Bypassing Federalism and the Administrative Law of Negawatts

• Author: Sharon B. Jacobs
• Position: Associate Professor of Law at the University of Colorado Law School
• Pages: 885-945

885

Bypassing Federalism and the

Administrative Law of Negawatts

Sharon B. Jacobs

ABSTRACT: Presidential unilateralism has become a defining feature of the

executive branch. But a related and equally important phenomenon has been

largely ignored: federal agency efforts to circumvent statutory federalism

boundaries. This move, which the Article calls "bypassing federalism,"

involves using existing jurisdictional authority to work de facto, rather than

de jure, reallocations of power. The Article explores agency bypassing through

the lens of the Federal Energy Regulatory Commission’s (“FERC’s”) promotion

of demand response in electricity markets. Demand response refers to customer

sales of negative watts, or “negawatts,” back to the electrical grid. FERC, eager

to promote demand-side management programs but stymied by the

jurisdictional limitations in the Federal Power Act of 1935, recently adopted

a strategy that bypasses these federalism boundaries by setting up demand

response programs in wholesale markets, which are under its control, to

parallel state and local programs.

Although the strategy has boosted demand response program participation,

the Article ultimately concludes that bypassing is an insalubrious

administrative innovation. While it allows agencies to further national

objectives without challenging jurisdictional boundaries head on, the strategy

has significant downsides. First, statutory constraints may limit an agency’s

options in a way that results in the promotion of second-best over first-best

policies. Second, even de facto jurisdictional adjustments raise federalism

questions that we might prefer be addressed through the legislative process.

Third, bypassing can be a costly strategy to the extent that it creates animosity

between federal agencies and their state counterparts and fails to head off

judicial showdowns. Finally, by making a dysfunctional statutory scheme

workable, bypassing threatens to delay legislative solutions.

 Assoc iate P rofes sor of Law at the Un ivers ity of Colora do Law Schoo l. I wo uld li ke to t hank

Seth Davis, Jake Gersen, Michael Morley, John Nagle, Seth Stoughton, Phil Weiser, and the

participants at the University of Washington Young Environmental Law Scholars Workshop and

the Vermont Law School Colloquium on Environmental Scholarship for valuable input. All

mistakes are my own.

886 IOWA LAW REVIEW [Vol. 100:885

INTRODUCTION ............................................................................. 887

I. THE ELECTRIC GRID AND DEMAND RESPONSE .............................. 891

A. A SHORT HISTORY OF ELECTRICITY REGULATION ..................... 891

B. THE RISE OF DEMAND RESPONSE .............................................. 894

1. Demand Response Programs ....................................... 896

2. Benefits and Costs of Demand Response .................... 900

II. THE ADMINISTRATIVE LAW OF NEGAWATTS .................................. 904

A. SUB-FEDERAL REGULATION ...................................................... 905

B. FEDERAL LEGISLATIVE EFFORTS ................................................ 907

C. BYPASSING FEDERALISM ........................................................... 912

III. EVALUATING BYPASSING ................................................................ 916

A. SECOND-BEST SOLUTIONS ........................................................ 918

1. Uniformity Within Demand Response ........................ 918

2. Crowding Out Energy Efficiency ................................. 924

a. Conservation Trade-Offs ............................................ 924

b. Environmental Trade-Offs ......................................... 926

B. FEDERALISM CONCERNS ........................................................... 931

C. THE COSTS OF BYPASSING ........................................................ 938

D. POSTPONING LEGISLATIVE SOLUTIONS ..................................... 940

CONCLUSION ................................................................................ 944

2015] BYPASSING FEDERALISM 887

INTRODUCTION

The exercise of unilateral executive authority is well-studied, but until

recently, the focus has been almost exclusively on the President’s foreign

affairs power.1 Increasingly, however, federal agencies are addressing gaps

between statutory authority and present realities on their own initiative. In

some cases, they are doing so by circumventing statutory federalism

boundaries to promote favored programs in the face of state, rather than

congressional, intransigence. In these efforts to “bypass federalism,” agencies

themselves may be the drivers of policy rather than the White House.

This Article analyzes this growing phenomenon through the Federal

En ergy Reg ula tor y Co mmis sio n’s (“F ERC’ s”) reg ula tio n of c ons ume r de man d

for electricity. Specifically, it focuses on FERC’s efforts to promote demand

response programs in electricity markets. Demand response refers to a retail

customer’s reduction of energy consumption in response to a price signal or

incentive payment.2 This commitment not to consume has been described as

a sale of negative watts, or “negawatts,” back to the electrical grid.3 While

utilities and regulators have experimented with energy efficiency since the oil

crises and resulting energy price spikes of the 1970s, demand response

programs are a relatively recent innovation. Only in the last decade have

advances in energy metering and communications technologies made

1. See, e.g., JACK GOLDSMITH, POWER AND CONSTRAINT: THE ACCOUNTABLE PRESIDENCY

AFTER 9/11 (2012) (identifying a long-t erm trend of expanding executive power and arguing

that this expansion has preserved balance within the federal government); ERIC A. POSNER &

ADRIAN VERMEULE, THE EXECUTIVE UNBOUND: AFTER THE MADISONIAN REPUBLIC (2010)

(concluding that a strong executive is a mod ern n ecess ity) ; Cur tis A . Bra dley & Mart in S. Flah erty ,

Executive Power Essentialism and Foreign Affairs, 102 MICH. L. REV. 545 (2004) (challenging, on

both textual and historical grounds, the idea that the Vesting Clause bestows broad

unenumerated powers on the President); Eric A. Posner & Cass R. Sunstein, Chevronizing Foreign

Relations Law, 116 YALE L.J. 1170 (2007) (arguing that the court should defer to executive

interpretations of ambiguous statutory provisions even where those int erpretations are

inconsistent with the comity doctrine).

Comparatively less attention has been paid to the executive’s authority to accomplish dom estic

agendas without the aid of new legislation. For examples of recent treatments with a domestic

focus, see Jody Freeman & David B. Spence, Old Statutes, New Problems , 163 U. PA. L. REV. 1 (2014);

Richard J. Lazarus, Howard & Katherine Aibel Professor of Law, Harvard Law Sch., Chair Lecture:

Environmental Lawlessness (Apr. 10, 2013). More recently still, Daphna Renan has suggested

that the executive can enlarge his or her unilateral policymaking author ity through the

manipulation of administrative structures. Daphna Renan, Pooling Powers, 115 COLUM. L. REV.

(forthcoming 2015).

2. For a more detailed definition of demand response, see U.S. DEP’T OF ENERGY, BENEFITS

OF DEMAND RESPONSE IN ELECTRICITY MARKETS AND RECOMMENDATIONS FOR ACHIEVIN G THEM: A

REPORT TO THE UNITED STATES CONGRESS PURSUANT TO SECTION 1252 OF THE ENERGY POLICY

ACT OF 2005, at 6 (2006) [hereinafter 2006 DOE REPORT].

3. Credit for coining the term “negawatt” generally goes to physicist and energy policy

expert Amory Lovins. Amory B. Lovins, Saving Gigabucks with Negawatts, PUB. UTIL. FORT. Mar. 21,

1985, at 19.