This Article interprets a trio of recent Supreme Court cases that addressed jurisdictional disputes in energy markets to identify which policies respect the Federal Power Act’s (FPA) allocation of jurisdiction and which do not. While judges and scholars have considered how these cases implicate various jurisdictional disputes, they have so far failed to articulate a coherent framework for understanding when state or federal policies violate the FPA’s jurisdictional silos.
This Article provides that framework. It argues that the Supreme Court’s energy law trio lays the foundation for a doctrinally coherent and normatively compelling interpretation of the FPA. Specifically, these three cases do not, as scholars have maintained, reflect a doctrinal shift away from the venerable “bright line” jurisdictional division that has characterized the FPA since 1935. Those cases instead apply this bright line to the twenty-first-century electricity sector, which has been transformed by technological innovations and by regulatory attempts to introduce competitive forces. The FPA continues to prohibit state and federal energy regulators from interfering with matters reserved to the other’s exclusive jurisdiction. The Court has simply clarified how the FPA applies in light of technological and economic developments that have created situations that implicate the responsibilities of state and federal regulators simultaneously. Rather than create regulatory gaps that would prevent energy regulators from supervising transactions over which the FPA expressly grants those regulators jurisdiction, the Court has prohibited only those unusual policies that (a) expressly decide an issue that the FPA leaves to the other regulator to resolve (for example, setting a rate in a market that is outside of the regulator’s sphere of jurisdiction), (b) “aim at” or “target” matters that the FPA reserves to the other regulator, or (c) render it impossible for FERC to control matters within its regulatory domain. Recognizing that the bright line is alive and well resolves the doctrinal confusion that has plagued courts and clarifies which energy policies are permissible and which are not.
In the past decade, state and federal regulators have taken ambitious steps to reshape the electricity sector. As of August 2020, thirty states and seven territories had committed to procuring a certain percentage of their electricity from clean or renewable sources.1 At least thirteen of those states and territories, including California and New York, have pledged to procure one hundred percent of their electricity from carbon-free sources by 2050 or earlier.2 Those plans build on a host of other measures, including renewable portfolio standards,3 cap-and-trade programs,4 and net metering policies,5 that are designed to reduce power sector pollution. For its part, the Federal Energy Regulatory Commission (FERC) has ordered grid operators to allow emerging resources to compete with incumbent power providers on a level playing field.6 Those state and federal efforts to shape the electricity sector are arguably the single most significant step the United States is taking to address climate change.7
State and federal regulators are pursuing these policies against a backdrop of unprecedented change in the electricity sector. New technologies, including batteries and distributed energy resources,8 along with maturing technologies, such as wind and solar, are reshaping the generation mix in a way that is rapidly rendering obsolete the regulatory and economic models that prevailed for nearly a century. Together, the combination of technological change, competitive forces, and state efforts to address climate change has the potential to create an electricity sector that would have been virtually unrecognizable just a few years ago. We’ll call this the transition to the electricity grid of the future.
But getting to the electricity grid of the future will not be easy. Efforts to reshape the grid are already encountering a host of political, regulatory, and legal obstacles. This Article analyzes what could be the principal legal impediment to state and federal efforts to shape modern electricity markets — a New Deal statute with a vaguely Orwellian name: the Federal Power Act9 (FPA). The FPA was enacted in the midst of the Great Depression10 and with the primary goal of protecting customers from economic exploitation at the hands of monopoly utilities.11 The law gave the federal government near plenary authority over sales of electricity from power plants and over the transmission facilities that moved that electricity long distances to the people who consume it.12 At the same time, Congress explicitly reserved oversight of several important parts of the electricity sector for exclusive regulation by the states,13 including retail sales of electricity and the facilities that generate electric power.14 In the 1930s, those lines demarcated clear federal and state spheres of authority. For that reason, the FPA was often described as drawing a “bright line” between state and federal jurisdiction.15
How things have changed. Today’s electricity sector has matured into the “most complex machine ever made.”16 And that machine is now evolving faster than at any point in its century-plus history. Since the mid-1990s, both federal and state regulators have pursued concerted campaigns to take advantage of rapid technological change and introduce competition into what had always been a monopoly industry.17 Those efforts have redrawn the industry along lines that no longer trace the neat jurisdictional divisions laid out in 1935. In addition, a host of relatively new technologies — including batteries, low-cost wind and solar facilities, and technologies that allow customers to respond to price fluctuations — are rapidly being deployed across the grid.18 While these technologies promise enormous economic and environmental benefits, they likewise do not fit easily within the jurisdictional lines drawn in 1935. As a result, some have argued that what was once a “bright line” between federal and state jurisdiction has become a “hazy” one.19
The bounds of that line — whether bright or hazy — have become increasingly consequential as the industry transitions to the electricity grid of the future. In recent years, entities that stand to lose out from particular efforts to address climate change and increase competition in electric power markets have sought to weaponize the FPA’s division of authority, repeatedly arguing that state or federal policies are invalid because they exceed their progenitor’s jurisdiction.20 Battles about the electricity grid of the future are thus being waged over a jurisdictional line that Congress drew nearly a hundred years ago.
