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.