Why It Matters
How far Congress can go to influence retail electricity rates, which state public utility commissions (PUCs) have held primary authority over since 1935, is the focus of a new Congressional Research Service report. The Federal Power Act (FPA) limits federal jurisdiction to interstate transmission and wholesale sales, leaving state PUCs with sole authority over intrastate transactions, including rates paid by commercial and residential customers.
The report frames each legislative option Congress might pursue as involving tradeoffs in "electricity reliability and affordability," and notes that any debate could call into question the traditionally limited federal role in retail rate policy.
The Big Picture
The FPA's jurisdictional divide dates to 1935, when Congress gave the Federal Power Commission authority over interstate wholesale sales and transmission while leaving retail regulation to the states. The report notes that a subsequent expansion of the Supreme Court's Commerce Clause interpretation "may have removed some of the constitutional barriers to congressional regulation of retail electricity services and rates," but did not alter the FPA's scope.
Congress has used Section 111(d) of the Public Utility Regulatory Policies Act of 1978 (PURPA) to influence retail electricity rates, which the report calls "one such mechanism" and "perhaps the federal government's most substantial effort" to regulate retail sales, establishing 21 standards from 1978 to 2021 that state regulators must consider, with amendments in 1992, 2005, 2007 and 2021. State PUCs may decline to adopt any of those standards, meaning congressionally preferred policies might not take effect uniformly.
On utility return on equity (ROE), the report says it is unclear whether reducing ROE in the near term would produce long-term consumer savings, because investors might demand higher interest rates on debt in response.
Two bills in the 119th Congress address ROE directly. The Lowering Utility Bills Act, H.R. 8568, sponsored by Rep. Greg Casar (D-TX-35), would direct the Federal Energy Regulatory Commission (FERC) to establish a range of reasonableness for ROE based on financial market data; it was referred to the House Committee on Energy and Commerce on April 29. The Energy Bills Relief Act, H.R. 7977, sponsored by Rep. Sean Casten (D-IL-6), would direct FERC to collect and publish utility data on ROE and capital structure.
The Bottom Line
The report outlines five options for Congress: assert federal control over retail rates, use PURPA Section 111(d), legislate only for FERC-jurisdictional rates, direct federal agencies to collect information, or offer incentives for voluntary ROE reductions. The report notes that legislating only for FERC-jurisdictional rates "might have limited impact because FERC-jurisdictional costs are a small share of retail rates," and that voluntary incentives "may have limited effectiveness for utilities because they do not generally receive much federal funding."
Both H.R. 8568 and H.R. 7977 remain in committee with no further action recorded.
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