Ways of Price Making and the Challenge of Market Governance in U.S. Energy Law

By William Boyd. Full Text. 

Price formation has emerged as one of the most complex and contested areas of U.S. energy law. In the natural gas markets, questions about the integrity of price indices, which serve as key benchmarks for billions of dollars in transactions and investments across the industry, have been the subject of recurring investigations, enforcement actions, and regulatory proceedings at FERC since the California energy crisis of 2000–01. In electricity, manipulation and gaming of the market-clearing algorithms that structure the organized power markets have also preoccupied FERC since the California crisis, and ongoing controversies regarding how to value various generation attributes and how to handle government subsidies within these pricing structures have become particularly acute over the last several years. Not surprisingly, issues of pricing have also given rise to extensive litigation, posing hard questions about markets, jurisdiction, and the structure of federalism that animates much of U.S. energy law. Indeed, each of the three major Supreme Court cases on energy since 2015 have focused on jurisdictional questions stemming from the ways of price making in natural gas and electricity markets.

This Article argues that these ongoing challenges of market governance in natural gas and electricity need to be understood as struggles over the core technologies of price making. By unpacking these ways of price making—a task that takes us deep into the technical details of these markets—this Article develops a novel perspective on U.S. energy law, showing how larger questions of law and political economy are implicated in the highly specialized and seemingly neutral exercises aimed at constructing and maintaining the complex price-making machines at the heart of these markets. Such an approach leads to a different set of considerations for regulatory reform—one that rejects the tired dualism of regulation versus markets that has dominated energy law since the 1970s and embraces a view of price making as a delicate and contested exercise aimed at harnessing the power of competition and directing it toward public ends. It also points to a broader set of concerns that are increasingly relevant in a world marked by widespread and growing enthusiasm for designer markets and the adoption of new, often algorithmic, approaches to pricing.