As readers are likely well aware of, this month the Supreme Court heard oral argument in FERC v. Electric Power Supply Association. The ultimate result could decide the fate of the nascent wholesale demand response sector, but at a deeper level, the case raises important questions about how well equipped the Federal Power Act is to facilitate innovation, integrate new technologies, and allow for cross-jurisdictional electric system planning.

At the beginning of oral argument, Justice Kennedy honed-in on the million dollar question when he asked Solicitor General Verrilli: “Can you tell us what the distinction is that marks the end of Federal power and the beginning of local power?” While this question cuts to the heart of what industry members and energy law practitioners hope to see resolved in this case, for policymakers and academics, the more interesting question might be along the lines of what Justice Sotomayor asked respondents’ counsel, Paul Clement, later on: “what’s the horror here of concurrent jurisdiction?” It is a question that deeply divides many energy law scholars and practitioners.

On the one hand, attorneys like Frank Lindh and Nicholas Fels argue that there is only so much that FERC can and should be able to accomplish under the Federal Power Act. In this co-authored article, and again in another article in 2013, Lindh and his co-authors argue that FERC’s interpretation of its Federal Power Act jurisdiction is overly broad and that it stifles state innovation of demand-side programs. Lindh, who is the former general counsel to the California Public Utilities Commission and who contributed to some of the briefs filed before the D.C. Circuit, acknowledges that FERC has long been able to assert jurisdiction over electricity traveling in interstate commerce via an interconnected grid thanks to formative cases like FPC v. Florida Power & Light Co., 404 U.S. 453 (1972) and FPC v. Conway Corp., 426 U.S. 271 (1976). However, those cases are distinguishable, Lindh argues, on the crucial fact that they addressed commingled power or power transfers on transmission lines, not distribution lines, which involve a physically and transactionally separate system and which are explicitly exempt from FERC jurisdiction under FPA section 201(b).

Essentially Lindh and his co-authors argue that states’ inability to control intra-state wholesale sales over distribution networks prevents them from fully implementing their own policies to shape local consumption. When enacting the Federal Power Act in 1935, Congress wanted to be mindful of traditional state police powers as well as acknowledge the necessity of federal oversight in certain realms. But Lindh and the EPSA respondents before the Supreme Court argue that FERC has taken its mandate too far and encroaches on the states’ exclusive jurisdiction over retail-level transactions. Although EPSA only concerns demand response, if the Supreme Court were to affirm the D.C. Circuit, that would indicate a larger win for state regulators seeking to exert more influence over their own demand-side resources.

On the other hand, there is a growing concern that as the electricity sector evolves and integrates resources across generation, transmission, and distribution platforms, maintaining system viability will require more state and federal collaboration, not less. Some scholars likeShelley Welton and Professor Joel Eisen have argued that FERC has a role to play in encouraging non-transmission alternatives and other demand-side strategies that “have been underemphasized on the electric grid for decades.” Such policies can enhance system stability, drive down wholesale prices because of avoided generation and transmission costs, and also reduce greenhouse gas emissions. Although states can and should support these services with their own policies, these scholars argue, without stronger direction from FERC — as seen in Order 745 — questions of cost allocation and market incentives threaten to stifle their development.

Professor Eisen, along with other energy law academics, filed an amicus curiae brief encouraging the Supreme Court to reverse the D.C. Circuit lest other regulatory gaps develop in restructured power markets. “Under [the D.C] court’s reasoning, FERC’s ability to regulate other activities in wholesale power markets, such as frequency regulation and battery storage, would also be called into question, even though those practices have direct and significant effects on wholesale rates.” In their estimation, not only was FERC’s interpretation of its “affecting” authority under the FPA correct, but they also suggest that a strong federal presence is necessary in the mixed jurisdictional settings which are becoming so common as the grid evolves.

Electricity sector industry members and energy law practitioners will eagerly await a resolution to this case, and perhaps even a bright-line answer to Justice Kennedy’s question from oral argument. But absent Congressional involvement to realign the FPA’s boundaries, which would likely engender yet more litigation and uncertainty, concurrent jurisdiction will be a continuing challenge as the electric system evolves. As we have explored here at SEI, more robust and cross-jurisdictional communications aimed at voluntarily charting new ways to resolve the tension inherent in uncertain, overlapping or concurrent jurisdiction will be the surest and most productive antidote to the “horror.”