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FERC and the Fight in the Weeds

Here’s a quick update on two pending Supreme Court items, both of huge interest to a vast range of commercial actors and actually the country.

Non-event: still no decision in Comptroller v. Wynne,  a “dormant” Commerce Clause case over the double taxation of income earned in interstate commerce. Next to Zivotofsky v. Kerry,  the Jerusalem passport case, Wynne is the only case still open from the Court’s November arguments. As I wailed here and here, the Court’s highly unusual cert grant in Wynne—to a state court, in a case involving no lower court splits and on a ruling that affirmed the “no double taxation” rule followed by virtually all states—suggests an eagerness on the part of some justices to make a perfect mess of this area of constitutional (common) law. The long wait confirms that apprehension. Catholics celebrate May as the month of their Holy Mother, plus there’s Pentecost. Regardless of religious affiliation we’ll all need all the divine assistance we can get on this one.

Big, huge event: the Court granted cert in FERC v. Energy  Power Supply Association (consolidated with a second case), on the following questions:

  • Whether the Federal Energy Regulatory Commission reasonably concluded that it has authority under the Federal Power Act […] to regulate the rules used by operators of wholesale electricity markets to pay for reductions in electricity consumption and to recoup those payments through adjustments to wholesale rates.
  • Whether the Court of Appeals erred in holding that the rule issued by [FERC] is arbitrary and capricious.

A MEGO (My Eyes Glaze Over) case, or a mega-case? Both: it’s fiendishly complex, both AdLaw-wise (statutory interpretation, a federal common law rule, Chevron I and II, the extent to which federalism precepts should govern complicated statutory schemes, arbitrary and capricious) and in substance. The rules at issue govern FERC’s so-called “demand-response” regs—very roughly, a regulatory scheme to incentivize the non-consumption of energy (“negawatts,” as FERC calls it) and to price the transactions among producers and consumers. EPSA says that the scheme has FERC messing with retail transactions, which the operative statutes reserve to the states. FERC says, not so.

I’ll have extensive comment on future occasions (briefing, argument, decision). Beyond the nasty legal issues and the fact that there’s a million ways to mess this up, a biggish question lurks underneath.

A serious Progressive politics requires full government control over two resources whose private deployment might cause freedom to break out: capital and energy. A forward-looking government that can’t actually nationalize those resources has to first reduce their supply and then allocate what remains. For capital, there’s the Fed and Dodd-Frank. For energy, there’s the EPA and 111(d) and FERC and Order 745, issued under statutes and programs you’ve never heard of. Eventually, that project will produce open conflict in the desert.  For now there’s FERC and the fight in the weeds.

Reader Discussion

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on May 05, 2015 at 12:17:26 pm

Can't wait to hear Greve's take on the negawatt case. Here's my summary:

What's the most efficient way to meet people's demand for electricity? FERC orders wholesale electric markets to treat the generation of an extra kWh of electricity as the same as reducing demand for an extra kWh of electricity. They look like substitutes, so why not treat them as such? FERC's policy (ideally) would not compel anyone to reduce their demand; it would merely extend to people the option of paying for additional generation or paying someone else to forgo consumption if it would be cheaper.

FERC clearly has jurisdiction over the generation aspect. But the act of not consuming -- well, the DC Circuit held that this is something that occurs at the retain level rather than the wholesale level. Thus, an operative economic reality about substitute goods and services is put aside due to a philosophical dispute about whether the money you did not spend on an extra kWh was not spent in the wholesale or retail market. Talk about angels dancing on pinheads -- with the emphasis on pinheads.

So where do libertarians land on this? Libertarians tend to value devolving power away from the feds -- but also tend to have a keen appreciation for incentive structures and economic efficiency. So the fight is on!

One interesting aside: The NYT reports that states' rights lion Alito has recused himself (for reasons unstated). Go figure.

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nobody.really
on May 11, 2015 at 10:36:57 am

"Libertarians tend to value devolving power away from the feds — but also tend to have a keen appreciation for incentive structures and economic efficiency. So the fight is on!"

Well so was Mayweather - Pacquio and we all know how exciting that was!

But the question may be "economic efficiency" - does anyone expect that the Fed OR the State will produce such efficiency. Let's keep it at "devolving" element and be happy.

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gabe
on May 11, 2015 at 12:54:58 pm

But the question may be “economic efficiency” – does anyone expect that the Fed OR the State will produce such efficiency. Let’s keep it at “devolving” element and be happy.

It's an argument. But if we conclude that a federal agency can be "captured" by the industry it regulates, how much more easily can states and state agencies be captured? They're smaller and subject to less public scrutiny.

And sure, the feds wield force that is not subject to much market discipline. But so do state-sanctioned monopolies.

Is there really much basis to favor one over the other?

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nobody.really

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