleaner electricity are going to happen. I just don't know what the pace of it's going to be.
EMP: Alright, well, we'll have to leave it there. Bill Massey, attorney with Covington and Burling, former FERC commissioner and a law school professor, thanks so much for your time.
WM: Thank you for inviting me, Bryan. It was my pleasure.
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