Maintaining the proper balance between federal and state authority in the regulation of electric and other energy utilities has long been a serious challenge to both judicial and congressional wisdom. Rather, the underlying facts that once maintained a clear separation of jurisdiction between federal and state regulators in the energy sector have simply changed.
Agency decision-making functions as a more democratic and dynamic way to coordinate federal and state regulation of energy markets. Such an approach could encourage innovation in state policy while giving federal agency regulators an expanded role in establishing guiding principles, including the authority to pre-empt state regulations that impede federal market policy.
Closing Regulatory Gaps
The second part of the bill [section 201(b)] provides for the regulation by the Federal Government of wholesale transactions in electricity. These are transactions which the Supreme Court of the United States has kept out of the reach of the States under the Constitution.
Substantive and Remedial Regulatory Tools
In the 1920s, the Supreme Court imposed a similar constitutional limitation on state regulation of natural gas sales,49 leading to the passage of the NGA in Congress in 1938. As Joel Eisen has shown, the substantive and remedial provisions of these energy statutes were based on the language of the Act interstate commerce, which also contained “practices.
Impacts on State Regulation
D UAL S OVEREIGNTY ’ S R EIGN
Courts have repeatedly been asked to hear disputes over the scope of federal oversight of energy markets. Until recent years, judicial decisions dealing with federalism have not dwelt on the nature of federal jurisdiction under energy statutes.
The Tradition of “Bright Line” Jurisdiction
As the Court stated in Rice, an intent to preempt may be proven in many ways: the scheme of federal regulation may be "so pervasive as to produce reasonable inferences that Congress left no room for the states to supplement it," the federal interest may be "so dominant that the federal system would be presumed to preclude enforcement of state laws on the same subject," or. Again, by describing federal authority as "plenary," the Court meant to describe federal authority under the statute as comprehensive, if not exclusive.
Field Preemption of Traditional Rate Regulation
As the Court's analysis of Pacific Gas & Electric shows, the modern doctrine of field preemption has diverged from the approach endorsed by Judge Brandeis in Napier. A year later, the Court again relied on the filed tariff doctrine to pre-empt a state proceeding in Mississippi Power & Light Co.
Dual Sovereignty’s Modern Legacy
T HE R ECENT R ISE OF C ONCURRENT J URISDICTION
This section explores how recent Supreme Court decisions reject dual sovereignty as an organizing principle for energy federalism. Although the court did not cite the FPA as a basis for distinguishing between incentives that are express and those that result indirectly from generation mandates, it appears to refer to a portion of the FPA that indicates that the states, not the federal government, regulate electricity generation. Emphasizing the importance of preemption in the field for these cases, the Solicitor General's dissenting certiorari cited Kurns v.
However, in upholding the Fourth Circuit, the Supreme Court did not rely on this comprehensive form of field preemption analysis, which would preclude any state regulation of the issue altogether.
Dual Sovereignty’s Crumbling Foundation
888 exceeds FERC's authority because it extends too far into the realm of exclusive state jurisdiction.188 While FERC's authority to separate wholesale transmission and sales and require open access transmission is not unlimited, the court declined to apply the "presumption against preemption." .”189 The Court reasoned that the key question under the statute is “to examine the nature and scope of the authority granted to the agency by Congress.”190. 888 cites the text of section 201(a), which provides that federal regulation "shall extend only to those matters not subject to state regulation."191 However, as the Court's precedent discusses, section 201(a) is merely a "statement of policy," which "cannot invalidate a clear and specific grant of jurisdiction, even if the particular grant appears inconsistent with the broadly expressed intent."192 This "preamble." While "there is no language in the statute limiting FERC's authority to transfer to wholesale market," the court observed that "the statute limits FERC's authority to sell to wholesale."197 Nevertheless, the court.
The FPA “expanded federal coverage into certain areas previously regulated by the state,”198 but the Court also noted “Attleboro does not define the outer limits of the statute's coverage.”199 Referring to “changes in the electric power industry that have occurred since then. The FPA was enacted in 1935," the Court concluded that "there is no evidence that if Congress had anticipated the developments to which FERC has responded, Congress would have challenged" FERC Order No.
Recognition of Concurrent Jurisdiction
Justice Breyer’s ONEOK Opinion
The Supreme Court agreed with the Ninth Circuit that the state antitrust claims are not preempted and should be allowed to proceed.208 Justice Breyer's majority opinion emphasized that the NGA “was drafted with careful consideration for the continued exercise of state power, not to handicap or dilute it in any way.”209 Under Section 1(b) of the NGA, wholesale transactions fall entirely within the jurisdiction of federal regulators.210 For nearly seventy years, judicial precedents have confirmed the stark clarity of this federal-state division of authority over wholesale and retail sales, sometimes even calling it a jurisdictional bright line.211 Yet the majority also distinguished a number of prior cases finding market preemption under the NGA, repeatedly emphasizing that Congress did not intend to dilute state regulatory authority, and that such a finding must only be made. Indeed, the majority in ONEOK questioned whether the NGA even contains a strict dividing line: "Petitioners and dissents argue that there is, or should be, a clear division between areas of state and federal authority in natural gas regulation. In some ways, the majority's test for preemption—which focuses on the federal regulatory goal at which state law aims—inspires from and is entirely consistent with.
