In FERC Ruling, Supreme Court Announces Dangerous New “No Man’s Land” Principle

On January 26, the Supreme Court ruled in favor of the federal government in a high profile case, FERC v. Electric Power Supply Association. Media reports have focused on how the Court’s ruling boosts federal efforts to advance a policy known as “demand-side management,” whereby grid operators “manage” ratepayer demand by paying retail consumers to not use electricity during periods of peak demand. In fact, demand-side management is a stupid idea because the alternative—lifting electric socialism and allowing the price mechanism to regulate demand—is so much more efficient.

However, for this post, the policy implications of the Court’s decision are merely an unpleasant aside. Instead, the point of this blog is to explain how the Court’s troubling reasoning invites the federal government to expand its regulatory authority.

The underlying issue in FERC v. Electric Power Supply Association was the federalism balance of power established by the Federal Power Act (FPA). The Court’s ruling tilted this balance in favor of the feds, and, in so doing, put forth a novel “no man’s land” principle as a justification. Below, I’ve sketched out the Court’s reasoning with a modified syllogism:

• The majority concluded that demand-side response policies align with the FPA’s guiding principle of achieving just and reasonable electric markets.
• The FPA preempts states from regulating demand-side response on wholesale electricity markets.*
• If demand-side management comports with the FPA, and states cannot implement such policies, then the federal government must have the authority to implement them. Otherwise, there’d be a regulatory “no man’s land.”

In short, the Court claimed that because states can’t do it, the federal government can.

This new and unfortunate “no man’s land” tenet of administrative law invites the federal government to seize new powers in regulatory programs that are jointly administered by the federal and state governments. Such programs, which are known as “cooperative federalism” regulatory regimes, include the Clean Air Act and Medicaid. Pursuant to the new “no man’s land” principle, it would seem the federal government could achieve all sorts of mischief relative to the states within these cooperative federalism arrangements. All it would have to do is invade jurisdiction off limits to states by virtue of preemption and as long as the regulatory goal meshed with the enabling statute’s purpose, then the federal government’s power grab would be rendered permissible under the “no man’s land” rationale.

To his credit, Justice Scalia (an administrative law scholar) jumped on the majority’s “no man’s land” principle, stating in a dissent that he “cannot imagine a more irrational interpretive principle.” He further urged his colleagues to make this justification “disappear in the Court’s memory hole.”

One final note: it is terribly disappointing to see that Chief Justice Roberts joined the majority’s opinion. I and others have high hopes that Roberts is intent on rolling back some of the power gains made by the modern administrative State. (To this end, see his excellent dissenting opinion in 2013’s City of Arlington v. FCC.)

*On this point, the majority is mistaken. States can and do regulate demand-side management within multistate electricity grids. This was the point of an amicus brief submitted by the Southern Company. The court’s conclusion that states are preempted is based primarily on semantics. Whether demand-side management is regulated at the wholesale level (by FERC) or at the retail sale level (by states), the regulatory act remains the same: providing electric consumers incentives to conserve electricity. To claim, as does the Court, that states are preempted from regulating demand-side response at the wholesale level is to ignore the fact that states can and do regulate demand-side response at the retail level, in effectively the same fashion that the federal government does.