In 1935, Congress enacted the Federal Power Act. The Act split jurisdiction over electricity generation and distribution between the Federal and state governments. The Act delegated to the Federal government jurisdiction over interstate wholesales and interstate transmission. The Act gave state governments jurisdiction over intrastate wholesales, intrastate transmission, generation, local distribution, and retail sales. Big, vertically-integrated monopoly utilities dominated the market before and for 60 years after the passage of the Act. However, over time, changes in technology and policy in the wholesale market eroded the dominance of those vertically-integrated monopoly utilities and complicated this jurisdictional bright line.
In 2011, the Federal Energy Regulatory Commission (FERC) issued Order 745, requiring wholesale markets to permit demand response to operate on equal footing to traditional sources of generation. Unlike typical electricity generation, demand response involves paying consumers for a commitment not to consume electricity at a certain time. The Supreme Court sustained that Order in the 2016 case FERC v. Electric Power Supply Association. The Order allowed states to opt out of FERC’s demand response rules. This Note advocates for the removal of that state opt-out, analyzes its likely success against court challenges, and explores the possible limits of FERC jurisdiction after the 2020 case National Association of Regulatory Utility Commissioners v. FERC. If demand response reaches its full potential, it could provide as much electricity as hundreds of peak power plants. Removing the opt-out and integrating all possible demand response resources into the wholesale market is particularly timely and important given its potential to alleviate the economic and human toll from widespread blackouts such as the February 2021 Texas power system failure.