David B. Spence

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At the heart of the ideological conflict between the American political parties lies a fundamental disagreement about regulation and the proper relationship between government and markets. That conflict is partly about the substance of regulatory policy and partly about the scope of regulatory policymaking discretion. Both of these dimensions are implicated in a series of relatively obscure disputes recently before the Federal Energy Regulatory Commission (FERC). The central question in these cases is whether it is fair and constitutional for FERC to enforce Federal Power Act prohibitions against energy market manipulation against the defendants, given that the trading at issue violated none of the specific market rules established by the overseers of the regional electricity market in which the defendants operated. This dispute gets to the heart of a recurring and fundamental conflict in modern regulatory politics: namely, that regardless of how aggressively Republicans and conservatives pursue deregulation and deconstruction of the administrative state, or how sharply Democrats and progressives react to those aspirations, both parties’ agendas remain constrained (at least for now) by extant legislative mandates. On the one hand, federal regulatory agencies remain bound by public interest and consumer protection obligations written into their enabling legislation; on the other, they seem unlikely to abandon entirely their recent embrace of competition and markets. This Essay argues that the fundamental challenge to regulation represented by defendants’ position in these cases is misguided, both legally and philosophically. It is legally misguided because it ignores established principles of law supporting an agency’s general power to enforce broad statutory mandates directly, on a case-by-case basis, even when defendants have complied with more specific market rules. Indeed, that regulatory prerogative is well established within electricity market regulation as well. The defense is also philosophically misguided because it ignores the reasons historically regulated markets were regulated in the first place: namely, because real world markets often fail to maximize welfare in the ways textbook markets suggest, and because market failures are very difficult for regulators to predict ex ante. In the modern world of light-handed regulation, the central task facing regulatory agencies is to capture the benefits of competition while steering competition toward public interest goals. Given the fluidity and complexity of today’s markets, and the magnitude of the particular changes facing robust, competitive, and “decarbonizing” electricity markets, that task is Herculean: without the broad authority to use adjudication to enforce public interest mandates, the task becomes Sisyphean. Therefore, unless and until Congress is willing to repeal the public interest mandates under which many regulatory agencies operate, the task of reconciling competitive markets with public interest mandates requires that agencies be able to enforce both broad statutory mandates and specific market rules simultaneously, because in complex, real world markets the market participants will always be several steps ahead of specific market rules in ways that defeat important public interest goals.

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