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ROSSI.TOPRINTER (DO NOT DELETE) 12/2/2016 11:08 AM The Brave New Path of Energy Federalism Jim Rossi* For much of the past eighty years, courts have fixated on dual sovereignty as the organizing federalism paradigm under New Deal-era energy statutes. Dual sovereignty’s reign emphasized a jurisdictional “bright line,” a fixed and legalistic boundary between federal and state regulators. This Article explores how three recent Supreme Court decisions limit dual sovereignty’s role as the organizing federalism principle under energy statutes. These recent decisions do not approach federal–state jurisdiction as an either/or proposition, but instead recognize it is concurrent for many energy transactions. Concurrent jurisdiction opens up a brave new path of possibilities for energy federalism but also has been a target of criticism, including in Justice Scalia’s last published dissent. This Article defends concurrent jurisdiction as consistent with the language, history, structure, and primary purposes of energy statutes. At the same time, energy federalism’s path continues to navigate a trove of doctrinal relics from dual sovereignty’s reign, such as field preemption. These doctrines must be cleared from federalism’s path if regulators are to successfully address the challenges presented by modern energy markets: expanding clean-energy resources, integrating those resources into the grid, protecting reliability, addressing energy security, and monitoring anticompetitive conduct that is harmful to consumers, to name a few. The Article concludes by calling on courts and regulators to be attentive to opportunities for promoting democratically-accountable agency preemption while addressing the challenges of new forms of energy federalism. INTRODUCTION .......................................................................................... 399 I. THE NEW DEAL-ERA STATUTORY FRAMEWORK ............................... 407 A. Closing Regulatory Gaps ........................................................ 408 B. Substantive and Remedial Regulatory Tools .......................... 410 C. Impacts on State Regulation ................................................... 412 II. DUAL SOVEREIGNTY’S REIGN ............................................................ 414 A. The Tradition of “Bright Line” Jurisdiction ........................... 415 B. Field Preemption of Traditional Rate Regulation ................... 417 * Professor of Law and Director, Program in Law & Government, Vanderbilt University. Thanks to participants at the Harvard Electricity Policy Group discussion forum (organized by the Harvard Kennedy School), the Harvard/Duke forum at the National Association of Regulatory Utility Commissioners 2015 annual meeting in Washington D.C., and law school faculty workshop participants at Vanderbilt University and the University of Miami. Thanks also to Joel Eisen, Emily Hammond, Sam Kalen, Felix Mormann, David Spence, and Amy Stein for their comments on a previous draft. ROSSI.TOPRINTER (DO NOT DELETE) 12/2/2016 11:08 AM 400 Texas Law Review [Vol. 95:399 C. Dual Sovereignty’s Modern Legacy ....................................... 421 III. THE RECENT RISE OF CONCURRENT JURISDICTION ........................... 427 A. Dual Sovereignty’s Crumbling Foundation ............................ 428 B. Recognition of Concurrent Jurisdiction .................................. 430 1. Justice Breyer’s ONEOK Opinion .................................... 430 2. Justice Kagan’s EPSA Opinion ......................................... 433 C. Unsnarling Concurrent Jurisdiction’s Roots ........................... 437 IV. NEW CHALLENGES FOR ENERGY FEDERALISM(S) .............................. 443 A. Avoiding a Regulatory “No Man’s Land” .............................. 445 B. Federal Regulatory Floors for Energy Markets ...................... 451 C. Clearing the Jurisprudential Thicket ....................................... 454 1. Ending Wholesale-Market Field Preemption .................... 455 2. Factual and Policy Rationales for Federal Jurisdiction ... 458 3. Encouraging Agency (Rather Than Judicial) Preemption ........................................................................ 461 V. CONCLUSION ...................................................................................... 