12 The Federal?State Relationship
| Author | Scott Hempling |
| Pages | 357-402 |
12.A. Limits on federal action
12.A.1. Commerce Clause
12.A.2. Tenth Amendment
12.A.3. Agency statutory authority
12.B. Limits on state action
12.B.1. Dormant Commerce Clause
12.B.2. Supremacy Clause
12.C. Regulating within the limits: Six models of federal–state interaction
12.C.1. Bright line divisions
12.C.2. Federal enlists state
12.C.3. State enlists federal
12.C.4. Joint boards
12.C.5. Regional compacts
12.C.6. Overlapping jurisdiction
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The Federal–State Relationship
CHAPTER TWELVE
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The concept [of federalism] does not mean blind deference to ‘States’ Rights’ any more
than it means centralization of control over every important issue in our National Gov-
ernment and its courts. The Framers rejected both these courses. What the concept does
represent is a system in which there is sensitivity to the legitimate interests of both State
and National Governments, and in which the National Government, anxious though it
may be to vindicate and protect federal rights and federal interests, always endeavors to
do so in ways that will not unduly interfere with the legitimate activities of the States.1
Our regulated industries live with two historical legacies: the Framers’ 1789 decision to
have both federal and state governments, and Congress’s 1930s decisions to allocate regu-
latory powers between those two levels. As a result, most utilities today face both federal
and state regulation. This bi-jurisdictional context produces three distinct perspectives:
1.
Federal regulators want state regulators to promote, or at least not conict with,
federal policies.
2.
State regulators want federal regulators to support, or least not preclude, state
policies.
3.
Regulated utilities want to avoid getting caught in a federal–state conict, where
complying with a state requirement violates a federal requirement, or complying
with a federal requirement violates a state requirement.
These wishes are not always granted, for at least four reasons. First, Congress and state
legislatures enact statutes at different times for different reasons. Unlike the House and
Senate in Congress, they are not legislative partners, enacting laws jointly. There are no
conference committees to work out federal–state differences before enactment. Second,
federal and state statutes drafted in the 1920s and 1930s allocated state and federal pow-
ers based on then-clear distinctions between national policies and local services. Those
distinctions have blurred: due to technology, physical interconnectedness and efforts to
encourage competition over multi-state territories, in-state actions have multi-state effects
and national decisions have in-state effects.2 Third, the political process does not update
statutes continuously to adjust jurisdiction to new industry facts. Fourth, at any point in
time, state and federal regulators can hold different views on the relative roles and merits
2. See, e.g., New York v. FERC, 535 U.S. 1, 16 (2002) (explaining that “the landscape of the electric indus-
try has changed since the enactment of the FPA, when the electricity universe was ‘neatly divided into
spheres of retail versus wholesale sales’” (quoting Transmission Access Policy Study Grp. v. FERC, 225
F.3d 667, 691 (D.C. Cir. 2000))); MCI Telecomms. Corp. v. AT&T Co., 512 U.S. 218, 220–21 (1994)
(describing structural changes wrought by technology and competition).
Chapter Twelve358
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of regulation and competition as alternative means to induce industry performance, and
on the techniques that can best advance those views.3
So we have disputes: cases going to court because one jurisdictional level is accused
of interfering with the other. The federal–state relationship is unavoidably a struggle, but
it is not a zero-sum game. This challenge of dual regulation—to embody “sensitivity to
the legitimate interests of both State and National Governments”—is the subject of this
chapter. It addresses two major questions:
What are the limits on federal and state actions? Our constitutional system has ve
possible trip wires—limits on regulatory action that, when violated, mean that one level
has unlawfully diminished the powers of the other. (In this context, “regulatory action”
means action by a commission or legislative body, since the wire can be tripped by either
a commission order or a statute.) The rst three are limits on federal power to protect
state policies; the last two are limits on state power to protect federal policies:
1.
The Commerce Clause authorizes Congress to regulate only those business activi-
ties that involve “commerce between the states.”
2.
The Tenth Amendment prohibits Congress from acting on matters reserved to
the states.
3. A federal agency cannot act outside the authority granted by Congress.
4. The “dormant” Commerce Clause prohibits a state from discriminating against,
or unduly burdening, interstate commerce.
5.
The Supremacy Clause prohibits states from taking actions that undermine the
goals of federal statutes.
For each of the ve limits, we explain its constitutional source and provide illustrations
from inside and outside utility regulation.
Within those ve limits, how do federal and state regulators interact? There are six
models of federal–state interaction: (1) bright line divisions, where each level operates
within its assigned statutory domain; (2) federal regulator enlists the states in carrying
out a federal program; (3) state regulators request the federal regulator’s help carrying
out a state program; (4) joint boards of federal and state regulators produce advice for
the federal regulator; (5) regional compacts; and (6) concurrent jurisdiction, where both
levels act on the same transaction independently of each other. For each of these six mod-
els, we provide statutory examples and explain their workings.
3. For additional discussion of the reasons for federal–state differences in regulatory policies, see the fol-
lowing essays by the author, all available at http://www.scottemplinglaw.com/essays: F–S
J R: P Y M, C R J
W: W W P B I P?, J P R
J P, F–S R: A P C L.
359The Federal–State Relationship
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