For example, in just the past few years, several state clean energy policies have been challenged — and some invalidated — on preemption grounds.21 Federal regulations have also been challenged, with a major case involving a FERC rule to facilitate energy storage resources’ (for example, batteries’) participation in energy markets decided just last year.22 Faced with that reality, some have argued that the FPA is out of date and only dramatic revisions can prevent it from becoming a barrier to state and federal efforts to adapt to the changing electricity grid.23
We disagree. As it stands, the FPA should catalyze the transition to the energy grid of the future, not impede it. A trio of recent Supreme Court cases has the potential to create an enduring jurisdictional framework that can accommodate the transition to the electricity grid of the future while respecting the FPA’s federalist vision. In 2015 and 2016, the Supreme Court issued three decisions addressing jurisdictional challenges to various state and federal energy laws.24 Scholars have argued that these cases adopted a “functionalist approach to managing . . . jurisdictional and federalism concerns,”25 “recognized agency authorization for concurrent federal-state jurisdiction,”26 and embraced “a federal-state relationship that is ‘complementary’ and ‘marked by interdepen-dence.’”27 Regardless of whether the trio of Supreme Court cases marks a departure from past practice (we think it does not), such observations are only the first step. An additional challenge lies in developing a coherent framework that applies the FPA’s jurisdictional divide to the host of legal, economic, and technological challenges presented by the modern electricity sector.28
This Article provides that framework. The Supreme Court’s trio of energy law cases29 recognized that economic and technological developments have produced an electricity sector that no longer follows the “Platonic ideal” of neatly divided state and federal spheres of jurisdiction.30 As FERC and the states have broken down barriers to competition and allowed new technologies to displace incumbent generators, the electricity sector has evolved such that many of the most critical issues lie “at the confluence of State and Federal jurisdiction.”31 As a result, now more than ever, the federal and state spheres of jurisdiction are, to use Justice Kagan’s memorable phrase, “not hermetically sealed.”32 A jurisdictional framework that prevents cross-jurisdictional effects would necessarily handicap at least one sovereign — and perhaps both — in a way that is inconsistent with the FPA’s dual-federalist structure.
The Court’s trio of energy law cases avoids that result. It establishes a theoretical framework that balances the two sovereigns’ respective interests in a way that preserves the FPA’s division of jurisdiction in the modern electricity sector. Equally important, it does so while remaining consistent with ninety years of FPA jurisprudence demarcating a bright line between state and federal authority. The bright line divide prohibits state and federal energy regulations only when they actually regulate a matter over which the other sovereign has exclusive jurisdiction. That occurs in only two situations. First, state and federal regulators cannot “directly regulate” a matter over which the other sovereign has exclusive jurisdiction. The phrase “directly regulate” has a precise meaning here. It prohibits a federal or state regulator from expressly deciding an issue left to the other regulator to resolve. Thus, a state cannot “set” a wholesale rate, and FERC likewise cannot set a retail rate or prohibit the development of generation or distribution facilities.33 Second, state and federal regulators cannot implement policies that “aim at” or “target” matters that Congress reserved to the other sovereign.34 This prohibition is a limited one. It closes the loophole that would arise if energy regulators were permitted to pass laws that nominally regulate one aspect of the electricity sector but that in practice regulate a matter over which the sovereign lacks jurisdiction. For example, a state cannot use its authority over distribution facilities to dictate the terms of resources’ participation in wholesale markets.35
When a state or federal regulator transgresses either of those limitations, it prevents the other sovereign from supervising matters that are within that other sovereign’s exclusive jurisdiction. Such transgressions are inconsistent with the bright line approach not because they affect matters over which the other sovereign has jurisdiction, but because they regulate matters over which the other sovereign has jurisdiction. When a state policy does not cross the bright line but nevertheless affects a matter over which FERC has jurisdiction, only the doctrine of conflict preemption determines whether the policy is consistent with the FPA.36
Conflict preemption must be invoked judiciously. If the FPA barred state and federal energy regulators from implementing policies that affect matters reserved to the other sovereign, as some have suggested,37 both federal and state regulators would be severely handicapped, unable to achieve the FPA’s vision of an electricity sector that is just and reasonable and not unduly preferential or discriminatory.38 Moreover, such an overly strict interpretation would create regulatory gaps in which no regulator would have authority to supervise important parts of the industry, again contrary to the text and history of the FPA.39 Recognizing that such an aggressive approach to conflict preemption would undermine the FPA’s federalist structure, the Court has found state policies conflict preempted only when the policy makes it actually impossible for an entity to comply with the FPA or FERC’s regulations.40
This Article’s core insight is that the Supreme Court has not replaced the bright line approach that governed energy market jurisdiction for nearly a hundred years. Instead, the Court has applied that framework in a way that accommodates the technological and market developments that are revolutionizing the energy sector. Under that framework, every dispute involving the FPA’s jurisdictional line can be resolved by answering no more than three questions.