465 Introduction Federalism has always structured the regulation of domestic energy markets. It has now been eighty years since Congress first began the regulation of interstate energy markets with the adoption of the Federal Power Act (FPA) in 19351 followed by the Natural Gas Act (NGA) in 1938.2 Each of these statutes gave the Federal Power Commission (FPC), which later would become the Federal Energy Regulatory Commission (FERC), jurisdiction to regulate wholesale energy sales but preserved state authority over retail transactions. Courts traditionally refer to this allocation of authority between wholesale (federal) and retail (state) energy sales as the jurisdictional “bright line” that defines spheres of exclusive authority based on a fixed, legalistic inquiry.3 For many decades following the New Deal, dual sovereignty4 coexisted rather peacefully with traditional utility-rate regulation in energy industries. The jurisdictional bright line proved useful for sorting out jurisdictional disputes where both state and federal regulators set energy prices under similar cost-of-service principles. Aided by field-preemption doctrine, judicial recognition of comprehensive federal authority over wholesale 1. Federal Power Act, ch. 687, 49 Stat. 838 (1935) (codified as amended at 16 U.S.C. §§ 824– 824w (2012)). 2. Natural Gas Act, ch. 556, 52 Stat. 821 (1938) (codified as amended at 15 U.S.C. §§ 717– 717w (2012)). 3. See, e.g., FPC v. Southern Cal. Edison Co., 376 U.S. 205, 215 (1964); see also Robert R. Nordhaus, The Hazy “Bright Line”: Defining Federal and State Regulation of Today’s Electric Grid, 36 ENERGY L.J. 203, 206 (2015). 4. By “dual sovereignty,” I mean the principle that “the nation and the states were each authorized to control autonomous and distinct domains of social life.” Robert Post, Federalism in the Taft Court Era: Can It Be “Revived”?, 51 DUKE L.J. 1513, 1518 (2002). ROSSI.TOPRINTER (DO NOT DELETE) 12/2/2016 11:08 AM 2016] The Brave New Path of Energy Federalism 401 energy sales helped to minimize the dysfunctions presented by state regulators’ insulation of energy utilities from the interstate energy market.5 During this era, judicial resolution of federalism disputes helped to minimize the problems presented to energy firms by having two potential regulators and eased regulators’ implementation of traditional rate regulation. Legal formalities such as the “filed rate doctrine” (which served as a form of federal preemption) helped to reinforce the jurisdictional bright line.6 However, as these New Deal-era statutes enter their octogenarian phase, new developments in the energy industry have revealed serious cracks in the foundational facts behind dual sovereignty.7 Today, energy firms face a dynamic economic environment. Energy markets, previously were insulated from the pressures of competition, now face volatility from new entrants and technologies.8 An electric-power sector once dominated by the staid, vertically integrated utility has evolved into a diverse range of energy suppliers and related service providers, many lacking the same service obligations as utilities.9 Customers who were once captive to regulated utilities now face choices of energy suppliers and are exposed to price volatility.10 New technologies such as digital metering interfaces, rooftop solar, and energy storage have also enabled customers to become energy 5. As the Supreme Court has observed: [W]hen the FPA became law, most electricity was sold by vertically integrated utilities that had constructed their own power plants, transmission lines, and local delivery systems. Although there were some interconnections among utilities, most operated as separate, local monopolies subject to state or local regulation. Their sales were “bundled,” meaning that consumers paid a single charge that included both the cost of the electric energy and the cost of its delivery. Competition among utilities was not prevalent. New York v. FERC, 535 U.S. 1, 5 (2002). For examples where the Court deployed field preemption vis-à-vis the NGA and FPA to invalidate state regulations, see Schneidewind v. ANR Pipeline Co., 485 U.S. 293, 310 (1988), and Nantahala Power & Light Co. v. Thornburg, 476 U.S. 953, 966 (1986). 6. See Jim Rossi, Lowering the Filed Tariff Shield: Judicial Enforcement for a Deregulatory Era, 56 VAND. L. REV. 1591, 1642, 1645 (2003) (criticizing the filed tariff doctrine for producing a kind of implied preemption that “simply would not survive the appropriate preemption analysis”). 7. Cf. Suzanna Sherry, Foundational Facts and Doctrinal Change, 2011 U. ILL. L. REV. 145, 146–47 (observing how changes in legal doctrine track changes in underlying factual assumptions). 8. See PETER KIND, DISRUPTIVE CHALLENGES: FINANCIAL IMPLICATIONS AND STRATEGIC RESPONSES TO A CHANGING RETAIL ELECTRIC BUSINESS 3, 7 (2013), http://www.eei.org/ourissues/finance/documents/disruptivechallenges.pdf [https://perma.cc/N2DD-AA3Y] (observing that the “electric utility sector has not previously experienced a viable disruptive threat” but that could change due to “technological innovation” and “disruptive forces”). 9. See David B. Spence, Can Law Manage Competitive Energy Markets?, 93 CORNELL L. REV. 765, 769–70, 772–75