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Zombie Energy Laws

Posted by on Tuesday, May 26, 2020 in Articles, Volume 73, Volume 73, Number 4.

Joshua C. Macey | 73 Vand. L. Rev. 1077 (2020) |

This Article traces the development of three legal rules—cost recovery for vertically integrated utilities, the requirement that regulators assess the financial viability of energy projects before issuing a certificate of public convenience and necessity, and the filed rate doctrine—that emerged out of the view that electric power companies should be shielded from market forces. It argues that important elements of these legal rules have become “zombie energy laws.” Zombie energy laws are statutes, regulations, and judicial precedents that continue to apply after their underlying economic and legal bases dissipate. Zombie energy laws were originally designed to protect consumers by, among other things, preventing utilities from exploiting their market power. Today, however, they protect incumbent fossil fuel generators and have provided the legal basis for invalidating billions of dollars of wind and solar projects. Thus, energy laws that emerged to mitigate market power abuses under the old system of utility rate regulation now entrench incumbent market power and are impeding the transition to a cleaner energy system. In this way, zombie energy laws are protecting incumbent energy companies from traditional tort, contract, and antitrust laws that prevent firms operating in ordinary industries from acting anticompetitively.

This Article concludes by arguing that the Federal Power Act, which instructs the Federal Energy Regulatory Commission to maintain “just and reasonable” wholesale rates, can plausibly be read to mitigate—and, in some cases, eliminate—the market distortions caused by zombie energy laws. The Act’s meaning should be construed to fit the market structure to which it is being applied.

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Joshua C. Macey