The first question asks whether an action directly regulates a matter over which the regulator has jurisdiction. If the answer is yes, we proceed to the second question. If the answer is no — that is, if the action directly regulates a matter left to the other sovereign to decide — then it is categorically invalid. For example, a FERC regulation setting a retail rate or a state regulation setting a wholesale rate is invalid without any further analysis.
The second question asks whether the regulator has nevertheless aimed at or targeted a matter that the FPA gives the other sovereign exclusive jurisdiction to resolve. As the Court explained in its most recent FPA case, a law that nominally regulates one aspect of the electricity sector can, in practice, be used to regulate another aspect of the electricity sector entirely.41 Where that is the case, the regulation in question is invalid, just as if the regulator had directly regulated within the other sovereign’s sphere.42 This “aiming at” inquiry is an objective one that turns on what the regulation does and the justification given, not on an assessment of the regulator’s subjective intent.43 If a FERC regulation survives these first two questions, it is consistent with the FPA’s allocation of jurisdiction and that is the end of the jurisdictional inquiry.44
A state regulation that survives the first two steps of this inquiry faces one additional question: whether the state law has made compliance with the FPA or a FERC regulation actually impossible. If so, then the state law is conflict preempted. If not, then the law is consistent with the FPA’s allocation of jurisdiction.
Just because the FPA’s dividing line is bright, however, does not mean that applying that line will always be easy. To the contrary, many jurisdictional questions may prove challenging, especially where one sovereign is alleged to have aimed at the other’s jurisdiction. The enduring feature of the bright line is that it provides a strict delineation between federal and state authority based on the matter that is regulated, not the effects of that regulation.45 As a result, jurisdictional inquiries under the FPA turn on the single question of what is the object of the regulation, not on the sort of multifactor balancing tests that characterize other jurisdictional boundaries in administrative law.46 That is the sense in which the line is “bright.”
The framework advanced in this Article departs from most existing scholarship in significant respects. Most importantly, we do not think that the Supreme Court has abandoned the bright line in favor of a more nebulous approach based on concurrent jurisdiction. Indeed, our framework leaves no role for concurrent jurisdiction and only a vanishingly small one for conflict preemption. It may be doctrinally correct to observe that state and federal regulators occasionally share jurisdiction over the same resources, and that the instances in which they do are becoming more common as the electricity sector evolves. But that does not mean that they share jurisdiction over the same issues. Instead, federal and state regulators retain separate spheres of exclusive jurisdiction.
This Article proceeds in three parts. Part I describes the origins of the FPA, the bright line jurisdictional divide that governed energy markets for the better part of ninety years, and the changes that have challenged this jurisdictional division. Part II analyzes three Supreme Court cases — Hughes v. Talen Energy Marketing, LLC,47 FERC v. Electric Power Supply Ass’n48 (EPSA), and Oneok, Inc. v. Learjet, Inc.49 — and argues that these cases have established that the bright line is alive and well, and that conflict preemption should apply only when a state regulation renders it impossible to comply with a state and federal regulation simultaneously. Part III explains how to apply the bright line framework to jurisdictional disputes arising under the FPA. Part IV applies this framework to recent energy disputes in which lower courts have struggled to apply the FPA’s federalist system to modern energy disputes.
∗ Matthew Christiansen is currently a Legal Advisor to FERC Commissioner Richard Glick. The views expressed herein do not necessarily represent those of the Commission, individual Commissioners, or Commission Staff.
∗∗ Joshua Macey is an Assistant Professor at the University of Chicago Law School. Many thanks to Norman Bay, Lisa Bernstein, William Boyd, Jeff Dennis, Joel Eisen, William Eskridge, Miles Farmer, Sharon Jacobs, Hajin Kim, Alexandra Klass, Saul Levmore, Jerry Mashaw, Erica Hough, Jacob Mays, Ari Peskoe, Randy Picker, Eric Posner, Matt Price, Jim Rossi, Jackson Salovaara, David Spence, Steven Wellner, Shelley Welton, Anand Viswanathan, and Avi Zevin. We are also grateful to the Harvard Law Review for outstanding feedback and editorial assistance. Any errors are our own.
This Article is dedicated to Judge Stephen F. Williams, who, in his over thirty years on the bench, did more than anyone else to develop the jurisprudence of the Federal Power Act and Natural Gas Act.