By questioning whether the doctrine of field preemption is necessary or desirable in approaching preemption under the NGA, the majority's decision endorses concurrent state regulation of anticompetitive conduct in interstate gas markets.
Justice Kagan’s EPSA Opinion
It did not fixate on a static sphere of sovereignty reserved for the states; instead, it first considered whether the FPA authorizes FERC to regulate demand response in interstate markets even though it is not a wholesale sale of energy.236 Although the majority recognized that FERC's reliance on remediation. FERC regulates what takes place in the wholesale market as part of carrying out its responsibility to improve how that market operates, so regardless of the impact on retail rates [section 201(b) of the FPA] it imposes no impediment.”243 Having decided that FERC has remedial authority under the statute to issue the demand response rules, the majority seems likely to favor FERC exercising its jurisdiction, including concurrently. FERC's regulation of demand response occurs against a backdrop of considerable variation in state policy approaches regarding retail demand response and retail customer participation in the wholesale market.249 FERC's demand response rule, the Court noted, "permits any state regulator to prohibit its consumers from bidding for demand response in the wholesale market." 250 While FERC appears to have the statutory authority to overturn this type of state policy.
The Circuit's new contention that FERC's response-to-request rule is ultra vires because it serves to “lure” retail customers into the wholesale market at a minimum EPSA adopts the basic principle (which FERC has applied elsewhere) that it is the customer's choice to participate in wholesale energy markets that trigger FERC's jurisdiction.254 Since demand response is a market-driven innovation, not something created by FERC, its effects on the wholesale market and FERC's reasons for regulating it will ultimately depend on customer practices and choices.255.
Unsnarling Concurrent Jurisdiction’s Roots
N EW C HALLENGES FOR E NERGY F EDERALISM ( S )
It is easy to get lost in the weeds of energy federalism, especially to the extent that courts have traditionally fixated on a formalistic bright-line approach or sought to define exclusive jurisdiction for various activities. which affirms Congress's power to implicitly indicate an "intention to occupy a given field to the exclusion of state law" in the absence of express statutory language). However, if courts do not approach these issues carefully, they risk turning Hughes's into a sweeping application of field preemption, which would be inconsistent with concurrent jurisdiction in energy federalism.
Moreover, while concurrent jurisdiction still contains some significant limitations on federal power under the energy statutes, these are based primarily on pragmatic legislation and agency policy findings, rather than on some preconceived notion of state sovereignty or judicial precedents that define the scope of FERC's jurisdiction.
Avoiding a Regulatory “No Man’s Land”
After finding that FERC's demand response rules are clearly permitted and not prohibited by statute, the court addressed how DC is affected. In preventing the creation of “any” regulatory “no man's land,” the Court further emphasized, “[t]he Act confers federal and state powers ․ Even the Court's decision in Hughes, which upheld federal preemption of Maryland's incentives for new electric generating facilities in light of FERC's approval of the PJM capacity market,310 shows how an overly broad preemption analysis can backfire.
As the Court notes, its decision is based on the plain language of the statute, not on any deference to the agency.
Federal Regulatory Floors for Energy Markets
One such approach is what Hari Osofsky and Hannah Wiseman call “dynamic federalism,”340 most clearly exemplified by FERC's initiative to promote voluntary RTOs as private institutions to help manage and coordinate interstate energy markets.341 Such multistate institutional arrangements have undoubtedly had role. in creating dynamic new types of energy markets, even as state regulators were required to consent and approve new investments in transmission and generation by regulated utilities participating in RTOs.342. See Hammond & Spence, supra note 10, at 199–201 (noting FERC's recent efforts to “encourage a greener grid” and that “some of [those] efforts have also encountered potential limitations on its authority”). The court's decision also sheds light on the importance of FERC's role in establishing such arrangements.
The court reasoned that FERC's demand response rule is an "opt-out" option for states (which can choose to eliminate customer bids in wholesale demand response markets).
Clearing the Jurisprudential Thicket
- Ending Wholesale-Market Field Preemption
- Factual and Policy Rationales for Federal Jurisdiction
- Encouraging Agency (Rather Than Judicial)
- C ONCLUSION
Field preemption is simply incompatible with the recognition of concurrent jurisdiction over aspects of wholesale energy markets under these statutes. The recent rise of concurrent jurisdiction also raises the question of whether Schneidewind, another darling of the dual sovereignty approach, should still be understood as a case of field preemption. Field preemption would preclude any state regulation in the relevant field as a matter of implied preemption.
At bottom, in the regulation of modern energy markets, field preemption is little more than a fiction.
