FERC Rejection of Coal Subsidies Proposal Demonstrates Importance of Independent Agencies

by James Goodwin

On January 8, the Federal Energy Regulatory Commission (FERC) struck a resounding blow against the Trump administration's ill-advised agenda to put its thumb on the scale of the energy market by propping up the coal industry, unanimously rejecting a controversial proposal by Department of Energy (DOE) Secretary Rick Perry. Perry's plan would have resulted in working families and small businesses subsidizing the coal industry to the tune of hundreds of millions or even billions of dollars. Dozens of energy policy experts have explained the substantive issues of this action, but I want to focus on an important procedural matter – namely, how this episode demonstrates the importance of guarding the actual independence of independent regulatory agencies like FERC. 

FERC is among a class of federal administrative agencies that Congress specially designed to be reasonably "independent" from political interference by the president, hence the moniker "independent regulatory agencies." Other such agencies include the Securities and Exchange Commission, the Nuclear Regulatory Commission, and the Consumer Financial Protection Bureau. 

In creating these agencies, Congress recognized that their missions were too important and involved policy matters too technically complex to leave them unduly vulnerable to the vagaries of wanton political scheming. Instead, Congress sought to ensure that as much as possible, sound, expertise-driven policymaking carried the day. 

FERC illustrates the importance of this design. Its mission involves overseeing the production and distribution of energy resources in a way that balances such competing goals as cost, reliability, and environmental impact. Genuine expertise is important because achieving this goal requires the resolution of a lot of complex technical matters; independence is important because – as Perry's proposal illustrates – FERC's actions often place billions of dollars at stake. 

How did Congress seek to promote this policy independence? In the agencies' authorizing statutes, Congress explicitly limited the president's power to remove the heads of these agencies. Unlike traditional executive agencies, the heads of FERC and other independent agencies cannot be fired without a good reason, and they generally hold terms that are staggered to run across presidential administrations. Critically, this structure means a president can't usually remove an agency head for pursuing a policy with which the president disagrees. 

For years, though, conservative opponents of regulatory safeguards have pursued legislation that would effectively obliterate this careful design. They have pushed a variety of bills that would subject these agencies' rules to review by the White House Office of Information and Regulatory Affairs (OIRA). As I've detailed in this space, OIRA review provides the president with a powerful avenue for interfering in agency policy development. As it is currently practiced, an agency cannot proceed with a proposed or final rule until OIRA has completed its review by granting final approval. To secure that final approval, agencies must often accede to OIRA's demands for policy changes to their rulemakings, which can often be significant. Nominally, OIRA is supposed to focus its review on costs and benefits, but in actual practice, the office's interventions often reflect the administration's political calculations, rather than valid attempts to maximize benefits and minimize costs. That OIRA review takes place behind closed doors, far away from the public's view, only amplifies the audacity with which administrations have pursued this interference. 

Almost without exception, OIRA-directed changes weaken the protections a rule provides – thereby reducing costs for affected industries and shifting them to the rest of us – which is why proposals to subject independent regulatory agencies to OIRA review enjoy such widespread support among anti-safeguard conservatives. They've floated proposals such as the Independent Agency Regulatory Analysis Act and the Regulatory Accountability Act in their attempts to stop independent agencies from protecting the public interest without undue political interference. 

Efforts at legislatively extending OIRA review to independent agencies have continually faltered, and they appear unlikely to succeed in the near future. (It's hard to see any bill establishing such review mustering the support of enough Democrats in the Senate that it could overcome that chamber's filibuster.) Consequently, many conservative commentators are advocating that President Trump ignore the thorny constitutional questions involved in subjecting independent agencies to regulatory review and impose this process by executive fiat. 

In Trump's OIRA administrator, Neomi Rao, they may find a receptive audience for this message. As detailed in a 2017 CPR report, Rao has long held independent agencies in particular contempt and has advocated for subjecting them to OIRA review

FERC's rejection of DOE's coal subsidy proposal demonstrates the folly of these legislative and administrative proposals. Imagine if OIRA reviews of independent agencies were the current law of the land. In its rejection order, FERC explained that it intended to initiate a "new proceeding" to determine wither to take additional action "to address grid resilience." Such actions, in turn, would likely include the issuance of new regulations – regulations that would be subject to OIRA review, which would give the White House the opportunity to put its thumb back on the scales. 

It is doubtful that any of FERC's alternative regulations on grid resilience would be received favorably at the White House. The best-case scenario is that OIRA would attempt to force FERC to rework any rules to largely resemble the DOE's proposal that FERC had already rejected. The worst-case scenario is that OIRA would simply block FERC from proceeding with any rules at all. 

It is also conceivable that FERC, knowing that it would have to overcome OIRA review for an alternative rule addressing grid resilience, might not have rejected Perry's coal subsidy proposal in the first place. Indeed, there would have been little point, since one of FERC's potential responses – pursuing an alternative regulation on grid resilience – would effectively be foreclosed by the looming potential of a hostile OIRA review process. This scenario illustrates the powerful "self-censorship" effect OIRA review can have on agencies. 

Much will be made in the days to come of FERC's bold decision, and rightly so. It is a huge win for Americans' pocketbooks, next-generation energy sources, and the environment. But it is also easy to lose sight of how tenuous that victory is. This lesson is well worth remembering if conservatives continue with their campaign to subject these agencies to the problematic OIRA review process.

© 2016 The Center for Progressive Reform