Bypassing Federalism and the Administrative Law of Negawatts

Presidential unilateralism has become a defining feature of the executive branch. But a related and equally important phenomenon has been largely ignored: federal agency efforts to circumvent statutory federalism boundaries. The article calls this move "bypassing federalism." Bypassing involves the use of existing jurisdictional authority to work de facto rather than de jure reallocations of power. The article explores agency bypassing through the lens of the Federal Energy Regulatory Commission’s (FERC’s) promotion of demand response in electricity markets. Demand response refers to customer sales of negative watts, or "negawatts," back to the electrical grid. FERC, eager to promote demand-side management programs but stymied by the jurisdictional limitations in the Federal Power Act of 1935, recently adopted a strategy that bypasses these federalism boundaries by setting up demand response programs in wholesale markets (which are under its control) to parallel state and local programs. Although the strategy has boosted program participation, the article ultimately concludes that bypassing is an insalubrious administrative innovation. While it allows agencies to further national objectives without challenging jurisdictional boundaries head on, the strategy has significant downsides. First, statutory constraints may limit an agency’s options in a way that results in the promotion of second-best over first-best policies. Second, even de facto jurisdictional adjustments raise federalism questions that we might prefer be addressed through the legislative process. Finally, by making a dysfunctional statutory scheme workable, bypassing threatens to delay legislative solutions.