Why the Justices Care About Your Electric Bill
When I clerked on the D.C. Circuit in the 1990s, my friends and I dreaded getting “FERC-ed,” which was what we called being assigned a case involving the Federal Energy Regulatory Commission. The very word FERC can still give me a nightmare in which I’m chased through an endless pipeline by relentless administrative lawyers.
On Wednesday, the U.S. Supreme Court was FERC-ed, in a case that asks whether the agency is allowed to pursue a plan to pay consumers not to use electricity at peak hours. Although the topic the justices discussed is technical and complex, the bottom line isn’t: The case is a conflict about federalism, in the guise of a fight about the meaning of a federal law.
Behind the federal plan is a reality that’s sort of shocking in this technological era: It's still not very efficient to store electricity that's being generated for consumer use. Until Elon Musk solves this problem (maybe with a very, very big battery), there will be a mismatch between electricity supply, which is relatively constant as power plants chug along, and demand, which peaks when users are awake and declines when they go to sleep.
Congress told FERC to do something about this in 2005. In response, FERC developed the system at issue in the case. To simplify wildly, FERC required the administrators of wholesale electricity markets to pay a certain fixed price to producers of electricity and to bundled groups of consumers who lower their peak consumption. (In FERC lingo, the producers generate megawatts and the consumers coordinate “negawatts.”)
The point of this arrangement is to create an incentive for consumers to lower demand just at the point where it would cost more to make energy for them than it would to pay them not to use it. In a free market, this would be crazy and unnecessary; price should do the trick. But electricity isn't a free market: It's extensively regulated. The FERC intervention is intended to smooth out the market.
The reason the case ended up in court is that local electricity companies, represented by their trade association, the Electric Power Supply Association, don’t like it. They went to the U.S. Court of Appeals for the D.C. Circuit, aka FERC-land, and asked it to rule that FERC had exceeded its statutory mandate in adopting the rule.
The argument rested on the historic role of FERC in regulating wholesale electricity markets, which were long considered national and therefore subject to federal regulation. FERC didn't classically have jurisdiction over retail electricity sales, which were regulated by the states. In other words, FERC’s reach matched the classic idea of federalism, with national matters regulated by the federal government and local matters governed by state authorities.
The retail power sellers got lucky in the D.C. Circuit. They drew a panel consisting of Judge Janice Rogers Brown, perhaps the most conservative on the court, and two senior judges, Laurence Silberman and Harry Edwards. Silberman, who just turned 80, is a stalwart old-school conservative who was appointed to the court 30 years ago by Ronald Reagan. Edwards, who’s about to turn 75, is more liberal and has been on the court even longer, having been appointed by Jimmy Carter in 1980. When I clerked for him, he was already chief judge, a marker of seniority.
The panel split, 2-1, with Brown writing the opinion. She admitted that FERC has statutory authority to make rules affecting wholesale energy rates -- which you would think includes regulating payments to consumers not to consume, which clearly affects wholesale rates.
But Brown went on to say that FERC’s rationale “has no limiting principle.” Authority to regulate anything affecting wholesale price “could ostensibly authorize FERC to regulate any number of areas, including the steel, fuel, and labor markets.” For that reason, she held, FERC’s authority must be restricted to what federal law calls the “sale of electric energy.” And subsidizing consumers not to use electricity, she said, was not such a sale.
Brown’s underlying logic was classic conservative-style judicial federalism: There must somewhere be a limit to what the federal government can do that affects local affairs. You can see why Silberman, an important figure in the Reagan-era revival of such judicial federalism, got on board.
Edwards dissented. His logic relied straightforwardly on the Supreme Court's so-called Chevron doctrine, which governs the interpretation of ambiguous statutes. To Edwards, the question in the case was whether a subsidy not to consume could count as a sale. That question, he said, was ambiguous -- and therefore under the Chevron doctrine, the court must defer to the administrative agency’s reasonable interpretation of the law.
Although framed as ordinary statutory interpretation, Edwards’s opinion reflected the liberal consensus on federalism as it has existed since the 1940s. According to this view, the federal government has the authority to regulate matters affecting commerce, even if there’s no obvious limiting principle to this federal authority.
The underlying federalism dispute helps explain why the Supreme Court took this case. True, the issue is of national importance. Yet ordinarily, the court wouldn't set out to engage in error-correction of a D.C. Circuit opinion. The justices, four of whom sat on the D.C. Circuit, are well aware of the costs of being FERC-ed. What drew the court’s attention is the way the decision parallels the modern federalism debate in all its confusing glory. Wish the court luck in getting this one right -- but don’t get too deep into the details, or you may have recurring FERC nightmares of your own.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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