Archive for the ‘Market-Based Rates’ Category

National Flood Insurance and Jersey Shore Demographics

Photo by U.S. Fish & Wildlife Service, some rights reserved.

Back in 1968, Congress stepped into the flood insurance market to provide coverage where private insurers would not. Today, taxpayers back $527 billion of assets in coastal flood plains insured by the National Flood Insurance Program. Run by the Federal Emergency Agency, the program paid out $16 billion of claims for Katrina; Sandy-related claims could reach $12 billion. The program is already $18 billion in debt, as sum the government acknowledges will probably never be covered by higher premiums.

Besides the program’s cost, what is the issue? In New York alone, 200,000 people live less than four feet above the high tide level. Nationwide, the number of people living in flood-prone areas has been increasing, so each natural disaster damages more property and displaces more people than the last. An op-ed in Thursday’s New York Times opines that the time for the federal government to subsidize the insuring of homes and businesses in high-risk flood zones is long past. If property owners cannot find flood insurance on the private market, which in many cases they cannot, they should bear that risk instead of transferring it to the federal government.

One of the implications of changing federal flood insurance would be increased cost of living in coastal areas. Another Times article covers how Sandy and the coming National Flood Insurance Program rate hikes will make “seaside living, once and for all, a luxury only the wealthy can afford.” Building requirements for homes in newly mapped flood hazard zones could effect a demographic shift in the northeast, because much of the development encouraged by subsidized insurance would only be affordable to wealthy buyers.

The wisdom of subsidizing status quo demographics on the Jersey Shore to the tune of $18 billion aside, the point of reducing or eliminating federal flood insurance would be to end the cycle of natural disaster and expensive rebuilding without internalizing the risks of development in flood-prone coastal areas, which in light of recent events are certainly expanding. This is a step toward affordable environmental risk-management most people can back in good conscience.

FERC (presumably) Smug after Ninth Circuit Upholds Market-Based Rate Policy

Photo by Waldo Jaquith. Some rights reserved.

Late last week, folks at FERC probably popped some bottles of champagne when the U.S. Court of Appeals for the Ninth Circuit issued an opinion denying a petition challenging FERC’s Order No. 697, “Market-Based Rates For Wholesale Sales Of Electric Energy, Capacity And Ancillary Services By Public Utilities.”

Order No. 697, which became effective September 18, 2007, codified FERC’s standards for market-based rates by “providing a rigorous up-front analysis of whether market-based rates should be granted, including protective conditions and ongoing filing requirements in all market-based rate authorizations, and reinforcing its ongoing oversight of market-based rates.” The components of the rule were designed, according to FERC, “to ensure that market-based rates charged by public utilities are just and reasonable.”

However, not everyone thought Order No. 697 was the bee’s knees. Less than a year after the original rules were published, FERC filed Order No. 697-A, which responded to “a number of requests for rehearing and clarification of Order No. 697.” Mostly, FERC denied rehearing of the issues, though it did provide some clarifications.

Still unsatisfied, several petitioners filed a petition for review in federal appellate courts. The petitioners contended that “(1) that FERC, by relying solely on the market to regulate rates, has violated its statutory obligation to ensure that rates are just and reasonable; and (2) that the market-based rates policy, which allows sellers to file a market-based rate and does not require sellers to give sixty days advance notice of changes in market prices, violates the express terms of the FPA.”

The Court denied the petition, but not without a tip of the hat to the petitioners themselves in this rather touching conclusion:

The parties to this dispute raise policy issues of exceptional importance. We recognize that the questions here considered impact real-world energy markets, industries, and consumers. Plainly the well-being of consumers, and not regulatory inertia, should be the touchstone. But we emphasize that our role is limited by statute and the holdings of the Supreme Court. Our review is that of a federal appellate court, not a policy analyst. The question before us here is not whether we think market-based rates are a good idea; instead, it is whether the market-based rate policy embodied in Order 697 exceeds FERC’s authority as conferred by the FPA. Taking into account Chevron deference, the law of our circuit, other relevant precedent, and the direction of the Supreme Court as to how we should approach such administrative law issues concerning federal agencies, we conclude that Order 697, as presented to us in this petition, does not per se violate the FPA.

As law firm Van Ness Feldman put it (in a recent alert), “The case, Montana Consumer Counsel v. FERC, No. 08-71827, is a clear vindication of FERC’s market-based rate policy, from a court that has viewed market-based rates with suspicion.”

Akin Gump and King & Spalding have also recently published memos on the opinion. Future legal analysis of the decision can be found on knowlegemosaic’s Law Firm Memos search page.

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