Federal Energy Regulatory Commission (FERC)

The Federal Energy Regulatory Commission (FERC) is an independent agency of the United States government that acts as the primary economic regulator of the U.S. energy industry. Think of it as the traffic cop for America's energy highways. Its main job is to regulate the interstate transmission of electricity, natural gas, and oil. FERC also reviews proposals to build and operate liquefied natural gas (LNG) terminals and interstate natural gas pipelines, and it licenses non-federal hydropower projects. The commission's stated mission is to ensure that energy is reliable, safe, and provided at a “just and reasonable” cost to consumers. It doesn't regulate retail electricity or gas sales to your home—that's the job of state-level public utility commissions. Instead, FERC focuses on the massive, wholesale part of the market, ensuring the pipes and wires that cross state lines are operated fairly and efficiently.

While its mandate is broad, FERC's activities can be boiled down to a few key areas that are incredibly important for investors in the energy sector.

This is FERC's bread and butter. For infrastructure that operates as a natural monopoly, like a major gas pipeline, FERC sets the maximum rates the owner can charge its customers. This process, known as a “rate case,” is designed to prevent price gouging. Typically, the commission allows the company to recover its operating costs plus earn a “reasonable” rate of return on its invested capital. This creates a highly predictable,